PROXY
BOND PORTFOLIO FOR ENDOWMENTS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
FUND FOR THE SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD JULY 21, 1998
The undersigned hereby appoints Frank L. Ellsworth and Patrick F. Quan as
lawful agents and proxies, each with full power to appoint a substitute to
represent the undersigned at the aforesaid Special Meeting of Shareholders to
be held at the offices of the Fund's Investment Adviser, 333 South Hope Street,
(55th Floor), Los Angeles, California, on Tuesday, July 21, 1998, at 10:00
a.m., on all matters coming before said meeting.
1. Approval of the proposed changes to the Fund's investment restrictions.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] To vote against the proposed changes to one or more of the specific
fundamental investment restrictions, but to approve the others, place an "X" in
the box at the left AND indicate the number(s) (as set forth in the proxy
statement) of the investment restrictions you do not want to change on this
line (for example, A(1)(a), B(1) or C): ____________________
2. Approval of an amendment to the Certificate of Incorporation of the Fund
specifying that a transfer of all or substantially all of the assets of the
Fund requires the approval of a majority of the Fund's Board of Directors and a
majority of the outstanding shares of the Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of an Agreement and Plan of Reorganization pursuant to which your
Fund would be reorganized as a separate series of Endowments, a newly formed
Delaware business trust.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, upon other matters as may properly come before the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR ITEMS 1, 2, AND 3.
, 1998 --------------------------------------------
(Date) (Please sign exactly as name appears below)
SHAREHOLDER: [bendi shareholder]
SHARES HELD JUNE 17, 1998: [shares]
YOU CAN VOTE BY MAIL, PHONE, FAX OR IN PERSON AT THE MEETING. TO VOTE BY MAIL,
SIGN AND SEND US THE ENCLOSED PROXY VOTING CARD IN THE ENVELOPE PROVIDED. YOU
CAN FAX YOUR VOTE BY SIGNING THE PROXY VOTING CARD AND FAXING BOTH SIDES OF THE
CARD TO 1-415-393-7140. TO CALL IN YOUR VOTE, PLEASE TELEPHONE 1-415-393-7105.
ENDOWMENTS, INC.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
P.O. Box 7650
One Market, Steuart Tower
San Francisco, California 94120
June 23, 1998
Dear Shareholder:
We are writing to inform you of the upcoming special meeting of the
shareholders of your Fund to be held on July 21, 1998 (the "Meeting"). At this
meeting, you are being asked to vote on important proposals affecting your
Fund. THE BOARD OF DIRECTORS OF YOUR FUND BELIEVES THAT THESE PROPOSALS ARE IN
THE BEST INTERESTS OF THE FUND AND ITS SHAREHOLDERS, AND RECOMMENDS THAT YOU
APPROVE ALL PROPOSALS PRESENTED FOR YOUR CONSIDERATION.
NONE OF THESE PROPOSALS WILL CHANGE YOUR FUND'S CURRENT INVESTMENT OBJECTIVES
AND PRACTICES, INCREASE THE LEVEL OF OVERALL RISK ASSOCIATED WITH AN INVESTMENT
IN YOUR FUND, DECREASE THE QUALITY OF SERVICES PROVIDED TO SHAREHOLDERS, OR
INCREASE THE FEES PAYABLE BY THE FUND.
At the Meeting, you'll be asked to vote on:
1. A proposal to make changes to your Fund's fundamental investment
limitations (none of which would alter your Fund's investment objective)
(Proposal 1).
2. A proposal to amend your Fund's Certificate of Incorporation (Proposal 2).
3. A proposal to reorganize your Fund as a series of a Delaware business trust
(Proposal 3).
4. Any other business that may come before the Meeting, although we are not
aware of any other items to be considered.
Some key points about these proposals are described on the following page. In
addition, we encourage you to review the questions and answers included in the
proxy statement summary to help understand how these proposals will affect you
as a shareholder. Finally, the proposals are described in more detail in the
full text of the proxy statement which you should read before you vote.
We believe the proposed changes will enhance your Fund's operating
efficiencies (by reflecting modern administrative practices and arrangements)
providing a solid foundation for its future - all without altering the basic
purpose of your Fund - which is to facilitate the growth of your non-profit
endowments.
REMEMBER: IF YOU HAVE QUESTIONS, PLEASE CALL US AT 1-415-393-7105.
ABOUT PROPOSAL 1:
Because your Fund was formed many years ago, it is subject to a number of
investment restrictions that do not reflect current conditions, practices and
requirements. In some cases these restrictions, although described as
"fundamental" because they require shareholder approval to modify, are no
longer relevant to the day-to-day operations of your Fund. In other cases, we
believe the language of the restrictions should be modified to reflect current
standards. We are also requesting that certain restrictions be reclassified as
non-fundamental, requiring only board approval to change. You may vote for any
or all of the changes that are the subject of Proposal 1 by so indicating on
your proxy card. If Proposal 1 is approved, your Fund's Certificate of
Incorporation would be amended accordingly.
ABOUT PROPOSAL 2:
With Proposal 2, we are asking you to approve an amendment to your Fund's
Certificate of Incorporation to clarify the circumstances under which the Fund
may transfer all or substantially all of its assets. The type of transaction
this change would address is the subject of Proposal 3.
ABOUT PROPOSAL 3:
We want to reorganize your Fund from a Delaware corporation into a series of a
Delaware business trust, a more commonly used legal entity in the mutual fund
industry. This change in legal form should result in some administrative and
operational efficiencies for the Fund. Under Proposal 3, your Fund would keep
the same Directors, officers, investment adviser and independent accountants.
* * *
We are sure that you, like most people, lead a busy life and are tempted to
put this proxy aside for another day. Please don't. When shareholders do not
return their proxies, additional expenses are incurred to pay for follow-up
mailings and telephone calls. PLEASE TAKE A FEW MINUTES TO REVIEW THIS PROXY
STATEMENT AND SIGN AND RETURN ALL PROXY CARDS TODAY. If you hold shares in
both Funds, you will receive a separate proxy card for each Fund. Please be
sure to sign and return each proxy card regardless of how many you receive.
If you have any questions regarding the issues to be voted on or need
assistance in completing your proxy card, please contact Ms. Jennifer L.
Yardley at 1-415-393-7105. Thank you for investing with us and for your
continuing support.
Sincerely,
ROBERT B. EGELSTON
Chairman of the Board
FRANK L. ELLSWORTH
President
PROXY STATEMENT SUMMARY
The following is a brief summary of the proposals to be considered at the
Meeting. The information below is qualified in its entirety by the more
detailed information contained elsewhere in this proxy statement. Accordingly,
please read all the enclosed proxy materials before voting.
If you own shares of both Funds, you may receive additional proxy statements
and voting cards in a separate mailing. It is important that you vote ALL
proxy cards that you receive. Please remember to vote your shares as soon as
possible.
- Q & A -
Q. WHEN WILL THE MEETING BE HELD? WHO IS ELIGIBLE TO VOTE?
A. The Meeting will be held on July 21, 1998 at 10:00 a.m. at 333 South Hope
Street, Los Angeles, California. Please note that this will be a business
meeting only. There will be no presentations about either of the Funds. The
record date for the Meeting is the close of business on June 17, 1998. Only
shareholders who own shares at that time are entitled to vote at the Meeting.
Q. WHAT IS BEING VOTED ON AT THE MEETING?
A. Your Board of Directors is recommending that shareholders consider the
following proposals affecting both Funds:
PROPOSAL
1. TO APPROVE THE ELIMINATION OR REVISION OF CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS FOR THE FUND ("PROPOSAL 1");
2. TO APPROVE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF THE FUND
WHICH WOULD SPECIFY THAT A TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS
OF THE FUND REQUIRES THE APPROVAL OF A MAJORITY OF THE FUND'S BOARD OF
DIRECTORS AND A MAJORITY OF THE OUTSTANDING SHARES OF THE FUND ("PROPOSAL 2");
3. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION, IN THE FORM SET FORTH IN
APPENDIX A TO THE ATTACHED PROXY STATEMENT, FOR ADOPTION BY THE FUND, PURSUANT
TO WHICH THE FUND WOULD BE REORGANIZED AS A SEPARATE SERIES OF ENDOWMENTS, A
NEWLY FORMED DELAWARE BUSINESS TRUST, AS DESCRIBED IN THE ATTACHED PROXY
STATEMENT ("PROPOSAL 3");
4. TO TRANSACT SUCH OTHER BUSINESS THAT MAY COME BEFORE THE MEETING, ALTHOUGH
WE ARE NOT AWARE OF ANY OTHER ITEMS TO BE CONSIDERED.
Q. HOW DO THE DIRECTORS RECOMMEND THAT I VOTE ON THESE PROPOSALS?
A. The Directors recommend that you vote "FOR" each proposal.
Q. ARE THERE ANY CHANGES THAT WILL IMPACT SHAREHOLDERS' INVESTMENT POLICIES?
A. No. None of these proposals would affect investment policies previously
established by a shareholder's investment committee or its board of trustees.
Q. DO ANY OF THE PROPOSED CHANGES REQUIRE THE APPROVAL OF A SHAREHOLDER'S
INVESTMENT COMMITTEE AND/OR BOARD OF TRUSTEES?
A. We don't believe so; however, you may want to bring this information to
the attention of an investment committee for their information.
Q. WILL THESE CHANGES INCREASE YOUR FUND'S FEES OR EXPENSE RATIOS?
A. Not likely. If the reorganization is approved, the fees and expenses to
which the successor series will be subject will be substantially identical to
those currently in effect for each Fund, although some cost savings are
possible. In addition, while it is true that the expenses associated with this
solicitation of proxies and, if approved, the proposed reorganization will be
paid by the Funds (and, potentially, their successor series), it is unlikely
that either Fund will actually bear expenses in excess of current expense
levels (approximately 0.75% of net assets). This is because both Funds benefit
(and their successor series will benefit) from voluntary expense caps effected
through a reduction in the investment adviser's management fees.
Q. WHY AM I BEING ASKED TO APPROVE THE ELIMINATION OR REVISION OF CERTAIN
FUNDAMENTAL INVESTMENT RESTRICTIONS FOR MY FUND?
A. Certain of the Funds' current fundamental investment restrictions reflect
regulatory, business or industry conditions, practices or requirements which at
one time, for a variety of reasons, led to the imposition of limitations on the
management of your Fund's investments. With the passage of time, the
development of new practices, and changes in regulatory standards, management
considers several of these restrictions to be outdated, unnecessary or
unwarranted. Other restrictions continue to have relevance to the Fund's
operations, but the language of the restrictions may not be consistent with
current conditions, practices and requirements. Finally, there are a number of
investment restrictions which are not required by applicable law to be
designated as fundamental. Accordingly, under Proposal 1, the first group of
restrictions would be eliminated, the second group would be amended, and the
third group would be reclassified as non-fundamental. These restrictions also
appear in the Fund's Certificate of Incorporation and approval of this proposal
would also approve an amendment to its Certificate of Incorporation. You may
vote for any or all of the changes that are the subject of Proposal 1. Your
proxy card permits you to vote against any of the proposed changes in Proposal
1 by indicating the letter and number of the change you wish to vote against as
it appears in the proxy statement.
Q. WHY AM I BEING ASKED TO APPROVE AN AMENDMENT TO MY FUND'S CERTIFICATE OF
INCORPORATION REGARDING THE TRANSFER OR EXCHANGE OF MY FUND'S ASSETS?
A. Currently, your Fund's organizational documents do not specify what
approvals are required for the Fund to participate in a reorganization of the
type which is the subject of Proposal 3. The proposed amendment would clarify
the actions required to be taken by the Board of Directors of each Fund and its
shareholders to proceed with the reorganization.
Q. WHY AM I BEING ASKED TO ADOPT A PLAN OF REORGANIZATION FOR MY FUND?
A. Currently, each of the Funds is organized as a separate Delaware
corporation. Consequently, each Fund has a separate Board of Directors, and
each is registered individually as an investment company under the federal
securities laws. Reorganization of the Funds as separate series of a Delaware
business trust is expected to result in certain cost savings and administrative
efficiencies for the Funds. For example, the reorganization would result in
fewer state and federal regulatory filings. In addition, the Boards of
Directors of the Funds believe that a Delaware business trust as a form of
organization offers certain structural advantages for a mutual fund over a
Delaware corporation. This proposal relates only to a change of the Funds'
legal status, which is not expected to change any Fund operations affecting
shareholders. A full discussion of the Plan of Reorganization and its
anticipated benefits to the Funds begins on page 12 of the full proxy
statement.
Federal law requires that shareholders formally approve certain matters in
connection with such a reorganization, despite the fact that Fund operations
will continue without material change. One such item is the approval of a new
Investment Advisory and Service Agreement for the new Delaware business trust.
The terms of the new agreement will be substantially identical to the terms of
the agreement currently in existence for your Fund. In accordance with federal
law, approval of Proposal 3 also involves approval of the new Investment
Advisory and Service Agreement.
Another aspect of Fund operations included in Proposal 3 is the designation of
a Board of Trustees for the new Delaware business trust's operation. The
selection of the Board of Trustees must be approved by the shareholders of the
new Delaware business trust. The Trustee nominees are the same persons who
currently serve as Directors of your Fund. Approval of Proposal 3 also
constitutes election of the proposed Trustees of the new Delaware business
trust.
If the Funds are reorganized as proposed, you will need to approve the
selection of independent accountants for the first year of operation of your
reorganized Fund as a Delaware business trust. The Board of Directors of each
Fund approved the selection of Deloitte & Touche LLP as independent accountants
for the Funds' fiscal year ended July 31, 1998, and shareholders ratified this
selection. With its approval of the reorganization proposal, each Board of
Directors selected Deloitte & Touche LLP to continue as accountants for the new
Delaware business trust. Approval of Proposal 3 will also constitute approval
of Deloitte & Touche LLP as independent accountants for the new Delaware
business trust for its first fiscal year of operations.
Finally, if the reorganization is approved, your Fund will be reorganized as a
separate series of a Delaware business trust and will no longer need to exist
as a Delaware corporation. In order to dissolve the former corporate entity
after the reorganization, under state law, we need to have the shareholders of
your Fund approve the dissolution. This is also part of Proposal 3.
As previously indicated, the adoption of these proposals is not expected to
materially affect the way the Funds are currently managed.
A full discussion of the specific proposals, as well as a further discussion
of the anticipated benefits of the proposals, begins on page 12.
Q. WHEN WILL THE PROPOSALS TAKE EFFECT IF THEY ARE APPROVED?
A. The proposed changes to the fundamental investment restrictions described
in Proposal 1 will be effective immediately upon approval and a corresponding
amendment to your Fund's Certificate of Incorporation would be filed after its
approval at the Meeting, except as indicated in further detail below. If
approved, the amendment to the Fund's Certificate of Incorporation described in
Proposal 2 will be effected immediately following the vote on this matter by
your Fund on July 21, 1998. If approved, the reorganization described in
Proposal 3 is expected to be completed by July 31, 1998.
Q. WHO IS ASKING FOR MY VOTE?
A. The Board of Directors is asking you to sign and return the enclosed proxy
so your votes can be cast at the Meeting. In the unlikely event the Meeting is
adjourned, these proxies would also be voted at the reconvened meeting.
Q. HOW DO I VOTE MY SHARES?
A. We've made it easy for you. You can vote by mail, phone, fax or in person
at the Meeting. To vote by mail, sign and send us the enclosed proxy voting
card in the envelope provided. You can fax your vote by signing the proxy
voting card and faxing both sides of the card to 1-415-393-7140. To call in
your vote, please telephone 1-415-393-7105. Or, you can vote in person at the
Meeting on July 21, 1998.
Q. IF I SEND MY PROXY IN NOW AS REQUESTED, CAN I CHANGE MY VOTE LATER?
A. A proxy can be revoked at any time prior to the Meeting by writing to us,
by sending us another proxy, or by attending the Meeting and voting in person.
Even if you plan to attend the Meeting and vote in person, we ask that you
return the enclosed proxy. Doing so will help us ensure that an adequate
number of shares are present at the Meeting.
ENDOWMENTS, INC.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
P.O. BOX 7650
ONE MARKET, STEUART TOWER
SAN FRANCISCO, CALIFORNIA 94120
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JUNE 23, 1998
_____________________
To the Shareholders of the Funds:
Notice is hereby given that a Special Meeting of Shareholders (the "Meeting")
of each of Endowments, Inc., a Delaware corporation, and Bond Portfolio for
Endowments, Inc., a Delaware corporation (collectively, the "Funds"), will be
held at 10:00 a.m., on July 21, 1998, at the offices of the Funds' Investment
Adviser located at 333 South Hope Street, Los Angeles, California, for the
following purposes:
1. TO BE VOTED ON SEPARATELY BY SHAREHOLDERS OF EACH FUND: To vote upon the
approval of the elimination or revision of certain fundamental investment
restrictions for each of the Funds ("Proposal 1").
2. TO BE VOTED ON SEPARATELY BY SHAREHOLDERS OF EACH FUND: To vote upon the
approval of an amendment to the Certificate of Incorporation of each Fund which
would specify that a transfer of all or substantially all of the assets of each
Fund requires the approval of a majority of the Fund's Board of Directors and a
majority of the outstanding shares of the Fund ("Proposal 2").
3. TO BE VOTED ON SEPARATELY BY SHAREHOLDERS OF EACH FUND: To vote upon the
approval of an Agreement and Plan of Reorganization, in the form set forth in
Appendix A to the attached Proxy Statement, for adoption by each of the Funds,
pursuant to which each Fund would be reorganized as a separate series of
Endowments, a newly formed Delaware business trust, as described in the
attached Proxy Statement ("Proposal 3").
4. To transact such other business as may come properly before the Meeting and
any adjournment thereof.
Shareholders of record at the close of business on June 17, 1998 are entitled
to notice of, and to vote at the Meeting.
By Order of the Boards of Directors of Endowments, Inc.
and Bond Portfolio for Endowments, Inc.
PATRICK F. QUAN
Secretary
San Francisco, California
June 23, 1998
PLEASE RESPOND --- YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING, PLEASE COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE
ENCLOSED ENVELOPE SO THAT YOU WILL BE REPRESENTED AT THE MEETING.
ENDOWMENTS, INC.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
INTRODUCTION
The Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Boards of Directors (collectively, the "Boards") of
Endowments, Inc. and Bond Portfolio for Endowments, Inc. (each a "Fund" and
collectively, the "Funds") for a Special Meeting of the Funds to be held at the
offices of Capital Research and Management Company located at 333 South Hope
Street, Los Angeles, California, on July 21, 1998 at 10:00 a.m. and any
adjournment thereof (collectively, the "Meeting"). The cost of the
solicitation (including printing and mailing this Proxy Statement, Notice of
Meeting and Proxy, as well as any supplementary solicitation) will be borne by
the Funds in proportion to their respective net assets. The Notice of the
Meeting, Proxy Statement and Proxy are being mailed to shareholders on or about
June 23, 1998.
VOTES REQUIRED
TO BE VOTED ON SEPARATELY BY SHAREHOLDERS OF EACH FUND: With respect to each
Fund, amendment of certain of the Fund's investment restrictions, as set forth
in Proposal 1, will require the affirmative vote of the lesser of (i) 67% of
the shares of the Fund present at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. With respect to each
Fund, the amendment of the Fund's Certificate of Incorporation, as set forth in
Proposal 2, will require the affirmative vote of a majority of the outstanding
voting securities of the Fund. Reorganization of each Fund, as set forth in
Proposal 3, will require the affirmative vote of a majority of the outstanding
voting securities of that Fund.
PROPOSAL ONE
ELIMINATION OR REVISION OF CERTAIN FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE
FUNDS
INTRODUCTION AND SUMMARY
Pursuant to the Investment Company Act of 1940 (the "1940 Act"), each Fund has
adopted certain fundamental investment restrictions ("fundamental
restrictions") that are set forth in the Fund's prospectus and statement of
additional information, which may be changed only with shareholder approval.
Restrictions that a Fund has not specifically designated as being fundamental
are considered to be "non-fundamental" and may be changed by the Fund's Board
without shareholder approval. Each Fund's fundamental restrictions currently
appears in the Fund's Certificate of Incorporation as well.
Certain of the fundamental restrictions that the Funds have adopted in the
past reflect regulatory, business or industry conditions, practices or
requirements which at one time for a variety of reasons led to the imposition
of limitations on the management of the Funds' investments. With the passage
of time, the development of new practices, and changes in regulatory standards,
several of these restrictions are considered by management to be unnecessary or
unwarranted. Several restrictions were imposed by certain states in which the
Funds have qualified their shares for sale but those restrictions are no longer
required since federal legislation has preempted the States from imposing such
restrictions. Other current fundamental restrictions reflect federal
regulatory requirements which remain in effect, but which are no longer
required to be stated as fundamental restrictions. Moreover, the Funds are not
required by state or federal law to make the fundamental restrictions a part of
their Certificates of Incorporation.
Accordingly, the Boards have approved revisions to the Funds' fundamental
restrictions in order to simplify and modernize those investment restrictions
that are required to be fundamental and to eliminate those fundamental
restrictions that are not legally required. Certain existing fundamental
restrictions that are not required to be fundamental would be re-classified as
non-fundamental restrictions. The Boards have also approved amending the
Funds' Certificates of Incorporation to eliminate the Funds' fundamental
restrictions from the Certificates of Incorporation. These changes do not
affect the investment objective of your Fund, which remains unchanged.
The Boards believe that amending and revising the Funds' fundamental
restrictions will enhance management's ability to manage the Funds' assets
efficiently and effectively, particularly in changing regulatory and investment
environments. In addition, by minimizing the number of policies that can be
changed only by shareholder vote, the Boards and the Funds will have greater
flexibility to modify Fund policies, as appropriate, in response to changing
markets and in light of new investment opportunities and instruments. The
Funds will then be able to avoid the costs and delays associated with a
shareholder meeting when making changes to the non-fundamental investment
policies that the Boards may consider desirable. Although the proposed changes
in investment restrictions will allow the Funds greater investment flexibility
to respond to future investment opportunities, the Boards do not anticipate
that the changes, individually or in the aggregate, will change to a material
degree the level of investment risk associated with an investment in either
Fund.
The text of each proposed change to the Funds' fundamental restrictions is set
forth below. The text below also describes those non-fundamental restrictions
that would be adopted by the Boards in conjunction with the elimination of the
fundamental restrictions under this Proposal. Any non-fundamental restriction
may be modified or eliminated by a Board at any future date without any further
approval of shareholders.
Shareholders of a Fund may vote for any or all of the changes that are the
subject of Proposal 1. For ease of reading and due to limited space on the
proxy card, we have organized the proposed changes as part of a single proposal
but shareholders are asked to review each change. If a shareholder would like
to vote against a particular change, they need only list the letter and number
of the change on their proxy card. If the proposed changes are approved by
shareholders of each of the respective Funds at the Meeting, each Fund's
prospectus and statement of additional information will be revised, as
appropriate, to reflect those changes, and the Funds' Certificates of
Incorporation will be amended to remove each Fund's fundamental restrictions
from its Certificate of Incorporation.
A. FUNDAMENTAL RESTRICTIONS PROPOSED TO BE REVISED OR ELIMINATED IN ORDER TO
INCREASE FLEXIBILITY AND CONSISTENCY BETWEEN THE FUNDS
1. RESTRICTIONS PROPOSED TO BE REVISED BUT WHICH REMAIN FUNDAMENTAL
Funds to which these changes apply: BOTH
(a) Industry Concentration
The 1940 Act requires a Fund to have a policy with respect to the
concentration of its assets in particular industries, with a Fund being
generally prohibited from reserving freedom of action with respect to its
ability to so concentrate its investments. "Concentration" is deemed by the
Securities and Exchange Commission and its Staff (collectively, the
"Commission") to mean investment of more than 25% of a Fund's assets in the
securities of issuers in a particular industry. This policy has an important
interpretive exception for securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements with
respect thereto. The Funds' current restriction with respect to industry
concentration does not make reference to this regulatory exclusion.
Accordingly, it is proposed that this fundamental restriction be amended to
specify that securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (and repurchase agreements with respect thereto)
are not intended to be covered by the restriction.
CURRENT TEXT
[The Fund may not . . . ] concentrate its investments in one industry. (The
amount invested in an industry will not be 25% or more of the Fund's total
assets.)
PROPOSED TEXT
[The Fund may not . . . ] invest in a security if, as a result of such
investment, more than 25% of its total assets would be invested in the
securities of issuers in any particular industry, except that the restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (or repurchase agreements with respect thereto).
(b) Lending Activities
The Funds are required to have a fundamental restriction addressing their
lending activities. These activities are subject to certain limitations under
the 1940 Act. It has been proposed that the Funds modify their investment
restriction pertaining to lending activities so as to incorporate the 1940 Act
restrictions pertaining to lending and to make clear that the restriction was
not intended to prohibit the Funds from entering into repurchase agreements and
purchasing loan participations. The modification to this policy would further
clarify that the Funds may lend their portfolio securities, subject to
applicable regulatory restrictions. Lending a Fund's securities would permit
the Fund to achieve income either through the receipt of interest, through
investment of cash collateral by the Fund in permissible investments, or a fee,
if the collateral is U.S. Government securities. The Fund's investment results
would reflect changes in the value of the security loaned and any security loan
could be recalled by the Fund at any time. Securities lending is a common
practice but involves the risk of loss of rights in the collateral or delay in
recovery of the collateral should the borrower fail to return the security
loaned or become insolvent. Neither Fund currently intends to engage in
securities lending activities.
CURRENT TEXT
[The Fund may not . . .] make loans to any person or firm, provided, however,
that the acquisition of a portion of an issue of bonds, debentures, notes and
other evidences of indebtedness of any corporation or government shall not be
construed to be the making of a loan.
PROPOSED REVISION (FUNDAMENTAL POLICY)
[The Fund may not . . .] make loans, but this limitation does not apply (i) to
purchases of debt securities, loan participations, or the entry into of
repurchase agreements, or (ii) to loans of portfolio securities if, as a
result, no more than 33 1/3% of a Fund's total assets would be on loan to third
parties.
(c) Investments in Commodities and Real Estate
The Funds are proposing to divide their existing investment restriction
limiting their ability to invest in real estate and commodities into two
separate investment restrictions. Under the revised restrictions, the Funds
would still be prohibited from investing in real estate, although it would be
clarified that the Funds may invest in the securities of issuers in the real
estate business, or securities (such as mortgage-backed securities) that may
evidence an interest in underlying real estate. The Funds would still be
prohibited from investing in physical commodities or commodities contracts, but
would be permitted to engage in certain transactions involving financial
futures and options and similar instruments. These instruments would include
stock index futures contracts, foreign currency exchange-related instruments,
and interest rate futures contracts, which the investment adviser might
purchase in an attempt to protect a Fund's assets from a decline in value due
to changes in securities prices, interest rates, currency exchange rates or
other factors. These types of investments are made by other comparable
investment companies. Some risks associated with the use of these instruments
include possible imperfect correlations between price movements of derivative
instruments and the price movements of related investments. The use of these
instruments can reduce the risk of loss to the Funds but can also reduce the
opportunity for gain or even result in losses by offsetting favorable price
movements in related investments or otherwise. The Funds have no current
intention of investing in financial futures or options or similar instruments.
CURRENT TEXT
[The Fund may not$] invest in real estate, commodities, or commodity
contracts. (Investments in real estate investment trusts are not deemed
purchases of real estate.)
PROPOSED TEXT (AS TWO SEPARATE FUNDAMENTAL POLICIES)
[The Fund may not. . .] purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (this shall not prevent
the Fund from investing in securities or other instruments backed by real
estate, or the securities of companies engaged in the real estate business).
[The Fund may not . . .] purchase or sell commodities or commodities
contracts. This restriction shall not prohibit a Fund, subject to restrictions
described in its Prospectus and Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or any
interest rate, securities-related or foreign currency-related hedging
instrument, including swap agreements and other derivative instruments, subject
to compliance with applicable provisions of the federal securities and
commodities laws.
(d) Issuance of Senior Securities
Each of the Funds currently discloses that, as a matter of fundamental policy,
it will not issue senior securities. The term "senior security" has been
interpreted by the Securities and Exchange Commission and its Staff to include
a number of investment instruments and techniques that may have the potential
to create an obligation of a fund senior in right to the fund's common stock.
Such instruments and techniques include options on securities and securities
indexes, futures contracts, options on futures contracts, foreign currency
forward contracts, foreign currency options, and other interest rate,
securities-related and foreign currency-related hedging instruments, as well as
certain investment techniques (such as reverse repurchase agreements), that
have the same potential to create an obligation for a Fund. Such positions are
typically required to be "covered" by the segregation of liquid assets (or
other offsetting positions). Open-end investment companies generally are
prohibited by the 1940 Act from engaging in transactions that may be deemed to
create senior securities, except as permitted by the 1940 Act and
interpretations thereof. The Funds propose making the following revision to
clarify that the preexisting prohibition on the issuance of senior securities
was not intended to prohibit the Funds' use of instruments and techniques that
are otherwise permitted for open-end funds.
CURRENT TEXT
The Fund will not issue senior securities.
PROPOSED TEXT
[The Fund may not$] issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended.
(e) Borrowing
Each Fund is currently limited in its ability to borrow. While the
substantive limit of the current restriction on borrowing would not change, it
is proposed to change this policy to eliminate the requirement that the
Directors approve each borrowing made by a Fund. It is anticipated that the
Funds would seldom make any borrowings.
CURRENT TEXT
[The Fund may not . . .] borrow more than 5% of the value of its total assets
at the time of such borrowing, and [may] borrow only temporarily for
extraordinary or emergency purposes and not for purchase of investment
securities, and each such borrowing [is] to be specifically approved by the
Board of Directors of the Fund.
PROPOSED TEXT
[The Fund may not . . .] borrow money, except temporarily for extraordinary or
emergency purposes, in an amount not exceeding 5% of its total assets at the
time of such borrowing.
(f) Diversification
The Funds are "diversified" for purposes of the 1940 Act, which means that
they must comply with the diversification requirements of the Act. The Funds
cannot change their status from diversified to non-diversified without
shareholder approval. The change indicated below would clarify that the policy
does not apply to securities issued by U.S. governmental entities and further
to confirm that the limitations are effective only with respect to 75% of a
Fund's portfolio.
CURRENT TEXT
[The Fund may not . . . ] invest more than 5% of the value of the total assets
of the Fund in the securities of any one issuer, provided that this limitation
shall apply only to 75% of the value of the Fund's total assets and, provided
further, that the limitation shall not apply to obligations of the government
of the U.S. or of any corporation organized as an instrumentality of the U.S.
under a general Act of Congress.
[The Fund may not . . .] acquire more than 10% of the outstanding voting
securities of any one corporation.
PROPOSED TEXT
[The Fund may not . . .], with respect to 75% of its total assets, invest more
than 5% of the value of its total assets in the securities of any one issuer,
or acquire more than 10% of the voting securities of any one issuer. These
limitations do not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
2. RESTRICTIONS PROPOSED TO BE ELIMINATED
Funds to which these changes apply: BOTH
The following investment restrictions are not required by the 1940 Act. They
were originally adopted in response to state law restrictions or
interpretations which no longer apply to the Funds. Therefore, in order to
increase the ability of Fund management to manage the Funds' assets effectively
and efficiently in response to market and regulatory change, it is proposed
that these investment restrictions, which are currently listed as fundamental,
be eliminated. Some of the restrictions are covered by the Funds' Codes of
Ethics and by separate provisions of the 1940 Act not designating the
restrictions as fundamental. Although we would like to eliminate these
restrictions, the daily operation of the Funds will not materially change as a
result of these changes.
(a) [The Fund] may not mortgage, pledge, hypothecate, or in any manner transfer
as security for any indebtedness, any securities owned or held by the Fund
except to secure borrowings pursuant to [the Fund's borrowing policy], and in
no event to an extent greater than 15% of the gross assets of the Fund taken at
cost.
(b) [The Fund may not . . . ] participate on a joint or a joint and several
basis in any trading account in securities.
(c) [The Fund may not . . . ] purchase securities on margin, except that the
Fund may obtain such short-term credits as may be necessary for clearance of
purchases or sales of securities.
(d) [The Fund may not . . . ] effect short sales, except for short sales
"against the box" (I.E. sales when the Fund owns or has the right to acquire at
no additional cost securities identical to those sold short).
(e) [The Fund may not . . .] invest more than 5% of the value of the Fund's
total assets in the securities of companies which (together with predecessors)
have a record of less than three years' continuous operation.
(f) [The Fund may not . . .] purchase or sell securities from or to officers or
directors of the Fund, or of the investment adviser.
(g) [The Fund may not . . .] purchase securities if one or more of the officers
of directors of the Fund or investment adviser owns beneficially more than 1/2
of 1% of the securities of such issuer and if together they own beneficially
more than 5% of such securities.
3. ELIMINATION OF FUNDAMENTAL POLICY RELATING TO ACHIEVING EACH FUND'S
INVESTMENT OBJECTIVE
Each Fund has an investment objective, which is a fundamental policy of the
Fund. Each Fund, moreover, has an investment restriction describing the
investment practices to be used by each Fund in achieving its investment
objective.
Each Fund will retain its investment objective, and believes that the
disclosure provided in its registration statement about the Fund's investment
policies and practices provides investors with sufficient information about the
Fund and its operations to make an informed decision whether to invest in the
Fund. The Board of Directors of each Fund believes that it is sufficient for
the Fund's objective to be a fundamental policy of the Fund and that it is not
necessary for the Fund's investment practices to be so characterized.
Accordingly, each Board of Directors believes that the elimination of the
following fundamental restriction is desirable to assist the Fund in achieving
its investment objective. Elimination of this restriction would provide the
Funds with greater flexibility to alter investment practices in response to
changing market conditions, although the Board of Directors of the Fund would
need to approve any significant future change in the investment practices of
the Fund, and would do so in the best interests of the shareholders of the
Fund.
Fund to which the following change applies: ENDOWMENTS, INC.
(a) It is the fundamental policy of the Fund to invest primarily in common
stocks or senior securities with equity provisions of well-known companies
which appear to offer prospects for long-term growth of both capital and
income. Although common stocks and convertible issues will ordinarily be used
for the attainment of the Fund's investment objective, preferred stocks and
bonds and other fixed income issues may be purchased whenever and to the extent
deemed advisable by the Fund's investment adviser in consideration of the
Fund's income objective and for defensive purposes. The Fund may also hold
cash and cash equivalents (commercial paper and other money market instruments)
for cash needs and for defensive purposes.
Fund to which this change applies: BOND PORTFOLIO FOR ENDOWMENTS, INC.
(a) It is the fundamental policy of the Fund to invest primarily in bonds and
debentures which appear to offer attractive current yields without undue risk
of principal. To attain its investment objective, the Fund may invest in
domestic and foreign corporate bonds and debentures (a portion of which may
have conversion or stock purchase rights), bonds and debentures issued or
guaranteed by the U.S. government or its agencies or instrumentalities, and
bonds and debentures issued by foreign governments. The Fund may also invest
in short- and medium-term obligations and hold cash and cash equivalents as
dictated by cash needs and market conditions.
B. CURRENT FUNDAMENTAL RESTRICTIONS WHICH ARE NOT
REQUIRED TO BE FUNDAMENTAL AND ARE ACCORDINGLY PROPOSED TO BE RECLASSIFIED AS
NONFUNDAMENTAL AND REVISED
Funds to which these changes apply: BOTH
Each of the Funds is governed by certain investment policies which, although
not required to be made fundamental by the 1940 Act or state law, were
designated as fundamental policies at the Fund's inception. These investment
policies are now outdated and no longer consistent with the intended operation
of the Funds.
Some of the Funds' fundamental restrictions which were required by law to be
fundamental are no longer required to be fundamental, I.E., they are not
required to be designated as a restriction that can be changed only with
shareholder approval. It is proposed that these fundamental restrictions,
which are listed below, be restated and changed from fundamental to
non-fundamental. These changes will provide the Boards with the ability to
revise the restriction in the future should industry or regulatory conditions
warrant and will enable the Funds to avoid the additional expense of a
shareholder solicitation in connection with future revisions.
1. Investing to Exercise Control of the Issuer
Although the Funds do not now, or in the immediate future, intend to invest in
companies for the purpose of exercising control or management, the Funds are
not required to make this a fundamental investment restriction of the Funds.
Most investment companies have adopted a similar restriction but have not made
it a fundamental investment restriction. The Boards of Directors of the Funds
would need to approve any future change in this policy, and would do so in the
best interests of the shareholders of the Funds.
CURRENT TEXT
[The Fund may not . . . ] invest in companies for the purpose of exercising
control or management.
PROPOSED TEXT (DESIGNATED AS NON-FUNDAMENTAL)
[The Fund may not . . .] invest in other companies for the purpose of
exercising control or management.
2. Purchase of Puts, Calls and Hedges
Although the Funds do not now, or in the immediate future, intend to purchase
puts, calls or hedges, the Funds are not required to make this a fundamental
investment restriction. Most investment companies have adopted a similar
restriction but have not made it a fundamental investment restriction. The
Boards of Directors of the Funds would need to approve any future change in
this policy, and would do so in the best interests of the shareholders of the
Funds.
CURRENT TEXT
[The Fund may not . . .] purchase puts, calls or hedges.
PROPOSED TEXT (DESIGNATED AS NON-FUNDAMENTAL)
[The Fund may not . . .] purchase puts, calls or hedges.
3. Purchasing Securities of Other Investment Companies
The following change has been made to clarify that the Funds are still
prohibited from investing in securities of other investment companies but only
as limited by the 1940 Act. The 1940 Act has restrictions on the purchases of
investment company securities which may be changed in the future. By making
this change, the Funds will always be subject to those restrictions and will
not need to amend its investment restrictions with every change in the 1940 Act
pertaining to the purchase of securities of other investment companies.
CURRENT TEXT
[The Fund may not . . .] invest in securities of other investment companies,
except by purchase on the open market at regular brokerage rates or pursuant to
a merger or consolidation.
PROPOSED TEXT (DESIGNATED AS NON-FUNDAMENTAL)
[The Fund may not . . .] invest in securities of other investment companies,
except as permitted by the 1940 Act.
C. ELIMINATION OF FUNDAMENTAL RESTRICTION CONTINGENT ON REORGANIZATION OF THE
FUNDS
Funds to which change applies: BOTH
The following investment restriction exists because both of the Funds are
required by their current federal tax-exempt status to limit their investors to
entities that are exempt from taxation under Section 501(c)(3) of the Code. As
discussed in further detail below, the Reorganization will result in the Funds
becoming series of a new Delaware business trust that does not so limit its
potential investors. The new Delaware business trust will be able to enjoy
many of the same tax benefits pertaining to the Funds currently, but will not
be restricted with respect to the investors it may accept and intends to accept
(i) any entity exempt from taxation under Section 501(c)(3) of the Code,
("501(c)(3) Organizations"), (ii) any trust, the present or future beneficiary
of which is a 501(c)(3) Organization and (iii) any other entity formed for the
primary purpose of benefiting a 501(c)(3) Organization. This expanded pool of
investors might include, for example, charitable remainder trusts, charitable
lead trusts, pooled income funds, cooperative hospital service organizations
and organizations providing child care. Although the categories and number of
potential eligible investors would be increased, the central purpose of the
funds would continue to focus on facilitating the achievement of the charitable
purposes underlying the formation and operation of 501(c)(3) Organizations. If
Proposal 1 is approved and Proposal 3 (regarding reorganization of your Fund)
is approved, this investment restriction will be eliminated as a consequence of
the Reorganization. However, if Proposal 1 is approved but Proposal 3 is not
implemented (even if approved by shareholders), all of the changes discussed
above will be made, but the following restriction will not be eliminated and
will remain in each Fund's Certificate of Incorporation.
The shares of the Fund may not be owned, held, sold, transferred, assigned,
pledged, hypothecated, or otherwise transferred except by or to an organization
which has established its tax-exempt status under Section 501(c)(3) of the
Code.
THE BOARD OF DIRECTORS OF EACH FUND RECOMMENDS APPROVAL OF
PROPOSAL ONE.
PROPOSAL TWO
AMENDMENT OF CERTIFICATE OF INCORPORATION TO SPECIFY
NECESSARY APPROVAL FOR TRANSFER OF ASSETS
Currently, the Certificate of Incorporation for each Fund makes no specific
provision for the approval required for the Fund to transfer all or
substantially all of its assets to another entity. As described in further
detail below, with shareholder approval of Proposal 3, each of the Funds would
transfer all or substantially all of its assets to a newly organized Delaware
business trust. In order to do so, it is proposed to amend the Certificate of
Incorporation of each Fund to set forth the approval process necessary to
reorganize the Fund.
Accordingly, management has recommended, and the Directors of each of the
Funds have approved the following additional provision to the Certificate of
Incorporation of each Fund:
ARTICLE THIRTEENTH
Transfer or Exchange of All or Substantially All of the Corporation's Assets.
The Corporation may transfer all or substantially all of its assets in exchange
for consideration of fair value to the Corporation. A transfer of all or
substantially all of its assets shall require a resolution adopted by the
majority of the Board of Directors of the Corporation in accordance with the
provisions of the General Corporation Law of the State of Delaware approving
the action and a resolution adopted by a majority of the holders of the
outstanding stock of the Corporation entitled to vote thereon.
This provision is consistent with the requirements of Delaware state law.
THE BOARD OF DIRECTORS OF EACH FUND RECOMMENDS APPROVAL OF PROPOSAL TWO.
PROPOSAL THREE
AGREEMENT AND PLAN OF REORGANIZATION
INTRODUCTION AND SUMMARY
Management has proposed, and the Directors have approved, a restructuring of
the Funds. As currently structured, both of the Funds are organized as
Delaware corporations. Each Fund is separately advised by Capital Research and
Management Company. As each Fund is a separate corporate entity, each has its
own Board of Directors and maintains separate corporate records. In addition,
as each Fund is individually registered as an investment company under the
federal securities laws, each must make separate regulatory filings with the
Commission.
Under the proposed reorganization, Capital Research and Management Company
would establish a new Delaware business trust (the "Delaware Trust"), as an
open-end management investment company. Each of the Funds (a "Reorganizing
Fund") would be reorganized as a separate series of shares of the Delaware
Trust (a "Successor Fund"). The result of the restructuring would be a single
investment company (mutual fund) complex (the "Reorganization").
Each aspect of the Reorganization has been approved by each Fund's Board. The
Reorganization is proposed to be accomplished in accordance with the terms of
an Agreement and Plan of Reorganization providing for the transfer of
substantially all of the assets of the relevant Reorganizing Fund to the
corresponding Successor Fund in exchange for shares of the Successor Fund, as
described below, and for the assumption by the corresponding Successor Fund of
all of the liabilities of the Reorganizing Fund. The completion of these
transactions will result in the complete liquidation of each Reorganizing Fund.
As a result of the Reorganization, shareholders of each Reorganizing Fund would
become shareholders of their corresponding Successor Fund and have the same
proportionate interest in the same portfolio of assets as prior to the
Reorganization.
The Boards believe that a Delaware business trust as a form of organization
offers certain advantages for a mutual fund over a Delaware corporation, while
preserving many of the advantages of being organized and regulated under
Delaware state law. The Funds were originally organized as Delaware
corporations to take advantage of the body of law developed in Delaware
pertaining to corporations. Many corporations are organized under Delaware law
because the laws pertaining to corporations are much more developed than in
other jurisdictions. Management of the Funds and the Boards of the Funds
believe that reorganizing the Funds as the Delaware Trust would allow the Funds
to retain the benefits afforded to businesses organized in Delaware while
taking advantage of the Delaware business trust entity which provides certain
advantages for investment companies. Delaware's laws pertaining to business
trusts specifically allow a trust to have different series, thereby permitting
more than one fund to be organized under the same corporate entity, reducing
administrative costs and increasing efficiencies. The Directors also believe
that the proposed trust instrument of the Delaware Trust (the "Delaware Trust
Instrument") is clearer and more comprehensive with regard to matters affecting
modern investment companies than the current organizational documents of the
Funds. While some of these improvements could potentially be achieved by
amending the existing organizational documents of the Funds, the Boards have
concluded that, given the other advantages of a Delaware business trust, it is
preferable to enter into the Plan of Reorganization (as defined below).
For a summary comparison of the Delaware corporation charter and the proposed
Delaware Trust Instrument, see "Description of Certain Provisions of the
Delaware Trust Instrument" and "Certain Comparative Information about Delaware
Corporations and Delaware Business Trusts" below. For a comparison of the
Funds' Certificates of Incorporation and the proposed Delaware Trust
Instrument, see "Description of Certain Provisions of the Delaware Trust
Instrument" and "Certain Comparative Information about Delaware Corporations
and Delaware Business Trusts" below.
TERMS OF THE PLAN
Each Reorganization is subject to a number of conditions, including the
approval of the shareholders of the relevant Reorganizing Fund. Accordingly,
Shareholders of each Reorganizing Fund are being asked to vote upon the
approval of an Agreement and Plan of Reorganization pursuant to which the
Reorganization would be consummated (the "Plan of Reorganization" or "Plan").
The following descriptions of the Plan of Reorganization and the features of
the proposed reorganizations are qualified in their entirety by reference to
the text of the Plan of Reorganization. A composite form Plan for
Reorganization is set forth in Appendix A to this Proxy Statement.
The Plan provides, among other things, for the transfer of substantially all
of the assets of the Reorganizing Fund to the corresponding Successor Fund in
exchange for (i) the assumption by the Successor Fund of all of the liabilities
of the Reorganizing Fund and (ii) the issuance to the Reorganizing Fund of
shares of beneficial interest (the "New Shares") in the Successor Fund, the
number of which shall be calculated based upon the value of the net assets of
the Reorganizing Fund then outstanding as of the Exchange Date (defined in the
Plan to be July 31, 1998, or such other date as may be agreed upon by each
Successor Fund and each Reorganizing Fund). Specifically, on the Exchange Date
the Successor Fund will deliver to the Reorganizing Fund a number of full and
fractional New Shares having an aggregate net asset value equal to the value of
the assets of the Reorganizing Fund attributable to its shares of common stock
(the "Old Shares") transferred to the corresponding Successor Fund on the
Exchange Date, less the value of the liabilities of the Reorganizing Fund
attributable to the Old Shares assumed by the Successor Fund on that date.
After receipt of the New Shares, each Reorganizing Fund will cause the New
Shares to be distributed pro rata to its Shareholders in complete liquidation
of the Reorganizing Fund. Each Shareholder will be entitled to receive that
proportion of New Shares which the number of Old Shares held by such
shareholder bears to the total number of Old Shares outstanding on such date.
The distribution of New Shares will be accomplished by the establishment of
accounts on the share records of the corresponding Successor Fund in the names
of the Reorganizing Fund shareholders, each account representing the respective
number of full and fractional New Shares due to such shareholder. Certificates
with respect to New Shares will not be issued.
The consummation of the Reorganization is subject to the conditions set forth
in the relevant Plan, any of which may be waived by the party entitled to its
benefits. The Plan may be terminated and the Reorganization abandoned at any
time, before or after approval by the Shareholders of each Reorganizing Fund,
if any condition set forth in the Plan has not been fulfilled and has not been
waived by the party entitled to its benefits.
EFFECT OF SHAREHOLDER APPROVAL OF THE REORGANIZATION
An investment company registered under the 1940 Act is required by the 1940
Act to obtain shareholder approval with regard to (i) the election of trustees
or directors, and (ii) the investment advisory agreement with the company's
investment adviser.
As part of the proposal to reorganize the Funds, approval by the requisite
vote of the Shareholders of the Reorganization will also constitute, for the
purposes of the 1940 Act: (i) election of the nominees identified below, who
currently serve as Directors of the Funds, as Trustees of the Delaware Trust
after Reorganization; (ii) approval of the proposed Investment Advisory and
Service Agreement between the Delaware Trust on behalf of the Successor Funds
and Capital Research and Management Company; (iii) ratification of the
selection of Deloitte & Touche LLP as independent accountants for the Delaware
Trust for its first fiscal year; and (iv) approval of the dissolution of the
Delaware corporations forming the Funds upon completion of the Reorganization.
(See "Information Concerning the Nominees to the Board of Trustees of the
Delaware Trust," "Information Concerning the Investment Adviser After the
Reorganization," "Information Concerning Ratification of Selection of
Independent Certified Public Accountants" and "Dissolution of Delaware
Corporations After the Reorganization.") Essentially, these matters relate to
the continued operation of your Fund after the Reorganization.
Assuming Shareholder approval of the Reorganization, each Reorganizing Fund,
as the sole shareholder of the corresponding Successor Fund prior to the
Reorganization, will effect these actions by voting its respective shares in
each Successor Fund "FOR" the matters specified above on behalf of its
Shareholders prior to the Reorganization. The Delaware Trust will then
consider the requirements of the 1940 Act referred to above to have been
satisfied.
DESCRIPTION OF NEW SHARES
Shares will be issued to each Reorganizing Fund's Shareholders in accordance
with the Plan as discussed above. The shares will be authorized for issuance
in series by the Board of Trustees of the Delaware Trust in accordance with its
Delaware Trust Instrument and Delaware business trust law. The Successor Funds
will have substantially identical purchase, redemption and exchange procedures
as are currently in effect for the Reorganizing Funds, as described in each
Fund's current prospectus and statement of additional information.
INVESTMENT POLICIES AND INVESTMENT RESTRICTIONS
For each Successor Fund, the investment policies and restrictions of that Fund
after the Reorganization will be the investment policies and restrictions of
the corresponding Reorganizing Fund immediately prior to the Reorganization. If
the new investment policies and restrictions for the Funds as set forth in
Proposal 1 are approved by the Shareholders, the investment policies and
restrictions of the Funds following the Reorganization will be policies and
restrictions of the corresponding Reorganizing Funds as amended by the
provisions set forth in Proposal 1.
FEE STRUCTURE AND EXPENSES
The fees and expenses to which each Successor Fund will be subject subsequent
to the Reorganization for services such as investment advisory services,
administrative services and custodian expenses will be substantially identical
to those currently in effect for each Reorganizing Fund. However, the Funds
will achieve some cost savings by dividing the costs of regulatory filings.
EXPENSES OF THE REORGANIZATION
Each Reorganizing Fund will bear its own expenses associated with the
transactions contemplated by the Plan of Reorganization, including expenses
associated with the solicitation of proxies. In the event that the
Reorganization is completed, such expenses will be assumed by each Successor
Fund. It is currently estimated that the aggregate expenses of the
Reorganization will be approximately $80,000, which amount will be allocated
ratably among the Funds in proportion to their relative net assets. However,
it is unlikely that either Fund will actually bear expenses in excess of
current expense levels (approximately 0.75% of net assets). This is because
each Reorganizing Fund benefits (and each Successor Fund will benefit) from
voluntary expense caps effected through a reduction in the investment adviser's
management fees.
FEDERAL INCOME TAX CONSEQUENCES
As a condition to each Reorganizing Fund's obligation to consummate its
Reorganization, the Fund will receive an opinion from Dechert Price and Rhoads,
special counsel to the Funds during the Reorganization, to the effect that, on
the basis of the existing provisions of the Code, current administrative rules
and court decisions, for federal income tax purposes: (i) as a result of the
Reorganization, no loss will be recognized by the Reorganizing Funds and,
pursuant to Internal Revenue Service Notice 88-19, the Reorganizing Funds will
be treated as recognizing any net built-in gains as though the assets were sold
at their fair market value on the day before the reorganization; (ii) no gain
or loss will be recognized by the shareholders of the Reorganizing Funds on the
distribution of New Shares to them in exchange for their shares of the
Reorganizing Funds; (iii) the tax basis of the New Shares that each
Reorganizing Fund's shareholders receive in place of their Reorganizing Fund's
shares will be the same as the basis of the Reorganizing Fund's Old Shares;
(iv) a shareholder's holding period for the New Shares received pursuant to the
Plan will be determined by including the holding period for each Reorganizing
Fund's Old Shares exchanged for the New Shares, provided that the shareholder
held the Reorganizing Fund Old Shares as a capital asset; (v) no gain or loss
will be recognized by either of the Successor Funds upon receipt of all of the
corresponding Reorganizing Fund's assets solely in exchange for the issuance of
corresponding Successor Fund Shares to the corresponding Reorganizing Fund and
the assumption by a corresponding Successor Fund of the liabilities of the
corresponding Reorganizing Fund; (vi) the basis to a Successor Fund of the
investments will be the same as the basis of the investments in the hands of
the corresponding Reorganizing Fund immediately prior to such exchange adjusted
to reflect any net built-in gains recognized as a result of the transfer; and
(vii) a Successor Fund's holding periods with respect to the investments in its
portfolio will include the respective periods for which the investments were
held by the corresponding Reorganizing Fund. The opinion will be based on
certain factual certifications made by officers of the Reorganizing Funds and
certain customary assumptions.
The IRS has announced in Notice 88-19 that it will issue regulations providing
that a corporation which transfers its assets to a regulated investment company
in a reorganization, which would otherwise not result in recognition of gain or
loss, must recognize any net built-in gain in its securities portfolio. The
IRS has not yet issued these regulations although they will apply retroactively
to transfers occurring after June 9, 1987. In order to insure that neither
Reorganizing Fund has any earnings and profits accumulated prior to the
transfer, which is a condition of qualifying the Successor Funds as regulated
investment companies under the Code, each Reorganizing Fund will distribute to
its shareholders a dividend equal to any such net built-in gain. These amounts
will be payable in stock or cash of the Reorganizing Fund in accordance with
each shareholder's existing election. This distribution will be treated as a
dividend which may be taxable if any shareholder, such as a private foundation,
is not wholly tax exempt.
BASIS FOR THE BOARDS' RECOMMENDATIONS
The Boards of the Reorganizing Funds, including a majority of those Directors
who are not "interested persons" of the Reorganizing Funds, as defined in the
1940 Act (the "Independent Directors"), approved the Reorganizations at
meetings held on May 14, 1998 and June 18, 1998.
In approving the Reorganizations, the Directors of the Funds determined that
each proposed Reorganization would be in the best interests of the relevant
Reorganizing Fund, and that the interests of the Shareholders would not be
diluted as a result of effecting the Reorganization. The Boards considered
various factors in recommending that Shareholders approve the Reorganizations,
including those set forth below.
The Directors considered that the Reorganization would likely result in
administrative cost savings to each Reorganizing Fund. As currently
structured, each Reorganizing Fund maintains a separate corporate identity,
which requires each Reorganizing Fund to make separate regulatory filings and
maintain separate corporate records. In addition, each Reorganizing Fund has a
separate Board of Directors, and each is registered as a separate entity with
the Commission. After the proposed Reorganization, each Reorganizing Fund
would be a separate series of the Delaware Trust. The new structure would be
registered with the Commission as a single trust entity with two separate
series. The Directors also considered the fact that the Delaware business
trust format provides greater efficiency as well as flexibility with regard to
various matters of corporate governance that are particular to mutual funds
than the Delaware corporation form of organization which currently governs the
Reorganizing Funds. It was also noted that, while business trusts generally
have the administrative efficiency of unlimited authorized capital, those
organized in Delaware also have the benefit of a statutory limitation on
shareholder and trustee liability with regard to the trust's obligations. The
Directors determined that the interests of the Reorganizing Funds and their
shareholders were best served by adopting the more efficient and flexible
structure of the Delaware Trust.
The Boards also considered that the investment objective, policies and
restrictions of each Reorganizing Fund are substantially identical to those of
the corresponding Successor Fund, and that each Successor Fund would be managed
by the same personnel and in accordance with the same investment strategies and
techniques utilized in the management of the corresponding Reorganizing Fund
immediately prior to the Reorganization (subject to any change that may be
approved at the Meeting under Proposal 1). For these reasons, the Boards
believe that an investment in shares of a Successor Fund will provide
Shareholders with an investment opportunity substantially identical to that
afforded by the corresponding Reorganizing Fund immediately prior to the
Reorganization.
CONTINUATION OF SHAREHOLDER ACCOUNTS AND PLANS
The transfer agent will establish accounts for all current Fund shareholders
containing the appropriate number of Successor Fund shares to be received by
that shareholder in accordance with the terms and provisions of the Plan of
Reorganization. These accounts will be identical in all material respects to
the accounts currently maintained by each Reorganizing Fund on behalf of its
shareholders.
DESCRIPTION OF CERTAIN PROVISIONS OF THE DELAWARE TRUST INSTRUMENT
The following is a summary of certain provisions of the proposed Delaware
Trust Instrument for the Delaware Trust. Because the Funds are currently
incorporated as Delaware corporations, the provisions of the Certificate of
Incorporation and the Bylaws of the Funds will substantially resemble the
provisions of the new Delaware Trust Instrument and Bylaws.
TRUSTEES
The Certificates of Incorporation of the Funds currently require that a
Director of a Fund be a designated representative of at least one charitable
institution which is a shareholder of the Fund. The Delaware Trust Instrument
will not have this requirement, although the Successor Funds will continue to
seek out individuals to act as Trustees of the Successor Funds who currently
are or have been affiliated with a charitable organization and thus are
familiar with the investment needs of charitable organizations.
SERIES AND CLASSES
The Delaware Trust Instrument permits the Delaware Trust to issue series of
its shares which represent interests in separate portfolios of investments,
including the Successor Funds. The Delaware Trust is also authorized to issue
multiple classes of shares with respect to each such series. No series is
entitled to share in the assets of any other series or is liable for the
expenses or liabilities of any other series. The Trustees are authorized to
divide each series of shares into separate classes, which represent a pro rata
interest in the same series and are entitled to the same rights, except as
provided by the Trustees. Initially, each of the Successor Funds would have
only one class of shares entitled to the same rights as the Old Shares of the
Reorganizing Funds. The Trustees of the Delaware Trust are able to authorize
the issuance of additional series or classes of shares without prior
shareholder approval. The Funds' Certificates of Incorporation do not
specifically provide for the issuance of separate series or classes of shares.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
The Delaware Trust is not required to hold annual meetings of shareholders and
it may or may not hold such meetings. In the event that a meeting of
shareholders is held, each share of the Delaware Trust will be entitled to one
vote for each share. However, to the extent required by the 1940 Act or
otherwise as determined by the Trustees, series and classes of the Delaware
Trust will vote separately. Shareholders of the Delaware Trust will not have
cumulative voting rights in the election of Trustees. Meetings of shareholders
of the Delaware Trust, or any series or class thereof, may be called, from time
to time, by the Trustees. The shareholders of the Delaware Trust will have
voting rights only with respect to the limited number of matters specified in
the Delaware Trust Instrument and such other matters as the Trustees may
determine or as may be required by law.
INDEMNIFICATION
The Delaware Trust Instrument provides for indemnification of Trustees,
officers and agents of the Delaware Trust unless the recipient is adjudicated
(i) to be liable by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of such person's
office or (ii) not to have acted in good faith in the reasonable belief that
such person's actions were in the best interest of the Delaware Trust.
The Delaware Trust Instrument provides that, if any shareholder or former
shareholder of any series is held personally liable solely by reason of being
or having been a shareholder and not because of the shareholder's act or
omission or for some other reason, the shareholder or former shareholder (or
heirs, executors, administrators, legal representatives or general successors)
will be entitled, out of the assets belonging to the applicable series, to be
held harmless from and indemnified against all loss and expense arising from
such liability. The Delaware Trust, acting on behalf of any affected series,
must, upon request by such shareholder, assume the defense of any claim made
against such shareholder for any act or obligation of the series and satisfy
any judgment thereon from the assets of the series. Currently, the Bylaws of
the Funds provide for indemnification similar to the Delaware Trust Instrument,
but indemnification is not divided among series because there are no provisions
for establishment of series.
TERMINATION
The Delaware Trust Instrument permits the termination of the Delaware Trust or
of any series or class of the Delaware Trust: (i) by a majority of the
affected shareholders at a meeting of shareholders of the Delaware Trust,
series or class; or (ii) by a majority of the Trustees without shareholder
approval if the Trustees determine that such action is in the best interest of
the Delaware Trust or its shareholders. The factors and events that the
Trustees may take into account in making such determination include: (i) the
inability of the Delaware Trust or any series or class to maintain its assets
at an appropriate level; (ii) changes in laws or regulations governing the
Trust, series or class, or affecting assets of the type in which it invests; or
(iii) economic developments or trends having a significant adverse impact on
the Delaware Trust's business or operations.
MERGER, CONSOLIDATION, SALE OF ASSETS, ETC.
The Delaware Trust Instrument authorizes the Trustees to cause the Delaware
Trust, or any series thereof, to merge or consolidate with any corporation,
association, trust or other organization or sell or exchange all or
substantially all of the property belonging to the Delaware Trust or any series
thereof subject to applicable law, which requires shareholder approval. Such
reorganization of any of the Funds, as currently structured, because it is not
specifically provided for in the Funds' Certificate of Incorporation, would
require shareholder approval under Delaware law.
Also, currently, upon liquidation or dissolution of the Fund, after providing
for the debts and obligations of the Fund, the remaining assets must be
distributed to non-profit organizations which have established their tax-exempt
status under Section 501(c)(3) of the Code. The Delaware Trust Instrument does
not contain such a requirement.
AMENDMENTS
The Delaware Trust Instrument permits the Trustees to amend the Delaware Trust
Instrument without a shareholder vote. However, shareholders of the Delaware
Trust have the right to vote on any amendment that: (i) would affect the
voting rights of shareholders, (ii) is required by law to be approved by
shareholders; (iii) would amend the voting provisions of the Delaware Trust
Instrument; or (iv) the Trustees determine to submit to shareholders.
Currently, the Directors may amend the Certificates of Incorporation of the
Funds and/or their Bylaws subject to the same requirements as would appear in
the Trust Instrument.
OTHER
The Certificates of Incorporation for the Funds are currently tailored with
restrictions that were necessary to qualify the Funds as tax-exempt entities
under Section 501(c)(2) of the Code. These restrictions include provisions
about permissible investors in the Funds and, as indicated above, concerning
the liquidation of the Funds. Although the Successor Funds will continue to
focus on attracting shareholders that are charitable organizations or
affiliated as such, because the Successor Funds will be regulated investment
companies under the Code, the Delaware Trust Instrument governing the Successor
Funds does not require these provisions.
The Certificates of Incorporation also contain recitations of the fundamental
investment restrictions of the Funds which are identical to the current
restrictions discussed in the Funds' registration statements. Since these
provisions are regulated primarily under the 1940 Act and are not a matter of
state law, these provisions have been removed from the Delaware Trust
Instrument.
SHAREHOLDER LIABILITY
Generally, Delaware business trust shareholders are not personally liable for
obligations of the business trust under Delaware law. The Delaware Business
Trust Act entitles a shareholder of a Delaware business trust to the same
limitation of liability as is available to shareholders of private, for-profit
corporations. However, no similar statutory or other authority limiting
business trust shareholder liability exists in many other states. As a result,
to the extent that a Delaware business trust or a shareholder is subject to the
jurisdiction of courts in such other states, those courts may not apply
Delaware law and may subject the Delaware business trust shareholders to
liability. To offset this risk, the Delaware Trust Instrument: (i) contains
an express disclaimer of shareholder liability for acts or obligations of the
Delaware Trust and requires that notice of such disclaimer be given in each
agreement, obligation and instrument entered into or executed by the Delaware
Trust or its Trustees; and (ii) provides indemnification out of the property of
the Delaware Trust to any shareholder held personally liable for the
obligations of the Delaware Trust. Thus, the risk of a Delaware business trust
shareholder incurring financial loss beyond his or her investment is limited to
circumstances in which all of the following factors are present: (1) a court
refuses to apply Delaware law; (2) the liability arises under tort law or, if
not, no contractual limitation of liability is in effect; and (3) the Delaware
Trust itself is unable to meet its obligations. In the light of Delaware law,
the nature of the Delaware Trust's business and the nature of its assets, the
risk of personal liability to a Delaware Trust shareholder should be considered
remote.
LIABILITY OF TRUSTEES
The Delaware Trust Instrument provides that the Trustees will not be liable to
any person other than the Delaware Trust or a shareholder thereof, and that a
Trustee will not be liable for any act as a Trustee. However, nothing in the
Delaware Trust Instrument protects a Trustee against any liability to which he
or she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office. The Bylaws of the Funds currently provide comparable
protection.
CERTAIN COMPARATIVE INFORMATION ABOUT DELAWARE CORPORATIONS AND DELAWARE
BUSINESS TRUSTS
Because the Funds are currently incorporated under Delaware law, reorganizing
the Funds as separate series of a Delaware business trust will not have any
significant impact on the protections and provisions under Delaware law
applicable to the Funds. The Delaware Business Trust Act has certain
provisions which are specifically tailored to investment companies which do not
exist for Delaware corporations. A Delaware business trust may issue from time
to time additional series of shares representing interests in separate
investment portfolios and may issue separate classes of shares. These
advantages are incorporated into the Delaware Trust Instrument for the new
Delaware Trust.
CERTAIN INFORMATION CONCERNING THE NOMINEES TO THE BOARD OF TRUSTEES OF THE
DELAWARE TRUST
If you vote "yes" to approve the Reorganization, your vote will also have the
effect of electing the nominees identified below, who currently serve as
Directors of both of the Funds, as Trustees of the Delaware Trust. If the
Reorganization is approved, each Reorganizing Fund will vote the share of
beneficial interest it holds in the Delaware Trust for the election of the
nominees set forth below as Trustees. Each Trustee shall serve as such until
the next election or until his or her term is terminated as provided in the
Delaware Trust Instrument and his or her successor is duly elected and
qualified. These are the same persons who currently serve on the Boards of
Directors of each Fund (the two Funds having identical Boards of Directors).
Shares of the Funds may be purchased only by institutional investors exempt
from taxation under Section 501(c)(3) of the Internal Revenue Code. Therefore,
none of the directors owns any shares of the Funds.
<TABLE>
<CAPTION>
NAME, POSITIONS WITH THE FUNDS, AGE, PRINCIPAL OCCUPATIONS YEAR FIRST
DURING THE PAST FIVE YEARS AND OTHER DIRECTORSHIPS BECAME A DIRECTOR
<S> <C>
Robert B. Egelston*, Chairman of the Board, 67, 1989
Senior Partner, The Capital Group Partners
L.P.; former Chairman of
the Board, The Capital Group Companies, Inc.
Frank L. Ellsworth*, President and Director, 55, 1992
Vice President, Capital Research
and Management Company; former
President, Independent Colleges
of Southern California.
Steven D. Lavine, Director, 51, 1994
President, California Institute
of the Arts.
Patricia A. McBride, Director, 55, 1988
Chief Financial Officer,
Kevin L. McBride, D.D.S., Inc.
Gail L. Neale, Director, 63, 1998
President, The Lovejoy Consulting Group, Inc.
Charles R. Redmond, Director, 71, 1988
Retired. Former Chairman, Pfaffinger
Foundation; Former President and
Chief Executive Officer, Times Mirror Foundation.
Thomas E. Terry*, Director, 60, Consultant; Former 1994
Vice President
and Secretary, Capital Research and Management Company.
Robert C. Ziebarth, Director, 61, Management 1993
Consultant, Ziebarth Company.
</TABLE>
* "Interested person," as defined in the 1940 Act.
There were four meetings of the Board of Directors of each Fund in fiscal year
1997. Each of the Directors, except Mr. Lavine, attended at least 75% of all
meetings of the Board and of the committees of which he or she was a member.
The Funds have an Audit Committee comprised of the disinterested directors.
The function of the Committee includes such specific matters as recommending
the independent accountant to the Board of Directors, reviewing the audit plan
and results of audits and considering matters deemed appropriate by the Board
of Directors and/or the Committee. There were two meetings of the Audit
Committee in fiscal year 1997.
The Funds have a Nominating Committee comprised of the disinterested
directors. The Committee's functions include selecting and recommending to the
full Board of Directors nominees for election as Directors of the Funds. While
the Committee is normally able to identify from its own resources an ample
number of qualified candidates, it will consider shareholder suggestions of
persons to be considered as nominees to fill future vacancies on the Board.
Such suggestions must be sent in writing to the Committee of the Funds, c/o the
Funds' Secretary, and must be accompanied by complete biographical and
occupational data on the prospective nominee, along with the written consent of
the prospective nominee to consideration of his or her name by the Committee.
Suggestions must be received by the Funds' Secretary before the end of the
Funds' fiscal year to be eligible for consideration for nomination at or before
the next annual meeting of shareholders. There were no meetings of the
Nominating Committee during fiscal year 1997.
The Funds have a Contracts Committee comprised of the directors who are not
considered to be "interested persons" of the Funds within the meaning of the
1940 Act. The Committee's function is to request, review and consider the
information deemed necessary to evaluate the terms of the investment advisory
agreement that the Funds propose to enter into, renew or continue prior to
voting thereon, and to make its recommendations to the full Board of Directors
on these matters. There was one meeting of the Contracts Committee during
fiscal year 1997.
COMPENSATION OF DIRECTORS
The Funds do not pay the Directors any retainers or compensation for their
services, although the Funds do reimburse the Directors for their expenses
incurred to attend meetings. The Funds do not pay any other remuneration to
its officers or directors, and have no bonus, profit-sharing, pension or
retirement plan.
No Director, other than Gail L. Neale, receives any compensation from any
investment companies managed by Capital Research and Management Company. Mrs.
Neale's total compensation (including voluntarily deferred compensation) from
all funds managed by Capital Research and Management Company during the
12-months ended June 30, 1998 was $64,300. She currently serves on six boards
of funds managed by Capital Research and Management Company.
OFFICERS
The officers of the Funds are listed below:
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S)
HELD WITH DURING PAST FIVE YEARS
THE FUNDS
<S> <C> <C> <C>
Abner D. Goldstine 68 Senior Vice Senior Vice President
11100 Santa Monica President and Director, Capital
Blvd. Research and Management
Los Angeles, CA 90025 Company
Robert G. O'Donnell 54 Senior Vice Senior Vice President
P.O. Box 7650 President and Director, Capital
San Francisco, CA Research and Management
94120 Company
Claudia P. Huntington 46 Vice President Vice President, Capital
333 South Hope Street of Endowments, Research and Management
Los Angeles, CA 90071 Inc. Company
John H. Smet 41 Vice Vice President, Capital
11100 Santa Monica President Research and Management
Blvd. of Bond Company
Los Angeles, CA 90025 Portfolio
for
Endowments,
Inc.
Lisa G. Hathaway 35 Assistant Assistant Vice
333 South Hope Street Vice President, Fund Business
Los Angeles, CA 90071 President Management Group,
Capital Research and
Management Company
Patrick F. Quan 39 Secretary Vice President, Fund
P.O. Box 7650 Business Management
San Francisco, CA Group, Capital Research
94120 and Management Company
Mary C. Hall 40 Treasurer Senior Vice President,
135 South State Fund Business Management
College Blvd. Group, Capital Research
Brea, CA 92821 and Management Company
Robert P. Simmer 37 Assistant Vice President, Fund
5300 Robin Hood Road Treasurer Business Management
Norfolk, VA 23513 Group, Capital Research
and Management Company
</TABLE>
INFORMATION CONCERNING THE INVESTMENT ADVISER AFTER THE REORGANIZATION
A vote to approve the proposed Reorganization would also have the effect of
approval of the proposed Investment Advisory and Service Agreement between the
Delaware Trust on behalf of each Successor Fund and Capital Research and
Management Company. The Investment Advisory and Service Agreement applicable
to each Successor Fund is substantially similar to the Investment Advisory and
Service Agreement in place currently between Capital Research and Management
Company and each respective Reorganizing Fund and the fees payable thereunder
are identical. Currently, Capital Research and Management Company has been
voluntarily waiving its management fees for each Fund to the extent annual
expenses exceed 0.75% of its respective net assets. A form of Investment
Advisory and Service Agreement is set forth as Appendix B to this Proxy
Statement. Information regarding Capital Research and Management Company and
the Investment Advisory and Service Agreement in place currently is set forth
below.
Capital Research and Management Company, a Delaware corporation (the
"Investment Adviser"), has served as investment adviser to the Funds since
1975. The Investment Adviser was founded in 1931 and maintains research
facilities in the United States and abroad (Los Angeles, San Francisco, New
York, Washington, D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of experienced professionals. The Investment Adviser is located at 333
South Hope Street, Los Angeles, CA 90071, and at 135 South State College
Boulevard, Brea, CA 92821. The Investment Adviser is responsible for managing
more than $175 billion of stocks, bonds and money market instruments and serves
over five million investors, including privately owned businesses and large
corporations as well as schools, colleges, foundations and other nonprofit and
tax-exempt organizations.
In exchange for the services provided under the existing Investment Advisory
and Service Agreements, each Reorganizing Fund pays Capital Research and
Management Company a management fee which is payable monthly at an annual rate
of 0.50% of the average daily net asset value of the Fund up to $150,000,000
and 0.40% of the average daily net asset value of the Fund over $150,000,000.
The Investment Advisory and Service Agreements provide for a reduction of the
fee to the extent that a Fund's annual operating expenses exceed 1 to 1 1/2% of
the first $30,000,000 of the average net assets of the fund and 1% of the
average net assets in excess thereof. The Investment Adviser has agreed with
each Fund to voluntarily waive management fees to the extent that the Fund's
annual operating expenses exceed 0.75% of its average daily net assets.
The current Investment Management and Service Agreements were last approved by
the Boards of the Funds on May 14, 1998.
The directors and executive officers of Capital Research and Management
Company are as follows:
<TABLE>
<CAPTION>
CAPITAL RESEARCH AND MANAGEMENT COMPANY
<S> <C>
DIRECTORS AND OFFICERS
DIRECTORS AND OFFICERS R. Michael Shanahan
Chairman and Principal Executive Officer Jon B. Lovelace
Vice Chairman James F. Rothenberg
President Larry P. Clemmensen
Senior Vice President Gordon Crawford
Senior Vice President James E. Drasdo
Senior Vice President James K. Dunton
Senior Vice President Abner D. Goldstine
Senior Vice President William R. Grimsley
Senior Vice President Paul G. Haaga, Jr.
Executive Vice President & Chairman of the Robert G. O'Donnell
Executive Committee Catherine M. Ward
Senior Vice President Timothy D. Armour
Senior Vice President Mark E. Denning
DIRECTORS Janet A. McKinley
OFFICERS Thierry Vandeventer
Senior Vice President Gina H. Despres
Senior Vice President Claudia P. Huntington
Senior Vice President Gregg E. Ireland
Senior Vice President James B. Lovelace
Senior Vice President Victor M. Parachini
Senior Vice President Dina N. Perry
Senior Vice President Timothy W. Weiss
Vice President David C. Barclay
Vice President Frank L. Ellsworth
Vice President Doreen L. Gee
Vice President Robert W. Lovelace
Vice President Donald D. O'Neal
Vice President John H. Smet
Vice President, Treasurer & Principal Financial J. Kelly Webb
Officer
Secretary Michael J. Downer
</TABLE>
INFORMATION CONCERNING RATIFICATION OF SELECTION OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
A vote to approve the proposed Reorganization would also have the effect of
ratifying the selection of Deloitte & Touche LLP, independent certified public
accountants, to audit the account of the Delaware Trust for its first fiscal
year ending July 31, 1999. Deloitte & Touche LLP has audited the accounts of
each of the Funds for this previous fiscal year and has informed the Funds that
Deloitte & Touche LLP does not have any direct financial interest or any
material indirect financial interest in either of the Funds. Representatives
of Deloitte & Touche LLP are not expected to be present at the Meeting but have
been given the opportunity to make a statement if they so desire, and will be
available should any matters arise requiring their presence. If Proposal 3 is
approved, Deloitte & Touche LLP will serve as the independent certified public
accountants for the new Delaware Trust for its first fiscal year.
DISSOLUTION OF THE DELAWARE CORPORATIONS AFTER THE REORGANIZATION
If Proposal 3 is approved by the Funds' shareholders, upon reorganization of
your Fund into the Delaware Trust, it will be necessary to dissolve the
Delaware corporation which was originally organized for your Fund. After the
Reorganization, this entity will no longer be necessary for the operation of
your Fund. Under the provisions of Delaware law, shareholder approval is
required to dissolve a corporation. By approving this Proposal 3, you will
also be approving a dissolution of the Delaware corporation in which your Fund
was originally incorporated after your Fund is reorganized as the Delaware
Trust.
THE BOARD OF DIRECTORS OF EACH FUND RECOMMENDS APPROVAL OF PROPOSAL THREE.
VOTING
The presence in person or by proxy of the holders of record of a majority of
the shares of each Fund entitled to vote shall constitute a quorum at the
Meeting for that Fund. If, however, such quorum shall not be present or
represented at the Meeting or if fewer shares are present in person or by proxy
than the minimum required to take action with respect to any proposal presented
at the Meeting, the holders of a majority of the shares of the Fund present in
person or by proxy shall have the power to adjourn the Meeting with respect to
that Fund, from time to time, without notice other than announcement at the
Meeting, until the requisite number of shares shall be present at the Meeting.
At any such adjourned Meeting, if the relevant quorum is subsequently
constituted, any business may be transacted which might have been transacted at
the Meeting as originally called.
The Boards of Directors of the Funds (collectively the "Boards") have fixed
the close of business on June 17, 1998, as the record date for the
determination of shareholders entitled to notice of and to vote at the Meeting
and at any adjournments thereof. Each share is entitled to one vote. The
numbers of outstanding voting shares of each Fund as of June 17, 1998, are
indicated in the following table:
FUND SHARES
Endowments, Inc. 2,731,046.766
Bond Portfolio for Endowments, Inc. 1,717,701.824
As of June 17, 1998, the following shareholders owned 5% or more of the Funds'
outstanding stock:
ENDOWMENTS, INC. - California Institute of the Arts (24700 McBean Parkway,
Valencia, California 91355) (398,897.267 shares, 14.6%); Citizens' Scholarship
Foundation of America (1505 Riverview Road, P.O. Box 297, St. Peter, Minnesota
56082) (212,368.851 shares, 7.8%); DeKalb County Community Foundation (2225
Gateway Drive, Sycamore, Illinois 60178) (150,307.331 shares, 5.5%);
Foundation for Reproductive Research and Education (333 E. Superior Street,
Prentice 490, Chicago, Illinois 60611) (158,100.234 shares, 5.8%); and Loyola
Marymount University (7900 Loyola Boulevard, Los Angeles, California 90045)
(159,558.121 shares, 5.8%).
BOND PORTFOLIO FOR ENDOWMENTS, INC. - California Institute for the Arts (24700
McBean Parkway, Valencia, California 91355) (514,168.299 shares, 29.9%);
Citizens' Scholarship of America (1505 Riverview Road, P.O. Box 297, St. Peter,
Minnesota 56082) (151,872.200 shares, 8.8%); Hudson Institute) 5395 Emerson
Way, P.O. Box 26919, Indianapolis, Indiana 46226) (142,565.169 shares, 8.3%);
and Foundation for Reproductive Research and Education (333 E. Superior Street,
Prentice 490, Chicago, Illinois 60611) (91,827.978 shares, 5.4%). As
California Institute of the Arts owns in excess of 25% of the voting shares of
the Fund, it is, pursuant to the 1940 Act, presumed to be a controlling person
of the Fund.
All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon or as otherwise
provided therein. Unless instructions to the contrary are marked, proxies will
be voted FOR the matters specified on the proxy card. Any shareholder may
revoke his or her proxy at any time prior to the exercise thereof by giving
written notice to the transfer agent, American Funds Service Company, One
Market, Steuart Tower, Suite 1800, San Francisco, California 94120, or by
signing another proxy of a later date or by personally casting his or her vote
at the Meeting. However, attendance at the Meeting by itself will not revoke a
previously tendered proxy.
The most recent annual and semi-annual reports of the Funds, including
financial statements, have been mailed previously to shareholders. These
reports are not to be regarded as proxy soliciting material or as part of this
proxy statement. IF YOU HAVE NOT RECEIVED THESE REPORTS OR WOULD LIKE TO
RECEIVE ADDITIONAL COPIES FREE OF CHARGE, PLEASE CONTACT THE FUNDS AT ONE
MARKET, STEUART TOWER, SAN FRANCISCO, CALIFORNIA, 94120, AND THE REPORTS WILL
BE SENT PROMPTLY BY FIRST CLASS MAIL.
To obtain the necessary representation at the Meeting, supplementary
solicitations may be made by mail, telephone, telegraph, facsimile, or personal
contact by officers of each Fund, employees of Capital Research and Management
Company, or its affiliates. Shareholders' votes may be taken by telephone by
representatives of the Funds, subject to procedures designed to authenticate
shareholders' identities and confirm voting instructions.
For the purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" (that is, proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
on a particular matter with respect to which brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted and, thus, will have the effect of a negative vote on Proposals
1 through 3.
OTHER MATTERS
The Boards do not currently know of any matters to be presented at the Meeting
other than those mentioned in this Proxy Statement. If any of the persons
listed above is unavailable for election as a Trustee, an event not now
anticipated, or if any other matters come properly before the Meeting, the
shares represented by proxies will be voted with respect thereto in accordance
with the best judgment of the person or persons voting the proxies.
SHAREHOLDER PROPOSALS
Proposals of shareholders which are intended to be presented at a future
shareholders' meeting must be received by the Funds by a reasonable time prior
to the Funds' solicitation of proxies relating to such future meeting.
By the Order of the Boards of Directors of Endowments, Inc.
and Bond Portfolio for Endowments, Inc.
PATRICK F. QUAN
Secretary
APPENDIX A
AGREEMENT AND PLAN OF
REORGANIZATION
TABLE OF CONTENTS
PAGE
1. TRANSFER OF ASSETS OF EACH OF THE REORGANIZING FUNDS IN EXCHANGE FOR
ASSUMPTION OF CERTAIN LIABILITIES AND ISSUANCE OF RESPECTIVE SUCCESSOR FUND
SHARES 1
1.1 Transaction 1
1.2 Assets Transferred 2
1.3 Election of Trustees; Approval of Advisory Agreements; Adoption of
Investment Policies; New Service Provider Agreements 2
1.4 Distributions in Liquidation. 2
1.5 Record of Ownership. 3
1.6 Transfer Taxes. 3
1.7 Surrender of Certificates. 3
1.8 Termination of Reorganizing Funds. 3
1.9 Termination of BENDI Investment Company Registration. 3
1.10 Adoption of ENDI Investment Company Registration4
2. VALUATION4
2.1 Determination of Reorganizing Fund Assets. 4
2.2 Number of Successor Fund Shares Issued. 4
2.3 Computing Net Asset Value 4
3. CLOSING AND CLOSING DATE 4
3.1 Closing. 4
3.2 Notice to Custodian. 4
3.3 Transfer Agent Certificate; Delivery at Closing. 5
3.4 Examination of Portfolio Securities. 5
4. REPRESENTATIONS AND WARRANTIES OF EACH REORGANIZATION FUND, THE
TRUST, AND THE SUCCESSOR FUNDS 5
4.1 The Reorganizing Funds. 5
4.1.A. Organization. 5
4.1.B. Registrations and Qualifications. 6
4.1.C. Noncontravention. 6
4.1.D. Tax Filings. 6
4.1.E. Tax Status. 6
4.1.F. Issuance of Stock. 7
4.1.G. Accuracy of Information. 7
4.1.H. Ownership of Assets. 7
4.1.I. Corporate Power, Authorization of Transaction. 7
4.1.J. Amendment of Certificate of Incorporation 7
4.1.K. Regulatory Consents and Approvals. 8
4.2 The Trust and Each Successor Fund. 8
4.2.A. Organization. 8
4.2.B. Noncontravention. 8
4.2.C. Qualification under Subchapter M. 8
4.2.D. Issuance of Shares of Beneficial Interest 8
4.2.E. Corporate Power, Authorization of Transaction. 9
4.2.F. Accuracy of Information. 9
4.2.G. Regulatory Consents and Approvals 9
5. COVENANTS OF EACH OF THE REORGANIZING FUNDS AND THE TRUST 9
5.1 Acquisition of Successor Fund Shares. 9
5.2 Assisting the Trust Regarding Ownership of
Reorganizing Fund Shares. 9
5.3 Cooperation by Trust and Reorganizing Funds. 9
5.3.A. Documents Evidencing Transfer By Reorganizing Funds. 9
5.3.B. Documents Evidencing Transfer By Trust. 10
5.3.C. Necessary Approvals. 10
5.3.D. Adoption of ENDI Investment Company Registration 10
5.3.E. Consummation. 10
5.4 Financial Statements. 10
5.5 Distribution of Earnings and Profits 10
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE REORGANIZING
FUNDS 11
6.1 Representations and Warranties. 11
6.2 Certificates. 11
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE
SUCCESSOR FUNDS 11
7.1 Representations and Warranties. 11
7.2 Statement of Assets and Liabilities. 12
7.3 Certificates. 12
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE
REORGANIZING FUNDS, THE TRUST AND THE SUCCESSOR FUNDS 12
8.1 Approval by Shareholders. 12
8.2 Absence of Litigation. 12
8.3 Consents 12
8.4 Legal Opinion. 13
8.4.A. Tax Treatment Under the Code
8.4.B. Recognition by Reorganizing Funds 13
8.4.C. Recognition by Successor Funds 13
8.4.D. Recognition by Shareholders 13
8.4.E. Tax Basis of Successor Fund Shares 14
8.4.F. Holding Period 14
8.4.G. Tax Basis of Assets 14
8.4.H. Holding Period for Assets 14
9. BROKERAGE FEES AND EXPENSES 14
9.1 Absence of Broker Fees. 14
9.2 Allocation of Expenses. 15
10. ENTIRE AGREEMENT 15
11. TERMINATION 15
11.1 Conditions for Termination. 15
11.1A. Material Breach 15
11.l.B. Failure to Meet Condition Precedent 15
11.1.C. Majority Vote 15
11.2 Liability Upon Termination. 15
12. AMENDMENT 16
13. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT 16
13.1 Headings. 16
13.2 Counterparts. 16
13.3 Governing Law. 16
13.4 Assignment. 16
13.5 Recourse 16
14. NOTICES 17
THIS AGREEMENT AND PLAN OF REORGANIZATION is made as of _____________, 1998,
by and among Bond Portfolio for Endowments, Inc., a Delaware corporation
("Bendi"); Endowments, Inc., a Delaware corporation ("Endi") (collectively, the
"Reorganizing Funds") and Endowments, a Delaware business trust (the "Trust").
This Agreement is intended to be and is adopted as a plan of reorganization
within the meaning of Section 368(a)(1) of the U.S. Internal Revenue Code of
1986, as amended (the "Code"), and is intended to effect the reorganization (a
"Reorganization") of each of the Reorganizing Funds as a corresponding new
series of the Trust (each new series, a "Successor Fund"). The Reorganization
will include the transfer of substantially all of the assets of each of the
Reorganizing Funds to its respective Successor Fund of the Trust solely in
exchange for (1) the assumption by the corresponding Successor Fund of all
liabilities, including all contingent, conditional or unmatured liabilities, of
such Reorganizing Fund, which pertain to events, facts and circumstances of the
Reorganizing Fund prior to and including the Closing Date and (2) the issuance
by the Trust to the corresponding Reorganizing Fund of shares of beneficial
interest of the corresponding Successor Fund. The aggregate number of shares
of a Successor Fund (the "Successor Fund Shares") issued to a Reorganizing Fund
will be equal to the number of shares of common stock ("Shares") of the
corresponding Reorganizing Fund outstanding immediately before the
Reorganization. These transactions will be immediately followed by a pro rata
distribution by each of the Reorganizing Funds of the Successor Fund Shares it
receives in the exchange described above to the holders of corresponding
Reorganizing Fund Shares in exchange for those Successor Fund Shares, in
liquidation of the respective Reorganizing Fund, all upon the terms and
conditions hereinafter set forth in this Agreement.
In consideration of the promises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF EACH OF THE REORGANIZING FUNDS IN EXCHANGE FOR
ASSUMPTION OF ALL LIABILITIES AND ISSUANCE OF RESPECTIVE SUCCESSOR FUND SHARES
1.1 Transaction.
Subject to the terms and conditions set forth herein and on the basis of the
representations and warranties contained herein, each of the Reorganizing Funds
agrees to transfer substantially all of its assets (as described in paragraph
1.2) and to assign and transfer all of its liabilities, including all
contingent, conditional or unmatured liabilities, to the corresponding
Successor Fund, which is organized solely for the purpose of acquiring
substantially all of the assets and assuming all liabilities of such
Reorganizing Fund. The Trust, on behalf of each of the Successor Funds, agrees
that in exchange for substantially all of the assets of the Reorganizing Funds
(1) the corresponding Successor Fund shall assume all liabilities whether or
not contingent, conditional or unmatured, costs, expenses, charges and
reserves, which pertain to events, facts and circumstances of the Reorganizing
Fund prior to and including the Closing Date, as defined in paragraph 3.1, in
accordance with generally accepted accounting principles consistently applied
from the prior audited period, and (2) the Trust shall issue Successor Fund
Shares to the corresponding Reorganizing Fund. The number of Successor Fund
Shares to be issued by the Trust on behalf of the Successor Fund will be
identical to the number of Shares of the Reorganizing Fund outstanding on the
Closing Date provided for in paragraph 3.1. Such transactions shall take place
at the Closing provided for in paragraph 3.1.
1.2 Assets Transferred.
The assets of each Reorganizing Fund to be acquired by the corresponding
Successor Fund shall include, without limitation, all cash, cash equivalents,
securities, receivables (including interest and dividends receivable), any
claims or rights of action or rights to register shares under applicable
securities laws, any books or records of such Reorganizing Fund and other
property owned by such Reorganizing Fund and any deferred or prepaid expenses
shown as assets on the books of such Reorganizing Fund on the Closing Date
provided for in paragraph 3.1.
1.3 Election of Trustees; Approval of Advisory Agreements; Adoption of
Investment Policies; New Service Provider Agreements.
Immediately after delivery to the Reorganizing Funds of corresponding
Successor Fund Shares, a duly authorized officer of each of the Reorganizing
Funds shall cause its respective Reorganizing Fund, as the sole shareholder of
the corresponding Successor Fund, to: (i) elect the Trustees of the Trust;
(ii) approve an investment advisory agreement for the corresponding Successor
Fund in substantially the form as the investment advisory agreement in effect
for the corresponding Reorganizing Fund immediately prior to the Closing of the
Reorganization (with such changes as may have been approved by the shareholders
of the corresponding Reorganizing Fund); and (iii) adopt investment objectives,
investment policies and investment restrictions which are substantially similar
to those of the Reorganizing Fund immediately prior to the Closing of the
Reorganization, including any changes thereto approved by the shareholders of
the Reorganizing Fund at the meeting of shareholders to be held on July 21,
1998. On or prior to the Closing Date, the Trust shall, on its own behalf or
on behalf of each of the Successor Funds, either enter into transfer agency,
subtransfer agency, custodian and subcustodian agreements, and any other
agreement pursuant to which services are rendered to the Reorganizing Funds
with substantially the same terms as the agreements to which the Reorganizing
Funds are a party as of the Closing Date or assume each of the Reorganizing
Fund's obligations under such agreements. The Trust shall also adopt, on its
own behalf or on behalf of each of the Successor Funds, on or prior to the
Closing Date, all policies and procedures, in effect with respect to each of
the Reorganizing Funds as of the Closing Date.
1.4 Distributions in Liquidation.
On the Closing Date each of the Reorganizing Funds will distribute in
liquidation the respective Successor Fund Shares each Reorganizing Fund has
received to each shareholder of record, determined as of the close of business
on the Closing Date, pro rata in proportion to such shareholder's beneficial
interest in that Reorganizing Fund and in exchange for that shareholder's
Shares. Such distribution will be accomplished by the transfer of the
Successor Fund Shares then credited to the account of each Reorganizing Fund on
its share records to open accounts on those records in the names of
Reorganizing Fund Shareholders and representing the respective pro rata number
of each class of the Successor Fund Shares received from the Successor Fund
which is due to such Reorganizing Fund Shareholders. Fractional Successor Fund
Shares shall be rounded to the third place after the decimal point.
1.5 Record of Ownership.
Ownership of the Successor Fund Shares by each Successor Fund Shareholder
shall be recorded separately on the books of the Trust's transfer agent.
1.6 Transfer Taxes.
Any transfer taxes payable upon the issuance of Successor Fund Shares in a
name other than the registered holder of the Reorganizing Fund Shares on the
books of a Reorganizing Fund shall be paid by the person to whom such Successor
Fund Shares are to be distributed as a condition of such transfer.
1.7 Surrender of Certificates.
Shareholders of each Reorganizing Fund holding certificates representing their
ownership of any class of Shares of a Reorganizing Fund shall surrender such
certificates or deliver an affidavit with respect to lost certificates, in such
form and accompanied by such surety bonds as the Reorganizing Fund may require
(collectively, an "Affidavit"), to the Reorganizing Fund prior to the Closing
Date. Any Reorganizing Fund share certificate which remains outstanding on the
Closing Date shall be deemed to be canceled, shall no longer evidence ownership
of any Shares of the Reorganizing Fund and shall instead evidence ownership of
corresponding Successor Fund Shares. Unless and until any such certificate
shall be so surrendered or an Affidavit relating thereto shall be delivered,
dividends and other distributions payable by a Successor Fund subsequent to the
Closing Date with respect to Successor Fund Shares shall be paid to the holder
of such certificates, but such shareholders may not redeem or transfer
Successor Fund Shares received in the Reorganization. The Trust will not issue
Share certificates in the Reorganization.
1.8 Termination of Reorganizing Funds.
The legal existence of each Reorganizing Fund shall be terminated as promptly
as reasonably practicable after the Closing Date.
1.9 Termination of BENDI Investment Company Registration.
BENDI will terminate its registration as a registered investment company in
accordance with applicable law as soon as practicable following the Closing
Date.
1.10 Adoption of ENDI Investment Company Registration.
The Trust will adopt and succeed to ENDI's registration as an investment
company in accordance with applicable law immediately after the Closing Date.
2. VALUATION
2.1 Determination of Reorganizing Fund Assets.
The value of each of the Reorganizing Fund's net assets to be acquired by the
Trust on behalf of each of the Successor Funds hereunder shall be the net asset
value computed as of the valuation time provided in each of the Reorganizing
Fund's prospectus on the Closing Date using the valuation procedures set forth
in the Reorganizing Fund's current prospectus and statement of additional
information.
2.2 Number of Successor Fund Shares Issued.
The number of the corresponding Successor Fund Shares issued shall equal the
number of full and fractional corresponding Reorganizing Fund Shares
outstanding on the Closing Date.
2.3 Computing Net Asset Value.
All computations of value shall be made by the custodian for each of the
Reorganizing Funds and the Trust, or the Reorganizing Funds' investment
adviser, in each case as required by the valuation procedures adopted by the
Reorganizing Funds.
3. CLOSING AND CLOSING DATE
3.1 Closing.
The transfer of a Reorganizing Fund's assets in exchange for the assumption by
the corresponding Successor Fund of such Reorganizing Fund's liabilities and
the issuance of Successor Fund Shares to such Reorganizing Fund, as described
above, together with related acts necessary to consummate such acts (the
"Closing"), shall occur at the offices of the Trust, One Market, Steuart Tower,
San Francisco, California on July 31, 1998 ("Closing Date"). All acts taking
place at the Closing shall be deemed to take place simultaneously as of the
last daily determination of the net asset value of the Reorganizing Funds or at
such other time and or place as the parties may agree.
3.2 Notice to Custodian.
Each Reorganizing Fund shall deliver at the Closing a certificate or separate
certificates of an authorized officer stating that it has notified the
custodian for the Reorganizing Fund and the Trust, of the Reorganizing Fund's
reorganization as a series of the Trust.
3.3 Transfer Agent Certificate; Delivery at Closing.
The transfer agent for each Reorganizing Fund, shall deliver at the Closing a
certificate evidencing the conversion on its books and records of each
Reorganizing Fund Shareholder account to a corresponding Successor Fund
Shareholder account. The Trust shall issue and deliver to each Reorganizing
Fund a confirmation evidencing the crediting of Successor Fund Shares to the
appropriate shareholder accounts on the Closing Date or provide other evidence
satisfactory to each Reorganizing Fund that such Successor Fund Shares have
been credited to the corresponding Reorganizing Fund's account on the books of
the Trust. At the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, stock certificates, receipts or other documents as
such other party or its counsel may reasonably request.
3.4 Examination of Portfolio Securities.
Portfolio securities that are not held in book-entry form in the name of the
custodian as record holder for a Reorganizing Fund shall be presented by the
Reorganizing Fund to the custodian for examination no later than five business
days preceding the Closing Date. Portfolio securities which are not held in
book-entry form shall be delivered by a Reorganizing Fund to the custodian for
the account of the Successor Fund on the Closing Date, duly endorsed in proper
form for transfer, in such condition as to constitute good delivery thereof in
accordance with the custom of brokers, and shall be accompanied by all
necessary federal and state stock transfer stamps or a check for the
appropriate purchase price thereof. Portfolio securities held of record by the
custodian in book-entry form on behalf of a Reorganizing Fund shall be
delivered to the corresponding Successor Fund by the custodian by recording
the transfer of beneficial ownership thereof on its records. The cash
delivered shall be in the form of currency or by the custodian crediting the
corresponding Successor Fund's account maintained with the custodian with
immediately available funds.
4. REPRESENTATIONS AND WARRANTIES OF EACH REORGANIZING FUND,
THE TRUST, AND THE SUCCESSOR FUNDS
4.1 The Reorganizing Funds.
Each Reorganizing Fund represents and warrants as follows:
4.1.A. Organization.
The Reorganizing Fund is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and has the power to
own all of its properties and assets and, subject to approval by the
shareholders of that Reorganizing Fund, to perform its obligations under this
Agreement. The Reorganizing Fund is not required to qualify to do business in
any jurisdiction in which it is not so qualified or where failure to qualify
would not subject it to any material liability or disability. The Reorganizing
Fund has all necessary federal, state and local authorizations to own all of
its properties and assets and to carry its business as now being conducted.
4.1.B. Registrations and Qualifications.
The Reorganizing Fund is a registered investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), is in
full force and effect.
4.1.C. Noncontravention.
The Reorganizing Fund is not, and the execution, delivery and performance of
this Agreement will not result, in violation of any provision of its
Certificate of Incorporation or Bylaws, or any agreement, indenture,
instrument, contract, lease or other undertaking to which the Reorganizing Fund
is a party or by which it is bound.
4.1.D. Tax Filings.
At the date hereof and at the Closing Date all federal, state and other tax
returns and reports, including information returns and payee statements, of the
Reorganizing Fund required by law to have been filed or furnished by such dates
shall have been filed or furnished and all federal, state and other taxes,
interest and penalties shall have been paid so far as due or provision shall
have been made for the payment thereof and no such return is currently under
audit and no assessment has been asserted with respect to any of such returns
or reports.
4.1.E. Tax Status.
The Reorganizing Fund has satisfied the requirements of Section 851(b)(3)
(relating to diversification of assets) of the Code. The Reorganizing Fund has
distributed to its shareholders all of its current and accumulated earnings and
profits as computed for federal income tax purposes, including, without
limitation, any earnings and profits accruing up to and including the date of
the Closing or as a result of the Reorganization. Not more than 25 percent of
the value of the Reorganizing Fund's total assets is invested in the stock and
securities of any one issuer and not more than 50 percent of the value of its
total assets is invested in the stock and securities of 5 or fewer issuers.
For purposes of the foregoing representation: (i) all members of a controlled
group of corporations (within the meaning of Section 1563(a) of the Code) shall
be treated as one issuer, and (ii) a person holding stock in a regulated
investment company, a real estate investment trust, or an investment company
(as defined in Section 368(a)(2)(F) of the Code) shall be treated as holding
its proportionate share of the assets held by such company or trust.
Immediately after the Closing, the Shares of the corresponding Successor Fund
will be owned by substantially by the same persons in the same proportions as
the ownership of the stock of the Reorganizing Fund.
4.1.F. Issuance of Stock.
All Shares of the Reorganizing Fund are, and at the Closing Date will be,
duly and validly issued and outstanding, fully paid and nonassessable by the
Reorganizing Fund. The Reorganizing Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any shares of
common stock (other than dividend reinvestment rights), nor is there
outstanding any security convertible into any of such shares.
4.1.G. Accuracy of Information.
The information to be furnished by the Reorganizing Fund for use in
applications for orders, registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with federal securities and other laws and regulations
thereunder applicable thereto.
4.1.H. Ownership of Assets.
At the Closing Date, the Reorganizing Fund will have good and marketable
title to the assets to be transferred to the Trust, on behalf of the
corresponding Successor Fund, pursuant to paragraph 1.1, and will have full
right, power and authority to sell, assign, transfer and deliver such assets
hereunder. Upon delivery and in payment for such assets, the Trust, on behalf
of the corresponding Successor Fund, will acquire good and marketable title
thereto subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the Securities Act of 1933, as amended (the
"1933 Act").
4.1.I. Corporate Power, Authorization of Transaction.
The execution, delivery and performance of this Agreement will have been duly
authorized prior to the Closing Date by all necessary action on the part of the
Reorganizing Fund. This Agreement constitutes a valid and binding obligation
of the Reorganizing Fund enforceable in accordance with its terms, subject to
the approval of the Reorganizing Fund's shareholders.
4.1.J. Amendment of Certificate of Incorporation.
An amendment to the Certificate of Incorporation of the Reorganizing Fund
setting forth the vote required to approve the Reorganization shall have been
approved by the required vote of shares of the Reorganizing Fund and shall have
been filed with the Secretary of State of the State of Delaware.
4.1.K. Regulatory Consents and Approvals.
No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Reorganizing Fund of the
transactions contemplated herein, except such as shall have been obtained prior
to the Closing Date.
4.2 The Trust and Each Successor Fund.
The Trust represents and warrants, on behalf of itself and each Successor
Fund, as follows:
4.2.A. Organization.
The Trust is a business trust duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the power to own all
of its properties and assets and to perform its obligations under this
Agreement. The Trust is not required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to qualify would
subject it or the Successor Fund to any material liability or disability. The
Trust has all necessary federal, state and local authorizations to own all of
its properties and assets and to carry on the business of the Trust and each
Successor Fund as now being conducted. Each Successor Fund is a duly
established and designated series of the Trust.
4.2.B. Noncontravention.
The Trust is not, and the execution, delivery and performance of this
Agreement will not result, in violation of any provision of the Trust
Instrument or Bylaws of the Trust or any agreement, indenture, instrument,
contract, lease or other undertaking to which the Trust is a party or by which
the Trust is bound.
4.2.C. Qualification under Subchapter M.
The Trust will cause each Successor Fund to qualify as a regulated investment
company under Subsection M of the Code since such Successor Fund's inception,
including the taxable year in which the Closing occurs, and to continue to
qualify as such for each taxable year.
4.2.D. Issuance of Shares of Beneficial Interest.
Prior to the Closing Date, there shall be no issued and outstanding Successor
Fund Shares or any other securities of each Successor Fund. Successor Fund
Shares issued in connection with the transactions contemplated herein will be
duly and validly issued and outstanding and fully paid and non-assessable by
the Trust.
4.2.E. Corporate Power, Authorization of Transaction.
The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Trust, and this Agreement
constitutes a valid and binding obligation of the Trust and each Successor Fund
enforceable against the Trust and each Successor Fund in accordance with its
terms.
4.2.F. Accuracy of Information.
The information to be furnished by the Trust with respect to each Successor
Fund for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and shall
comply in all material respects with federal securities and other laws and
regulations applicable thereto.
4.2.G. Regulatory Consents and Approvals.
No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Trust or each Successor Fund
of the transactions contemplated herein, except such as shall have been
obtained prior to the Closing Date.
5. COVENANTS OF EACH OF THE REORGANIZING FUNDS AND THE TRUST
5.1 Acquisition of Successor Fund Shares.
Each of the Reorganizing Funds covenants that the Successor Fund Shares it
acquires are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms of this Agreement.
5.2 Assisting the Trust Regarding Ownership of Reorganizing Fund Shares.
Each Reorganizing Fund covenants that it will assist the Trust in obtaining
such information as the Trust reasonably requests concerning the beneficial
ownership of its Shares.
5.3 Cooperation by Trust and Reorganizing Funds.
5.3.A Documents Evidencing Transfer By Reorganizing Funds.
Each Reorganizing Fund will, from time to time as and when requested by the
Trust on behalf of the corresponding Successor Fund, execute and deliver, or
cause to be executed and delivered, all such assignments and other instruments,
and will take or cause to be taken such further action, as the Trust may deem
necessary or desirable in order to vest in, and confirm to, the Trust on behalf
of the corresponding Successor Fund, title to, and possession of, all the
assets of the respective Reorganizing Fund to be sold, assigned, transferred
and delivered to the Successor Fund hereunder and otherwise to carry out the
intent and purpose of this Agreement.
5.3.B Documents Evidencing Transfer By Trust.
The Trust will, on behalf of each Successor Fund, from time to time as and
when requested by the corresponding Reorganizing Fund, execute and deliver or
cause to be executed and delivered all such assignments and other instruments,
and will take or cause to be taken such further action, as the Reorganizing
Fund may deem necessary or desirable in order to vest in, and confirm to, the
Reorganizing Fund, title to, and possession of, the Successor Fund Shares
issued, sold, assigned, transferred and delivered hereunder to the Reorganizing
Fund and otherwise to carry out the intent and purpose of this Agreement.
5.3.C. Necessary Approvals.
The Trust, on behalf of each Successor Fund, shall use all reasonable efforts
to obtain the approvals and authorizations required by the 1933 Act, the 1940
Act and such state securities laws as it may deem appropriate in order to
operate after the Closing Date.
5.3.D. Adoption of ENDI Investment Company Registration.
The Reorganizing Funds shall each take, or cause to be taken, all action and
will do or cause to be done all things necessary to enable the Trust to adopt
the investment company registration of ENDI including any necessary regulatory
filings.
5.3.E. Consummation.
Subject to the provisions of this Agreement, the Trust and the Reorganizing
Funds each will take, or cause to be taken, all action and will do or cause to
be done all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.4 Financial Statements.
As promptly as practicable, but in any event within 60 days after the Closing
Date, each Reorganizing Fund shall furnish to the Trust, in such form as is
reasonably satisfactory to the Trust, a statement of any capital loss
carryovers and other items that will be carried over to each Successor Fund as
a result of Section 381 of the Code. Such statement shall be certified by the
President or Treasurer of the Reorganizing Fund.
5.5 Distribution of Earnings and Profits.
On or before the Closing, each Reorganizing Fund will distribute to its
shareholders all of its current and accumulated earnings and profits as
computed for federal income tax purposes, including, without limitation, all
earnings and profits accruing up to and including the date of the Closing or as
a result of the Reorganizations.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE REORGANIZING FUNDS
The obligations of each of the Reorganizing Funds to consummate the
transactions provided for herein shall be subject to the performance by the
Trust, on behalf of each of the Successor Funds, of all the obligations to be
performed by the Trust and the Successor Funds hereunder on or before the
Closing Date and, in addition thereto, to the following further conditions:
6.1 Representations and Warranties.
All representations and warranties of the Trust and the Successor Funds
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same force and
effect as if made on and as of the Closing Date.
6.2 Certificates.
The Trust shall have delivered on the Closing Date to the Reorganizing Funds a
certificate executed in the Trust's name by its President or Vice President, in
form and substance satisfactory to the Reorganizing Funds, dated as of the
Closing Date, to the effect that the representations and warranties of the
Trust and the Successor Funds made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the
Reorganizing Funds shall reasonably request.
Each of the foregoing conditions precedent may be waived by either of the
Reorganizing Funds with respect to itself only.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE SUCCESSOR FUNDS
The obligations of the Trust and the Successor Funds to consummate the
transactions provided for herein shall be subject to the performance by the
Reorganizing Funds of all of the obligations to be performed by the
Reorganizing Funds hereunder on or before the Closing Date and, in addition
thereto, to the following further conditions:
7.1 Representations and Warranties.
All representations and warranties of the Reorganizing Funds contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date.
7.2 Statement of Assets and Liabilities.
Each of the Reorganizing Funds shall have delivered to the Trust on the
Closing Date a statement of the assets and liabilities, prepared in accordance
with generally accepted accounting principles consistently applied, together
with a certificate of the Treasurer or Assistant Treasurer of such Reorganizing
Fund as to its securities and federal income tax basis and holding period as of
the Closing Date.
7.3 Certificates.
Each of the Reorganizing Funds shall have delivered to the Trust on the
Closing Date a certificate executed in the Reorganizing Fund's name by its
President or Vice President, in form and substance satisfactory to the Trust,
dated as of the Closing Date, to the effect that the representations and
warranties of the Reorganizing Fund made in this Agreement are true and correct
at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as
the Trust shall reasonably request.
Each of the foregoing conditions precedent may be waived by the Trust with
respect to either or both Successor Funds.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE REORGANIZING
FUNDS, THE TRUST AND THE SUCCESSOR FUNDS
The obligations of the Reorganizing Funds, the Trust and the Successor Funds
are each subject to the further conditions that on or before the Closing Date:
8.1 Approval by Shareholders.
This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of each of the Reorganizing Fund's shareholders
in accordance with applicable law.
8.2 Absence of Litigation.
On the Closing Date, no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with the
transactions contemplated hereby.
8.3 Consents.
All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Securities and Exchange Commission and of state securities authorities) deemed
necessary by the Trust or the Reorganizing Funds to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Trust, the Reorganizing Funds or the Successor Funds,
provided that either party hereto may waive any of such conditions for itself.
8.4 Legal Opinion.
The Reorganizing Funds and the Trust shall have received on or before the
Closing Date an opinion of Dechert Price & Rhoads satisfactory to the
Reorganizing Funds and the Trust, substantially to the effect that for federal
income tax purposes:
8.4.A. Tax Treatment Under the Code.
The acquisition of substantially all of the assets of each Reorganizing Fund
by its Successor Fund solely in exchange for the issuance of Successor Fund
Shares to the Reorganizing Fund and the assumption by the Successor Fund of all
liabilities, whether contingent, conditional or unmatured, of the Reorganizing
Fund, followed by the distribution in liquidation by the Reorganizing Fund of
such Successor Fund Shares to the Reorganizing Fund's shareholders in exchange
for their Shares and the termination of the Reorganizing Fund, will constitute
a reorganization within the meaning of Section 368(a)(1) of the Code, and the
Reorganizing Fund and the Successor Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
8.4.B. Recognition by Reorganizing Funds.
As a result of the Reorganization, no loss will be recognized by a
Reorganizing Fund and, pursuant to Internal Revenue Service Notice 88-19, a
Reorganizing Fund will be treated as recognizing any net built-in gains as
though the assets were sold at their fair market value on the day before the
corresponding Reorganization.
8.4.C. Recognition by Successor Funds.
No gain or loss will be recognized by either of the Successor Funds upon its
receipt of all of the corresponding Reorganizing Fund's assets solely in
exchange for the issuance of corresponding Successor Fund Shares to the
corresponding Reorganizing Fund and the assumption by a corresponding Successor
Fund of all liabilities, whether or not contingent, conditional or unmatured,
of the corresponding Reorganizing Fund.
8.4.D. Recognition by Shareholders.
No gain or loss will be recognized by the shareholders of a Reorganizing Fund
on the distribution of Successor Fund Shares to them in exchange for their
shares of the Reorganizing Fund.
8.4.E. Tax Basis of Successor Fund Shares.
The basis of the Successor Fund Shares that each Reorganizing Fund's
shareholders receive in place of their Reorganizing Fund Shares will be the
same as the basis of the Reorganizing Fund Shares surrendered in exchange
therefor.
8.4.F. Holding Period.
A shareholder's holding period for the Successor Fund Shares received
pursuant to a Reorganization will be determined by including the holding period
for the corresponding Reorganizing Fund's Shares exchanged for the
corresponding Successor Fund Shares, provided that the shareholder held the
corresponding Reorganizing Fund Shares as a capital asset.
8.4.G. Tax Basis of Assets.
The tax basis of the assets acquired by a Successor Fund from its
corresponding Reorganizing Fund will be, in each instance, the same as the
basis of the assets in the hands of the corresponding Reorganizing Fund
immediately prior to such exchange adjusted to reflect any gains recognized as
a result of the transfer.
8.4.H. Holding Period for Assets.
A Successor Fund's holding periods with respect to the assets in its
portfolio will include the respective periods for which the assets were held by
the corresponding Reorganizing Fund.
The Reorganizing Funds and the Trust each agree to make and provide
representations with respect to the corresponding Reorganizing Fund or the
Successor Funds, respectively, which are reasonably necessary to enable Dechert
Price & Rhoads to deliver an opinion substantially as set forth in this
paragraph 8.4, which opinion may address such other federal income tax
consequences, if any, that Dechert Price & Rhoads believes to be material to
the Reorganizations.
Each of the foregoing conditions precedent to the obligations of a party,
except for the receipt of the opinion of Dechert Price & Rhoads set forth in
paragraph 8.4, may be waived by that party with respect to itself only.
9. BROKERAGE FEES AND EXPENSES
9.1 Absence of Broker Fees.
The Trust, on behalf of the Successor Funds, and the Reorganizing Funds, each
represents and warrants to the other that there are no broker's or finder's
fees payable in connection with the transactions contemplated hereby.
9.2 Allocation of Expenses.
Each of the Reorganizing Funds and the Successor Funds shall be liable for any
expenses incurred by it in connection with entering into and carrying out the
provisions of this Agreement whether or not the transactions contemplated
hereby are consummated.
10. ENTIRE AGREEMENT
The Trust, on behalf of the Successor Funds, and the Reorganizing Funds agree
that neither party has made any representation, warranty or covenant not set
forth herein and that this Agreement constitutes the entire agreement between
the parties. The representations, warranties and covenants contained herein or
in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 Conditions for Termination.
This Agreement may be terminated by the mutual agreement of the Trust and both
of the Reorganizing Funds. In addition, either the Trust or either Reorganizing
Fund may at its option terminate this Agreement at or prior to the Closing Date
because:
11.1.A. Material Breach.
There exists a material breach by the other party of any representations,
warranties or agreements contained herein to be performed at or prior to the
Closing Date.
11.l.B. Failure to Meet Condition Precedent.
A condition expressed precedent to the obligations of the terminating party
has not been met and it reasonably appears that it will not or cannot be met.
11.1.C. Majority Vote.
A majority of the members of the Board of Directors of a Reorganizing Fund
determines that it is not in the best interest of the Reorganizing Fund or its
shareholders to proceed with the transactions contemplated by this Agreement.
11.2 Liability Upon Termination.
In the event of any such termination, there shall be no liability for damages
on the part of the Trust or the Reorganizing Funds, or their respective
Trustees, Directors or officers, to the other parties or their Trustees,
Directors or officers.
12. AMENDMENT
This Agreement may be amended, modified or supplemented in such manner as may
be mutually agreed upon in writing by the parties; provided, however, that
following the approval of this Agreement by shareholders of either Reorganizing
Fund, no such amendment may have the effect of changing the provisions for
determining the number of Successor Fund Shares to be paid to a Reorganizing
Fund's shareholders under this Agreement to the detriment of such Reorganizing
Fund shareholders without their further approval.
13. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
13.1 Headings.
The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
13.3 Governing Law.
This Agreement shall be governed by and construed in accordance with the laws
of Delaware.
13.4 Assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other parties. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation other than the parties hereto and their
respective successors and assigns any rights or remedies under or by reason of
this Agreement.
13.5 Recourse
All persons dealing with the Trust, any Reorganizing Fund or any Successor
Fund must look solely to the property of the Trust, the Reorganizing Funds or
the Successor Funds, respectively, for the enforcement of any claims against
the Trust, the Reorganizing Funds or the Successor Funds, as neither the
Trustees, Directors, officers, agents nor shareholders of the Trust or the
Reorganizing Funds or the Successor Funds assume any personal liability for
obligations entered into on behalf of the Trust, or the Reorganizing Funds, or
the Successor Funds, respectively.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to either or both of the
Reorganizing Funds or the Trust, each at One Market, Steuart Tower, San
Francisco, California 94120, Attention: Secretary.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its duly authorized officer.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
By:________________________________________________
Its:________________________________________________
ENDOWMENTS, INC.
By:________________________________________________
Its:________________________________________________
ENDOWMENTS
By:________________________________________________
Its:________________________________________________
APPENDIX B
INVESTMENT ADVISORY AND SERVICE AGREEMENT
THIS AGREEMENT, dated and effective as of the ____ day of _______, 1998, is
made and entered into by and between ENDOWMENTS, a Delaware business trust,
(hereinafter called the "Trust"), and CAPITAL RESEARCH AND MANAGEMENT COMPANY,
a Delaware corporation, (hereinafter called the "Adviser"). The parties agree
as follows:
1.
The Trust hereby employs the Adviser to furnish advice to the Trust with
respect to the investment and reinvestment of the assets of the Trust. The
Adviser hereby accepts such employment and agrees to render the services and to
assume the obligation to the extent herein set forth, for the compensation
herein provided. The Adviser shall, for all purposes herein, be deemed an
independent contractor and not an agent of the Trust.
2.
The Adviser agrees to provide supervision of the portfolio of the Trust and to
determine what securities or other property shall be purchased or sold by the
Trust, giving due consideration to the policies of the Trust as expressed in
the Trust's Declaration of Trust, By-Laws, Registration Statement under the
Investment Company Act of 1940, as amended (the "1940 Act"), Registration
Statement under the Securities Act of 1933, as amended (the "1933 Act"), and
prospectus as in use from time to time, as well as to the factors affecting the
Trust's status as a regulated investment company under the Internal Revenue
Code of 1954, as amended.
The Adviser shall provide adequate facilities and qualified personnel for the
placement of orders for the purchase, or other acquisition, and sale, or other
disposition, of portfolio securities for the Trust. With respect to such
transactions, the Adviser, subject to such directions as may be furnished from
time to time by the Board of Trustees of the Trust, shall endeavor as the
primary objective to obtain the most favorable prices and executions of orders.
Subject to such primary objective, the Adviser may place orders with
broker-dealer firms which have sold shares of the Trust or which furnish
statistical and other information to the Adviser, taking into account the value
and quality of the brokerage services of such broker-dealers, including the
availability and quality of such statistical and other information. Receipt by
the Adviser of any such statistical and other information and services shall
not be deemed to give rise to any requirement for abatement of the advisory fee
payable pursuant to Section 6 hereof.
3.
The Adviser shall furnish the services of persons to perform the executive,
administrative, clerical, and bookkeeping functions of the Trust, including the
daily determination of net asset value and offering price per share. The
Adviser shall pay the compensation and travel expenses of all such persons, and
they shall serve without additional compensation from the Trust. The Adviser
shall also, at its expense, provide the Trust with suitable office space (which
may be in the offices of the Adviser); all necessary small office equipment and
utilities; and general purpose accounting forms, supplies, and postage used at
the offices of the Trust.
4.
The Trust shall pay all its expenses not assumed by the Adviser as provided
herein. Such expenses shall include, but shall not be limited to, custodian,
registrar, stock transfer and dividend disbursing fees and expenses; costs of
the designing, printing and mailing of reports, prospectuses, proxy statements,
and notices to its shareholders; taxes; expenses of the issuance and redemption
of shares of the Trust (including stock certificates, registration and
qualification fees and expenses); legal and auditing expenses; compensation,
fees, and expenses paid to trustees; association dues; and costs of stationery
and forms prepared exclusively for the Trust.
5.
The Trust shall pay to the Adviser on or before the tenth (10th) day of each
month, as compensation for the services rendered by the Adviser during the
preceding month, an amount to be computed by applying to the total net asset
value of each Portfolio at the annual rates of:
Growth and Income Portfolio:
(a) On the first $150,000,000 of net asset value of the Trust, a fee of fifty
one-hundredths of one percent (50/100ths of 1%) per annum;
(b) On any amount over $150,000,000 of net asset value of the Trust, forty
one-hundredths of one percent (40/100ths of 1%) per annum.
Bond Portfolio:
(a) On the first $150,000,000 of net asset value of the Trust, a fee of fifty
one-hundredths of one percent (50/100ths of 1%) per annum;
(b) On any amount over $150,000,000 of net asset value of the Trust, forty
one-hundredths of one percent (40/100ths of 1%) per annum.
The advisory fee shall be accrued daily at 1/365th of the applicable annual
rate set forth above. The net asset value of each Portfolio shall be
determined in the manner set forth in the Declaration of Trust and prospectus
of the Trust as of the close of the New York Stock Exchange on each day on
which said Exchange is open, and in the case of Saturdays, Sundays, and other
days on which said exchange shall not be open, as at the close of the last
preceding day on which said Exchange shall have been open.
Upon any termination of this Agreement on a day other than the last day of the
month the fee for the period from the beginning of the month in which
termination occurs to the date of termination shall be prorated according to
the proportion which such period bears to the full month of the Trust.
6.
The Adviser agrees to reduce the fee payable to it under this Agreement by the
amount by which the ordinary operating expenses of either Portfolio for any
fiscal year of the Trust, excluding interest, taxes and extraordinary expenses,
shall exceed one and one-half percent (1 1/2%) of the first $30 million of
average net assets of either Portfolio determined pursuant to Section 5, plus
one percent (1%) of such average net assets in excess thereof. Costs incurred
in connection with the purchase or sale of portfolio securities, including
brokerage fees and commissions, which are capitalized in accordance with
generally accepted accounting principles applicable to investment companies,
shall be accounted for as capital items and not as expenses. Proper accruals
shall be made by either Portfolio for any projected reduction hereunder, and
corresponding amounts shall be withheld from the fees paid by the Trust to the
Adviser. Any additional reduction computed at the end of the fiscal year
shall be deducted from the fee for the last month of such fiscal year, and any
excess shall be paid to the Trust immediately after the fiscal year end, and in
any event prior to publication of the Trust's annual report as a reduction of
the fees previously paid during the fiscal year.
7.
Nothing contained in this Agreement shall be construed to prohibit the Adviser
from performing investment advisory, management, or distribution services for
other investment companies and other persons or companies, or to prohibit
affiliates of the Adviser from engaging in such businesses or in other related
or unrelated businesses.
8.
The Adviser shall have no liability to the Trust, or its shareholders, for any
error of judgment, mistake of law, or for any loss arising out of any
investment, or for any other act or omission in the performance of its
obligations to the Trust not involving willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties hereunder.
9.
This Agreement shall continue in effect until the close of business on July
27, 1999. It may thereafter be renewed from year to year by mutual consent,
provided that such renewal shall be specifically approved at least annually by
(i) the Board of Trustees of the Trust, or by the vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of the Trust, and
(ii) a majority of those trustees who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party cast in
person at a meeting called for the purpose of voting on such approval. Such
mutual consent to renewal shall not be deemed to have been given unless
evidenced by a writing signed by both parties hereto.
10.
The obligations of the Trust under this Agreement are not binding upon any of
the Trustees, officers, employees, agents or shareholders of the Trust
individually, but bind only the Trust Estate. The Adviser agrees to look
solely to the assets of the Trust for the satisfaction of any liability of the
Trust in respect of this Agreement and will not seek recourse against such
Trustees, officers, employees, agents or shareholders, or any of them, or any
of their personal assets for such satisfaction.
11.
This Agreement may be terminated at any time, without payment of any penalty,
by the Board of Trustees of the Trust or by the vote of a majority (as defined
in the 1940 Act) of the outstanding voting securities of the Trust, on sixty
(60) days' written notice to the Adviser, or by the Adviser on like notice to
the Trust. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their officers thereunto duly authorized as
of the day and year first above written.
CAPITAL RESEARCH AND
MANAGEMENT COMPANY ENDOWMENTS
By----------------------- By-------------------------
By----------------------- By-------------------------
