SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
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FOUNDERS FUNDS, INC.
(Name of Registrant as specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was
determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by the Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PRELIMINARY COPY
[LOGO] FOUNDERS FUNDS, INC.
DECEMBER 30, 1998
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Dear Fellow Shareholder:
The Founders Funds will hold a special meeting of shareholders on March 2,
1999 at our offices in Denver, Colorado. The purpose of the meeting is to vote
on some important proposals affecting the Funds and you as a shareholder. This
package contains information about the proposals, a proxy and business reply
envelope permitting you to vote by mail, and simple instructions on how to vote
[by phone] or via the Internet.
As you will see from the enclosed materials, your Board of Directors is
requesting that you approve changes to certain of the investment restrictions
for your Fund. These changes are intended to modernize the restrictions, give
the Funds greater investment flexibility, and facilitate portfolio compliance.
We realize that the descriptions of some of these techniques are complex. Please
be assured, however, that the Board of Directors has carefully considered these
proposals, believes they are in the best interests of the Funds, and unanimously
recommends your "yes" vote on each of them. In addition, the Board is requesting
that you reelect the Funds' directors and ratify the selection of the Funds'
independent accountants.
We encourage you to read the full text of the Proxy Statement. To help you
more fully understand its contents, we have prepared a few brief Questions and
Answers ("Q&A") regarding these proposals. The Q&A is on the reverse side of
this letter.
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY SHARES YOU OWN. THE MATTERS WE
ARE SUBMITTING FOR YOUR CONSIDERATION ARE SIGNIFICANT TO THE FUNDS AND TO YOU AS
A FUND SHAREHOLDER. THEREFORE, PLEASE TAKE THE TIME TO READ THE PROXY STATEMENT
AND CAST YOUR VOTE ON THE ENCLOSED PROXY CARD(S), [BY PHONE] OR VIA THE
INTERNET. IF WE DO NOT RECEIVE SUFFICIENT VOTES TO APPROVE THESE PROPOSALS, WE
MAY HAVE TO SEND ADDITIONAL MAILINGS OR CONDUCT TELEPHONE CANVASSING. IN THIS
REGARD, THE COMPANY HAS RETAINED SHAREHOLDER COMMUNICATIONS CORPORATION TO
ASSIST IN THE SOLICITATION OF PROXIES. IF YOU DO NOT VOTE, YOU MAY RECEIVE A
TELEPHONE CALL FROM SHAREHOLDER COMMUNICATIONS CORPORATION REQUESTING YOUR VOTE.
We thank you for your prompt response to the Proxy Statement.
Sincerely,
Jay A. Precourt
Chairman
Founders Funds, Inc.
<PAGE>
Q. WHY AM I BEING ASKED TO VOTE ON THESE PROPOSALS?
A. The federal law that governs mutual funds requires shareholders to
approve changes in a Fund's fundamental investment restrictions. As a Fund
owner, you are being asked to approve the changes for your Fund(s).
Q. WHAT ARE THE ADVANTAGES TO THE FUNDS?
A. The changes to the Funds' fundamental investment restrictions will give
the Funds greater investment flexibility, which will help them respond more
quickly to changing market, economic and competitive conditions. The new
restrictions also will be more clear and consistent, thereby facilitating
portfolio compliance.
Q. HOW WILL THE PROPOSALS AFFECT ME AS A FUND SHAREHOLDER?
A. The proposed changes could lead to the Funds using investment
techniques they have not used in the past. While some of these techniques
involve greater risks, the Board of Directors has determined that the potential
benefits of having increased investment flexibility outweigh the possible risks.
Q. WHAT OTHER MATTERS AM I BEING ASKED TO VOTE ON?
A. You are also being asked to vote on the election of directors. See the
discussion of Proposal 1 for details. Also, you are being asked to ratify the
selection of PricewaterhouseCoopers LLP as the independent accountants for the
Funds. See the discussion of Proposal 3 for details.
Q. HOW DO THE FUND DIRECTORS SUGGEST THAT I VOTE?
A. After careful consideration, the directors recommend that you vote
"FOR" all three proposals.
Q. WHOM DO I CALL FOR MORE INFORMATION?
A. If you have any questions regarding the Proxy Statement or its
contents, please call Shareholder Communications Corporation at 1-800-733-8481,
extension ____ between 9 a.m. and 11 p.m., Eastern time, Monday through Friday.
They will be pleased to answer any questions that you may have.
<PAGE>
FOUNDERS FUNDS, INC.
2930 EAST THIRD AVENUE
DENVER, COLORADO 80206
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 2, 1999
Notice is hereby given that a special meeting of shareholders (the
"Meeting") of Founders Balanced Fund, Founders Blue Chip Fund, Founders
Discovery Fund, Founders Frontier Fund, Founders Government Securities Fund,
Founders Growth Fund, Founders International Equity Fund, Founders Money Market
Fund, Founders Passport Fund, Founders Special Fund, and Founders Worldwide
Growth Fund (collectively, the "Funds" and, individually, a "Fund"), the eleven
series of Founders Funds, Inc. (the "Company"), will be held at the offices of
the Company, 2930 East Third Avenue, Denver, Colorado 80206, on Tuesday, March
2, 1999 at 3:00 p.m., Mountain time, for the following purposes:
1. To elect eight Directors of the Company.
2. To approve the revision or elimination of certain fundamental investment
restrictions.
3 To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants for the Company for the fiscal year ending December 31, 1999.
4. To transact such other business as may properly come before the Meeting or
any adjournment(s) thereof.
The Board of Directors of the Company has fixed the close of business on
December 15, 1998 as the record date for the determination of shareholders
entitled to notice of and to vote at the Meeting or any adjournment(s) thereof.
You are cordially invited to attend the Meeting. Even if you plan to
attend the Meeting, all shareholders are requested to complete, date and sign
the enclosed form of proxy and return it promptly in the enclosed envelope that
requires NO postage if mailed in the United States. The enclosed proxy is being
solicited on behalf of the Board of Directors of the Company.
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IMPORTANT
Please mark, sign, date and return the enclosed proxy in the accompanying
postage-paid envelope as soon as possible in order to ensure a full
representation at the Meeting. As a more efficient and convenient alternative to
using the proxy card to vote, you may vote electronically via the Internet [or
by telephone], as described in the Proxy Statement.
The Meeting will have to be adjourned without conducting any business if
less than a majority of the eligible shares is represented, and the Company will
have to continue to solicit votes until a quorum is obtained. The Meeting also
may be adjourned, if necessary, to continue to solicit votes if less than the
required shareholder votes have been obtained to elect the specified number of
Directors and to approve Proposals 2 and 3.
Your vote, then, is critical in allowing the Company to hold the Meeting
as scheduled. By voting promptly, you may eliminate the need for additional
solicitation. We appreciate your cooperation.
By Order of the Board of Directors
Margaret W. Chambers
Secretary
Denver, Colorado
Dated: December 30, 1998
<PAGE>
FOUNDERS FUNDS, INC.
DECEMBER 30, 1998
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FOUNDERS FUNDS, INC.
FOUNDERS FINANCIAL CENTER
2930 EAST THIRD AVENUE
DENVER, COLORADO 80206
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 2, 1999
INTRODUCTION
The enclosed proxy is being solicited by the Board of Directors (the
"Board" or the "Directors") of Founders Funds, Inc. (the "Company") on behalf of
Founders Balanced Fund, Founders Blue Chip Fund, Founders Discovery Fund,
Founders Frontier Fund, Founders Government Securities Fund, Founders Growth
Fund, Founders International Equity Fund, Founders Money Market Fund, Founders
Passport Fund, Founders Special Fund, and Founders Worldwide Growth Fund
(collectively, the "Funds" and, individually, a "Fund") for use in connection
with the special meeting of shareholders of the Company (the "Meeting") to be
held at 3 p.m., Mountain time, on Tuesday, March 2, 1999, at the offices of the
Company, 2930 East Third Avenue, Denver, Colorado 80206, and any adjournment(s)
thereof for the purposes set forth in the foregoing notice. THE FUNDS' ANNUAL
REPORT, INCLUDING FINANCIAL STATEMENTS OF THE FUNDS FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997, AND THE FUNDS' SEMIANNUAL REPORT, INCLUDING FINANCIAL
STATEMENTS OF THE FUNDS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998, ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST FROM FOUNDERS' SHAREHOLDER SERVICES
DEPARTMENT AT P.O. BOX 173655, DENVER, COLORADO 80217-3655 (TELEPHONE NUMBER
1-800-525-2440). The approximate mailing date of proxies and this Proxy
Statement is December 30, 1998.
The shareholders of all Funds will vote together as a single class on
Proposal 1, the election of Directors, and Proposal 3, to ratify the selection
of independent accountants. The shareholders of each Fund, voting separately as
a class, will vote on the investment restriction changes set forth in Proposal
2. The changes described in Proposal 2, Sections 2.A. through 2.G., will be
voted on by all of the Funds. The remaining changes apply only to certain Funds,
as summarized in the chart below:
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FUND PROPOSAL
2.H 2.I 2.J 2.K 2.L 2.M 2.N 2.O 2.P 2.Q 2.R 2.S
Balanced X X X X X X X
Blue Chip X
Frontier X
Government
Securities X
Growth X X X X X X X X X
Money Market X X X X X X X X
Special X X X X X X
If the enclosed form of proxy is duly executed and returned in time to be
voted at the Meeting (either by returning the enclosed proxy card or by
submitting your proxy electronically via the Internet [or by telephone]), and
not subsequently revoked, all shares represented by the proxy will be voted in
accordance with the instructions specified thereon. IF NO INSTRUCTIONS ARE
GIVEN, SUCH SHARES WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR HEREINAFTER
LISTED AND FOR PROPOSALS 2 AND 3. A majority of the outstanding shares of the
Company entitled to vote, represented in person or by proxy, will constitute a
quorum at the Meeting.
Shares that are registered in your name, as well as shares held in "street
name" through a broker, may be voted via the Internet [or by telephone] by using
a program provided through ADP Investor Communication Services ("ADP"). To vote
in this manner, you will need the 12-digit "control" number(s) that appears on
your proxy card(s). To vote via the Internet, please access Founders Funds or
ADP on the World Wide Web at www.proxyvote.com, respectively. To vote by
telephone, please call the toll-free number listed on the enclosed proxy
card(s).
The Internet voting procedures are designed to authenticate shareholder
identities, to allow shareholders to give their voting instructions, and to
confirm that shareholders' instructions have been recorded properly. If you vote
online, you should understand that there may be costs associated with electronic
access, such as usage charges from Internet access providers and telephone
companies, which you must bear.
Shares held by shareholders present in person or represented by proxy at
the Meeting will be counted both for the purpose of determining the presence of
a quorum and for calculating the votes cast on the issues before the Meeting. An
abstention by a shareholder, either by proxy or by vote in person at the
Meeting, has the same effect as a negative vote. Shares held by a broker or
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other fiduciary as record owner for the account of the beneficial owner are
counted toward the required quorum and in calculating the votes cast at the
Meeting if the beneficial owner has executed and timely delivered the necessary
instructions for the broker or fiduciary to vote the shares, or if the broker or
fiduciary has and exercises discretionary voting power. Where the broker or
fiduciary does not have discretionary voting power as to one or more of the
proposals before the Meeting, and does not receive instructions from the
beneficial owner, but grants a proxy for or votes such shares with respect to
other proposals, the shares will be counted toward the required quorum but will
have the effect of a negative vote on any proposals on which the broker or
fiduciary does not vote.
Because many of the proposals being submitted for a vote of the
shareholders of each Fund are substantially similar, the Board determined to
combine the proxy materials for the Funds in order to reduce the cost of
preparing, printing and mailing these proxy materials.
In order to further reduce costs, notices to shareholders having more than
one account in the Funds listed under the same Social Security number and zip
code have been combined. However, shareholders will receive a separate proxy
card for each account they own. THEREFORE, IT IS IMPORTANT TO MARK, SIGN, DATE,
AND RETURN ALL PROXY CARDS INCLUDED IN YOUR PACKAGE.
Shareholders of the Funds of record at the close of business on December
15, 1998 (the "Record Date"), are entitled to vote at the Meeting, including any
adjournment(s) thereof, and are entitled to one vote for each share, and
corresponding fractional votes for fractional shares, on each matter to be acted
upon at the Meeting. On the Record Date, the following shares of the Funds'
common stock, $.01 par value per share, were outstanding.
Founders Balanced Fund 0.000
Founders Blue Chip Fund 0.000
Founders Discovery Fund 0.000
Founders Frontier Fund 0.000
Founders Government Securities Fund 0.000
Founders Growth Fund 0.000
Founders International Equity Fund 0.000
Founders Money Market Fund 0.000
Founders Passport Fund 0.000
Founders Special Fund 0.000
Founders Worldwide Growth Fund 0.000
TOTAL 0.000
<PAGE>
The following table sets forth, as of the Record Date, the share ownership
of those shareholders who, to the knowledge of the Company, owned beneficially
more than 5% of a Fund's issued and outstanding common stock:
Name and Address Amount and Nature of Percent of
of Owner Beneficial Common Stock
Ownership(1)
Mercantile Safe Deposit ________________ (Worldwide ____%
& Trust - 401(k) Growth)(2)
2 Hopkins Place
Baltimore, MD 21201
Connecticut General Life ________________ (Growth) ____%
Insurance Company
1 Commercial Plaza ________________ (Balanced) ____%
280 Trumbull Street
Hartford, CT 06103
VALIC ________________ (Growth) (3) ____%
2929 Allen Parkway L7-01
Houston, TX 77019
State of Michigan Plan 2 ________________ (Balanced) ____%
- - 401(k)
State Street Bank &
Trust Company
200 Newport Avenue
Quincy, MA 02170
(1) As interpreted by the Securities and Exchange Commission ("SEC"), a
security is beneficially owned by a person if that person has or shares
voting power or investment power with respect to the security.
(2) This entity holds the shares in its capacity as trustee or custodian for a
number of retirement plans.
(3) Shares held by an insurance company separate account into which insurance
contract values have been allocated, which will be voted in accordance
with the insurance owners' instructions.
Founders Asset Management LLC ("Founders"), located at 2930 East Third
Avenue, Denver, Colorado 80206, serves as investment adviser, accounting and
administrative services agent and shareholder servicing agent for the Funds.
In addition to solicitations of proxies by mail, proxies may be solicited
by officers and employees of Founders, personally or by telephone or
electronically, without special compensation. In addition, the Funds have hired
an unaffiliated proxy solicitor, Shareholder Communications Corporation ("SCC"),
to assist in the solicitation of proxies by mail, phone and special courier. The
estimated cost of SCC's services to the Funds is $______, but will vary
depending upon the extent of services provided. It is expected that the
engagement of SCC will help assure a quorum for the Meeting and help obtain the
required vote to approve all proposals.
<PAGE>
As the meeting date approaches, you may receive a telephone call from SCC
if you have not voted. SCC's representatives will ask that you authorize SCC, by
telephonic or electronically transmitted instructions, to execute a proxy card
on your behalf. Telephone authorizations will be recorded in accordance with the
procedures set forth below. The Company believes that these procedures are
reasonably designed to ensure that the identity and voting instructions of the
shareholder casting the vote are accurately determined.
SCC has received an opinion of Maryland counsel that addresses the
validity, under the applicable laws of the State of Maryland, of authorization
given verbally to execute a proxy. The opinion given by Maryland counsel
concludes that a Maryland court would find that there is no Maryland law or
public policy against the acceptance of proxies signed by a verbally-authorized
agent, provided it adheres to the procedures set forth below.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask you for your full name, address, Social Security or employer
identification number, title (if you are authorized to act on behalf of an
entity, such as a corporation), and the number of shares owned, and to confirm
that you have received this Proxy Statement in the mail. If the information
solicited agrees with the information provided to SCC by the Company, the SCC
representative has the responsibility to explain the solicitation process, read
the proposals listed on the proxy card, and ask for your instructions on each
proposal. Although he or she is permitted to answer questions about the process,
the SCC representative is not permitted to recommend to you how to vote, other
than to read any recommendation set forth in this Proxy Statement. SCC will
record your instructions on the proxy card. Within 72 hours, SCC will send you a
letter or mailgram confirming your vote and asking you to call SCC immediately
if your instructions are not correctly reflected in the confirmation.
Executing the enclosed proxy card, authorizing SCC to execute a proxy
card, or voting via the Internet [or by phone] will not affect your right to
attend the Meeting and vote in person, and a shareholder giving a proxy has the
power to revoke it (by written notice to the Funds at P.O. Box 173655, Denver,
Colorado 80217-3655, execution of a subsequent proxy card, or oral revocation at
the Meeting) at any time before it is exercised.
All costs of printing and mailing proxy materials and the costs and
expenses of holding the Meeting and soliciting proxies, including any amount
paid to SCC, will be paid by the Funds.
<PAGE>
Without notice other than announcement at the Meeting, the presiding
officer may seek one or more adjournments of the Meeting to solicit additional
shareholders, if necessary, to obtain a quorum for the Meeting, or to obtain the
required shareholder vote to elect the specified number of Directors and approve
Proposals 2 and 3. An adjournment would require the affirmative vote of the
holders of a majority of the shares present at the Meeting (or an adjournment
thereof) in person or by proxy and entitled to vote. If adjournment is proposed
in order to obtain the required shareholder vote on a particular proposal, the
persons named as proxies will vote in favor of adjournment those shares which
they are entitled to vote in favor of such proposal and will vote against
adjournment those shares which they are required to vote against such proposal.
A shareholder vote may be taken on one or more of the proposals discussed herein
prior to any such adjournment if sufficient votes have been received and it is
otherwise appropriate.
PROPOSAL 1: ELECTION OF DIRECTORS OF THE COMPANY
The Company currently has eight Directors. Vacancies on the Board
generally are filled by appointment by the remaining Directors. However, the
Investment Company Act of 1940 (the "1940 Act") provides that vacancies may not
be filled by Directors unless thereafter at least two-thirds of the Directors
shall have been elected by shareholders. To enable the requirement to be met in
the future without the necessity of calling additional shareholder meetings,
shareholders are being asked at this Meeting to elect the current eight
Directors to hold office until the next meeting of shareholders or until their
successors are elected and qualified. Under the provisions of the Company's
By-Laws, as permitted by Maryland law, the Company does not anticipate holding
annual shareholder meetings. Thus, the Directors will be elected for indefinite
terms.
Six of the Directors are "Independent Directors," i.e., Directors who are
not "interested persons" of Founders or the Company, as that term is defined in
the 1940 Act. The nominees for election as Directors have been proposed by the
Directors now serving or, in the case of nominees for positions as Independent
Directors, by the Independent Directors now serving.
All of the nominees have consented to being named in this Proxy Statement
and to serve, if elected, and no circumstances now known will prevent any of the
nominees from serving. If any nominee should become unable to serve, the proxy
will be voted for a substitute nominee proposed by the present Directors or, in
the case of an Independent Director nominee, by the Independent Directors.
Set forth below is information concerning the nominees for Directors to be
elected at this Meeting:
<PAGE>
Number of Fund
Position, if Any with Shares
the Company, Principal Director Beneficially
Occupation and Business of the Owned Directly
Experience Company or Indirectly
Name and Age (during past five years) Since on Record Date (1)
------------ -------------------------- ------- -------------------
Jay A. Precourt Chairman of the Board of 1983 ____
(2),(3) the Company. President,
Age 61 Chief Executive Officer,
Vice Chairman and
Director, Tejas Energy,
L.L.C., Houston, Texas;
Director of The Timken
Company, Canton, Ohio,
and Halliburton Company,
-------.
Eugene H. Vaughan, Vice Chairman of the 1970 ________
Jr. (4) Board and Director of
Age 65 the Company. President
and Chief Executive
Officer, Vaughan,
Nelson, Scarborough &
McCullough, L.P., an
investment counseling
firm, Houston, Texas.
Founding Chairman and
Governor, Association
for Investment
Management and Research;
Past Chairman and
Trustee, Institute of
Chartered Financial
Analysts; Past Chairman
and Director, Financial
Analysts Federation.
Bjorn K. Borgen* Director of the Copmpany. 1970 ______
(2),(4),(5) and Formerly (1971 to March
(6) 1998), Chairman, Chief
Age 61 Executive Officer, Chief
Investment Officer,
Secretary, and Director
of Founders Asset
Management, Inc.
Alan S. Danson (4), Director of the 1991 ______
(5) Company. Director and
Age 59 Senior Vice President,
OptiMark Technologies,
Inc. (computerized
securities trading
services), and
President, D.H.
Management, Inc.
(general partner of
limited partnership with
technology company
holdings).
<PAGE>
Number of Fund
Position, if Any with Shares
the Company, Principal Director Beneficially
Occupation and Business of the Owned Directly
Experience Company or Indirectly
Name and Age (during past five years) Since on Record Date (1)
------------ -------------------------- ------- -------------------
Robert P. Director of the 1998 ________
Mastrovita ** (4) Company. Private
Age 54 investor; Chairman of
private foundation.
Formerly (1982 to 1997),
Chairman and Director,
Hagler, Mastrovita &
Hewitt, Inc., Boston,
Massachusetts, a
registered investment
adviser. Member, Boston
Society of Security
Analysts.
Trygve E. Myhren Director of the 1996 ________
(3), (5) Company. President,
Age 61 Myhren Media, Inc.,
Denver, Colorado, a firm
that invests in and
advises media,
telecommunications,
internet and software
companies. Director,
Advanced Marketing
Services, La Jolla,
California; Director,
Peapod, Inc., Evanston,
Illinois; Director, J.D.
Edwards, Denver,
Colorado; Director,
Verio, Inc., _____.
Formerly, President of
The Providence Journal
Company, a diversified
media and communications
company, Providence,
Rhode Island, from 1990
to 1996.
George W. Phillips Director of the 1998 ________
(3) Company. Retired.
Age 60 Director and Chairman,
Strategic Planning
Committee, Warren
Bancorp, Inc., Peabody,
Massachusetts, a
state-chartered bank
holding company.
Formerly (1991 to
1997), Mr. Phillips was
President and Chief
Executive Officer of
Warren Bancorp, Inc. and
Warren Five Cents
Savings Bank.
<PAGE>
Number of Fund
Position, if Any with Shares
the Company, Principal Director Beneficially
Occupation and Business of the Owned Directly
Experience Company or Indirectly
Name and Age (during past five years) Since on Record Date (1)
------------ -------------------------- ------- -------------------
[additional
Director]
All Directors and _______
officers of the
Company as a group
(1) As interpreted by the SEC, a security is beneficially owned by a person if
that person has or shares voting power or investment power with respect to
the security. Unless otherwise noted, all share amounts represented less
than 1% of the respective Fund's outstanding shares.
(2) Member of Executive Committee.
(3) Member of Audit Committee.
(4) Member of Portfolio Transactions Committee.
(5) Member of Valuation Committee.
* Based on his previous affiliation with Founders' predecessor company,
Founders Asset Management, Inc. ("Old Founders"), Mr. Borgen is deemed
to be an "interested person" of the Company as that term is defined in
the 1940 Act. On April 1, 1998, Old Founders merged into Founders,
which is a 90%-owned, indirect subsidiary of Mellon Bank, N.A.
("Mellon"), and Old Founders ceased to exist. The shareholders of Old
Founders, including Mr. Borgen, received total cash consideration of
$270 million from Mellon in consideration for their Old Founders
shares. Prior to this merger, Mr. Borgen had an interest in the fees
received by Old Founders in its capacity as the investment adviser,
accounting and administrative services agent, and shareholder servicing
agent for the Company. These fees totaled $7,821,749 for the first
quarter of 1998. Following the merger, Mr. Borgen purchased certain
office furniture, equipment and other assets of Founders for total cost
of $89,503. A company in which Mr. Borgen has an interest owns the
building in which Founders leases its principal office space, at a
rental of $_____ for 1998. Since the merger he also has served as a
consultant to The Dreyfus Corporation, another subsidiary of Mellon,
receiving a total of $187,500 in consulting fees for 1998.
<PAGE>
** Mr. Mastrovita served as a non-employee Director of The Boston Company,
Inc. and Boston Safe Deposit and Trust Company until March 15, 1998.
During 1998, Mr. Mastrovita received a total of $____ for his service
in these capacities. Since both of these companies are indirect
subsidiaries of Mellon Bank Corporation, Founders' ultimate parent
company, it is possible that, for a period of time, he might be
determined to be an interested Director as defined in the 1940 Act.
However, the Company does not concede that these prior Directorships
would make Mr. Mastrovita an interested Director of the Company.
(6) Share numbers include _____, ______ and ______ shares of the _____, ______
and _______ Funds, respectively, held by the Borgen Family Foundation, a
charitable foundation in which the Borgen family has no financial
interest.
The committees of the Board are the Executive Committee, Audit Committee,
Portfolio Transactions Committee and Valuation Committee. The Company also has a
Committee on Directors, composed of Messrs. Precourt, Vaughan, Danson,
[additional director,] Myhren and Phillips, which serves as a nominating
committee. For at least so long as the Rule 12b-1 Distribution Plans of the
Funds (with the exception of the Money Market Fund) remain in effect, the
selection and nomination of the Company's Independent Directors will be a matter
left to the discretion of such Independent Directors. Except for certain powers
that, under applicable law, may be exercised only by the full Board, the
Executive Committee may exercise all powers and authority of the Board in the
management of the business of the Company.
The Audit Committee, consisting of [four] Independent Directors, meets
periodically with the Company's independent accountants and the executive
officers of the Company. This committee reviews the accounting principles being
applied by the Company in financial reporting, the scope and adequacy of
internal controls, the responsibilities and fees of the Company's independent
accountants and other matters. The Portfolio Transactions Committee, consisting
of [four] Directors, monitors compliance with several Fund policies, including
those governing brokerage, trade allocations, proxy voting, cross trades, and
the Funds' Code of Ethics. The Valuation Committee, consisting of three
Directors, is responsible for determining the methods used to value Fund
securities for which market quotations are not readily available, subject to the
approval of the Board.
During the fiscal year ended December 31, 1998, the Board met six times,
the Audit Committee met four times, the Portfolio Transactions Committee met two
<PAGE>
times, and the Committee on Directors met [seven] times. [During such fiscal
year, each Director nominee attended 75% or more of the aggregate of the Board
meetings and meetings of committees of the Board on which he served.] The
Executive and Valuation Committees did not meet during 1998.
The following table sets forth, for the fiscal year ended December 31,
1998, the compensation paid by the Company to its Directors for services
rendered in their capacities as Directors of the Company. The Company has no
plan or other arrangement pursuant to which any of the Company's Directors
receive pension or retirement benefits. Therefore, none of the Company's
Directors has estimated annual benefits to be paid by the Company upon
retirement.
Total
Compensation
from Company (11
Name of Person, Position(1) Funds total)
paid to
Directors(1)
Jay A. Precourt, Chairman and $ ______
Director
Eugene H. Vaughan, Jr., Vice $ ______
Chairman and Director
William H. Baughn, Director (2) $ ______
Bjorn K. Borgen, Director (3) $ ______
Alan S. Danson, Director $ ______
Robert P. Mastrovita, Director (4) $ ______
Trygve E. Myhren, Director $ ______
George W. Phillips, Director (4) $ ______
[additional Director]
TOTAL $_______
========
1 The Chairman of the Board, the Chairmen of the Company's Audit and Portfolio
Transactions Committees, and the members of the Audit and Portfolio
Transactions Committees each received compensation for serving in such
capacities in addition to the compensation paid to all Directors.
2 Mr. Baughn retired as a Director of the Company effective December __, 1998.
<PAGE>
3 Mr. Borgen began receiving compensation for his service as a Director of the
Company in April 1998.
4 Messrs. Mastrovita and Phillips were elected to the Board of Directors in May
1998.
The officers of the Company and their principal occupations for the last
five years appear below. All of the Company's officers are affiliated with its
principal underwriter, Premier Mutual Fund Services, Inc. ("Premier"), or
Premier's affiliate, Funds Distributor Inc. ("FDI"). Premier and FDI are located
at 60 State Street, Suite 1300, Boston, Massachusetts 02109. These individuals
are not affiliated with Founders and have no involvement in the investment
management of the Funds. The Funds pay no compensation or other consideration to
the Company's officers.
Marie E. Connolly, age 41, President and Treasurer.
President (since January 1992); Chief Executive Officer (since April 1995);
Treasurer (July 1993 to April 1994); Chief Operating Officer (April 1994 to
April 1995); Chief Compliance Officer (April 1994 to September 1998); and
Director (since June 1992) of FDI; President, Chief Operating Officer and
Director of Premier (since April 1994); Chief Compliance Officer of Premier
(June 1995 to September 1998).
Margaret W. Chambers, age 39, Vice President and Secretary. Senior Vice
President, General Counsel and Secretary of FDI (since April 1998); Chief
Compliance Officer of FDI and Premier (since September 1998). Formerly, Vice
President and Assistant General Counsel for Loomis, Sayles & Company, L.P.
(August 1996 to March 1998) and associate with the law firm of Ropes & Gray
(January 1986 to July 1996).
Douglas C. Conroy, age 29, Vice President and Assistant Secretary. Vice
President and Client Services Manager of FDI (since June 1998); Supervisor of
Treasury Services and Administration of FDI (January 1995 to June 1998).
Formerly (April 1993 to January 1995), Senior Fund Accountant for Investors
Bank & Trust Company.
Christopher J. Kelley, age 34, Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI (since August 1996).
Formerly, Assistant Counsel at Forum Financial Group (April 1994 to July
1996) and employed by Putnam Investments in legal and compliance capacities
(October 1992 to March 1994).
<PAGE>
Kathleen K. Morrisey, age 26. Vice President and Assistant Secretary. Assistant
Vice President of FDI (since November 1998); Manager of Treasury Operations
of FDI (since _____). Formerly (July 1994 to November 1995), Fund Accountant
II for Investors Bank & Trust Company.
Mary A. Nelson, age 34, Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI (since March
1996); Assistant Treasurer of FDI (August 1994 to March 1996). Vice President
of Premier (since March 1996). Formerly (September 1989 to July 1994),
Assistant Vice President and Client Manager for The Boston Company.
Michael S. Petrucelli, age 37, Vice President and Assistant Treasurer. Senior
Vice President and Director of Strategic Client Initiatives for FDI (since
December 1996); Senior Vice President of Premier (since June 1998). Formerly
(December 1989 to November 1996), employed by GE Investment Services in
various financial, business development and compliance positions.
Stephanie D. Pierce, age 30, Vice President, Assistant Treasurer and
Assistant Secretary.
Vice President (since June 1998) and Client Development Manager (since April
1998) of FDI. Formerly ( April 1997 to March 1998), Relationship Manager on
the Business and Professional Banking team at Citibank, NA.
George A. Rio, age 43, Vice President and Assistant Treasurer. Executive Vice
President and Client Service Director of FDI and Premier (since April 1998).
Formerly, Senior Vice President, Senior Key Account Manager for Putnam Mutual
Funds (June 1995 to March 1998), Director of Business Development for First
Data Corporation (May 1994 to June 1995), and Senior Vice President and
Manager of Client Services and Director of Internal Audit at The Boston
Company (September 1983 to May 1994).
Joseph F. Tower, III, age 36, Vice President and Assistant Treasurer. Senior
Vice President (since November 1994), Treasurer and Chief Financial Officer
(since April 1994) and Director (since January 1997) of FDI; Vice President
of FDI (November 1993 to November 1994); Senior Vice President (since June
1995), Treasurer and Chief Financial Officer (since April 1994) and Director
(since January 1997) of Premier; Vice President of Premier (April 1994 to
June 1995). Formerly (July 1988 to August 1994), employed by The Boston
Company, Inc. in various management positions in the Corporate Finance and
Treasury areas.
<PAGE>
Elba Vasquez, age 37, Vice President and Assistant Secretary. Assistant Vice
President (since June 1997) and Sales Associate (since May 1996) of FDI.
Formerly (March 1990 to May 1996), employed in various mutual fund sales and
marketing positions by U.S. Trust Company of New York.
VOTE REQUIRED
Each Director must be elected by a majority of the votes present at the
Meeting in person or by proxy and entitled to vote, provided a quorum is
present. The shareholders of all of the Funds will vote together as a single
class on the election of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUNDS' SHAREHOLDERS VOTE TO
ELECT ALL OF THE NOMINEES LISTED ABOVE.
PROPOSAL 2: APPROVAL OF REVISION OR ELIMINATION OF
CERTAIN FUNDAMENTAL INVESTMENT RESTRICTIONS
BACKGROUND
Each of the Funds currently has fundamental and non-fundamental investment
restrictions which govern the Fund's investment activities. Each Fund's
fundamental investment restrictions can be modified or eliminated only if the
change is approved by the Board and by that Fund's shareholders. Non-fundamental
investment restrictions are those which can be modified or eliminated by the
Board, without the need for shareholder approval.
The Board believes that some of the Funds' current investment restrictions
are outdated and unnecessarily restrict the Funds from taking advantage of
certain investment opportunities and risk management techniques. Many of these
restrictions initially were adopted in order to permit one or more of the Funds
to register their shares for sale in certain states. As a condition for
registration, these states required that the Funds adopt fundamental investment
restrictions that were not required under provisions of the 1940 Act or other
federal securities laws. These state requirements will hereafter be described as
the "State-Imposed Restrictions." As a result of a federal law passed in late
1996, states are now preempted from regulating the investment activities of
mutual funds. The federal government, and particularly the SEC, is now the sole
entity having responsibility for regulating a mutual fund's investment
activities. As a result, the State-Imposed Restrictions are no longer required
to be maintained. Having investment restrictions that are more restrictive than
those required by current federal law needlessly restricts the Funds' portfolio
management activities and their ability to compete with comparable mutual funds.
<PAGE>
In addition, many of these restrictions have little practical relevance in
the management of the Funds. However, maintaining the restrictions as
fundamental restrictions requires the continued dedication of compliance
resources that Fund management and the Board believe could be better utilized
monitoring compliance with more relevant restrictions.
Therefore, Fund management and the Board recommend that each Fund's
shareholders approve modifications to certain of the Fund's fundamental
investment restrictions and the elimination of certain other fundamental
restrictions. The Board unanimously approved all of these recommended changes at
its December 1998 meeting. In some instances, the Board has adopted
non-fundamental restrictions (which it can change or eliminate in the future
without a shareholder vote) that are similar to the current fundamental
restrictions.
Presently, each Fund is governed by certain fundamental and
non-fundamental restrictions which are applicable to all Funds, as well as
additional fundamental and non-fundamental restrictions which are applicable
only to the individual Fund. Many of these restrictions differ significantly
from Fund to Fund. If Proposal 2 is approved in its entirety by each Fund's
shareholders (to the extent applicable), each Fund will have virtually the same
fundamental and non-fundamental restrictions. Fund management and the Board
believe that approval of this proposal will provide the following beneficial
results:
o Fundamental restrictions which are no longer necessary or
desirable will be eliminated. Some will be adopted in
substantially similar form as non-fundamental restrictions. In
the future, the Fund's investment adviser and the Board may wish
to modify the non-fundamental restrictions. The Board will be
able to implement a change quickly in response to changing
market, economic or other competitive conditions, and the
applicable Fund will not incur the delay and expense involved in
seeking the shareholder approval required to change a fundamental
investment restriction.
o Consistency and clarity of the investment restrictions will be
improved substantially, since virtually all of the current
differences in investment restrictions among the Funds will be
eliminated.
o Improved consistency and clarity will make it easier for each Fund
to ensure that it maintains strict compliance with its fundamental
and non-fundamental restrictions.
<PAGE>
Each recommended CHANGE in a fundamental investment restriction is
discussed in Sections 2.A. through 2.E., below. The discussion includes the text
of the proposed new restriction, a synopsis of the corresponding current
restriction(s), an explanation of the reasons for the recommended change, and an
explanation of the effects of the change upon the Funds and their shareholders.
These proposals require the approval of the shareholders of all of the Funds.
Each recommended ELIMINATION of a fundamental investment restriction is
discussed in Sections 2.F. through 2.S., below. The discussion includes the text
of the current fundamental restriction to be eliminated; where applicable, a
synopsis of the non-fundamental restriction adopted by the Board as a substitute
for the fundamental restriction; an explanation of the reasons for the
recommended change; and an explanation of the effects of the change upon the
Funds and their shareholders. These proposals require either the approval of the
shareholders of some of the Funds or approval of the shareholders of all of the
Funds. A list identifying the Funds for which shareholder approval is required
follows the heading of each section.
2.A. RESTRICTION ON INVESTMENT IN PHYSICAL COMMODITIES
Approval Required. This change requires shareholder approval for:
ALL FUNDS
Proposed New Restriction. This fundamental investment restriction
provides as follows:
NO FUND MAY INVEST IN PHYSICAL COMMODITIES, EXCEPT THAT A FUND MAY
PURCHASE AND SELL FOREIGN CURRENCY, OPTIONS, FORWARD CONTRACTS, FUTURES
CONTRACTS (INCLUDING THOSE RELATING TO INDICES), OPTIONS ON FUTURES
CONTRACTS OR INDICES, AND OTHER FINANCIAL INSTRUMENTS, AND MAY INVEST IN
SECURITIES OF ISSUERS WHICH INVEST IN PHYSICAL COMMODITIES OR SUCH
INSTRUMENTS.
[Call-out box: "Physical commodities" are bulk goods such as grains, metals
and foods which are traded on a commodities exchange or on the spot market.]
Comparable Restrictions. The current fundamental restriction applicable to
all Funds provides that no Fund may invest in commodities or commodity futures
contracts, except that a Fund may invest in securities of issuers which invest
in commodities and commodity futures. The comparable individual Fund
restrictions (which apply to all Funds except the Money Market Fund) are
identical except that the Funds are permitted to enter into forward foreign
currency exchange contracts. Each of Founders Balanced, Blue Chip, Government
<PAGE>
Securities, Growth and Special Funds' restrictions contains a variation of this
exception, which limits each Fund's use of forward contracts to use in
connection with the purchase and sale of specific securities. The new
restriction would permit these Funds to use forward contracts to hedge foreign
security positions against fluctuations in exchange rates.
In addition, the Balanced, Money Market and Special Funds currently have
fundamental restrictions which limit the Funds' ability to use options. Since
these restrictions would be inconsistent with the proposed new restriction, this
proposal includes elimination of the option restrictions set forth below:
Balanced Fund: THE FUND MAY NOT PURCHASE OR SELL PUTS, CALLS,
STRADDLES, SPREADS OR COMBINATIONS THEREOF EXCEPT THAT THE FUND MAY SELL
COVERED CALL OPTIONS WITH RESPECT TO ANY OR ALL OF ITS PORTFOLIO
SECURITIES AND ENTER INTO CLOSING PURCHASE
TRANSACTIONS WITH RESPECT TO SUCH OPTIONS.
Money Market Fund: THE FUND MAY NOT PURCHASE OR SELL PUTS, CALLS,
STRADDLES, SPREADS OR COMBINATIONS THEREOF.
Special Fund: THE FUND MAY NOT PURCHASE OR SELL PUTS, CALLS,
STRADDLES, SPREADS OR COMBINATIONS THEREOF EXCEPT THAT THE FUND MAY
PURCHASE PUT AND CALL OPTIONS ON STOCK INDICES AND ENTER INTO CLOSING
TRANSACTIONS WITH RESPECT TO SUCH OPTIONS.
Reasons for Change. The Board believes that given the increasing
complexity and volatility of investment in domestic and international markets,
it is in the best interests of each Fund and its shareholders to have
flexibility in managing the Fund's investments. The Board is of the opinion that
the investment strategies permitted by the new restriction, and described below,
will enable the Funds to hedge various market risks associated with investing in
U.S. and foreign securities. The Board believes that it would be desirable to
give all Funds the same flexibility to employ these strategies. In addition,
eliminating the options restriction for Founders Money Market Fund would enable
the Fund to use certain money market instruments that are subject to guarantees
and other forms of unconditional credit support.
In recent years, a number of techniques have been developed for hedging a
portfolio of securities or a specific security. To "hedge" means to enter into a
transaction with the aim of protecting against market risk due to market
movements that may adversely affect the value of a Fund's securities or the
price of securities that the Fund is considering purchasing. Although a hedging
transaction may partially protect a Fund against a decline in the value of a
particular security or its portfolio generally, the cost of the transaction will
reduce the potential return on the security or the portfolio.
<PAGE>
Currently, some of the Funds have the ability to hedge using certain
techniques. However, many of the Funds' competitors have broader hedging
authority using the techniques described below. The Board recommends that all of
the Funds be given the flexibility to make use of these techniques.
Description of Investment Techniques Permitted by New Restriction.
FUTURES CONTRACTS. Futures contracts are contracts on financial
instruments (such as securities and foreign currencies) and securities indices
that obligate the long or short holder, if the contract is held to its specified
delivery date, to take or make delivery of a specified quantity of the
underlying financial instrument, or the cash value of a securities index.
Although futures contracts call for the delivery or acquisition of the
underlying instruments or a cash payment based on the value of the underlying
instruments, in most cases the contractual obligation is offset before the
delivery date by buying (in the case of an obligation to sell) or selling (in
the case of an obligation to buy) an identical futures contract. Such a
transaction cancels the original obligation to make or take delivery of the
instruments.
Upon entering into a futures contract, a Fund would be required to deposit
with a broker-dealer or its custodian in a segregated account cash or certain
U.S. government securities in an amount known as the "initial margin." Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded. If the value of either party's
position declines, that party will be required to make additional "variation
margin" payments to settle the change in value on a daily basis. Initial and
variation margin payments are similar to a performance bond or a good faith
deposit on the contract, unlike margin extended by a securities broker, and
would be returned or credited to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The Funds
will incur brokerage fees when they buy or sell futures contracts.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract gives the
holder the right (but not the obligation) to buy or sell a futures contract at a
specified price on or before a specified date. The purchase of an option on a
futures contract is similar in some respects to the purchase of an option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying instrument, ownership of the option may or may not be less risky than
ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, a Fund may buy a call option on a futures
contract to hedge against a market advance, and a Fund might buy a put option on
a futures contract to hedge against a market decline.
<PAGE>
FORWARD CONTRACTS. Under the proposed restriction, the Funds could
purchase or sell forward foreign currency exchange contracts ("forward
contracts") as part of their portfolio investment strategies. A forward contract
is a privately negotiated obligation to purchase or sell a specified amount of
foreign currency for a fixed price with delivery and payment to take place at a
future date. In contrast to a futures contract, a forward contract contemplates
actual delivery of the underlying currency on the delivery date. A Fund may
enter into a forward contract, for example, when it purchases or sells a
security denominated in a foreign currency in order to "lock in" the U.S. dollar
price of the security, thereby protecting against a potential decline in the
value of the U.S. dollar compared to the foreign currency (a "transaction
hedge"). Additionally, for example, when a Fund believes that a foreign currency
may suffer a decline against the U.S. dollar, it may enter into a forward
contract to sell an amount of that foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in such foreign
currency. Conversely, when a Fund believes that the U.S. dollar may suffer a
decline against a foreign currency, it may enter into a forward contract to buy
that foreign currency for a fixed dollar amount ("position hedge").
OPTIONS ON SECURITIES OR SECURITIES INDICES. A call option gives the
holder (buyer) of the option the right, but not the obligation, to purchase a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). The writer (seller) of a call option has the
corresponding obligation to deliver the underlying security in the event the
option is exercised by the holder. A put option gives the holder (buyer) of the
option the right, but not the obligation, to sell a security at the exercise
price at any time until the expiration date.
An option on a securities index is similar to an option on a security.
However, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, on exercise of the option, an amount of cash if the closing level of
the securities index on which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
A Fund may buy call options on securities or securities indices to hedge
against an increase in the price of a security or securities that the Fund may
buy in the future. The premium paid for the call option plus any transaction
costs will reduce the benefit, if any, realized by a Fund upon exercise of the
option and, unless the price of the underlying security or index rises
sufficiently, the option may expire and become worthless to the Fund. A Fund may
buy put options to hedge against a decline in the value of a security or its
portfolio. By using put options this way, the Fund will reduce any profit it
might otherwise have realized in the underlying security or its portfolio by the
amount of the premium paid for the put option and by transaction costs.
<PAGE>
SEE EXHIBIT A FOR FURTHER INFORMATION ABOUT THE FOREGOING INVESTMENT
TECHNIQUES AND THEIR RELATED RISKS.
Internal Derivatives Policy. Each of the foregoing instruments is
sometimes referred to as a "derivative," since its value is derived from an
underlying security, index or other financial instrument. If this proposed
investment restriction is approved, each Fund will continue to be governed by
the Funds' internal Derivatives Policy, which has been adopted by the Board and
which limits the permissible types of derivatives in which the Funds may invest.
This Policy may be changed by the Board without shareholder approval. The Policy
currently provides the following:
Founders Money Market Fund may not participate in derivatives
transactions. All other Funds may deal in derivatives under strict
guidelines, and only for the purpose of hedging. These guidelines prohibit
interest rate or currency swaps, interest rate caps, floors, collars or
combinations thereof, and structured notes where coupon or principal
repayment is based on an equation, although standard language outlining
basic call, put, and sinking fund information is not considered an
equation.
The purchase of any permitted derivative requires specific approval
from a senior investment manager of Founders.
The Funds may not purchase derivatives which, in the judgment of
Founders, would expose the Funds to undue risk or to a degree of risk
which would not be in accordance with the investment policies and
objectives of the specific Fund.
Derivatives will be purchased only if Founders believes that they
can be valued adequately and accurately and that there is a ready liquid
market for the derivatives.
The portfolio manager of any Fund holding a derivative instrument
will be required to monitor the suitability, marketability, value, and
relevant market, credit, and legal risks of that instrument on an ongoing
basis.
The Board will receive quarterly reports on the Funds' holdings of,
and transactions in, derivatives.
Effects of Change on Fund and Shareholders.
The proposed restriction broadens the types of instruments in which the
Funds may invest. As a result, approval of the proposal could have the effect of
subjecting each Fund, and therefore its shareholders, to increased risk, as
<PAGE>
described above and in Exhibit A. This risk is limited by the Funds' internal
Derivatives Policy, although the Board may change the Policy without shareholder
approval.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE FUNDS' SHAREHOLDERS
VOTE TO ADOPT PROPOSED INVESTMENT RESTRICTION 2.A.
2.B. RESTRICTION ON BORROWING MONEY
Approval Required. This change requires shareholder approval for:
ALL FUNDS
Proposed New Restriction. This fundamental investment restriction
provides as follows:
NO FUND MAY BORROW MONEY, EXCEPT TO THE EXTENT PERMITTED UNDER THE 1940
ACT, WHICH CURRENTLY LIMITS BORROWING TO NO MORE THAN 33 1/3% OF THE VALUE
OF THE FUND'S TOTAL ASSETS. FOR PURPOSES OF THIS INVESTMENT RESTRICTION,
INVESTMENTS IN OPTIONS, FORWARD CONTRACTS, FUTURES CONTRACTS (INCLUDING
THOSE RELATING TO INDICES), OPTIONS ON FUTURES CONTRACTS OR INDICES, AND
OTHER FINANCIAL INSTRUMENTS OR TRANSACTIONS FOR WHICH ASSETS ARE REQUIRED
TO BE SEGREGATED INCLUDING, WITHOUT LIMITATION, REVERSE REPURCHASE
AGREEMENTS, SHALL NOT CONSTITUTE BORROWING.
Comparable Restriction(s). There is no current general fundamental
restriction applicable to all Funds. With the exceptions noted below, the
comparable individual Fund's restrictions basically provide that the Fund may
not borrow money, except for extraordinary or emergency purposes, and then only
from banks in amounts up to 10% of the Fund's net assets computed at the lesser
of cost or value. The comparable restrictions for Special and International
Equity Funds essentially provide for borrowings up to 33 1/3% of each Fund's
total assets, but do not provide the flexibility which is accomplished by
permitting the investment policy to mirror the restrictions on borrowing imposed
by the 1940 Act.
Reasons for Change. This recommendation generally increases the Funds'
borrowing capabilities and provides the flexibility noted above. It also
excludes from the restriction certain securities that could be considered
borrowing but do not represent the same kinds of risk as unrestricted borrowing.
Effects of Change on Fund and Shareholders. The Funds currently intend to
borrow only for temporary or emergency purposes, such as, for example, meeting
<PAGE>
excessive or unanticipated redemptions of Fund shares that exceed available
cash. Although the Funds do not intend to borrow for leveraging, under this
restriction the Funds could leverage if Founders believed that leveraging was in
the Funds' best interests. Leveraging involves certain risks. For example,
leveraging by means of borrowing will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Fund's net asset value.
Additionally, money borrowed will be subject to interest and other costs.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE FUNDS' SHAREHOLDERS
VOTE TO ADOPT PROPOSED INVESTMENT RESTRICTION 2.B.
2.C. RESTRICTION ON MAKING LOANS
Approval Required. This change requires shareholder approval for:
ALL FUNDS
Proposed New Restriction. This fundamental investment restriction
provides as follows:
NO FUND MAY LEND ANY SECURITY OR MAKE ANY LOAN IF, AS A RESULT, MORE THAN
33 1/3% OF ITS TOTAL ASSETS WOULD BE LENT TO OTHER PARTIES, BUT THIS
LIMITATION DOES NOT APPLY TO THE PURCHASE OF DEBT SECURITIES OR TO
REPURCHASE AGREEMENTS.
Comparable Restrictions. The current fundamental restriction applicable to
all Funds provides that no Fund may make loans to other persons, although the
purchase of a portion of an issue of publicly distributed bonds, debentures or
other securities is not considered the making of a loan by a Fund. A Fund also
may enter into repurchase agreements by purchasing U.S. government securities
with a simultaneous agreement with the seller to repurchase them at the original
purchase price plus accrued interest.
Reasons for Change. This recommendation permits the Funds to make loans of
their respective portfolio assets, in accordance with SEC guidelines, and
broadens the Funds' ability to purchase debt obligations and enter into
repurchase agreements as appropriate under the Funds' investment policies. A
repurchase agreement is a transaction in which a Fund acquires a security and
simultaneously promises to sell that same security back to the seller at a
higher price, usually within a seven-day period. Such agreements may be
considered "loans" under the 1940 Act. The Funds may enter into repurchase
agreements with banks or well-established securities dealers meeting criteria
established by the Board. All repurchase agreements entered into by the Funds
are fully collateralized and marked to market daily.
<PAGE>
Effects of Change on Fund and Shareholders. While the Funds currently do
not intend to loan their portfolio securities, the new restriction would permit
the Board to authorize a Fund to loan up to one-third of its total assets in the
future without a shareholder vote. By lending their portfolio securities, the
Funds could attempt to generate income through the receipt of interest on the
loans which, in turn, could be invested in additional securities to pursue the
Funds' investment objectives. Such loans would be callable at any time by the
Funds and would at all times be secured by collateral consisting of cash or
securities issued or guaranteed by the United States government or its agencies,
equal to at least the market value, determined daily, of the loaned securities.
The advantage of such loans is that a Fund could continue to have the benefits
(and risks) of ownership of the loaned securities, while receiving interest from
the borrower of the securities. Loans would be made only to firms deemed by
Founders to be creditworthy, under procedures established by the Board.
In addition, adoption of the new restriction would permit the Board to
adopt an inter-Fund lending program in the future without shareholder approval.
Several mutual fund groups have obtained SEC approval for such programs, which
permit their funds to borrow money from, and lend money to, one another if it
makes financial sense on both sides of the transaction. These programs may
reduce or eliminate the need for funds to maintain bank lines of credit or
obtain borrowings through banks. By dealing with each other instead of banks,
funds may be able to borrow money more cheaply and lend money more profitably
than they otherwise could. If the Board were to implement such a program for the
Funds, it would be done in strict accordance with SEC requirements that are
designed to assure fair treatment for all participating funds.
The lending of portfolio securities and the use of repurchase agreements
involve certain risks. For example, if the borrower of the securities defaults
on its obligation to return the securities, the Funds' ability to gain access to
the collateral securing the loan may be delayed by court action, and, pending
the outcome of such court action, the Fund may lose its rights to the
collateral. In addition, if the other party to a repurchase agreement defaults
on its obligation to repurchase the underlying security at a time when the value
of the security has declined, a Fund may incur a loss upon disposition of the
security. Also, if the other party to the repurchase agreement becomes insolvent
and subject to liquidation or reorganization under federal bankruptcy or other
laws, a court may determine that the underlying security is collateral for a
loan by the Fund not within the control of the Fund and therefore the
realization by the Fund on such collateral may automatically be stayed.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE FUNDS' SHAREHOLDERS
VOTE TO ADOPT PROPOSED INVESTMENT RESTRICTION 2.C.
<PAGE>
2.D. RESTRICTION ON UNDERWRITING SECURITIES
Approval Required. This change requires shareholder approval for:
ALL FUNDS
Proposed New Restriction. This fundamental investment restriction
provides as follows:
NO FUND MAY ACT AS AN UNDERWRITER OF SECURITIES OF OTHER ISSUERS, EXCEPT
TO THE EXTENT A FUND MAY BE DEEMED AN UNDERWRITER UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, IN CONNECTION WITH DISPOSING OF PORTFOLIO SECURITIES.
Comparable Restrictions. The current fundamental restriction applicable to
all Funds provides that no Fund may underwrite the securities of other issuers.
Special Fund's corresponding current restriction contains an exception which
essentially is included in the language of the proposal.
Reasons for Change. This recommendation includes an exception which
clarifies that a Fund may dispose of portfolio securities even though the Fund
technically could be considered an underwriter under the federal securities laws
in connection with the disposition. Although this exception likely is inherent
in the current restriction, the proposed restriction clearly provides for the
exception.
Effect of Change on Fund and Shareholders. This change merely clarifies
the scope of the restriction and will not change the Funds' investment practices
or increase risk to shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE FUNDS' SHAREHOLDERS
VOTE TO ADOPT PROPOSED INVESTMENT RESTRICTION 2.D.
2.E. RESTRICTION ON ISSUING SENIOR SECURITIES
Approval Required. This change requires shareholder approval for:
ALL FUNDS
Proposed New Restriction. This fundamental investment restriction
provides as follows:
NO FUND MAY ISSUE ANY SENIOR SECURITY, EXCEPT AS PERMITTED UNDER THE 1940
ACT AND EXCEPT TO THE EXTENT THAT THE ACTIVITIES PERMITTED BY THE FUND'S
OTHER INVESTMENT RESTRICTIONS MAY BE DEEMED TO GIVE RISE TO A SENIOR
SECURITY.
<PAGE>
Comparable Restrictions. The current fundamental restriction applicable to
all Funds provides that no Fund may issue any senior securities. Special Funds'
corresponding current restriction contains an exception permitting bank
borrowings to the extent contemplated by that Fund's borrowing restriction.
Reasons for Change. This recommendation clarifies exceptions to the
definition of "senior security," to eliminate any question about each Fund's
ability to use certain investment techniques that may be deemed to be "senior
securities" under the 1940 Act. Although the definition of "senior security"
involves complex statutory and regulatory concepts, a senior security is
generally thought of as an obligation of a Fund that involves a claim to the
Fund's assets or earnings that takes precedence over the claims of the Fund's
shareholders.
The 1940 Act generally prohibits mutual funds from issuing senior
securities; however, mutual funds are permitted to engage in certain types of
transactions that technically might be considered senior securities as long as
certain conditions are satisfied. The proposed fundamental restriction will
confirm the ability of the Funds to engage in these transactions which include,
among other things: purchasing and selling options, forward contracts, futures
contracts (including those relating to indices), and options on futures
contracts or indices; borrowing money to the extent permitted by the proposed
borrowing restriction; pledging their assets to the extent necessary to secure
permitted borrowings; and entering into commitments, including reverse
repurchase agreements and purchasing securities on a delayed delivery or
when-issued basis (which may obligate a Fund to pay money at a future date that
is longer than the normal settlement period). These activities do not constitute
the issuance of senior securities under current legal and regulatory
interpretations. From time to time, the staff of the SEC may adopt positions as
to whether other techniques that may potentially be senior securities are
nevertheless consistent with the policies and requirements of the 1940 Act.
Under the proposed restriction, the Funds would be permitted to use such
investment techniques, provided they are consistent with their other investment
restrictions. Thus, the new restriction would give the Funds flexibility to
adapt to changing regulatory positions regarding senior securities.
Effect of Change on Fund and Shareholders. Adoption of the proposed senior
securities limitation is not expected to have any material effect upon the
investment techniques employed by the Funds. It merely provides express
authorization to make investments or engage in practices permitted by other
Investment Restrictions.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE FUNDS' SHAREHOLDERS
VOTE TO ADOPT PROPOSED INVESTMENT RESTRICTION 2.E.
2.F. RESTRICTION ON PURCHASING SECURITIES ON MARGIN
Approval Required. Elimination of this restriction requires
shareholder approval for:
ALL FUNDS
Current Fundamental Restriction. The current fundamental restriction
applicable to all Funds provides as follows:
NO FUND MAY PURCHASE ANY SECURITIES ON MARGIN EXCEPT TO OBTAIN SUCH
SHORT-TERM CREDITS AS MAY BE NECESSARY FOR THE CLEARANCE OF TRANSACTIONS.
Substitute Non-Fundamental Restriction. If the current fundamental
restriction is eliminated, it will be replaced by a non-fundamental investment
restriction adopted by the Board which will be applicable to all Funds. The new
non-fundamental restriction provides that no Fund may purchase securities on
margin, except to obtain such short-term credits as may be necessary for the
clearance of transactions, and except that a Fund may make margin deposits in
connection with transactions in forward contracts, futures contracts (including
those relating to indices), options on futures contracts or indices, and other
financial instruments, and to the extent necessary to effect transactions in
foreign jurisdictions.
Reasons for Change. Margin purchases involve the purchase of securities
with money borrowed from a broker. "Margin" is the cash or the eligible
securities that the borrower places with a broker as collateral against the
loan. Except for obtaining such short-term credits as may be necessary for the
clearance of transactions and making margin payments in connection with the
purchase and sale of forward and futures contracts and options on futures
contracts, mutual funds are generally prohibited from entering into margin
purchases by applicable SEC policies. The activities listed as exceptions in the
substitute restriction are ones which do not constitute inappropriate margin
transactions under current legal and regulatory interpretations. The change
causes each Fund's fundamental restriction to be restructured as a
non-fundamental restriction, which in the future can be changed solely by Board
approval.
Effect on Funds and Shareholders. Elimination of the fundamental
restriction prohibiting the purchase of securities on margin is not expected to
<PAGE>
have any material effect upon the investment techniques employed by the Funds.
Substitution of the non-fundamental restriction continues the prohibition
against the purchase of securities on margin, but provides express authorization
to make investments or engage in practices permitted by other investment
restrictions and by existing laws and regulations.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE FUNDS' SHAREHOLDERS
VOTE TO ELIMINATE INVESTMENT RESTRICTION 2.F.
2.G. RESTRICTION ON SELLING SECURITIES SHORT
Approval Required. Elimination of this restriction requires
shareholder approval for:
ALL FUNDS
Current Fundamental Restriction. The current fundamental restriction
for all Funds except Special Fund provides as follows:
NO FUND MAY SELL SECURITIES SHORT.
Special Fund has a fundamental restriction which provides as follows:
THE FUND MAY NOT SELL SECURITIES SHORT, EXCEPT THAT THE FUND MAY SELL
SECURITIES SHORT PROVIDED THAT AT ALL TIMES DURING WHICH A SHORT POSITION
IS OPEN IT OWNS AN EQUAL AMOUNT OF SUCH SECURITIES OR BY VIRTUE OF
OWNERSHIP OF CONVERTIBLE OR EXCHANGEABLE SECURITIES IT HAS THE RIGHT,
WITHOUT PAYMENT OF FURTHER CONSIDERATION, TO OBTAIN THROUGH THE CONVERSION
OR EXCHANGE OF SUCH OTHER SECURITIES AN EQUAL AMOUNT OF THE SECURITIES
SOLD SHORT, AND UNLESS NOT MORE THAN 15% OF THE FUND'S NET ASSETS (TAKEN
AT MARKET OR OTHER CURRENT VALUE) ARE HELD AS COLLATERAL FOR SUCH SALES AT
ANY ONE TIME.
Substitute Non-Fundamental Restriction. If the current fundamental
restriction is eliminated, it will be replaced by a non-fundamental investment
restriction adopted by the Board which will be applicable to all Funds. The new
non-fundamental restriction provides that no Fund may sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short; provided, however, that this restriction
shall not prevent a Fund from entering into short positions in foreign currency,
futures contracts, options, forward contracts, and other financial instruments.
Reasons for Change. This change causes each Fund's fundamental restriction
to be restructured as a non-fundamental policy, which in the future can be
<PAGE>
changed solely by Board approval. In addition, this change permits each Fund to
enter into short sales "against the box." In a short sale, an investor sells a
borrowed security and is required to return the identical security to the
lender. If the investor also owns a like amount of the securities it borrows (or
has the right to obtain equivalent securities in kind and amount), the investor
is said to have a short sale "against the box." The principal reasons a Fund
would sell a security short "against the box" include obtaining the economic
benefit of a sale of the security in a situation where the Fund cannot deliver
the security for settlement. For example, common stocks issuable upon conversion
of a convertible security sometimes can be sold at a better price than the
convertible security owned by a Fund. In such circumstances, a Fund could sell
the common stock short "against the box" while tendering the convertible
security to the issuer for conversion. Upon receipt of the underlying stock,
delivery would be made to close the short sale. Short sales against the box do
not involve the potential for leverage that may arise in a regular short sale.
Effect of Change on Fund and Shareholders. Elimination of this fundamental
investment restriction would permit all of the Funds to make short sales against
the box, instead of just the Special Fund (which is the only Fund that has this
ability currently). This flexibility would avail the other Funds of the
potential benefits, and expose them to the relatively minimal risks, of such
sales.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUNDS' SHAREHOLDERS VOTE TO
ELIMINATE INVESTMENT RESTRICTION 2.G.
2.H. RESTRICTION ON INVESTING MORE THAN 5% OF A FUND'S ASSETS IN THE
SECURITIES OF ANY ONE ISSUER
Approval Required. Elimination of this restriction requires
shareholder approval for:
BALANCED FUND
GOVERNMENT SECURITIES FUND
GROWTH FUND
MONEY MARKET FUND
SPECIAL FUND
Current Fundamental Restriction. Each of the foregoing Funds has an
individual fundamental restriction which provides as follows:
THE FUND MAY NOT PURCHASE SECURITIES OF ANY ISSUER (OTHER THAN OBLIGATIONS
OF, OR GUARANTEED BY, THE UNITED STATES GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES) IF, AS A RESULT, MORE THAN 5% OF THE VALUE OF THE
FUND'S TOTAL ASSETS WOULD BE INVESTED IN SECURITIES OF THAT ISSUER.
<PAGE>
Substitute Non-Fundamental Restriction. If the current fundamental
restriction is eliminated, it will be replaced by a non-fundamental investment
restriction adopted by the Board which will be applicable to all Funds. The new
non-fundamental restriction provides that no Fund may purchase the securities of
any issuer if, as a result, more than 5% of its total assets would be invested
in the securities of that issuer, except that obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities may be purchased
without regard to any such limitation.
Reasons for Change. Certain State Imposed Restrictions formerly prohibited
a fund from registering shares for sale in the state if the fund intended to
invest more than 5% of its total assets in a single issuer. While the Funds
presently intend to limit their respective investments in accordance with this
provision, Fund management and the Board may, in the future, determine that it
is in the best interests of a Fund and its shareholders to relax the
restriction. (At present, a diversified mutual fund may apply this 5%
restriction to only 75% of its total assets, which would permit a fund to invest
up to 25% of its total assets in the securities of any one issuer.) By
effectively changing this fundamental investment restriction to one which is
non-fundamental, the Board will be able to make a future change in the
restriction without receiving shareholder approval.
Effect of Change on Funds and Shareholders. If the Board were to broaden a
Fund's ability to invest in the securities of a single issuer, the increased
flexibility may provide opportunities to enhance a Fund's performance. However,
investment of a larger percentage of a Fund's assets in a single issuer's
securities would increase the Fund's exposure to market, credit, and other risks
associated with that issuer's financial condition and business operations, which
may diminish a Fund's performance.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BALANCED,
GOVERNMENT SECURITIES, GROWTH, MONEY MARKET AND SPECIAL FUNDS' SHAREHOLDERS
VOTE TO ELIMINATE INVESTMENT RESTRICTION 2.H.
2.I. RESTRICTION ON HOLDING MORE THAN 10% OF THE VOTING SECURITIES OF ANY
ISSUER
Approval Required. Elimination of this restriction requires
shareholder approval for:
BALANCED FUND
GROWTH FUND
MONEY MARKET FUND
SPECIAL FUND
<PAGE>
Current Fundamental Restriction. Each of Balanced, Growth and Special
Funds has an individual fundamental restriction which provides as follows:
THE FUND MAY NOT PURCHASE MORE THAN 10% OF ANY CLASS OF SECURITIES OR
PURCHASE MORE THAN 10% OF THE VOTING SECURITIES OF ANY SINGLE ISSUER.
Founders Money Market Fund's comparable fundamental restriction provides
as follows:
THE FUND MAY NOT PURCHASE MORE THAN 10% OF ANY CLASS OF SECURITIES OF A
SINGLE ISSUER.
Substitute Non-Fundamental Restriction. If the current fundamental
restriction is eliminated, it will be replaced by a non-fundamental investment
restriction adopted by the Board which will be applicable to all Funds. The new
non-fundamental restriction provides that no Fund may purchase the securities of
any issuer if such purchase would cause the Fund to hold more than 10% of the
outstanding voting securities of such issuer.
Reasons for Change. This change causes the fundamental restriction of
Balanced, Growth, Money Market and Special Funds to be restructured as a
non-fundamental policy, which in the future can be changed solely by Board
approval. The non-fundamental restriction applies only to voting securities, and
removes the restriction as it relates to non-voting equity and debt securities.
Certain State Imposed Restrictions prohibited a fund from registering shares for
sale in the state if the fund intended to hold more than 10% of the voting
securities of a single issuer. The 1940 Act currently applies this restriction
to only 75% of a fund's total assets. While Founders intends to operate under
the new non-fundamental restriction, it may, in the future, ask the Board to
allow greater investment in the voting securities of issuers, in accordance with
the 1940 Act limitations. By effectively changing these fundamental investment
restrictions to one which is non-fundamental, the Board will be able to make a
future change in the restriction without receiving shareholder approval.
Effect of Change on Fund and Shareholders. If Founders seeks to broaden
the Funds' ability to invest in the voting securities of a single issuer, the
increased flexibility may provide opportunities to enhance the Funds'
performance. However, investment of a larger percentage of the Funds' assets in
any issuer's securities would increase the Funds' exposure to credit and other
risks associated with that issuer's financial condition and business operations,
which may diminish a Fund's performance.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BALANCED,
GROWTH, MONEY MARKET AND SPECIAL FUNDS' SHAREHOLDERS VOTE TO ELIMINATE THE
INVESTMENT RESTRICTIONS 2.I.
2.J. RESTRICTION ON PURCHASING SECURITIES BASED ON THE ISSUER'S OPERATING
RECORD
Approval Required. Elimination of this restriction requires
shareholder approval for:
BALANCED FUND
GROWTH FUND
MONEY MARKET FUND
SPECIAL FUND
Current Fundamental Restriction. The current fundamental restriction
for Balanced, Growth and Special Funds provides as follows:
THE FUND MAY NOT INVEST MORE THAN 5% OF THE MARKET VALUE OF ITS TOTAL
ASSETS IN SECURITIES OF COMPANIES WHICH, WITH THEIR PREDECESSORS, HAVE A
CONTINUOUS OPERATING RECORD OF LESS THAN THREE YEARS.
The current fundamental restriction for Money Market Fund provides as
follows:
THE FUND MAY NOT INVEST MORE THAN 5% OF THE MARKET VALUE OF ITS TOTAL
ASSETS IN SECURITIES OF COMPANIES WHICH WITH THEIR PREDECESSORS HAVE A
CONTINUOUS OPERATING RECORD OF LESS THAN THREE YEARS, EXCEPT THAT THE FUND
MAY INVEST IN OBLIGATIONS GUARANTEED BY THE U.S. GOVERNMENT OR ISSUED BY
ITS AGENCIES OR INSTRUMENTALITIES.
Reasons for Change. These restrictions arose as State-Imposed
Restrictions that are no longer required. The restrictions could preclude
desirable investments by these Funds.
Effect of Deletion. Elimination of this restriction increases each Fund's
investment flexibility. Elimination does, however, expose these Funds'
shareholders to the risks associated with investing in relatively new and
inexperienced companies. Such companies may be in the early stages of
development, may have limited product lines, markets, or financial resources,
and may lack management depth. These factors may lead to more intense
competitive pressures on, greater volatility in earnings of, and relative
<PAGE>
illiquidity or erratic price movements for the securities of, these companies,
compared to larger, more established, and more experienced entities. However,
the Board believes that the potential benefits of investing in these types of
companies may outweigh these risks.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BALANCED,
GROWTH, MONEY MARKET AND SPECIAL FUNDS' SHAREHOLDERS VOTE TO ELIMINATE
FUNDAMENTAL INVESTMENT RESTRICTION 2.J.
2.K. RESTRICTION ON PURCHASING SECURITIES OF OTHER INVESTMENT COMPANIES
Approval Required. Elimination of this restriction requires
shareholder approval for:
BALANCED FUND
GROWTH FUND
MONEY MARKET FUND
SPECIAL FUND
Current Fundamental Restriction. The current fundamental restriction
for each of Balanced, Growth and Special Funds provides as follows:
THE FUND MAY NOT PURCHASE SECURITIES OF OTHER INVESTMENT COMPANIES, EXCEPT
THAT THE FUND MAY PURCHASE SECURITIES IN THE OPEN MARKET WHERE NO
COMMISSION OR PROFIT TO A SPONSOR OR A DEALER OTHER THAN THE CUSTOMARY
BROKER'S COMMISSION RESULTS FROM SUCH PURCHASE, AND ONLY IF IMMEDIATELY
THEREAFTER (A) NO MORE THAN 3% OF THE VOTING SECURITIES OF ANY ONE
INVESTMENT COMPANY IS OWNED IN THE AGGREGATE BY THE FUND AND ALL OTHER
FUNDS, (B) NO MORE THAN 5% OF THE VALUE OF THE TOTAL ASSETS OF THE FUND
WOULD BE INVESTED IN ANY ONE INVESTMENT COMPANY, AND (C) NO MORE THAN 10%
OF THE VALUE OF THE TOTAL ASSETS OF THE FUND AND ALL OTHER FUNDS WOULD BE
INVESTED IN THE SECURITIES OF ALL SUCH INVESTMENT COMPANIES. SHOULD THE
FUND PURCHASE SECURITIES OF OTHER INVESTMENT COMPANIES, SHAREHOLDERS MAY
INCUR ADDITIONAL MANAGEMENT, ADVISORY, AND DISTRIBUTION FEES. THE FUND MAY
ACQUIRE SUCH SECURITIES IF THEY ARE ACQUIRED IN CONNECTION WITH A PURCHASE
OR ACQUISITION IN ACCORDANCE WITH A PLAN OF REORGANIZATION, MERGER, OR
CONSOLIDATION.
The current fundamental restriction for Money Market Fund provides as follows:
<PAGE>
THE FUND MAY NOT PURCHASE SECURITIES OF OTHER INVESTMENT COMPANIES EXCEPT
IN CONNECTION WITH A PURCHASE OR ACQUISITION IN ACCORDANCE WITH A PLAN OF
REORGANIZATION, MERGER, OR CONSOLIDATION.
Reasons for Change. The exceptions set forth in the Balanced, Growth and
Special Fund restrictions largely track the limits imposed by the 1940 Act.
Subject to certain exceptions, the 1940 Act broadly restricts the ability of one
investment company to invest in another. Since all Funds are subject to these
statutory limitations, it is not necessary to impose an absolute prohibition
against, or stipulated limitations upon, investing in the securities of other
investment companies. Moreover, certain of the Funds may in the future deem it
to be in the best interests of their shareholders to invest in such securities,
subject to the limitations imposed by law.
Effect of Deletion. Since the Funds' investments in other investment
companies will continue to be governed by the 1940 Act, elimination of this
restriction is not expected to have any impact on any Fund's current investment
practices.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BALANCED,
GROWTH, MONEY MARKET AND SPECIAL FUNDS' SHAREHOLDERS VOTE TO ELIMINATE
INVESTMENT RESTRICTION 2.K.
2.L. RESTRICTION ON INVESTMENT IN SECURITIES OWNED BY OFFICERS AND DIRECTORS
Approval Required. Elimination of this restriction requires
shareholder approval for:
BALANCED FUND
GROWTH FUND
MONEY MARKET FUND
SPECIAL FUND
Current Fundamental Restriction. The current fundamental restriction
for each of these Funds provides as follows:
THE FUND MAY NOT ACQUIRE OR RETAIN THE SECURITIES OF ANY ISSUER IF ANY
OFFICER OR DIRECTOR OF THE COMPANY, OR ANY OFFICER OR DIRECTOR OF ITS
INVESTMENT ADVISER OR PRINCIPAL UNDERWRITER, OWNS BENEFICIALLY MORE THAN
ONE-HALF OF 1% OF THE ISSUER'S OUTSTANDING SECURITIES AND THE AGGREGATE
OWNED BY SUCH PERSONS EXCEEDS 5% OF SUCH SECURITIES.
<PAGE>
Reasons for Change. This restriction originated as a State-Imposed
Restriction designed to prevent conflicts of interest in the management of
mutual funds. While the Board believes that preventing conflicts of interest in
Fund management is a critically important objective, this issue is best
addressed by the Codes of Ethics adopted by the Funds and the Funds' investment
adviser and principal underwriter. These Codes, which have been adopted in
accordance with SEC rules and guidelines of the Investment Company Institute,
restrict the private investment activities of Fund Directors and officers, as
well as key personnel of the adviser and underwriter. The Codes of Ethics
supplement management's fiduciary obligation to act with the Funds' best
interests at heart. The elimination of this restriction places the burden of
avoiding potential conflicts of interest on those who would stand to gain by
inappropriately influencing or benefiting from the Funds' investment programs.
The current restriction takes the opposite approach it potentially restricts the
Funds' investments. In other words, it subordinates the Funds' investment
interests to those of its Directors and officers, and key personnel of its
investment adviser and underwriter.
Effect of Deletion. The elimination of this restriction frees the Funds
from the responsibility of monitoring conflicts of interest resulting from stock
ownership by certain individuals and places that obligation where it should be,
in the hands of the officers, Directors, managers and employees bound by the
Codes of Ethics.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BALANCED,
GROWTH, MONEY MARKET AND SPECIAL FUNDS' SHAREHOLDERS VOTE TO ELIMINATE
INVESTMENT RESTRICTION 2.L.
2.M. RESTRICTION ON PARTICIPATION IN JOINT TRADING ACCOUNTS
Approval Required. Elimination of this restriction requires
shareholder approval for:
BALANCED FUND
GROWTH FUND
SPECIAL FUND
Current Fundamental Restriction. The current fundamental restriction
for Balanced, Growth and Special Funds provides as follows:
THE FUND MAY NOT PARTICIPATE IN ANY JOINT TRADING ACCOUNT.
Reasons for Change. Under the 1940 Act, the Funds are prohibited from
virtually all "joint" transactions. The Funds are subject to these regulations
regardless of whether the Funds have a restriction against participating in
joint trading accounts. The elimination of the above restrictions would allow
<PAGE>
the Funds to participate in joint trading accounts to the extent permitted by
the rules or exemptions therefrom issued by the SEC.
Effect of Deletion. The elimination of the restriction would enable these
three Funds to participate in joint trading accounts to the extent permitted by
the federal securities laws or exemptions therefrom issued by the SEC.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BALANCED, GROWTH
AND SPECIAL FUNDS' SHAREHOLDERS VOTE TO ELIMINATE FUNDAMENTAL INVESTMENT
RESTRICTION 2.M.
2.N. RESTRICTION ON INVESTING FOR THE PURPOSE OF CONTROL OR MANAGEMENT
Approval Required. Elimination of this restriction requires
shareholder approval for:
BALANCED FUND
GROWTH FUND
SPECIAL FUND
Current Fundamental Restriction. The current fundamental restriction
for each of these Funds provides as follows:
THE FUND MAY NOT INVEST IN COMPANIES FOR THE PURPOSE OF EXERCISING CONTROL
OR MANAGEMENT.
Reasons for Change. This is a State-Imposed Restriction that is no longer
required. While the Funds currently do not intend to invest for the purpose of
exercising control or management of the companies in which they invest, this
restriction could unnecessarily restrict their flexibility to respond to
changing conditions in the future. The Funds would continue to be governed by
the requirements of the federal securities laws and their other investment
restrictions in making portfolio investments, including the 10% limit on the
amount of a company's voting securities they can purchase described in Section
2.I., above.
Effect of Deletion. The elimination of this investment restriction
will not affect the current investment practices of these Funds.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BALANCED, GROWTH
AND SPECIAL FUNDS' SHAREHOLDERS VOTE TO ELIMINATE INVESTMENT RESTRICTION 2.N.
2.O. RESTRICTION ON PURCHASING RESTRICTED SECURITIES
<PAGE>
Approval Required. Elimination of this restriction requires
shareholder approval for:
BLUE CHIP FUND
FRONTIER FUND
MONEY MARKET FUND
Current Fundamental Restrictions. Each of Founders Frontier and Blue
Chip Funds currently has a fundamental restriction which provides as follows:
THE FUND MAY NOT INVEST IN RESTRICTED SECURITIES.
Founders Money Market Fund currently has a fundamental restriction which
provides as follows:
THE FUND MAY NOT PURCHASE SECURITIES WITH LEGAL OR CONTRACTUAL
RESTRICTIONS ON RESALE OR PURCHASE SECURITIES WHICH ARE NOT OTHERWISE
READILY MARKETABLE, EXCEPT THAT THE FUND MAY ENTER INTO REPURCHASE
AGREEMENTS IF, AS A RESULT THEREOF, 10% OR LESS OF ITS NET ASSETS VALUED
AT THE TIME OF THE TRANSACTION WOULD BE SUBJECT TO REPURCHASE AGREEMENTS
MATURING IN MORE THAN SEVEN DAYS.
Substitute Non-Fundamental Restriction. If the current fundamental
restrictions are eliminated, they will be replaced by a non-fundamental
investment restriction adopted by the Board which will be applicable to all
Funds. The new non-fundamental restriction provides that no Fund may enter into
repurchase agreements providing for settlement in more than seven days or
purchase securities which are not readily marketable if, in the aggregate, more
than 15% of the value of its net assets would be so invested (10% in the case of
Founders Money Market Fund).
Reasons for Change. A security which is not "readily marketable" is
generally considered to be a security that cannot be disposed of within seven
days in the ordinary course of business at approximately the amount at which it
is valued. "Restricted" securities generally include securities that are not
registered under the Securities Act of 1933 ("1933 Act") and are subject to
legal or contractual restrictions upon resale. Restricted securities are not
necessarily "not readily marketable" and can often be sold in privately
negotiated transactions or in a registered public offering. There are an
increasing number of securities being issued without registration under the 1933
Act for which a liquid secondary market exists among institutional investors
such as the Funds. These securities are often called "Rule 144A" securities.
With the exception of the limitation of 10% maintained for the Money Market
Fund, the substitute non-fundamental policy adopted by the Board provides a
uniform standard for all Funds and eliminates the "restricted securities"
prohibition which has prevented Blue Chip, Frontier and Money Market Funds from
<PAGE>
investing in certain types of restricted securities which are nonetheless
readily marketable. The change causes the fundamental restriction for each of
the three Funds to be restructured as a non-fundamental restriction, which in
the future can be changed solely by Board approval.
Effect of Change on Fund and Shareholders. For Blue Chip, Frontier and
Money Market Funds, the change allows greater flexibility and the opportunity to
utilize permitted restricted securities investments to their benefit. Holding
securities which may not be readily marketable may subject the Funds to
increased risk, since such investments often cannot quickly be sold and a Fund
might have to bear the expense and delay associated with registering a security
under the 1933 Act prior to selling the security. Additionally, such securities
may be more difficult to value, could be subject to greater price volatility,
and may involve greater transaction costs than more liquid securities. However,
the Board believes that the potential benefits of investing in these types of
securities outweigh the possible risks involved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BLUE CHIP,
FRONTIER AND MONEY MARKET FUNDS' SHAREHOLDERS VOTE TO ELIMINATE THE
INVESTMENT RESTRICTIONS DESCRIBED IN 2.O.
2.P. RESTRICTION ON PLEDGING, MORTGAGING OR HYPOTHECATING SECURITIES
Approval Required. Elimination of this restriction requires
shareholder approval for:
GROWTH FUND
Current Fundamental Restriction. Founders Growth Fund has a current
fundamental restriction which provides as follows:
THE FUND MAY NOT PLEDGE, MORTGAGE OR HYPOTHECATE ITS ASSETS EXCEPT TO
SECURE PERMITTED BORROWINGS, AND THEN ONLY IN AN AMOUNT UP TO 15% OF THE
VALUE OF THE FUND'S NET ASSETS TAKEN AT THE LOWER OF COST OR MARKET VALUE
AT THE TIME OF SUCH BORROWINGS.
Substitute Non-Fundamental Restriction. If the current fundamental
restriction is eliminated, it will be replaced by a non-fundamental investment
restriction adopted by the Board which will be applicable to all Funds. The new
non-fundamental restriction provides that no Fund may pledge, mortgage or
hypothecate its assets, except to the extent necessary to secure permitted
borrowings and to the extent related to the purchase of securities on a
when-issued or forward commitment basis and the deposit of assets in escrow in
<PAGE>
connection with writing covered put and call options and collateral and initial
or variation margin arrangements with respect to options, forward contracts,
futures contracts (including those relating to indices), and options on futures
contracts or indices.
Reasons for Change. This change will ensure that the Growth Fund is able
to pledge its assets to the extent that engaging in the types of activities
enumerated in the restriction may constitute such pledging. All of these
activities are allowed by other investment restrictions. The change causes
Growth Fund's fundamental restriction to be restructured as a non-fundamental
policy, which in the future can be changed solely by receipt of Board approval.
Effect of Change on Fund and Shareholders. Elimination of this restriction
does not have any effect upon the investment techniques employed by Founders
Growth Fund. Substitution of the non-fundamental restriction provides express
authorization to make investments or engage in practices permitted by other
investment restrictions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE GROWTH FUND'S
SHAREHOLDERS VOTE TO ELIMINATE INVESTMENT RESTRICTION 2.P.
2.Q. RESTRICTION ON REDEMPTION OF SHARES IN KIND
Approval Required. Elimination of this restriction requires
shareholder approval for:
GROWTH FUND
Current Fundamental Restriction. The current fundamental restriction
provides as follows:
THE FUND MAY NOT REDEEM ITS SHARES IN KIND UNLESS THE PROCEEDS OF CASH
REDEMPTIONS EXCEED THE LESSER OF $250,000 OR 1% OF THE NET ASSET VALUE OF
THE FUND DURING ANY 90-DAY PERIOD FOR ANY ONE SHAREHOLDER.
Reasons for Change. This restriction tracks the provisions of an SEC rule
issued under the 1940 Act. Since the Fund has elected to be governed by this
Rule, it is obligated to comply with these requirements regardless of whether
they are set forth as an investment restriction of the Fund.
Effect of Deletion. The elimination of this investment restriction
will not affect the current investment practices of the Growth Fund.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE GROWTH FUND'S
SHAREHOLDERS VOTE TO ELIMINATE INVESTMENT RESTRICTION 2.Q.
2.R. RESTRICTION ON INVESTMENT IN INTERESTS IN OIL AND GAS
Approval Required. This change requires shareholder approval for:
MONEY MARKET FUND
Current Fundamental Restriction. The current fundamental restriction
provides as follows:
THE FUND MAY NOT INVEST IN INTERESTS IN OIL, GAS OR OTHER MINERAL
EXPLORATION OR DEVELOPMENT PROGRAMS OR LEASES, ALTHOUGH THE FUND MAY
INVEST IN THE SECURITIES OF ISSUERS WHICH INVEST IN OR SPONSOR SUCH
PROGRAMS OR LEASES.
Reasons for Change. Since the Fund's investment policies and certain
provisions of the 1940 Act which are applicable to money market funds do not
permit direct investments in oil, gas or other mineral exploration or
development programs or leases, this restriction is unnecessary. In addition,
all of the Funds have adopted a fundamental restriction prohibiting direct
investments in real estate and certain interests therein, which prohibits
investments in leases. Elimination of the restriction will clarify the ability
of the Money Market Fund to invest in money market instruments that are secured
by interests in these types of programs.
Effect of Deletion. The elimination of this investment restriction
will not affect the investment practices of the Money Market Fund.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE MONEY MARKET FUND'S
SHAREHOLDERS VOTE TO ELIMINATE INVESTMENT RESTRICTION 2.R.
2.S. RESTRICTION ON PURCHASING EQUITY SECURITIES
Approval Required. Elimination of this restriction requires
shareholder approval for:
MONEY MARKET FUND
Current Fundamental Restriction. The current fundamental restriction
provides as follows:
<PAGE>
THE FUND MAY NOT PURCHASE COMMON STOCKS, PREFERRED STOCKS, WARRANTS OR
OTHER EQUITY SECURITIES.
Reasons for Change. Since the Fund's investment policies and certain
provisions of the 1940 Act which are applicable to money market funds do not
permit these types of investments, the restriction is unnecessary.
Effect of Deletion. The elimination of this investment restriction
will not affect the investment practices of the Money Market Fund.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE MONEY MARKET FUND'S
SHAREHOLDERS VOTE TO ELIMINATE INVESTMENT RESTRICTION 2.S.
VOTE REQUIRED
As to each Fund, approval of the revision or elimination of each of the
foregoing fundamental investment restrictions will require the affirmative vote
of a majority of the outstanding shares of that Fund voting separately as a
class. Such a majority is defined in the 1940 Act as the lesser of: (a) 67% or
more of the shares present at the Meeting, if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy; or (b)
more than 50% of the total outstanding shares of that Fund.
A Fund's approval of the proposed change to any of the foregoing
fundamental investment restrictions is not subject to the approval of any of the
other proposed changes for that Fund. Similarly, the approval of a change in an
investment restriction by one Fund is not subject to the approval of the same
change by any other Fund. Thus, all changes to the fundamental investment
restrictions approved by the shareholders of the Funds will become effective as
to those Funds regardless of the approval or disapproval of the changes in other
restrictions. If any of the proposals are not approved by the shareholders of a
Fund, the Fund's corresponding present investment restriction will remain in
effect.
All changes to the fundamental investment restrictions that are approved
by Fund shareholders will become effective immediately upon their approval.
PROPOSAL 3: RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Directors of the Company, including a majority of its Independent
Directors, have selected PricewaterhouseCoopers LLP to continue to serve as
independent accountants of the Company for the fiscal year ending December 31,
1999, subject to ratification by the Company's shareholders. This firm has no
direct financial interest or material indirect financial interest in the
<PAGE>
Company. Representatives of this firm are not expected to attend the Meeting,
but will be available should any matter arise requiring their presence.
The following summarizes PricewaterhouseCoopers LLP's audit services for
the fiscal year ended December 31, 1998: audit of annual financial statements;
preparation of the Company's federal and state income tax returns; preparation
of the Company's federal excise tax return; consultation with the Company's
Audit Committee; and routine consultation on financial accounting and reporting
and tax-related matters.
The Board authorizes all services performed by PricewaterhouseCoopers LLP
on behalf of the Company. In addition, the Board annually reviews the scope of
services to be provided by PricewaterhouseCoopers LLP and considers the effect,
if any, that performance of any non-audit services might have on audit
independence.
An Audit Committee, consisting of [four] Independent Directors, meets
periodically with the Company's independent accountants to review accounting and
reporting requirements.
VOTE REQUIRED
The ratification of the selection of the independent accountants must be
approved by a majority of the shares present at the Meeting in person or by
proxy and entitled to vote, provided a quorum is present. The shareholders of
all of the Funds will vote together as a single class on the ratification of the
selection of the independent accountants.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S SHAREHOLDERS VOTE IN
FAVOR OF PROPOSAL 3.
OTHER BUSINESS
The management of the Company has no business to bring before the Meeting
other than the matters described above. Should any other business be presented
at the Meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
SHAREHOLDER PROPOSALS
The Company does not hold annual meetings of shareholders. Shareholders
wishing to submit proposals for inclusion in a proxy statement and form of proxy
for a subsequent shareholders' meeting should send their written proposals to
the Secretary of the Funds, 2930 East Third Avenue, Denver, Colorado 80206. The
<PAGE>
Funds have not received any shareholder proposals to be presented at this
Meeting.
By Order of the Board of Directors
Margaret W. Chambers
Secretary
December 30, 1998
<PAGE>
EXHIBIT A
ADDITIONAL INFORMATION CONCERNING HEDGING TECHNIQUES
FUTURES CONTRACTS
U.S. futures contracts are traded on exchanges that have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and must
be executed through a futures commission merchant (an "FCM") or brokerage firm
that is a member of the relevant contract market.
The acquisition or sale of a futures contract could occur, for example, if
a Fund held or was considering purchasing equity securities and sought to
protect itself from fluctuations in prices without buying or selling those
securities. If prices were expected to decrease, a Fund could sell equity index
futures contracts, thereby hoping to offset a potential decline in the value of
equity securities in the portfolio by a corresponding increase in the value of
the futures contract position held by the Fund and thereby prevent the Fund's
net asset value from declining as much as it otherwise would have. A Fund also
could protect against potential price declines by selling portfolio securities
and investing in money market instruments. However, since the futures market is
more liquid than the cash market, the use of futures contracts as an investment
technique would allow the Fund to maintain a defensive position without having
to sell portfolio securities.
Similarly, when prices of equity securities are expected to increase,
futures contracts could be bought to attempt to hedge against the possibility of
having to buy equity securities at higher prices. This technique is sometimes
known as an anticipatory hedge. Since the fluctuations in the value of futures
contracts should be similar to those of equity securities, a Fund could take
advantage of the potential rise in the value of equity securities without buying
them until the market had stabilized. At that time, the futures contracts could
be liquidated and the Fund could buy equity securities on the cash market.
Under proposed investment restrictions, the Funds also could enter into
interest rate and foreign currency futures contracts. Interest rate futures
contracts currently are traded on a variety of fixed-income securities,
including long-term U.S. Treasury bonds, Treasury notes, Government National
Mortgage Association modified pass-through mortgage-backed securities, U.S.
Treasury bills, bank certificates of deposit and commercial paper. Foreign
currency futures contracts currently are traded on the British pound, Canadian
dollar, Japanese yen, Swiss franc, West German mark and on Eurodollar deposits.
Futures contracts entail risks. Although Founders believes that use of
such contracts could benefit the Funds, if Founders' investment judgment were
<PAGE>
incorrect, a Fund's overall performance could be worse than if the Fund had not
entered into futures contracts. For example, if a Fund hedged against the
effects of a possible decrease in prices of securities held in the Fund's
portfolio and prices increased instead, the Fund would lose part or all of the
benefit of the increased value of these securities because of offsetting losses
in the Fund's futures positions. In addition, if the Fund had insufficient cash,
it might have to sell securities from its portfolio to meet margin requirements.
Those sales could be at increased prices that reflect the rising market and
could occur at a time when the sales would be disadvantageous to the Fund.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, the ability of investors to close out futures contracts through
offsetting transactions could distort the normal price relationship between the
cash and futures markets. Second, to the extent participants decide to make or
take delivery, liquidity in the futures markets could be reduced and prices in
the futures markets distorted. Third, from the point of view of speculators, the
margin deposit requirements in the futures markets are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures markets may cause temporary price distortions. Due to
the possibility of the foregoing distortions, a correct forecast of general
price trends still may not result in a successful use of futures.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to
the Funds would not match exactly a Fund's current or potential investments. A
Fund might buy or sell futures contracts based on underlying instruments with
different characteristics from the securities in which it would typically invest
- -- for example, by hedging investments in portfolio securities with a futures
contract based on a broad index of securities -- which involves a risk that the
futures position might not correlate precisely with the performance of the
Fund's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a Fund's
investments. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments, and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between a Fund's investments and its futures positions could also
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures contracts. A
Fund would be able to buy or sell futures contracts with a greater or lesser
value than the securities it wished to hedge or was considering purchasing in
<PAGE>
order to attempt to compensate for differences in historical volatility between
the futures contract and the securities, although this might not be successful
in all cases. If price changes in the Fund's futures positions were poorly
correlated with its other investments, its futures positions could fail to
produce desired gains or result in losses that would not be offset by the gains
in the Fund's other investments.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of three business days
for most types of securities, the futures markets can provide superior liquidity
to the securities markets. Nevertheless, there is no assurance a liquid
secondary market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish daily price
fluctuation limits for futures contracts and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it would be impossible
for a Fund to enter into new positions or close out existing positions. If the
secondary market for a futures contract were not liquid because of price
fluctuation limits or otherwise, a Fund would not promptly be able to liquidate
unfavorable futures positions and potentially could be required to continue to
hold a futures position until the delivery date, regardless of changes in its
value. As a result, a Fund's access to other assets held to cover its futures
positions also could be impaired.
OPTIONS ON FUTURES CONTRACTS
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, a contract market clearinghouse
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of futures contracts, such as payment
of variation margin deposits.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
<PAGE>
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearinghouse assigns exercise notices
on a random basis to those of its members that have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers that have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
The amount of risk a Fund would assume, if it bought an option on a
futures contract, would be the premium paid for the option plus related
transaction costs. The purchase of an option also entails the risk that changes
in the value of the underlying futures contract will not fully be reflected in
the value of the options bought.
FORWARD CONTRACTS
As described under Proposal 2, when a Fund purchases or sells a security
denominated in a foreign currency, it may enter into a forward contract for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transaction. A forward contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. In this manner, a
Fund may obtain protection against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the foreign currency
during the period between the date the security is purchased or sold and the
date upon which payment is made or received. Although such contracts tend to
minimize the risk of loss due to the decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might
result should the value of such currency increase. The Funds do not intend to
speculate in forward contracts.
Forward contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Generally a forward contract has no deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the difference between
the prices at which they buy and sell various currencies. Under the proposed
investment restrictions, when Founders believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar (or sometimes against another currency), the Funds may enter into forward
contracts to sell, for a fixed-dollar or other currency amount, foreign currency
approximating the value of some or all of the Funds' portfolio securities
<PAGE>
denominated in that currency. In addition, the Funds may engage in "proxy
hedging," i.e., entering into forward contracts to sell a different foreign
currency than the one in which the underlying investments are denominated, with
the expectation that the value of the hedged currency will correlate with the
value of the underlying currency. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible.
The future value of such securities in foreign currencies changes as a
consequence of market movements in the value of those securities between the
date on which the contract is entered into and the date it expires. The Funds do
not intend to enter into forward contracts with a term greater than one year. In
addition, the Funds do not intend to enter into forward contracts or maintain a
net exposure to such contracts where the fulfillment of the contracts would
require the Funds to deliver an amount of foreign currency or a proxy currency
in excess of the value of the Funds' portfolio securities or other assets
denominated in the currency being hedged. Forward contracts may, from time to
time, be considered illiquid, in which case they would be subject to the
respective Funds' limitation on investing in illiquid securities.
At the consummation of a forward contract for delivery by a Fund of a
foreign currency which has been used as a position hedge, the Fund may either
make delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract obligating it
to purchase, at the same maturity date, the same amount of the foreign currency.
If the Fund chooses to make delivery of the foreign currency, it may be required
to obtain such currency through the sale of portfolio securities denominated in
such currency or through conversion of other Fund assets into such currency. It
is impossible to forecast the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be necessary for the
Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver, and if a decision
is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received on the sale of the portfolio security if its market value
exceeds the amount of foreign currency the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been
movement in spot or forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
<PAGE>
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
While forward contracts may be traded to reduce certain risks, trading in
forward contracts itself entails certain other risks. Thus, while the Funds may
benefit from the use of such contracts, if Founders is incorrect in its forecast
of currency prices, a poorer overall performance may result than if a Fund had
not entered into any forward contracts. Some forward contracts may not have a
broad and liquid market, in which case the contracts may not be able to be
closed at a favorable price. Moreover, in the event of an imperfect correlation
between the forward contract and the portfolio position that it is intended to
protect, the desired protection may not be obtained.
The use of forward contracts to protect the value of a Funds' portfolio
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange that can be achieved at some future point in time.
Additionally, although such contracts tend to minimize the risk of loss due to
the decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might result should the value of such currency
increase.
OPTIONS ON SECURITIES AND SECURITIES INDICES
An option is a right to buy or sell a security or securities index at a
specified price within a limited period of time. For the right to buy or sell
the underlying instrument, the buyer pays a premium to the seller (the "writer"
of the option). Options have standardized terms, including the exercise price
and expiration time. The current market value of a traded option is the last
sales price or, in the absence of a sale, the last offering price. The market
value of an option will usually reflect, among other factors, the market price
of the underlying security. When the market value of an option appreciates, the
purchaser may realize a gain by exercising the option and selling the underlying
security, or by selling the option on an exchange (provided that a liquid
secondary market is available). If the underlying security does not reach a
price level that would make exercise profitable, the option generally will
expire without being exercised and the writer will realize a gain in the amount
of the premium. However, the gain may be offset by a decline in the market value
of the underlying security. If an option is exercised, the proceeds of the sale
of the underlying security by the writer are increased by the amount of the
premium and the writer realizes a gain or loss from the sale of the security.
So long as a secondary market remains available on an exchange, the writer
of an option traded on that exchange ordinarily may terminate his obligation
prior to the assignment of an exercise notice by entering into a closing
purchase transaction. The cost of a closing purchase transaction, plus
<PAGE>
transaction costs, may be greater than the premium received upon writing the
original option, in which event the writer will incur a loss on the transaction.
However, because an increase in the market price of an option generally reflects
an increase in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by appreciation of the underlying security that the writer continues to own.
Under the proposed investment restrictions, all of the Funds may write
(sell) options on their portfolio securities. These Funds retain the freedom to
write options on any or all of their portfolio securities and at such time and
from time to time as Founders shall determine to be appropriate. The extent of a
Fund's option writing activities will vary from time to time depending upon
Founders' evaluation of market, economic and monetary conditions.
When a Fund purchases a security with respect to which it intends to write
an option, it is likely that the option will be written concurrently with or
shortly after purchase. The Fund will write an option on a particular security
only if Founders believes that a liquid secondary market will exist on an
exchange for options of the same series, which will permit the Fund to enter
into a closing purchase transaction and close out its position. If the Fund
desires to sell a particular security on which it has written an option, it will
effect a closing purchase transaction prior to or concurrently with the sale of
the security.
A Fund may enter into closing purchase transactions to reduce the
percentage of its assets against which options are written, to realize a profit
on a previously written option, or to enable it to write another option on the
underlying security with either a different exercise price or expiration time or
both.
Options written by a Fund will normally have expiration dates between
three and nine months from the date written. The exercise prices of options may
be below, equal to or above the current market values of the underlying
securities at the times the options are written. From time to time for tax and
other reasons, the Fund may purchase an underlying security for delivery in
accordance with an exercise notice assigned to it, rather than delivering such
security from its portfolio.
If the proposed investment restriction is approved, all of the Funds may
purchase options on securities indices. A securities index measures the movement
of a certain group of securities by assigning relative values to the securities
included in the index. Options on securities indices are similar to options on
securities. However, because options on securities indices do not involve the
delivery of an underlying security, the option represents the holder's right to
obtain from the writer in cash a fixed multiple of the amount by which the
exercise price exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the exercise date. The Funds
<PAGE>
may purchase put options on stock indices to protect the Funds' portfolios
against decline in value. The Funds may purchase call options on stock indices
to establish a position in equities as a temporary substitute for purchasing
individual stocks that then may be acquired over the option period in a manner
designed to minimize adverse price movements. Purchasing put and call options on
securities indices also permits greater time for evaluation of investment
alternatives. When Founders believes that the trend of securities prices may be
downward, particularly for a short period of time, the purchase of put options
on securities indices may eliminate the need to sell less liquid securities and
possibly repurchase them later. The purpose of these transactions is not to
generate gain, but to "hedge" against possible loss. Therefore, successful
hedging activity will not produce net gain to the Funds. Any gain in the price
of a call option is likely to be offset by higher prices a Fund must pay in
rising markets, as cash reserves are invested. In declining markets, any
increase in the price of a put option is likely to be offset by lower prices of
securities owned by a Fund.
Upon purchase by a Fund of a call on a securities index, the Fund pays a
premium and has the right during the call period to require the seller of such a
call, upon exercise of the call, to deliver to the Fund an amount of cash if the
closing level of the stock index upon which the call is based is above the
exercise price of the call. This amount of cash is equal to the difference
between the closing price of the index and the lesser exercise price of the
call. Upon purchase by the Fund of a put on a securities index, the Fund pays a
premium and has the right during the put period to require the seller of such a
put, upon exercise of the put, to deliver to the Fund an amount of cash if the
closing level of the securities index upon which the put is based is below the
exercise price of the put. This amount of cash is equal to the difference
between the exercise price of the put and the lesser closing level of the
securities index. Buying securities index options permits the Funds, if cash is
deliverable to them during the option period, either to sell the option or to
require delivery of the cash. If such cash is not so deliverable, and as a
result the option is not exercised or sold, the option becomes worthless at its
expiration date.
The Funds may purchase only those put and call options that are listed on
a domestic exchange or quoted on the automatic quotation system of the National
Association of Securities Dealers, Inc. ("NASDAQ"). Options traded on stock
exchanges are either broadly based, such as the Standard & Poor's 500 Stock
Index and 100 Stock Index, or involve stocks in a designated industry or group
of industries. The Funds may utilize either broadly based or market segment
indices in seeking a better correlation between the indices and the Funds'
portfolios.
Transactions in options are subject to limitations, established by each of
the exchanges upon which options are traded, governing the maximum number of
<PAGE>
options that may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options are held in one or more
accounts. Thus, the number of options a Fund may hold may be affected by options
held by other advisory clients of Founders. As of the date of this Proxy
Statement, Founders believes that these limitations will not affect the purchase
of securities index options by the Funds.
The value of a securities index option depends upon movements in the level
of the securities index rather than the price of a particular security. Whether
a Fund will realize a gain or a loss from its option activities depends upon
movements in the level of securities prices generally or in an industry or
market segment, rather than movements in the price of a particular security.
Purchasing call and put options on securities indices involves the risk that
Founders may be incorrect in its expectations as to the extent of the various
securities market movements or the time within which the options are based. To
compensate for this imperfect correlation, a Fund may enter into options
transactions in a greater dollar amount than the securities being hedged if the
historical volatility of the prices of the securities being hedged is different
from the historical volatility of the securities index.
One risk of holding a put or a call option is that if the option is not
sold or exercised prior to its expiration, it becomes worthless. However, this
risk is limited to the premium paid by the Fund. Other risks of purchasing
options include the possibility that a liquid secondary market may not exist at
a time when the Fund may wish to close out an option position. It is also
possible that trading in options on securities indices might be halted at a time
when the securities markets generally were to remain open. In cases where the
market value of an issue supporting a covered call option exceeds the strike
price plus the premium on the call, the portfolio will lose the right to
appreciation of the security for the duration of the option.
OPTIONS ON FOREIGN CURRENCIES
The proposed investment restrictions would permit all of the Funds to buy
and sell options on foreign currencies for hedging purposes in a manner similar
to that in which futures on foreign currencies would be utilized. For example, a
decline in the U.S. dollar value of a foreign currency in which portfolio
securities are denominated would reduce the U.S. dollar value of such
securities, even if their value in the foreign currency remained constant. In
order to protect against such diminution in the value of portfolio securities, a
Fund could buy put options on the foreign currency. If the value of the currency
declines, the Fund would have the right to sell such currency for a fixed amount
in U.S. dollars and would thereby offset, in whole or in part, the adverse
effect on its portfolio that otherwise would have resulted. Conversely, when a
rise is projected in the U.S. dollar value of a currency in which securities to
<PAGE>
be acquired are denominated, thereby increasing the cost of such securities, the
Fund could buy call options thereon. The purchase of such options could offset,
at least partially, the effects of the adverse movements in exchange rates.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities, and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices, or prohibitions on exercise.
ADDITIONAL RISK FACTORS
The successful use of the investment practices described above with
respect to futures contracts, options on futures contracts, forward contracts,
and options on securities, securities indices and foreign currencies draws upon
skills and experience that are different from those needed to select the other
instruments in which the Funds invest. All such practices entail risks and can
be highly volatile. Should interest or exchange rates or the prices of
securities or financial indices move in an unexpected manner, the Funds may not
achieve the desired benefits of futures and options or may realize losses and
thus be in a worse position than if such strategies had not been used. Unlike
many exchange-traded futures contracts and options on futures contracts, there
are no daily price fluctuation limits with respect to options on currencies and
<PAGE>
negotiated or over-the-counter instruments, and adverse market movements could
therefore continue to an unlimited extent over a period of time. In addition,
the correlation between movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
A Fund's ability to dispose of its positions in the foregoing instruments
will depend on the availability of liquid markets in the instruments. Markets in
a number of the instruments are relatively new and still developing and it is
impossible to predict the amount of trading interest that may exist in those
instruments in the future. Particular risks exist with respect to the use of
each of the foregoing instruments and could result in such adverse consequences
to the Funds as the possible loss of the entire premium paid for an option
bought by a Fund, the inability of a Fund, as the writer of a covered call
option, to benefit from the appreciation of the underlying securities above the
exercise price of the option, and the possible need to defer closing out
positions in certain instruments to avoid adverse tax consequences. As a result,
no assurance can be given that the Funds will be able to use those instruments
effectively for the purposes set forth above.
In addition, options on U.S. Government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be affected adversely by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
<PAGE>
PRELIMINARY COPY
[FORM OF PROXY CARD]
FOUNDERS FUNDS, INC.
[NAME OF INDIVIDUAL FUND]
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
MARCH 2, 1999
The undersigned hereby appoints Kenneth R. Christoffersen, David L. Ray and
Edward F. O'Keefe, and each of them, proxy for the undersigned, with the power
of substitution, to vote with the same force and effect as the undersigned at
the Special Meeting of Shareholders of Founders Funds, Inc. (the "Company") to
be held at the offices of the Company, 2930 East Third Avenue, Denver, Colorado
80206, on Tuesday, March 2, 1999 at 3 p.m. (Mountain time) and at any
adjournment thereof, upon the matters set forth below, all in accordance with
and as more fully described in the Notice of Special Meeting and Proxy
Statement, dated December 30, 1998, receipt of which is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS, WHICH RECOMMENDS A VOTE "FOR"
EACH PROPOSAL.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF ALL DIRECTORS AND "FOR" PROPOSALS 2 AND 3.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE AS SOON AS POSSIBLE. THANK YOU.
Please sign exactly as your name appears hereon. If shares are held in the name
of joint owners, each should sign. Attorneys-in-fact, executors, administrators,
etc. should so indicate. If shareholder is a corporation or partnership, please
sign in full corporate or partnership name by authorized person.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
FOUNDERS FUNDS, INC. - [NAME OF INDIVIDUAL FUND]
With- For all
For hold Except:
All All
PROPOSAL 1. ELECTION OF EIGHT DIRECTORS. [ ] [ ] [ ]
01) Jay A. Precourt, 02) Eugene H. Vaughan, Jr.,
03) Bjorn K. Borgen, 04) Alan S. Danson,
05) Robert P. Mastrovita, 06) Trygve E. Myhren,
07) George W. Phillips, and 08) ___________
IF YOU DO NOT WISH YOUR SHARES VOTED "FOR"
A PARTICULAR NOMINEE, MARK "FOR ALL
EXCEPT" AND WRITE THE NOMINEE'S NUMBER ON THE LINE BELOW.
------------------------------------
PROPOSAL 2. REVISION OR ELIMINATION OF CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS.
For Against Abstain
All All
[ ] [ ] [ ]
[...] To vote against the proposed changes to one or more of the
fundamental investment restrictions, but to approve the others, place an
"X" in the box at 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: ________________________________________________
PROPOSAL 3. SELECTION OF INDEPENDENT ACCOUNTANTS
For Against Abstain
Ratify the selection of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as
independent accountants for the
Company
- ----------------------- ----------------------- ----------
Signature Signature (Joint Owner) Date
[Please sign within box]
<PAGE>
PRELIMINARY COPY
[BUCKSLIP]
TWO NEW CONVENIENT WAYS TO VOTE YOUR PROXY
It's Fast and Convenient.
The accompanying Proxy Statement outlines important issues affecting your
Founders Fund. Help us save time and postage costs - savings we pass along to
you - by voting online [or by telephone]. Each method is generally available 24
hours a day and will ensure that your vote is confirmed and recorded
immediately.
There is no need to mail the proxy card if you are voting by Internet [or
telephone].
TO VOTE ONLINE:
1. Read the Proxy Statement and have your proxy card(s) at hand.
2. Go to web site www.proxyvote.com.
3. Enter the 12-digit Control Number from the top portion of your proxy
card(s).
4. Follow the simple instructions.
[TO VOTE BY TELEPHONE:
1. Read the Proxy Statement and have your proxy card(s) at hand.
2. Call toll-free 1-800-___________.
3. Enter the 12-digit Control Number from the top portion of your proxy
card(s).
4. Follow the simple recorded instructions.
