SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
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FOUNDERS FUNDS, INC.
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(Name of Registrant as specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by the
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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FOUNDERS FUNDS
December 30, 1997
Dear Fellow Shareholder:
As you may have heard, Mellon Bank, N.A. ("Mellon") is acquiring Founders Asset
Management, Inc. ("Founders"), the investment adviser to the Founders Funds.
Mellon is part of a multibank holding company that provides a comprehensive
range of financial products and services in domestic and selected international
markets. The acquisition will be structured as a merger of Founders into a newly
created subsidiary of Mellon which will be called Founders Asset Management LLC
("New Founders"). Following the merger, the business, operations and personnel
of New Founders will be substantially identical to the current business,
operations and personnel of Founders.
It is important to remember that Mellon is acquiring the investment
adviser, NOT THE FUNDS THEMSELVES. As a result:
o THE INVESTMENT OBJECTIVE AND PORTFOLIO MANAGER OF YOUR FUND WILL NOT
CHANGE AS A RESULT OF THE MERGER.
o THE NUMBER AND VALUE OF YOUR FUND SHARES WILL NOT CHANGE AS A RESULT
OF THE MERGER.
o THE ADVISORY FEES AND EXPENSES CHARGED TO YOUR FUND WILL NOT CHANGE
AS A RESULT OF THE MERGER.
o YOU WILL CONTINUE TO RECEIVE THE SAME HIGH QUALITY INVESTMENT
MANAGEMENT AND SHAREHOLDER SERVICES THAT YOU HAVE COME TO EXPECT OVER
THE YEARS.
Enclosed is a Proxy Statement for a special meeting of the Founders Funds
shareholders that will be held on February 17, 1998. As explained more fully in
the Proxy Statement, at the time the merger takes effect, the Funds' present
investment advisory contracts will terminate automatically, as a matter of law.
Although Fund shareholders are NOT being asked to approve the merger, they must
vote on a new investment advisory agreement for the Funds. In addition, you are
being asked to elect directors of the Funds.
We encourage you to read the full text of the Proxy Statement, and to help
you more fully understand its contents, we have prepared a few
brief Questions and Answers ("Q&A") regarding these proposals. The Q&A is on
page 3 of this booklet.
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY SHARES YOU OWN. THE MATTERS WE
ARE SUBMITTING FOR YOUR CONSIDERATION ARE SIGNIFICANT TO THE FUNDS AND TO YOU AS
A FUND SHAREHOLDER. THEREFORE, PLEASE TAKE THE TIME TO READ THE PROXY STATEMENT,
CAST YOUR VOTE ON THE ENCLOSED PROXY CARD(S), AND RETURN THE CARD(S) IN THE
ENCLOSED PRE-ADDRESSED, POSTAGE-PAID ENVELOPE. IF WE DO NOT RECEIVE SUFFICIENT
VOTES TO APPROVE THESE PROPOSALS, WE MAY HAVE TO SEND ADDITIONAL MAILINGS OR
CONDUCT TELEPHONE CANVASSING. IN THIS REGARD, FOUNDERS HAS HIRED SHAREHOLDER
COMMUNICATIONS CORPORATION TO ASSIST IN THE SOLICITATION OF PROXIES. IF YOU DO
NOT RETURN YOUR PROXY CARD(S), YOU MAY RECEIVE A TELEPHONE CALL FROM SHAREHOLDER
COMMUNICATIONS CORPORATION SOLICITING YOUR VOTE.
We thank you for your prompt response to the Proxy Statement.
Sincerely,
/s/ Bjorn K. Borgen
Bjorn K. Borgen
President
Founders Funds, Inc.
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Q. WHAT IS THIS TRANSACTION ALL ABOUT?
A. Mellon Bank, N.A. is acquiring Founders Asset Management, Inc., the adviser
to the Funds, NOT THE FUNDS THEMSELVES. The same professionals will continue to
provide you with investment management and shareholder services, simply as
employees of a new subsidiary of Mellon.
Q. WHY AM I BEING ASKED TO VOTE ON THESE PROPOSALS?
A. The federal law that governs mutual funds generally requires shareholders to
approve a new investment advisory agreement whenever there is a change in
control of the investment adviser to the Funds. As a result, you are being asked
to approve a new investment advisory agreement for each Fund you own.
Q. HOW WILL THIS AFFECT ME AS A FUND SHAREHOLDER?
A. You will still own the same shares in the same Fund following the merger.
Portfolio management will not change as a result of the merger.
The primary difference is that the ownership of Founders will change from a
privately-held corporation to a subsidiary of Mellon. This transaction will not
result in changes to your Fund's advisory services or in the high quality of
shareholder services that you have come to expect over the years.
Q. WILL THE INVESTMENT ADVISORY, RULE 12b-1 AND OTHER FEES BE THE SAME?
A. Yes, THE FEES CHARGED TO YOUR FUND WILL NOT CHANGE AS A RESULT OF THE
MERGER.
Q. WILL I CONTINUE TO BE ABLE TO PURCHASE SHARES WITHOUT ANY SALES LOAD?
A. Yes, you will be able to continue to purchase shares of the Funds WITHOUT any
sales load.
Q. WHAT OTHER MATTERS AM I BEING ASKED TO VOTE ON?
A. You are also being asked to vote on the election of Directors. See the
discussion of Proposal 2 for details.
Q. HOW DO THE FUND DIRECTORS SUGGEST THAT I VOTE?
A. After careful consideration, the Directors recommend that you vote "FOR" both
proposals on the enclosed proxy card.
Q. WHOM DO I CALL FOR MORE INFORMATION?
A. If you have any questions regarding the Proxy Statement or its contents,
please call Shareholder Communications Corporation at 1-800-733-8481, extension
426 between 9:00 a.m. and 11:00 p.m., Eastern time, Monday through Friday. They
will be happy to answer any questions that you may have.
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FOUNDERS FUNDS, INC.
2930 EAST THIRD AVENUE
DENVER, COLORADO 80206
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 17, 1998
Notice is hereby given that a special meeting of shareholders (the "Meeting") of
Founders Discovery Fund, Founders Passport Fund, Founders Frontier Fund,
Founders Special Fund, Founders International Equity Fund, Founders Worldwide
Growth Fund, Founders Growth Fund, Founders Blue Chip Fund, Founders Balanced
Fund, Founders Government Securities Fund, and Founders Money Market Fund
(collectively, the "Funds" and, individually, a "Fund"), the eleven series of
Founders Funds, Inc. (the "Company"), will be held at the Adam's Mark Hotel,
1550 Court Place, Denver, Colorado 80202, on Tuesday, February 17, 1998 at 3:00
p.m., Mountain time, for the following purposes:
1. To approve a new investment advisory agreement between the Company and
Founders Asset Management LLC ("New Founders"), such agreement to take
effect only if the proposed merger of Founders into New Founders is
completed (the "Merger");
2. To elect seven Directors of the Company; and
3. To transact such other business as may properly come before the Meeting
or any adjournment(s) thereof.
None of these proposals is expected to result in any change in the way the
Funds are managed, the advisory fees paid by the Funds or the services you
receive as a shareholder.
The Board of Directors of the Company has fixed the close of business on
December 11, 1997 as the record date for the determination of shareholders
entitled to notice of and to vote at the Meeting or any adjournment(s) thereof.
You are cordially invited to attend the Meeting. Even if you plan to attend
the Meeting, all shareholders are requested to complete, date and sign the
enclosed form of proxy and return it promptly in the enclosed envelope that
requires NO postage if mailed in the United States. The enclosed proxy is being
solicited on behalf of the Board of Directors of the Company.
IMPORTANT
Please mark, sign, date and return the enclosed proxy in the accompanying
envelope as soon as possible in order to ensure a full representation at the
Meeting.
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The Meeting will have to be adjourned without conducting any business if
less than a majority of the eligible shares is represented, and the Company will
have to continue to solicit votes until a quorum is obtained. The Meeting also
may be adjourned, if necessary, to continue to solicit votes if less than the
required shareholder votes have been obtained to elect the specified number of
Directors and to approve Proposal 1.
Your vote, then, is critical in allowing the Company to hold the Meeting as
scheduled. By marking, signing, and promptly returning the enclosed proxy, you
may eliminate the need for additional solicitation. We appreciate your
cooperation.
By Order of the Board of Directors
/s/ Kenneth R. Christoffersen
Kenneth R. Christoffersen
Secretary
Denver, Colorado
Dated: December 30, 1997
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FOUNDERS FUNDS, INC.
DECEMBER 30, 1997
FOUNDERS FUNDS, INC.
FOUNDERS FINANCIAL CENTER
2930 EAST THIRD AVENUE
DENVER, COLORADO 80206
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 17, 1998
INTRODUCTION
The enclosed proxy is being solicited by the Board of Directors (the "Board" or
the "Directors") of Founders Funds, Inc. (the "Company") on behalf of Founders
Discovery Fund, Founders Passport Fund, Founders Frontier Fund, Founders Special
Fund, Founders International Equity Fund, Founders Worldwide Growth Fund,
Founders Growth Fund, Founders Blue Chip Fund, Founders Balanced Fund, Founders
Government Securities Fund, and Founders Money Market Fund (collectively, the
"Funds" and, individually, a "Fund") for use in connection with the special
meeting of shareholders of the Company (the "Meeting") to be held at 3:00 p.m.,
Mountain time, on Tuesday, February 17, 1998, at the Adam's Mark Hotel, 1550
Court Place, Denver, Colorado 80202, and any adjournment(s) thereof for the
purposes set forth in the foregoing notice. THE FUNDS' ANNUAL REPORT, INCLUDING
FINANCIAL STATEMENTS OF THE FUNDS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996,
AND THE FUNDS' SEMIANNUAL REPORT, INCLUDING FINANCIAL STATEMENTS OF THE FUNDS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997, ARE AVAILABLE WITHOUT CHARGE UPON
REQUEST FROM FOUNDERS' SHAREHOLDER SERVICES DEPARTMENT AT P.O. BOX 173655,
DENVER, COLORADO 80217-3655 (TELEPHONE NUMBER 1-800-525-2440). The approximate
mailing date of proxies and this Proxy Statement is December 30, 1997.
The primary purpose of the Meeting is to allow you to consider a new
investment advisory agreement for the Funds. As explained in more detail below,
the current advisory agreements for the Funds (the "Current Advisory
Agreements") will terminate automatically, by operation of law, upon the
consummation of the proposed merger (the "Merger") of Founders Asset Management,
Inc. ("Founders") into a newly-created subsidiary of Mellon Bank, N.A.
("Mellon"). That subsidiary will be called Founders Asset Management LLC ("New
Founders"). You are NOT being asked to approve the Merger; however, you are
being asked to approve a proposed new advisory agreement (the "Proposed Advisory
Agreement") that would take effect at the time of the Merger. Consummation of
the Merger is conditioned on, among other things, shareholder approval of the
Proposed Advisory Agreement. The transactions contemplated by the
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Merger and the terms of the Proposed Advisory Agreement are discussed under
Proposal 1, below.
THE PROPOSED ADVISORY AGREEMENT IS SUBSTANTIALLY IDENTICAL IN FORM AND
TERMS TO THE CURRENT ADVISORY AGREEMENTS, EXCEPT AS FOLLOWS:
o THE INVESTMENT ADVISER IS NEW FOUNDERS RATHER THAN FOUNDERS.
o THE PROPOSED ADVISORY AGREEMENT COVERS ALL FUNDS IN A SINGLE DOCUMENT.
o THE PROPOSED ADVISORY AGREEMENT REQUIRES NEW FOUNDERS, RATHER THAN THE
FUNDS, TO PAY CERTAIN EXPENSES FOR COMPUTER EQUIPMENT AND PROGRAMS. IN
THE PAST, FOUNDERS HAS PAID THESE EXPENSES VOLUNTARILY.
o THE EXECUTION, EFFECTIVENESS AND TERMINATION DATES ARE DIFFERENT.
You should consider the following factors in determining whether to approve
the Proposed Advisory Agreement:
o The Proposed Advisory Agreement has been approved by the Directors,
including all of the Independent Directors (as defined below).
o There will be no change in the investment objectives or policies of
the Funds.
o There will be no increase in the advisory fees payable by the Funds as
a result of the approval and implementation of the Proposed Advisory
Agreement.
o No changes are contemplated in the personnel who are responsible for
managing the investments of the Funds.
If the enclosed form of proxy is duly executed and returned in time to be
voted at the Meeting, and not subsequently revoked, all shares represented by
the proxy will be voted in accordance with the instructions marked thereon. If
no instructions are given, such shares will be voted FOR the nominees for
Director hereinafter listed and FOR Proposal 1. A majority of the outstanding
shares of the Company entitled to vote, represented in person or by proxy, will
constitute a quorum at the Meeting.
Shares held by shareholders present in person or represented by proxy at
the Meeting will be counted both for the purpose of determining the presence of
a quorum and for calculating the votes cast on the issues before the Meeting. An
abstention by a shareholder, either by proxy or by vote in person at the
Meeting, has the same effect as a negative vote. Shares held by a broker or
other fiduciary as record owner for the account of the beneficial owner are
counted toward the required quorum and in calculating the votes cast at the
Meeting if the beneficial owner has
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executed and timely delivered the necessary instructions for the broker to vote
the shares, or if the broker has and exercises discretionary voting power. Where
the broker or fiduciary does not have discretionary voting power as to one or
more of the issues before the Meeting, and does not receive instructions from
the beneficial owner, but grants a proxy for or votes such shares with respect
to other proposals, the shares will be counted toward the required quorum but
will have the effect of a negative vote on any proposals on which the broker or
fiduciary does not vote.
Because the proposals being submitted for a vote of the shareholders of
each Fund are identical, the Board determined to combine the proxy materials for
the Funds in order to reduce the cost of preparing, printing and mailing these
proxy materials.
In order to further reduce costs, notices to shareholders having more than
one account in the Funds listed under the same Social Security number and zip
code have been combined. However, shareholders will receive a separate proxy
card for each account they own. Therefore, it is important to mark, sign, date,
and return ALL proxy cards included in your package.
Shareholders of the Funds of record at the close of business on December
11, 1997 (the "Record Date"), are entitled to vote at the Meeting, including any
adjournment(s) thereof, and are entitled to one vote for each share, and
corresponding fractional votes for fractional shares, on each matter to be acted
upon at the Meeting. On the Record Date, the following shares of the Funds'
common stock, $.01 par value per share, were outstanding.
Founders Discovery Fund 9,168,531.993
Founders Passport Fund 8,933,358.546
Founders Frontier Fund 6,656,873.920
Founders Special Fund 36,543,240.790
Founders International Equity Fund 1,149,611.081
Founders Worldwide Growth Fund 13,138,356.587
Founders Growth Fund 87,526,925.675
Founders Blue Chip Fund 64,610,675.016
Founders Balanced Fund 80,543,568.763
Founders Government Securities Fund 1,395,000.822
Founders Money Market Fund 108,329,848.846
TOTAL 417,995,992.039
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The following table sets forth, as of the Record Date, the share ownership
of those shareholders who, to the knowledge of the Company, owned beneficially
more than 5% of a Fund's issued and outstanding common stock:
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL COMMON
NAME AND ADDRESS OF OWNER OWNERSHIP(1) STOCK
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Mercantile Safe Deposit & 715,689.556 (Worldwide 5.4%
Trust - 401(k) Growth)(2)
2 Hopkins Place
Baltimore, MD 21201
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Connecticut General Life Insurance 6,659,318.823 (Growth) 7.6%
Company 14,210,252.084 (Balanced) 17.6%
1 Commercial Plaza
280 Trumbull St.
Hartford, CT 06103
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VALIC 8,051,885.709 (Growth)(3) 9.2%
2929 Allen Parkway L7-01
Houston, TX 77019
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State of Michigan Plan 2 - 401(k) 5,879,000.287 (Balanced) 7.3%
State Street Bank & Trust Company
200 Newport Avenue
Quincy, MA 02170
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(1) As interpreted by the Securities and Exchange Commission, a security is
beneficially owned by a person if that person has or shares voting power or
investment power with respect to the security.
(2) This entity holds the shares in its capacity as trustee or custodian for a
number of retirement plans.
(3) Shares are held by an insurance company separate account into which
insurance contract values have been allocated, and will be voted in
accordance with the insurance owners' instructions.
In addition to solicitations of proxies by mail, proxies may be solicited
by officers of the Company, and by officers and employees of Founders,
personally or by telephone or electronically, without special compensation. In
addition, Founders has hired an unaffiliated proxy solicitor, Shareholder
Communications Corporation ("SCC"), to assist in the solicitation of proxies by
mail, phone and special courier. It is expected that the engagement of SCC will
help assure a quorum for the Meeting and help obtain the required vote to
approve both Proposals.
As the meeting date approaches, you may receive a telephone call from SCC
if you have not voted. SCC's representatives will ask that shareholders
authorize SCC, by telephonic or electronically transmitted instructions, to
execute a proxy card on their behalf. Telephone authorizations will be recorded
in accordance with the procedures set
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forth below. The Company believes that these procedures are reasonably designed
to ensure that the identity and voting instructions of the shareholder casting
the vote are accurately determined.
SCC has received an opinion of Maryland counsel that addresses the
validity, under the applicable laws of the State of Maryland (the Company's
state of incorporation), of authorization given verbally to execute a proxy. The
opinion given by Maryland counsel concludes that a Maryland court would find
that there is no Maryland law or public policy against the acceptance of proxies
signed by a verbally-authorized agent, provided it adheres to the procedures set
forth below.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask the shareholder for such shareholder's full name, address,
Social Security or employer identification number, title (if the person giving
the proxy is authorized to act on behalf of an entity, such as a corporation),
and the number of shares owned, and to confirm that the shareholder has received
this Proxy Statement in the mail. If the information solicited agrees with the
information provided to SCC by the Company, the SCC representative has the
responsibility to explain the solicitation process, read the proposals listed on
the proxy card, and ask for the shareholder's instructions on each proposal.
Although he or she is permitted to answer questions about the process, the SCC
representative is not permitted to recommend to the shareholder how to vote,
other than to read any recommendation set forth in this Proxy Statement. SCC
will record the shareholder's instructions on the proxy card. Within 72 hours,
SCC will send the shareholder a letter or mailgram confirming the shareholder's
vote and asking the shareholder to call SCC immediately if the shareholder's
instructions are not correctly reflected in the confirmation.
Executing the enclosed proxy card, or authorizing SCC to execute a proxy
card, will not affect a shareholder's right to attend the Meeting and vote in
person, and a shareholder giving a proxy has the power to revoke it (by written
notice to the Funds at P.O. Box 173655, Denver, Colorado 80217-3655, execution
of a subsequent proxy card, or oral revocation at the Meeting) at any time
before it is exercised.
ALL COSTS OF PRINTING AND MAILING PROXY MATERIALS AND THE COSTS AND
EXPENSES OF HOLDING THE MEETING AND SOLICITING PROXIES, INCLUDING ANY AMOUNT
PAID TO SCC, WILL BE PAID BY FOUNDERS AND MELLON, AND NOT BY THE FUNDS OR THEIR
SHAREHOLDERS.
Without notice other than announcement at the Meeting, the presiding
officer may seek one or more adjournments of the Meeting to
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solicit additional shareholders, if necessary, to obtain a quorum for the
Meeting, or to obtain the required shareholder vote to elect the specified
number of directors and approve Proposal 1. An adjournment would require the
affirmative vote of the holders of a majority of the shares present at the
Meeting (or an adjournment thereof) in person or by proxy and entitled to vote.
If adjournment is proposed in order to obtain the required shareholder vote on a
particular proposal, the persons named as proxies will vote in favor of
adjournment those shares which they are entitled to vote in favor of such
proposal and will vote against adjournment those shares which they are required
to vote against such proposal. A shareholder vote may be taken on one or both of
the proposals discussed herein prior to any such adjournment if sufficient votes
have been received and it is otherwise appropriate.
PROPOSAL 1: APPROVAL OF THE PROPOSED ADVISORY AGREEMENT
BETWEEN THE COMPANY AND NEW FOUNDERS
BACKGROUND
THE MERGER. Under an Agreement and Plan of Reorganization (the "Merger
Agreement"), dated December 11, 1997, by and among Mellon, New Founders,
Founders, and Bjorn K. Borgen, Founders has agreed to merge (the "Merger") into
New Founders, a newly-created subsidiary of Mellon. The shareholders of Founders
will receive a total of $270 million from Mellon in consideration for their
Founders shares. Following the Merger, the separate existence of Founders will
cease, and New Founders will assume all of its assets, liabilities, business,
personnel and operations. New Founders will be headquartered at Founders'
current offices at 2930 East Third Avenue, Denver, Colorado 80206.
MELLON. Mellon is a subsidiary of Mellon Bank Corporation ("MBC"), a
publicly owned multibank holding company incorporated under Pennsylvania law in
1971 and registered under the Federal Bank Holding Company Act of 1956, as
amended. Mellon and MBC are located at One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258. MBC provides a comprehensive range of financial products and
services in domestic and selected international markets. MBC's banking
subsidiaries are located in Pennsylvania, Massachusetts, Delaware, Maryland, and
New Jersey, while other subsidiaries are located in key business centers
throughout the United States and abroad. MBC currently ranks among the nation's
largest bank holding companies based on market capitalization.
MBC's principal wholly-owned subsidiaries are Mellon, The Boston Company,
Inc., Mellon Bank (DE)
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National Association, Mellon Bank (MD) National Association, and a number of
companies known as Mellon Financial Services Corporation. MBC also owns a
federal savings bank headquartered in Pennsylvania, Mellon Bank, F.S.B. The
Dreyfus Corporation ("Dreyfus"), one of the nation's largest mutual fund
companies, is a wholly-owned subsidiary of Mellon. MBC's banking subsidiaries
engage in retail financial services, commercial banking, trust and investment
management services, residential real estate loan financing, mortgage servicing,
equipment leasing, mutual fund activities and various securities-related
activities. Through its subsidiaries, MBC managed more than $299 billion in
assets as of September 30, 1997, including approximately $102 billion in
proprietary mutual fund assets. As of September 30, 1997, various subsidiaries
of MBC provided non-investment services, such as custodial or administration
services, for approximately $1.488 trillion in assets, including $60 billion in
mutual fund assets.
Based on Securities and Exchange Commission ("SEC") filings, MBC has
informed the Company that it is not aware of any persons who, as of September
30, 1997, either individually or as a group, beneficially owned more than 10% of
the outstanding shares of MBC's voting securities.
NEW FOUNDERS. New Founders was organized as a Delaware limited liability
company on November 26, 1997. The management board of New Founders currently
consists of: Christopher M. Condron, Chairman, who is also Vice Chairman of MBC
and President, Chief Executive Officer and Chief Operating Officer of Dreyfus,
200 Park Avenue, New York, New York 10166; Jonathan F. Zeschin, currently
President and Chief Operating Officer of Founders, 2930 East Third Avenue,
Denver, Colorado 80206; Gregory P. Contillo, currently Senior Vice
President-Institutional Marketing of Founders; Stephen E. Canter, Vice Chairman
and Chief Investment Officer of Dreyfus; and Lawrence S. Kash, Vice
Chairman-Distribution of Dreyfus. Mr. Zeschin also is the Chief Executive
Officer of New Founders, and Mr. Contillo also is the Senior Vice
President-Institutional Marketing of New Founders. Two additional members will
be added to the management board of New Founders, one qualified person from each
of New Founders and another Mellon affiliate.
REASON FOR SHAREHOLDER VOTE. As discussed in greater detail below under
"Current and Proposed Advisory Agreements," Founders serves as investment
adviser to the Funds pursuant to three Current Advisory Agreements. As required
by the Investment Company Act of 1940, as amended (the "Act"), each
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Current Advisory Agreement provides for its automatic termination upon its
"assignment." The Merger, when consummated, would give rise to an "assignment"
of each Current Advisory Agreement within the meaning of the Act. As a result,
the shareholders of each Fund must approve a new investment advisory agreement
between the Company and New Founders (the "Proposed Advisory Agreement").
Approval of this agreement by the shareholders of each Fund is a condition to
the consummation of the Merger.
The closing of the Merger and, thus, the termination of the Current
Advisory Agreements, currently are scheduled to occur in the first quarter of
1998. The precise date on which the assignment of each Current Advisory
Agreement will occur, if at all, cannot now be determined. The Merger Agreement
may be terminated upon certain events, and may be terminated by either party if
the transactions thereunder have not been consummated on or before June 30,
1998.
In order to provide for the continuation of investment management services
to the Funds following the Merger, the Company's Board of Directors is proposing
that the shareholders of each Fund approve the Proposed Advisory Agreement,
which would become effective upon consummation of the Merger. A description of
the Proposed Advisory Agreement and the services to be provided by New Founders
are set forth below under "Current and Proposed Advisory Agreements." A copy of
the Proposed Advisory Agreement is attached to this Proxy Statement as EXHIBIT
A. The Proposed Advisory Agreement is substantially identical to the Current
Advisory Agreements, except as discussed below. FOR EACH FUND, THE FEES CHARGED
FOR INVESTMENT ADVISORY SERVICES WILL REMAIN THE SAME.
As described in greater detail under "Evaluation of the Board of Directors"
below, in connection with each Fund's approval of the Proposed Advisory
Agreement, the Company's Board of Directors considered that the Merger is not
expected to result in any change in (a) the Fund's investment objective or
policies, (b) the investment management or operation of the Fund, (c) the
investment personnel managing the Fund, or (d) the shareholder services or other
business activities of the Fund. The business, assets, liabilities, personnel
and operations of Founders will be transferred to New Founders. Mellon and
Founders have advised the Board that, in their collective judgment, this
transfer should not have any material adverse effect on the Funds' ongoing
operations or on the nature, extent or quality of services provided to the
Funds, or increase the cost to the Funds of such services.
At a meeting held on November 18, 1997, the Company's Board of
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Directors, including all of the Board members who are not "interested persons,"
as defined in the Act, of any party to the Proposed Advisory Agreement (the
"Independent Directors"), approved the Proposed Advisory Agreement and voted to
recommend that the shareholders of each Fund also approve the agreement.
FOUNDERS
Founders, located at 2930 East Third Avenue, Denver, Colorado 80206, was
organized in 1938 and was reincorporated in Delaware in 1970. Founders serves as
investment adviser, distributor, accounting and administrative services agent,
and shareholder servicing agent for the Funds. In addition, Founders serves as
investment adviser or sub-adviser to various other mutual funds and private
accounts. Founders' Chairman, Chief Executive Officer, Chief Investment Officer
and sole director is Bjorn K. Borgen. Mr. Borgen's address is 2930 East Third
Avenue, Denver, Colorado 80206. He also is President and a Director of the
Company. Since Mr. Borgen owns 100% of Founders' voting stock, he has an
interest in the transactions between the Company and Founders.
The approximate net assets of each Fund as of September 30, 1997, and the
investment advisory fee payable by it to Founders (as a percentage of average
daily net assets), are listed on EXHIBIT B. During the fiscal year ended
December 31, 1996, the gross investment advisory fees paid by the Funds were as
follows:
Discovery Fund $2,405,895
Passport Fund $1,343,963
Frontier Fund $3,298,000
Special Fund $2,839,655
International Equity Fund $ 68,791
Worldwide Growth Fund $3,022,945
Growth Fund $5,728,768
Blue Chip Fund $2,891,784
Balanced Fund $1,538,236
Government Securities Fund $ 116,875
Money Market Fund $ 757,666
In addition, EXHIBIT B sets forth the approximate net assets, as of September
30, 1997, and the investment advisory fees payable to Founders by the various
other mutual funds for which it acts as a sub-adviser.
Pursuant to Distribution Plans adopted by Discovery Fund, Passport Fund,
Frontier Fund, Special Fund, International Equity Fund, Worldwide Growth Fund,
Growth Fund, Blue Chip Fund, Balanced Fund, and Government Securities Fund (the
"12b-1 Funds"), the 12b-1 Funds pay for distribution and related services at an
annual rate of up to 0.25% of each Fund's average daily net assets. These fees
may be used to pay directly, or to reimburse Founders for paying, expenses in
connection with distribution of the
14
12b-1 Funds' shares and related activities. During the fiscal year ended
December 31, 1996, the amounts paid by the 12b-1 Funds to reimburse Founders for
such expenditures were as follows:
Discovery Fund $ 605,794
Passport Fund $ 335,991
Frontier Fund $ 874,375
Special Fund $ 933,805
International Equity Fund $ 17,198
Worldwide Growth Fund $ 788,963
Growth Fund $2,020,680
Blue Chip Fund $1,154,534
Balanced Fund $ 598,070
Government Securities Fund $ 10,603
These 12b-1 plans will continue following the Merger, although such
reimbursements will be made to the Funds' new distributor, rather than to
Founders, as discussed below under "Information About the Funds' Distributor."
Founders performs administrative, accounting, and recordkeeping services
for the Funds pursuant to a Fund Accounting and Administrative Services
Agreement. During the fiscal year ended December 31, 1996, Founders received
Fund accounting and administrative services fees of $823,796. New Founders will
continue to provide these services to the Funds following the Merger.
Pursuant to a Shareholder Services Agreement, Founders performs certain
telephone, retirement plan, quality control, personnel training, shareholder
inquiry, shareholder account, and other shareholder-related and transfer agent
services for the Funds. The Funds pay to Founders a prorated monthly fee for
such services equal on an annual basis to $26 for each shareholder account of
the Funds considered to be an open account at any time during the applicable
month. The fee provides for the payment not only for services rendered and
facilities furnished by Founders pursuant to the agreement, but also for
services rendered and facilities furnished by Investors Fiduciary Trust Company
("IFTC") and DST Systems, Inc. ("DST") in performing transfer agent services and
in providing hardware and software system capabilities on behalf of the Funds.
In addition to the per account fee, Founders, IFTC, and DST are reimbursed for
all reasonable out-of-pocket expenses incurred in the performance of their
respective services. During the fiscal year ended December 31, 1996, Founders
received shareholder services fees of $3,374,390, of which $1,321,416 was paid
to IFTC and DST. New Founders will continue to be responsible for providing
these services to the Funds following the Merger.
The staff of the Securities and Exchange Commission has been
15
conducting an investigation concerning possible violations of the federal
securities laws in connection with brokerage transactions Founders effected for
certain of its private account clients during the period 1992 through mid-1995.
The Commission has not yet made any determination as to whether any violations
have occurred and, if so, whether any action is appropriate. Founders currently
is engaged in discussions with the staff concerning the staff's possible
recommendations to the Commission.
INFORMATION ABOUT THE FUNDS' DISTRIBUTOR
Founders currently acts as the exclusive distributor (underwriter) of each
Fund's shares pursuant to an Underwriting Agreement. Each Fund currently sells
shares on a continuous basis through Founders as agent. Founders is required to
use its best efforts to promote the sale of shares of the Funds, but is not
obligated to sell any specific number of shares. Founders does not receive any
compensation for its services rendered pursuant to the Underwriting Agreement.
To comply with various bank regulatory requirements applicable as a result
of the Merger, effective upon the consummation of the Merger, Premier Mutual
Fund Services, Inc., located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109, will serve as each Fund's distributor (the "New
Distributor"). The New Distributor is a subsidiary of Boston Institutional
Group, Inc., which provides mutual fund distribution, administration and other
financial services. Each Fund will sell its shares on a continuous basis through
the New Distributor as agent. The New Distributor will be required to use its
best efforts to promote the sale of shares of the Funds, but will not be
obligated to sell any specific number of shares. THE FEE PAYABLE TO THE NEW
DISTRIBUTOR WILL BE PAID BY NEW FOUNDERS, NOT BY THE FUNDS. THEREFORE, THE FUNDS
WILL CONTINUE TO RECEIVE DISTRIBUTION SERVICES FREE OF CHARGE FOLLOWING THE
MERGER. See also "Evaluation of the Board of Directors."
CURRENT AND PROPOSED ADVISORY AGREEMENTS
THE CURRENT ADVISORY AGREEMENTS. Founders serves as investment adviser to the
Funds pursuant to three investment advisory agreements: an Investment Advisory
Agreement dated August 27, 1993, as amended August 25, 1995, with respect to the
Founders Discovery Fund, Founders Passport Fund, Founders Frontier Fund,
Founders Special Fund, Founders International Equity Fund, Founders Worldwide
Growth Fund, Founders Growth Fund, Founders Blue Chip Fund, and Founders
Balanced Fund; an Amended and Restated Investment Advisory Agreement dated
September 29, 1988 with respect to the Founders Government Securities Fund; and
an Investment Advisory Agreement
16
dated November 30, 1987 with respect to the Founders Money Market Fund
(collectively, the "Current Advisory Agreements" and, individually, a "Current
Advisory Agreement").
The Current Advisory Agreement covering the Discovery, Frontier, Special,
Worldwide Growth, Growth, Blue Chip, and Balanced Funds was approved by the
shareholders of each respective Fund at shareholders' meetings of the Funds held
on December 15, 1992. Amendments to this Current Advisory Agreement adding the
Passport and International Equity Funds were approved by Founders, as the then
sole shareholder of the respective Funds, prior to their commencement of
operations. The Current Advisory Agreements covering the Government Securities
and Money Market Funds were approved by the shareholders of each respective Fund
at shareholders' meetings held on September 29, 1988 and November 17, 1987,
respectively. The Current Advisory Agreements were last renewed by the Company's
Board of Directors, including all of the Independent Directors, on May 30, 1997
for a one-year period ending May 31, 1998, and will continue from year to year
thereafter either by the vote of a majority of the entire Board of Directors or
by the vote of a majority of the outstanding voting securities of each Fund, and
in either case, after approval by the vote of a majority of the Independent
Directors cast in person at a meeting called for the purpose of voting on such
approval.
Under the Current Advisory Agreements, Founders is required to furnish
investment management and certain administrative services to the Funds, subject
to the overall supervision of the Board of Directors of the Company. In
addition, Founders is required to provide office space and facilities for the
Funds and pay the salaries, fees and expenses of all officers and other
employees connected with the operation of the Funds. As compensation for
Founders' services, each Fund has agreed to pay Founders a monthly fee as set
forth on EXHIBIT B. All fees and expenses are accrued daily and deducted before
declaration of dividends to shareholders.
The Funds pay all of their expenses not assumed by Founders, including fees
to directors not affiliated with Founders and expenses of all members of the
Board of Directors, of advisory boards or of committees of the Board of
Directors; compensation of the Funds' custodian, transfer agent and other
agents; an allocated portion of premiums for insurance required or permitted to
be maintained under the Act; expenses of computing the Funds' daily per share
net asset value; legal and auditing expenses; brokerage commissions and other
transaction costs; interest; all federal, state and local taxes (including
stamp, excise,
17
income and franchise taxes); cost of stock certificates; fees payable under
federal and state law to register or qualify the Funds' shares for sale; an
allocated portion of fees and expenses incurred in connection with membership in
investment company organizations and trade associations; preparation of
prospectuses (including typesetting) and printing and distribution thereof to
existing shareholders; expenses of local representation in Maryland; and
expenses of shareholder and directors meetings and of preparing, printing and
distributing reports to shareholders. The Company also has the obligation for
expenses, if any, it incurs in connection with litigation, proceedings or
claims, and the legal obligation it may have to indemnify its officers and
directors with respect thereto. Certain expenses of the Founders International
Equity and Government Securities Funds are being reimbursed or waived
voluntarily by Founders pursuant to commitments to those Funds.
The Current Advisory Agreements provide that the Company will pay the
expenses for the computer equipment and programs required to manage its
corporate affairs, conduct its business, and maintain its books and records.
However, pursuant to a commitment to the Company, Founders has paid these
expenses.
The Current Advisory Agreements may be terminated as to any Fund without
penalty at any time by the Board of Directors of the Company or by vote of a
majority of the outstanding securities of the Fund on 60 days' written notice to
Founders, or by Founders on 60 days' written notice to the Company. As discussed
above, each Current Advisory Agreement will terminate automatically if it is
assigned, as that term is defined in the Act. The Current Advisory Agreements
provide that each Fund may use the word "Founders" in its name and business only
as long as the agreement remains in effect. Finally, the Current Advisory
Agreements provide that Founders shall not be subject to any liability in
connection with matters to which the agreements relate in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
THE PROPOSED ADVISORY AGREEMENT. The Proposed Advisory Agreement is
substantially identical to the Current Advisory Agreements, except as follows:
o The investment adviser is New Founders rather than Founders.
o The Proposed Advisory Agreement covers all Funds in a single document.
o The Proposed Advisory Agreement requires New Founders, rather than the
Funds, to pay the expenses for the computer equipment and programs
required to
18
manage the Company's corporate affairs, conduct its business, and
maintain its books and records. In the past, these expenses had been
paid voluntarily by Founders.
o The execution, effectiveness and termination dates are different.
The following summary of the Proposed Advisory Agreement is qualified in
its entirety by reference to the form of such agreement attached to this Proxy
Statement as EXHIBIT A.
Under the Proposed Advisory Agreement, upon consummation of the Merger, New
Founders will be required to furnish investment management and administrative
services to the Funds, subject to the overall supervision of the Board of
Directors of the Company. In addition, New Founders will be required to provide
office space and facilities for the Funds (including computer equipment and
programs), and pay the salaries, fees and expenses of all officers and other
employees connected with the operation of the Funds.
The Funds will pay all of their expenses not assumed by New Founders,
including all of the expenses paid under the Current Advisory Agreements,
discussed above. Certain expenses of the Founders International Equity and
Government Securities Funds will continue to be reimbursed or waived voluntarily
by New Founders for at least three years following the Merger, unless the Board
of Directors of the Company otherwise agrees.
As compensation for New Founders' services, each Fund has agreed to pay New
Founders an annual fee (paid monthly) as set forth on Appendix 1 to EXHIBIT A.
FOR EACH FUND, THE RATE USED TO DETERMINE FEES PAYABLE BY IT PURSUANT TO THE
PROPOSED ADVISORY AGREEMENT IS IDENTICAL TO THE RATE IN THE CURRENT ADVISORY
AGREEMENTS. All fees and expenses will be accrued daily and deducted before
declaration of dividends to shareholders.
For each Fund, the Proposed Advisory Agreement will have an initial term
expiring on May 31, 1999, and will continue from year to year thereafter
provided that such continuance is approved either by the vote of a majority of
the entire Board of Directors of the Company or by the vote of a majority of the
outstanding voting securities of the Fund, and in either case, after approval by
the vote of a majority of the Independent Directors, cast in person at a meeting
called for the purpose of voting on such approval.
The Proposed Advisory Agreement may be terminated as to any Fund without
penalty at any time by the Board of Directors of the Company or by vote of a
majority of the outstanding securities of the Fund on 60 days' written notice to
New Founders, or by New Founders on 60
19
days' written notice to the Company. The Proposed Advisory Agreement will
terminate automatically if it is assigned, as that term is defined in the Act.
The Proposed Advisory Agreement provides that each Fund may use the word
"Founders" in its name and business only as long as the agreement remains in
effect. Finally, the Proposed Advisory Agreement provides that New Founders
shall not be subject to any liability in connection with matters to which the
agreement relates in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
EVALUATION OF THE BOARD OF DIRECTORS
At special meetings of the Independent Directors and of the Board held on
October 22 and November 18, 1997, at each of which all of the Independent
Directors were in attendance, the Directors evaluated the Proposed Advisory
Agreement. The Independent Directors were assisted by their own independent
counsel throughout the process of determining whether to approve the Proposed
Advisory Agreement.
Prior to and during the meetings, the Independent Directors requested and
received extensive information and documents that they deemed necessary to
enable them to determine whether the Proposed Advisory Agreement is in the best
interests of the Funds and their shareholders. At the meetings, the Independent
Directors reviewed materials furnished by Fund management, Founders and Mellon
and met with representatives of Founders and Mellon. The Board considered the
nature, quality and extent of services provided by Founders, and those expected
to be provided by New Founders, to the Funds.
SIGNIFICANT FACTORS. In evaluating the effects of the Merger and the
Proposed Advisory Agreement, the Independent Directors considered the following
factors, discussed in more detail below, to be most significant: (a) after the
Merger New Founders is expected to provide, and has represented that it will
provide, to the Funds and their shareholders investment advisory and other
services of at least the same nature, quality and extent as before the Merger,
without any increases in New Founders' fees or in the costs over which New
Founders has direct control (unless the Board gives its prior consent), and
without any "unfair burdens" (as defined below), for three years following the
Merger; (b) after the Merger, senior members of the Founders management team and
other key Founders employees will continue to be responsible for managing the
day-to-day affairs of the Funds, including investment management, as employees
of New Founders under written employment agreements; and (c) Mellon has the
financial resources and investment management experience to conduct the business
of New Founders after
20
the Merger in the same manner as the business of Founders is currently
conducted, and potentially to enhance the nature, quality and extent of services
provided to the Funds and their shareholders.
In evaluating the above-described factors, the Independent Directors
requested and received written representations from Mellon as further explained
below. (See "Representations by Mellon.")
SERVICES, FEES AND EXPENSES. As noted above, the Board discussed and
reviewed the terms and provisions of the Proposed Advisory Agreement and the
services to be provided by New Founders. The Board specifically noted that the
Proposed Agreement obligates New Founders to pay the expenses for the computer
equipment and programs required to manage the Company's corporate affairs,
conduct its business, and maintain its books and records. These expenses
previously were the obligation of the Company, although they have been paid
voluntarily by Founders. The Board also noted that the terms of the Proposed
Advisory Agreement are the same, in all material respects, as the terms of the
Current Advisory Agreements, except for the foregoing change and the fact that
the investment adviser is New Founders rather than Founders, the Proposed
Advisory Agreement covers all of the Funds, and its execution, effectiveness and
termination dates are different. Specifically, the Board noted that the services
to be provided by New Founders, and the fees and other expenses payable by each
Fund, under the Proposed Advisory Agreement are identical to the services
provided and the fees and expenses presently in effect under the Current
Advisory Agreements.
FUND OBJECTIVES AND CONTINUATION OF FOUNDERS EMPLOYEES. In connection with
each Fund's approval of the Proposed Advisory Agreement, as described above, the
Company's Board of Directors considered that the terms of the Merger do not
require any change in the Fund's investment objective or policies, the
investment management or operation of the Fund, the portfolio manager managing
the Fund, or the other business activities of the Fund. Mellon and Founders have
informed the Company's Board of Directors that the Merger is not expected to
result in any such change, although no assurance can be given that such a change
will not occur. Mellon and Founders also have advised that, at present, neither
plans nor proposes to make any material changes in the business or composition
of senior management or personnel of Founders, or in the manner in which
Founders renders investment advisory services to each Fund, other than
transferring such business, personnel and services to New Founders. Bjorn K.
Borgen, who is currently Founders' Chairman, Chief Executive Officer, Chief
Investment Officer and sole
21
director, has agreed to serve as a consultant to Dreyfus pursuant to a
three-year agreement following the Merger and, if elected at the Meeting, as a
Director of the Company following completion of the Merger. If, after the
Merger, changes in New Founders are proposed that might materially affect its
services to a Fund, the Company's Board of Directors will consider the effect of
those changes and take such action as it deems advisable under the
circumstances.
MELLON RESOURCES AND EXPERIENCE. As described above, the Board also took
note of the substantial resources of Mellon and its affiliated companies,
including its reputation, experience, personnel, and financial condition. The
Board considered the statements made by representatives of Founders and Mellon
that the investment advisory and other services provided to the Funds and their
shareholders would not be adversely affected by the Merger and could be enhanced
by the resources of Mellon, although there was no assurance of the Funds or
their shareholders obtaining any particular additional benefits.
In addition to the factors discussed above, the Company's Board of
Directors also evaluated the following additional factors, among others.
BANK REGULATORY REQUIREMENTS. The Company's Board of Directors also
considered the effect of interpretations of applicable law relating to the
permissible activities of affiliates of a bank (including New Founders) upon the
operations of New Founders and the Funds, including the following:
(i) New Founders will not be permitted to act as the Funds' distributor
(see "Information about the Funds' Distributor");
(ii) no director, officer or employee of Mellon, New Founders or certain
other Mellon affiliates can serve as a Director, officer or employee
of the Company; and
(iii) New Founders will be subject to bank regulatory requirements,
designed to avoid confusion between Fund shares and bank products in
marketing mutual funds.
Mellon and Founders have advised the Company's Board of Directors that, in
their collective judgment, the resulting changes in operations should not have
any material adverse effect on the Funds' ongoing operations or on the extent or
quality of services provided to the Funds, or increase the cost to the Funds or
shareholders of such services. The Board also met with representatives of the
New Distributor and considered in detail its qualifications prior to approving
22
the underwriting agreement with the New Distributor.
LEGAL COMPLIANCE. Mellon has informed the Company that it will comply with
Section 15(f) of the Act. Section 15(f) provides a non-exclusive safe harbor for
an investment adviser or any of its affiliated persons to receive any amount or
benefit in connection with a change in control of the investment adviser as long
as two conditions are met. First, for a period of three years after the
transaction, at least 75% of the board members of the investment company must
not be interested persons of the new or old investment adviser. The Board you
are being asked to elect in Proposal No. 2 below DOES NOT meet this 75%
requirement. Nevertheless, as more fully described below under Proposal No. 2,
the composition of the Board, on or prior to the date the Merger is effected,
WILL COMPLY with the 75% requirement.
Second, an "unfair burden" must not be imposed on the investment company as
a result of such transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
transaction whereby the new or old investment adviser, or any interested person
of any such adviser, receives or is entitled to receive any compensation,
directly or indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other services) or from
any person in connection with the purchase or sale of securities or other
property to, from or on behalf of the investment company (other than bona fide
compensation as principal underwriter for such investment company). Founders,
after due inquiry, is not aware of any express or implied term, condition,
arrangement or understanding which would impose an "unfair burden" on any Fund
as a result of the Merger. In addition, both Founders and Mr. Borgen have
represented to the Board in writing at its request that, either before or for a
period of three years after the Merger, they will not take any action that would
have the effect of imposing any "unfair burden" on any Fund. Mellon also has
represented to the Board in writing at its request that, either before or for a
period of three years after the Merger, neither it nor New Founders will take
any action that would have the effect of imposing an "unfair burden" on any
Fund.
In addition, the Board noted that Founders and Mellon have undertaken to
pay all costs and expenses incurred by each Fund associated with the Merger,
including the costs of the Meeting.
REPRESENTATIONS BY MELLON.
The Board also considered several representations, some of which are discussed
above, made at its request
23
by Mellon in writing including, among others, the following: (a) Mellon has no
present intention to relocate New Founders from the greater Denver, Colorado
area, and has committed not to do so for a period of five years after the
Merger; (b) Mellon has no present intention to increase any fees charged to the
Funds or their shareholders for services provided by New Founders, or any costs
charged to the Fund or shareholders over which New Founders has direct control,
unless the Board gives its prior consent to the increase, and has committed not
to increase such fees or expenses without such consent for a period of three
years following the Merger; (c) Mellon has no present intention to take any
action in connection with the operation of New Founders that results in the
diminishment of the type, quantity or quality of services currently provided by
Founders to the Funds or to the shareholders or that results in a material
adverse effect to the Funds or the shareholders, and has committed not to do so
for a period of three years following the Merger; and (d) Mellon will require
members of Founders' senior management team and several other key employees to
sign employment agreements prior to completion of the Merger. The senior
employees who have entered into such agreements as of the date of this proxy
statement include, among others, Jonathan F. Zeschin, President and Chief
Operating Officer of Founders; portfolio managers Robert T. Ammann, Michael W.
Gerding, Michael K. Haines, Edward F. Keely, Brian F. Kelly and Douglas A.
Loeffler; and Gregory P. Contillo, Senior Vice President and head of
institutional marketing of Founders.
OTHER FACTORS. The Board also considered the benefits derived by Founders,
and those expected to be derived by New Founders, as a result of their
relationships with the Funds. These benefits include the ability to execute
transactions with brokerage firms that provide research services and products
that assist the adviser in the investment decision-making process, subject to
the policy of seeking best execution of orders at the most favorable prices.
Such services and products permit the adviser to supplement its own research and
analysis activities, and provide it with information from individuals and
research staffs of many securities firms. Research services and products may be
useful to the adviser in providing investment advice to any of the Funds or
other clients it advises. Thus, there may be no correlation between the amount
of brokerage commissions generated by a particular Fund or client and the
indirect benefits received by that Fund or client.
Based upon the Directors' review and the evaluation of the materials they
received, and in consideration of all factors deemed relevant to them, the
Directors
24
determined that the Proposed Advisory Agreement is fair, reasonable and in the
best interests of the Funds and their shareholders. ACCORDINGLY, AT A MEETING
HELD ON NOVEMBER 18, 1997, THE BOARD, INCLUDING ALL OF THE INDEPENDENT
DIRECTORS, APPROVED THE PROPOSED ADVISORY AGREEMENT AND VOTED TO RECOMMEND THAT
ALL OF THE FUNDS' SHAREHOLDERS VOTE TO APPROVE THE AGREEMENT.
If the shareholders of each Fund approve the Proposed Advisory Agreement,
it will be executed and become effective upon the closing of the Merger. If the
conditions to the Merger are not met or waived, or if the Merger Agreement is
terminated, the Merger will not be consummated and the Current Advisory
Agreements will remain in effect. In the event that the Proposed Advisory
Agreement is not approved by one or more Funds, and the Merger nevertheless is
consummated, the Proposed Advisory Agreement will be approved as to the Funds
whose shareholders voted in favor of the Proposed Advisory Agreement, and the
Board will take such further action with respect to the Fund(s) whose
shareholders did not approve the agreement as it may deem to be in the best
interests of such shareholders.
VOTE REQUIRED
As provided under the Act, approval of the Proposed Advisory Agreement as to
each Fund will require the affirmative vote of a majority of the outstanding
shares of the Fund voting separately as a class. Such a majority is defined in
the Act as the lesser of: (a) 67% or more of the shares present at the Meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (b) more than 50% of the total outstanding
shares of the Fund.
THE DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, RECOMMEND THAT
ALL OF THE FUNDS' SHAREHOLDERS VOTE TO APPROVE THE PROPOSED ADVISORY AGREEMENT
BETWEEN THE COMPANY AND NEW FOUNDERS.
25
PROPOSAL 2: ELECTION OF DIRECTORS OF THE COMPANY
The Company currently has seven Directors. Vacancies on the Board generally are
filled by appointment by the remaining Directors. However, the Act provides that
vacancies may not be filled by Directors unless thereafter at least two-thirds
of the Directors shall have been elected by shareholders. To enable the
requirement to be met in the future without the necessity of calling additional
shareholder meetings, shareholders are being asked at this Meeting to elect the
current seven Directors to hold office until the next meeting of shareholders or
until their successors are elected and qualified. Under the provisions of the
Company's By-Laws, as permitted by Maryland law, the Company does not anticipate
holding annual shareholder meetings. Thus, the Directors will be elected for
indefinite terms.
Five of the Directors are "Independent Directors," i.e., Directors who are
not "interested persons" of Founders or the Company, as that term is defined in
the Act. The nominees for election as Directors have been proposed by the
Directors now serving or, in the case of nominees for positions as Independent
Directors, by the Independent Directors now serving.
All of the nominees have consented to being named in this Proxy Statement
and to serve, if elected and, except as noted below, no circumstances now known
will prevent any of the nominees from serving. If any nominee should become
unable to serve, the proxy will be voted for a substitute nominee proposed by
the present Directors or, in the case of an Independent Director nominee, by the
Independent Directors.
Set forth below is information concerning the nominees for Directors to be
elected at this Meeting:
NUMBER OF FUND SHARES
POSITION WITH THE COMPANY, DIRECTOR BENEFICIALLY OWNED
PRINCIPAL OCCUPATION AND OF THE DIRECTLY OR
BUSINESS EXPERIENCE COMPANY INDIRECTLY ON RECORD
NAME AND AGE (DURING PAST FIVE YEARS) SINCE DATE(1)
- ------------------------------------- --------------------------- -------- ---------------------
Jay A. Precourt (2),(3) Chairman of the Board of 1983 3,891.253
Age 60 the Company. President, (Discovery)
Chief Executive Officer, 18,599.711
Vice Chairman and Director, (Worldwide Growth)
Tejas Gas Corporation, 2,339.169
Houston, Texas; Director of (Growth)
Dresser Industries Inc., 78,863.360
Dallas, Texas, and of (Money Market)
Timken Company, Canton, Ohio.
26
NUMBER OF FUND SHARES
POSITION, WITH THE COMPANY, DIRECTOR BENEFICIALLY OWNED
PRINCIPAL OCCUPATION AND OF THE DIRECTLY OR
BUSINESS EXPERIENCE COMPANY INDIRECTLY ON RECORD
NAME AND AGE (DURING PAST FIVE YEARS) SINCE DATE(1)
- ------------------------------------- --------------------------- -------- ---------------------
William H. Baughn (2), (3), (4) Director of the Company. 1969 8,477.744
Age 79 President Emeritus, (Special)
University of Colorado. 5,098.683
Dean Emeritus, Graduate (Growth)
School of Business, 16,745.190
University of Colorado. (Money Market)
Bjorn K. Borgen* (2) (5) President and Director of 1970 41,498.795
Age 60 the Company. Chairman, (Discovery)
Chief Executive Officer, 128,151.588
Chief Investment Officer, (Passport-1.4% of
Secretary, and Director of Fund)
Founders. 20,008.836
(Frontier)
57,236.315
(Special)
25,000.000
(Intl. Equity-2.2% of
Fund)
39,227.198
(Worldwide Growth)
153,094.219
(Growth)
46,647.815
(Blue Chip)
6,433.749
(Balanced)
66,526.360
(Money Market)
Alan S. Danson (4) Director of the Company. 1991 44,296.940
Age 58 Independent financial (Money Market)
consultant. Senior Vice
President, OptiMark
Technologies, Inc.
(computerized securities
trading services), and
President, D.H. Management,
Inc. (general partner of
limited partnership with
technology company
holdings). From March 1,
1992 to June 30, 1993, Mr.
Danson was President and
Chief Executive Officer of
ACCI Securities, Inc., a
wholly-owned subsidiary of
Acciones y Valores de Mex-
ico, S.A. de C.V., a
Mexican brokerage firm,
after having previously
served as Director of
International Relations of
that firm from March 1,
1990 to February 28, 1992.
27
NUMBER OF FUND SHARES
POSITION WITH THE COMPANY, DIRECTOR BENEFICIALLY OWNED
PRINCIPAL OCCUPATION AND OF THE DIRECTLY OR
BUSINESS EXPERIENCE COMPANY INDIRECTLY ON RECORD
NAME AND AGE (DURING PAST FIVE YEARS) SINCE DATE(1)
- ------------------------------------- --------------------------- -------- ---------------------
Trygve E. Myhren (3) Director of the Company. 1996 6,893.385
Age 61 President, Myhren Media, (Passport)
Inc., Denver, Colorado, a 10,222.326
firm that invests in and (Intl. Equity)
advises media and
communications companies.
Director, Advanced
Marketing Services, La
Jolla, California;
Director, Peapod, Inc.,
Evanston, Illinois;
Director, J.D. Edwards,
Denver, Colorado. Formerly,
President of The Providence
Journal Company, a
diversified media and com-
munications company, Provi-
dence, Rhode Island, from
1990 to 1996; Chairman and
Chief Executive Officer of
American Television and
Communications Corporation,
a cable television company,
Denver, Colorado, from 1981
to 1988.
Eugene H. Vaughan, Jr. Vice Chairman of the Board 1970 9,338.684
(4) and Director of the (Growth)
Age 64 Company. President and 224.408
Chief Executive Officer, (Blue Chip)
Vaughan, Nelson, 3,879,554.630
Scarborough & McCullough, (Money Market-3.6% of
L.P., an investment Fund)
counseling firm, Houston,
Texas. Founding Chairman
and Governor, Association
for Investment Management
and Research; Past Chairman
and Trustee, Institute of
Chartered Financial
Analysts; Past Chairman and
Director, Financial
Analysts Federation.
28
NUMBER OF FUND SHARES
POSITION WITH THE COMPANY, DIRECTOR BENEFICIALLY OWNED
PRINCIPAL OCCUPATION AND OF THE DIRECTLY OR
BUSINESS EXPERIENCE COMPANY INDIRECTLY ON RECORD
NAME AND AGE (DURING PAST FIVE YEARS) SINCE DATE(1)
- ------------------------------------- --------------------------- -------- ---------------------
Jonathan F. Zeschin* Director of the Company. 1995 4,543.752
Age 44 President and Chief (Discovery)
Operating Officer of 14,740.849
Founders. Formerly, ex- (Passport)
ecutive vice president of 18,484.320
INVESCO Funds Group, Inc., (Intl. Equity-1.6% of
Denver, Colorado, from Fund
October 1993 to April 15, 2,167.359
1995; prior thereto (Worldwide Growth)
(January 1992 to October 10,223.593
1993) senior vice president (Growth)
of INVESCO Funds Group, 19,416.652
Inc.; trust officer of (Balanced)
INVESCO Trust Company from 103,797.650
January 1993 to April 15, (Money Market)
1995; senior vice president
and director of marketing
of SteinRoe & Farnham,
Inc., Chicago, Illinois,
from January 1987 to
December 1991.
All Directors and officers
of the Company as a group 53,094.604
(Discovery)
153,968.969
(Passport-1.7% of
Fund)
21,985.407
(Frontier)
68,598.529
(Special)
55,635.690
(Intl. Equity-4.8% of
Fund)
62,357.623
(Worldwide Growth)
186,692.161
(Growth)
53,283.827
(Blue Chip)
33,115.120
(Balanced)
534.846
(Govt. Securities)
4,292,985.100
(Money Market-4.0% of
Fund)
- ------------
(1) As interpreted by the Securities and Exchange Commission, a security is
beneficially owned by a person if that person has or shares voting power or
investment power with respect to the security. Unless otherwise noted, all
share amounts represented less than 1% of the respective Fund's outstanding
shares.
(2) Member of Executive Committee.
(3) Member of Audit Committee.
(4) Member of Portfolio Transactions Committee.
* Based on his affiliation with Founders, this individual is deemed to be an
"interested person" of the Company as that term is defined in the Act.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
29
(5) Share numbers include 22,846.117, 11,150.195, 39,227.198, 134,473.258,
46,647.815 and 66,526.360 shares of the Passport, Frontier, Worldwide
Growth, Growth, Blue Chip and Money Market Funds, respectively, held by the
Borgen Family Foundation, a charitable foundation in which the Borgen family
has no financial interest.
As discussed above under Proposal No. 1, the terms of the Merger Agreement
require that immediately before the Merger is effected, at least 75% of the
members of the Board must be Independent Directors. As noted above, five of the
current seven Directors (71.4%) are Independent Directors. Thus, the composition
of the Board you are being asked to elect would not meet the 75% requirement.
Accordingly, Mr. Zeschin has agreed to resign from the Board immediately prior
to the consummation of the Merger so that the Board would be in compliance with
the 75% requirement at the time the Merger is effected. (The Board would then be
comprised of six Directors, five of whom (83.3%) would be Independent Directors,
and one of whom, Mr. Borgen, would be an "interested" Director.) If the Merger
is not consummated for any reason, Mr. Zeschin would not resign from the Board.
The committees of the Board are the executive committee, audit committee,
portfolio transactions committee and valuation committee. The Company also has a
committee on directors, composed of all of the Independent Directors and chaired
by Mr. Precourt, which serves as a nominating committee. So long as the Rule
12b-1 Distribution Plans of the 12b-1 Funds remain in effect, the selection and
nomination of the Company's Independent Directors will be a matter left to the
discretion of such Independent Directors. Except for certain powers that, under
applicable law, may be exercised only by the full Board, the executive committee
may exercise all powers and authority of the Board in the management of the
business of the Company. The audit committee, consisting of three Independent
Directors, meets periodically with the Company's independent accountants and the
executive officers of the Company. This committee reviews the accounting
principles being applied by the Company in financial reporting, the scope and
adequacy of internal controls, the responsibilities and fees of the Company's
independent accountants and other matters. During the fiscal year ended December
31, 1996, the Board met four times, the audit committee met four times, and the
portfolio transactions committee met two times. During such fiscal year, each
director nominee attended 75% or more of the aggregate of the Board meetings and
meetings of committees of the Board on which he served with the exception of Mr.
Myhren, who missed one audit committee meeting.
The following table sets forth, for the fiscal year ended December 31,
1996, the compensation paid by the Company to its Independent Directors for
services rendered in their capacities as Directors of the Company. The Company
has no plan or other arrangement pursuant to
30
which any of the Company's Independent Directors receive pension or retirement
benefits, with the exception of an arrangement with former Chairman and Director
John K. Langum who, commencing September 1, 1997, receives a monthly payment
from Founders. Therefore, none of the Company's Independent Directors has
estimated annual benefits to be paid by the Company upon retirement.
TOTAL COMPENSATION
FROM COMPANY
(11 FUNDS TOTAL)
NAME OF PERSON, POSITION (1) PAID TO DIRECTORS (1)
- ------------------------------------- ---------------------
John K. Langum, Former Chairman and $ 43,000
Director(2)
William H. Baughn, Director $ 32,000
Alan S. Danson, Director $ 29,000
Ranald H. Macdonald III, Director(3) $ 18,000
Trygve E. Myhren, Director(4) $ 7,000
Jay A. Precourt, Chairman and $ 30,000
Director
Eugene H. Vaughan, Jr., Director $ 30,000
--------
TOTAL $189,000
========
- --------
(1) The Chairman of the Board, the Chairmen of the Company's Audit and
Portfolio Transactions Committees, and the members of the Audit and
Portfolio Transactions Committees each receive compensation for serving in
such capacities in addition to the compensation paid to all Independent
Directors. The Funds are the only mutual funds distributed by Founders.
(2) Dr. Langum retired from the Board effective August 31, 1997.
(3) Mr. Macdonald died in 1996.
(4) Mr. Myhren was elected to the Board of Directors in December 1996.
The officers of the Company are: Bjorn K. Borgen, President (discussed
above); David L. Ray (age 40), Vice President and Treasurer since 1990, who also
is Vice President, Chief Financial Officer, Assistant Secretary, and Treasurer
of Founders; Kenneth R. Christoffersen (age 42), Secretary since 1996, who also
is Vice President and General Counsel of Founders, formerly, vice president and
assistant general counsel (February 1993 to May 1996) of INVESCO Funds Group,
Inc. and INVESCO Trust Company, Denver, Colorado, and attorney with the law firm
of Davis, Graham & Stubbs, Denver, Colorado (August 1981 to February 1993); and
Roberto Galindo, Jr. (age 37), Assistant Treasurer since 1996, who also is
Assistant Vice President of Founders.
If the Merger is consummated, to comply with applicable bank regulatory
requirements, Messrs. Ray, Christoffersen and Galindo, each of whom will be an
officer of New Founders, will resign as officers of the Company. In addition,
Mr. Borgen will resign as President of the Company. Employees of the New
Distributor will serve as Fund officers, although they will have no involvement
in the investment management of the Funds. The Funds' current portfolio managers
will remain the same.
VOTE REQUIRED
Each Director must be elected by a majority of the votes present at the Meeting
in person or by proxy and entitled to vote, provided a quorum is present. The
shareholders of all of the Funds will vote together as a single class on the
election of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUNDS' SHAREHOLDERS VOTE TO
ELECT ALL OF THE NOMINEES LISTED ABOVE.
31
OTHER BUSINESS
The management of the Company has no business to bring before the Meeting other
than the matters described above. Should any other business be presented at the
Meeting, it is the intention of the persons named in the accompanying proxy to
vote on such matters in accordance with their best judgment.
SHAREHOLDER PROPOSALS
The Company does not hold annual meetings of shareholders. Shareholders wishing
to submit proposals for inclusion in a proxy statement and form of proxy for a
subsequent shareholders' meeting should send their written proposals to the
Secretary of the Funds, 2930 East Third Avenue, Denver, Colorado 80206. The
Funds have not received any shareholder proposals to be presented at this
Meeting.
By Order of the Board of Directors
/s/ Kenneth R. Christoffersen
Kenneth R. Christoffersen
Secretary
December 30, 1997
32
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement is executed as of this __ day of __ ,
1998, between FOUNDERS FUNDS, INC., a Maryland corporation (the "Company") on
behalf of each of its series Funds listed on Appendix 1 to this Agreement, which
Appendix 1 is incorporated into this Agreement by this reference (as to each
series, the "Fund"), and FOUNDERS ASSET MANAGEMENT LLC, a Delaware limited
liability company (the "Adviser").
WHEREAS, the Company has been organized and operates as an investment
company registered under the Investment Company Act of 1940 for the purpose of
investing and reinvesting its assets in securities, as set forth in its Articles
of Incorporation, its By-Laws and its Registration Statements under the
Investment Company Act of 1940 and the Securities Act of 1933, all as heretofore
amended and from time to time further amended and supplemented; and the Company
on behalf of each Fund desires to avail itself of the services, information,
advice, assistance and facilities of an investment adviser and to have an
investment adviser perform for it various management, statistical, research,
investment advisory and other services; and,
WHEREAS, the Adviser is engaged in the business of rendering management,
investment advisory, counseling and supervisory services to investment companies
and desires to provide these services to the Company.
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISER. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of each Fund and to
administer its affairs, consistent with the Fund's objectives, policies and
restrictions, and subject to the overall supervision of the Board of Directors
of the Company, for the period and on the terms hereinafter set forth. The
Adviser hereby accepts such employment and agrees during such period to render
the services and to assume the obligations herein set forth for the compensation
herein provided. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Company or any Fund in any way or otherwise be deemed an agent of the Company or
any Fund.
A-1
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADVISER. In return for
the compensation described in paragraph 4 hereof, the Adviser undertakes to
provide the following services and to assume the following obligations:
A. OFFICE SPACE, FURNISHINGS, FACILITIES, EQUIPMENT AND PERSONNEL. The
Adviser shall furnish to the Company adequate office space, which may be space
within the office of the Adviser or in such other place as may be agreed upon
from time to time. The Adviser also shall furnish to the Company office
furnishings, facilities and equipment, including computer equipment and
programs, as may be reasonably required for managing the corporate affairs and
conducting the business of the Company, including ordinary clerical, bookkeeping
and administrative services, and maintenance of each Fund's books and records.
The Adviser shall employ or provide and compensate the executive, secretarial
and clerical personnel necessary to provide such services. The Adviser shall
also compensate all officers and employees of the Company and, in addition to
the services described in subparagraph D of this paragraph, shall permit
officers and employees of the Adviser to serve as directors or officers of the
Company, without compensation from the Company, if elected to such positions.
B. INVESTMENT ADVISORY SERVICES AND BROKERAGE ALLOCATION.
(1) The Adviser shall recommend from time to time to the officers and
directors of the Company a course of investment for each Fund's assets and
portfolio, subject to and in accordance with the investment objectives and
policies of the Fund and any directions which the Company's Board of Directors
may issue from time to time. The Adviser's recommendations also shall include
the manner in which the voting rights, rights to consent to corporate action and
any other rights pertaining to the Fund's portfolio securities shall be
exercised. Subject to such objectives, policies and directions and subject to
the overall supervision of the Board of Directors of the Company, the Adviser
shall manage the investment and reinvestment of the assets of each Fund. The
Adviser shall render such reports to the Company concerning the investment of
each Fund's assets and portfolio as may be required by the Board of Directors of
the Company.
(2) Decisions with respect to placement of each Fund's portfolio
transactions shall be made by the Adviser. The primary consideration in making
these decisions shall be to seek the best execution of orders at the most
favorable net prices for the Fund, taking into account such factors as the size
of the order, difficulty of execution, and the reliability, financial condition
and capabilities of the broker or dealer. Subject to these objectives, business
may be placed with brokers and dealers who furnish investment research services
to the Adviser or to affiliates of the Adviser. Such research services include
advice,
A-2
both directly and in writing, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities, or purchasers or sellers of securities, as well as the furnishing of
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy, and the performance of accounts. Such
services allow the Adviser and its affiliates to supplement their own investment
research activities and provide them with information from individuals and
research staffs of many securities firms. The Company acknowledges on behalf of
each Fund that to the extent portfolio transactions are effected with brokers or
dealers who furnish research services to the Adviser or its affiliates, they
receive a benefit, which generally is not capable of evaluation in dollar
amounts, which is not passed on to the Fund in the form of a direct monetary
benefit.
(3) The Adviser shall render such reports regarding allocation of brokerage
business as may be required by the Board of Directors of the Company.
C. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Adviser shall make
available and provide accounting and statistical information required by the
Company and its principal underwriter in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and such information as the principal underwriter of the Company may
reasonably request, for use in the preparation of such documents or of other
materials necessary or helpful for the underwriting and distribution of each
Fund's shares.
D. OTHER OBLIGATIONS AND SERVICES. The Adviser shall keep its
qualifications, facilities and staff fully adequate for performance of its
duties hereunder, and will perform such duties in good faith and in the best
interests of the Fund. The Adviser shall comply in all respects with applicable
statutory and regulatory provisions, including the Investment Company Act of
1940 and the Investment Advisers Act of 1940. The Adviser shall make available
its officers and employees to the Board of Directors and officers of the Company
for consultation and discussions regarding the administrative management of each
Fund and its investment activities.
3. EXPENSES OF EACH FUND. It is understood that each Fund will pay all of
its expenses other than those expressly assumed by the Adviser herein, which
expenses payable by the Fund shall include:
A. Fees to the Adviser as provided herein;
B. Expenses of all audits by independent public accountants;
A-3
C. The allocated portion of fees and expenses of legal counsel in
connection with legal services rendered to the Company, including the
Board of Directors of the Company, committees of the Board of
Directors and those directors who are not "interested persons" of the
Company or the Adviser, as defined in the Investment Company Act of
1940, and litigation;
D. Brokerage fees and commissions and other transaction costs in
connection with the purchase and sale of portfolio securities for the
Fund;
E. Costs, including the interest expense, of borrowing money;
F. All federal, state and local taxes levied against the Fund;
G. The allocated portion of fees of directors of the Company not
affiliated with the Adviser;
H. The allocated portion of costs and expenses of meetings of the Board
of Directors, committees of the Board of Directors and shareholders of
the Company;
I. Fees and expenses of the Company's transfer agent, registrar,
custodian, dividend disbursing agent, shareholder accounting agent,
and other agents approved by the Board of Directors of the Company;
J. Cost of printing stock certificates representing shares of the Fund;
K. Fees and expenses of registering and qualifying and maintaining
registration and qualification of the Company, the Fund and its shares
under federal, state and foreign securities laws;
L. The allocated portion of fees and expenses incident to filing of
reports with regulatory bodies and maintenance of the Company's
existence;
M. The allocated portion of premiums for insurance carried by the Company
pursuant to the requirements of Section 17(g) of the Investment
Company Act of 1940;
N. The allocated portion of fees and expenses incurred in connection with
any investment company organization or trade association of which the
Company may be a member;
O. The allocated portion of expenses of preparation, printing (including
typesetting) and distribution of reports, notices and prospectuses to
existing shareholders of the Company;
A-4
P. Expenses of computing the Fund's daily per share net asset value; and
Q. The allocated portion of expenses incurred by the Company in
connection with litigation proceedings or claims, including any
obligation the Company may have to indemnify its officers and
directors with respect thereto.
4. COMPENSATION OF THE ADVISER. As compensation for its services to each
Fund, the Adviser will be paid a monthly management fee by the Fund at an annual
rate equal to the percentages of the average daily value of the Fund's net
assets described as to each Fund on Appendix 1 to this Agreement, with each
Fund's net assets determined in accordance with provisions of the then current
prospectus of the Fund. All fees and expenses are accrued daily and deducted
before payment of dividends to shareholders. The fee is payable monthly and
shall be prorated for any portion of a month beginning on the date of this
Agreement or ending on termination of this Agreement.
5. EXPENSE LIMITATION. In the event the total expenses of a Fund for any
fiscal year, including the advisory fee but excluding interest, taxes, brokerage
commissions and extraordinary expenses, should exceed the lowest applicable
annual expense limitation established pursuant to the statutes or regulations of
any jurisdiction in which shares of the Fund are then qualified for offer or
sale, the Adviser shall reimburse the Fund for the full amount of such excess.
Such reimbursement shall be made by the Adviser monthly, subject to annual
reconciliation.
6. ACTIVITIES OF THE ADVISER. Nothing in this Agreement shall limit or
restrict the right of any director, officer or employee of the Adviser who may
also be a director, officer or employee of the Company to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any business, whether of a similar or a dissimilar nature, nor to
limit or restrict the right of the Adviser to engage in any other business or to
render services of any kind to any other corporation, firm, individual or
association. Subject to and in accordance with the Articles of Incorporation and
By-Laws of the Company and to Section 10(a) of the Investment Company Act of
1940, it is understood that directors, officers, agents and shareholders of the
Company are or may be interested in the Adviser or its affiliates as directors,
officers, agents or shareholders of the Adviser or its affiliates and that
directors, officers, agents or shareholders of the Adviser or its affiliates are
or may be interested in the Company as directors, officers, shareholders or
otherwise, and that the effect of any such interests shall be governed by said
Articles of Incorporation, said By-Laws and the Act.
A-5
7. LIABILITIES. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Company or
to any Fund hereunder for any act or omission in the course of, or connected
with, rendering services hereunder. No liability to the Adviser hereunder shall
attach individually to the shareholders, directors or officers of the Company.
8. RENEWAL, TERMINATION AND AMENDMENT. This Agreement shall become
effective upon the date first above written and shall continue in effect for an
initial term ending May 31, 1999, unless earlier amended or terminated. This
Agreement is renewable thereafter as to each Fund for successive periods not to
exceed one year if such continuance is approved at least annually by votes of
the Company's Board of Directors, cast in person at a meeting called for the
purpose of voting on such approval, or by a majority of the outstanding voting
securities of the Fund and in either event by the vote of a majority of the
directors who are not parties to the Agreement or interested persons of any such
party other than as directors of the Company. In addition, (i) this Agreement
may at any time be terminated as to any Fund without the payment of any penalty
either by vote of the Board of Directors of the Company or by vote of a majority
of the outstanding voting securities of the Fund, on 60 days' written notice to
the Adviser; (ii) this Agreement shall immediately terminate in the event of its
assignment (within the meaning of the Investment Company Act of 1940); and (iii)
this Agreement may be terminated by the Adviser on 60 days' written notice to
the Company. Any notice under this Agreement shall be given in writing addressed
and delivered, or mailed postpaid, to the other party at any office of such
party. This Agreement may be amended as to any Fund at any time by mutual
consent of the parties, provided that such consent on the part of the Company
shall have been approved by vote of a majority of the outstanding voting
securities of the Fund. As used in this paragraph, the term "vote of a majority
of the outstanding voting securities" shall have the meaning set forth for such
term in Section 2(a)(42) of the Investment Company Act of 1940.
9. NAME. The Company and each Fund may use the word "Founders" in their
names and businesses only so long as the Adviser acts as investment adviser to
the Fund.
10. SEVERABILITY. If any provision of this Agreement is held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
11. MISCELLANEOUS. This Agreement shall be subject to the laws of the State
of Colorado, and shall be interpreted and construed to further and promote the
operation of the Company as an open-end investment company.
A-6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
FOUNDERS FUNDS, INC.
on behalf of each of the
series Funds listed on
Appendix 1 to this
Agreement
ATTEST: By:________________________
President
__________________________
Secretary
FOUNDERS ASSET
MANAGEMENT LLC
ATTEST: By:________________________
President
__________________________
Secretary
A-7
APPENDIX 1
TO
FOUNDERS FUNDS, INC. INVESTMENT ADVISORY AGREEMENT
This Appendix 1 to the Investment Advisory Agreement ("Agreement") executed
as of the _ day of ______________, 1998, between Founders Funds, Inc. and
Founders Asset Management LLC is effective as of the __th day of ______________,
1998.
The following series Funds of Founders Funds, Inc. are parties to the
Agreement and, pursuant to paragraph 4 of the Agreement, shall pay to Founders
Asset Management LLC, as compensation for its services to each series Fund, the
management fees disclosed in the following table:
ADVISORY FEE
FUND SCHEDULE
--------------------------------------------
Discovery Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Passport Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Frontier Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Special Fund 1.00% to $30 million
0.75% next $270 million
0.70% next $200 million
0.65% thereafter
International Equity Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Worldwide Growth Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Growth Fund 1.00% to $30 million
0.75% next $270 million
0.70% next $200 million
0.65% thereafter
Blue Chip Fund 0.65% to $250 million
0.60% next $250 million
0.55% next $250 million
0.50% thereafter
Balanced Fund 0.65% to $250 million
0.60% next $250 million
0.55% next $250 million
0.50% thereafter
Government Securities Fund 0.65% to $250 million
0.50% thereafter
Money Market Fund 0.50% to $250 million
0.45% next $250 million
0.40% next $250 million
0.35% thereafter
A-8
FOUNDERS FUNDS, INC.
on behalf of each of the
series Funds listed on this
Appendix 1
ATTEST: By:__________________________
President
__________________________
Secretary
FOUNDERS ASSET
MANAGEMENT LLC
ATTEST: By:__________________________
President
__________________________
Assistant Secretary
A-9
EXHIBIT B
MUTUAL FUNDS ADVISED OR SUB-ADVISED BY FOUNDERS
FUND INVESTMENT OBJECTIVE ADVISER SUB-ADVISER
- -------------------- ----------------------- ------------------ -------------
SMALL CAP FUNDS
Founders Discovery Capital appreciation Founders None
Fund
Founders Frontier Capital appreciation Founders None
Fund
American Skandia Capital appreciation American Skandia Founders
Trust - Founders Investment
Capital Appreciation Services,
Portfolio Incorporated
American Skandia Capital growth American Skandia Founders
Advisor Funds, Inc. Investment
- -ASAF Founders Small Services,
Capitalization Fund Incorporated
Ohio National Fund, Maximum capital growth Ohio National Founders
Inc. - Small Cap Investment, Inc.
Portfolio
SMALL CAP INTERNATIONAL FUNDS
Founders Passport Capital appreciation Founders None
Fund
Manufacturers Long-term capital Manufacturers Founders
Investment Trust - appreciation Securities
International Small Services, LLC
Cap Trust
American Skandia Capital appreciation American Skandia Founders
Trust - Founders Investment
Passport Portfolio Services,
Incorporated
American Skandia Capital growth American Skandia Founders
Advisor Funds, Inc. Investment
- -ASAF Founders Services,
International Small Incorporated
Capitalization Fund
- ------------
1 With respect to all funds for which Founders acts as a sub-advisor, the
sub-advisory fee is paid by the fund's investment adviser out of its advisory
fee, not by the fund directly.
B-1
ADVISORY FEE RATE
(BASED ON SUB-ADVISORY FEE RATE (BASED NET ASSETS AS OF
AVERAGE NET ASSETS) ON AVERAGE NET ASSETS)(1) SEPTEMBER 30, 1997
- -------------------- ----------------------------- -----------------------
1.00% to $250 None $305,026,945.06
million
0.80% next $250
million
0.70% thereafter
1.00% to $250 None $266,447,329.40
million
0.80% next $250
million
0.70% thereafter
0.90% 0.65% to $75 million $308,356,657.19
0.60% next $75 million
0.55% thereafter
0.90% 0.50% to $250 million $369,902.15
0.45% thereafter
0.80% 0.65% to $75 million $58,587,914.88
0.60% next $75 million
0.55% thereafter
1.00% to $250 None $168,191,168.90
million
0.80% next $250
million
0.70% thereafter
1.10% 0.65% to $50 million $134,228,929.54
0.60% next $150 million
0.50% next $300 million
0.40% thereafter
1.00% 0.60% to $100 million $127,651,057.56
0.50% thereafter
1.10% to $100 0.60% to $100 million $224,836.23
million 0.50% thereafter
1.00% thereafter
B-2
FUND INVESTMENT OBJECTIVE ADVISER SUB-ADVISER
- -------------------- ----------------------- ----------------- --------------
North American Funds Long-term capital Cypress Tree Founders
- -International Small appreciation Asset Management
Cap Fund Corporation, Inc.
AGGRESSIVE GROWTH FUNDS
Founders Special Capital appreciation Founders None
Fund
INTERNATIONAL AND GLOBAL FUNDS
Founders Long-term growth of Founders None
International Equity capital
Fund(2)
Founders Worldwide Long-term growth of Founders None
Growth Fund capital
Manufacturers Long-term growth of Manufacturers Founders
Investment Trust - capital Securities
Worldwide Growth Services, LLC
Trust
New England Funds Long-term growth of New England Funds Founders
Trust I - New capital Management, L.P.
England
Star Worldwide Fund(3)
GROWTH FUNDS
Founders Growth Fund Long-term growth of Founders None
capital
New England Funds Long-term growth of New England Funds Founders
Trust I - New capital Management, L.P.
England Star
Advisers Fund(3)
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(2) Effective July 1, 1997, Founders is voluntarily reimbursing certain
expenses of this Fund to the extent they exceed 1.80% of the Fund's average
net assets. Since Founders reimbursed expenses in excess of 2.00% of the
Fund's average net assets during the first six months of 1997, the Fund's
total operating expenses for the fiscal year ended December 31, 1997 are
expected to be approximately 1.90% of the Fund's average net assets, after
such reimbursements.
(3) This fund has four sub-advisers, each managing a different segment of the
fund's portfolio. Founders receives a sub-advisory fee only with respect to
the segment of the fund it manages. The net asset amount shown for this
fund reflects only Founders' segment.
B-3
ADVISORY FEE RATE
(BASED ON SUB-ADVISORY FEE RATE (BASED NET ASSETS AS OF
AVERAGE NET ASSETS) ON AVERAGE NET ASSETS)1 SEPTEMBER 30, 1997
- -------------------- ----------------------------- -----------------------
1.05% to $50 million 0.65% to $50 million $19,284,714.49
1.00% next $150 0.60% next $150 million
million 0.50% next $300 million
0.90% next $300 0.40% thereafter
million
0.80% thereafter
1.00% to $30 million None $353,687,439.86
0.75% next $270
million
0.70% next $200
million
0.65% thereafter
1.00% to $250 None $16,814,444.15
million
0.80% next $250
million
0.70% thereafter
1.00% to $250 None $347,234,538.02
million
0.80% next $250
million
0.70% thereafter
1.00% 0.60% to $50 million $20,101,181.61
0.55% next $150 million
0.45% next $300 million
0.35% thereafter
1.05% 0.65% to $50 million $53,889,527.39
0.60% next $50 million
0.55% thereafter
1.00% to $30 million None $1,755,409,701.27
0.75% next $270
million
0.70% next $200
million
0.65% thereafter
1.05% 0.55% to $50 million $277,537,100.62
0.50% next $200 million
0.475% thereafter
B-4
FUND INVESTMENT OBJECTIVE ADVISER SUB-ADVISER
- -------------------- ----------------------- ------------------ -------------
Manufacturers Long-term growth of Manufacturers Founders
Investment Trust - capital Securities
Growth Trust Services, LLC
North American Funds Long-term growth of CypressTree Asset Founders
- -Growth Equity Fund capital Management
Corporation, Inc.
GROWTH AND INCOME FUNDS
Founders Blue Chip Long-term growth of Founders None
Fund capital and income
Maxim Series Fund, Long-term growth of G W Capital Founders
Inc. - Maxim Blue capital and income Management, Inc.
Chip Portfolio
BALANCED FUNDS
Founders Balanced Current income and Founders None
Fund capital appreciation
Manufacturers Current income and Manufacturers Founders
Investment Trust - capital appreciation Securities
Balanced Trust Services, LLC
North American Funds Current income and CypressTree Asset Founders
- -Balanced Fund capital appreciation Management
Corporation, Inc.
FIXED-INCOME FUNDS
Founders Government Current income Founders None
Securities Fund(4)
MONEY MARKET FUNDS
Founders Money Maximum current income Founders None
Market Fund consistent with the
preservation of capital
and liquidity
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(4) Certain 12b-1 fees of this Fund are being waived voluntarily by Founders,
with the result that the 12b-1 fees paid by the Fund during the fiscal year
ended December 31, 1996 were 0.05% of the Fund's average net assets instead
of the 0.25% permitted by the Fund's 12b-1 plan.
B-5
ADVISORY FEE RATE SUB-ADVISORY FEE RATE
(BASED ON AVERAGE (BASED ON AVERAGE NET NET ASSETS AS OF
NET ASSETS) ASSETS)1 SEPTEMBER 30, 1997
- -------------------- ----------------------------- -----------------------
0.85% 0.45% to $50 million $147,706,073.38
0.45% next $150 million
0.35% next $300 million
0.30% thereafter
0.90% to $50 million 0.50% to $50 million $25,744,105.01
0.85% next $150 0.45% next $150 million
million 0.425% next $300 million
0.825% next $300 0.40% thereafter
million
0.80% thereafter
0.65% to $250 None $566,935,024.80
million
0.60% next $250
million
0.55% next $250
million
0.50% thereafter
1.00% 0.425% to $250 million $91,467,499.05
0.350% next $250 million
0.325% next $250 million
0.300% thereafter
0.65% to $250 None $945,739,764.19
million
0.60% next $250
million
0.55% next $250
million
0.50% thereafter
0.80% 0.375% to $50 million $168,479,698.58
0.325% next $150 million
0.275% next $300 million
0.225% thereafter
0.775% to $50 0.375% to $50 million $99,540,578.24
million 0.325% next $150 million
0.725% next $150 0.275% next $300 million
million 0.225% thereafter
0.675% next $300
million
0.625% thereafter
0.65% to $250 None $12,934,282.76
million
0.50% thereafter
0.50% to $250 None $96,182,701.00
million
0.45% next $250
million
0.40% next $250
million
0.35% thereafter
[FORM OF PROXY CARD]
FOUNDERS FUNDS, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY 17, 1998
The undersigned hereby appoints Jonathan F. Zeschin, David L. Ray and Kenneth R.
Christoffersen, and each of them, proxy for the undersigned, with the power of
substitution, to vote with the same force and effect as the undersigned at the
Special Meeting of Shareholders of Founders Funds, Inc. (the "Company") to be
held at the Adam's Mark Hotel, 1550 Court Place, Denver, Colorado 80202, on
Tuesday, February 17, 1998 at 3:00 p.m. (Mountain time) and at any adjournment
thereof, upon the matters set forth below, all in accordance with and as more
fully described in the Notice of Special Meeting and Proxy Statement, dated
December 30, 1997, receipt of which is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS, WHICH RECOMMENDS A VOTE "FOR"
EACH PROPOSAL.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF ALL DIRECTORS AND "FOR" PROPOSAL 1.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE AS SOON AS POSSIBLE.
THANK YOU.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
VOTE ON DIRECTORS
With- For all
For hold Except
2. Election of seven Directors. [ ] [ ] [ ]
01) William H. Baughn, 02) Bjorn K. Borgen, 03) Alan S. Danson,
04) Trygve E. Myhren, 05) Jay A. Precourt, 06) Eugene H. Vaughan, Jr.,
and 07) Jonathan F. Zeschin
IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE, MARK
"FOR ALL EXCEPT" AND WRITE THE NOMINEE'S NUMBER ON THE LINE BELOW.
------------------------------------
VOTE ON PROPOSAL 1
For Against Abstain
1. Proposal to approve the Advisory Agreement [ ] [ ] [ ]
between the Company and Founders Asset
Management LLC
- ---------------------------- ---------------------------- ---------------
Signature Signature (Joint Owner) Date
Please sign exactly as your name appears hereon. If shares are held in the name
of joint owners, each should sign. Attorneys-in-fact, executors, administrators,
etc. should so indicate. If shareholder is a corporation or partnership, please
sign in full corporate or partnership name by authorized person.
Founders Asset Management, Inc.
[LOGO] Founders
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
(303) 394-4404
December 30, 1997
Dear Trustee or Custodian:
As you may have heard, Founders Asset Management, Inc., the investment manager
and distributor of the Founders family of mutual funds, has signed an agreement
to become a subsidiary of Mellon Bank, N.A. We believe this partnership is an
excellent strategic fit for Founders and the shareholders in the Founders Funds.
Enclosed is a proxy statement requesting an approval of a new investment
advisory agreement between the Founders Funds and Founders Asset Management LLC
to become effective upon the completion of the acquisition, and an election of a
Board of Directors. We have included proxy materials for each Fund for which
your firm is currently Trustee or Custodian. Please review your plan or trust
documents to determine who has mutual fund share voting authority. After
completing all ballots, please return them in the enclosed postage-paid envelope
as soon as possible.
We appreciate the trust and confidence you've expressed in Founders, and we will
work hard to continue to earn it. If you have any questions about the proxy,
please contact a Founders representative at 1-800-332-5373.
Thank you for your prompt attention.
Sincerely,
/s/ Bjorn K. Borgen /s/ Jon Zeschin
- --------------------------------- ----------------------------------
Bjorn K. Borgen Jon Zeschin
Chairman, Chief Executive Officer President and
and Chief Investment Officer Chief Operating Officer
Founders Asset Management, Inc.
[LOGO] Founders
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
(303) 394-4404
December 30, 1997
Dear Trustee or Custodian:
As you may have heard, Founders Asset Management, Inc., the investment manager
and distributor of the Founders family of mutual funds, has signed an agreement
to become a subsidiary of Mellon Bank, N.A. We believe this partnership is an
excellent strategic fit for Founders and the shareholders in the Founders Funds.
Enclosed is a proxy statement requesting your approval of a new investment
advisory agreement between the Founders Funds and Founders Asset Management LLC,
to become effective upon the completion of the acquisition, and your election of
a Board of Directors. According to your plan documents, the Trustee is
responsible for casting proxy votes pursuant to instructions received from plan
participants. After you have completed all ballots, please return them in the
enclosed postage-paid envelope as soon as possible.
We appreciate the trust and confidence you've expressed in Founders, and we will
work hard to continue to earn it. If you have any questions about the proxy,
please contact a Founders representative at 1-800-332-5373.
Thank you for your prompt attention.
Sincerely,
/s/ Bjorn K. Borgen /s/ Jon Zeschin
- --------------------------------- ----------------------------------
Bjorn K. Borgen Jon Zeschin
Chairman, Chief Executive Officer President and
and Chief Investment Officer Chief Operating Officer