FORM OF
SHAREHOLDER SERVICES AGREEMENT
Between
FOUNDERS FUNDS, INC. and
FOUNDERS ASSET MANAGEMENT LLC
AGREEMENT made as of the _____ day of ________, 1998,
in Denver, Colorado, by and between Founders Funds, Inc., a
Maryland corporation (the "Fund"), and Founders Asset
Management LLC, a Delaware limited liability company
(hereinafter referred to as "Founders").
WHEREAS, the Fund is engaged in business as an open-end
management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the
"Act"); and
WHEREAS, Founders is registered as an investment
adviser under the Investment Advisers Act of 1940, and
engages in the business of acting as investment adviser and
providing certain other administrative, accounting, and
recordkeeping services to the Fund; and
WHEREAS, Founders is registered as a transfer agent
under the Securities Exchange Act of 1934; and
WHEREAS, pursuant to this Shareholder Services
Agreement (the "Agreement"), Founders will render certain
transfer agent and related services to the Fund and to the
Fund's shareholders (the "Services") in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Fund has entered into a Transfer Agent
Agreement with Investors Fiduciary Trust Company ("IFTC")
(the "TA Agreement"), pursuant to which IFTC provides
certain other transfer agent services to the Fund; and
WHEREAS, Founders has entered into a service agreement
with IFTC (the "Service Agreement"), pursuant to which a
computerized data processing recordkeeping system for
securityholder accounting (the "TA2000(TM) System") using
IFTC owned or licensed software developed by DST
Technologies, Inc., an affiliate of IFTC ("DST") is
available to Founders in providing transfer agent services
to the Fund; and
WHEREAS, the Fund has entered into a Software Remote
Access and License Agreement with DST (the "Remote Access
Agreement"), pursuant to which image based application
software and related user documentation to be operated in
conjunction with the TA2000(TM) System (the "Auxiliary
Software") is available to Founders in providing other
transfer agent services to the Fund; and
WHEREAS, Founders has entered into a Telephone and CRT
Input Equipment Recovery Services Agreement with DST (the
"Back-Up Agreement"), pursuant to which certain computer and
backup capabilities will be made available to Founders for
use in providing transfer agent services to the Fund in the
event of a disaster to Founders' telephone and cathode-ray
tube input equipment; and
WHEREAS, the Fund has entered into an Agreement for
Handling Drafts with IFTC and DST (the "Drafts Agreement"),
pursuant to which the Fund has established a special account
with IFTC to which all drafts drawn by the Fund's
shareholders which are payable through IFTC will be charged;
and
WHEREAS, the TA Agreement, the Service Agreement, the
Remote Access Agreement, the Back-Up Agreement, and the
Drafts Agreement are collectively referred to herein as the
"Collective Agreements"; and
WHEREAS, the Fund, Founders, IFTC, and DST anticipate
that in the next few years Founders will, on a service-by-
service basis and over time, assume the responsibility for
performance of those transfer agent services currently being
provided to the Fund by IFTC; and
WHEREAS, the Fund desires to retain Founders to perform
these additional transfer agent services and Founders
desires to perform such services on the terms and conditions
hereinafter set forth; and
WHEREAS, Founders has in the past and will in the
future enter into arrangements with third parties which
provide sub-transfer agency, recordkeeping, investor
services, and/or other administrative services (the "Third
Party Services") to participants in 401(k) and other tax-
qualified retirement programs and to participants in other
arrangements (the "Participants"), pursuant to which the
third party establishes one or more omnibus accounts with
the Fund, into which investments of the Participants are
pooled; and
WHEREAS, in establishing such omnibus accounts and
providing the Third Party Services, the third parties
effectively reduce or eliminate the need for Services to be
provided on behalf of the Participants by Founders; and
WHEREAS, a third party may charge a basis point fee
method or other fee method to Founders or the Funds to
compensate it for providing the Third Party Services to
Participants (the "Third Party Fee"); and
WHEREAS, certain of the third parties may be broker-
dealers who, in accordance with applicable federal rules and
regulations, may be selected by Founders to execute
portfolio securities transactions on behalf of the Fund; and
WHEREAS, commissions earned by the broker-dealer third
party from executing portfolio transactions on behalf of a
specific series fund of the Fund ("Series") may be credited
by the broker-dealer against the Third Party Fee charged to
that Series, on a basis which has resulted from negotiations
between Founders and the third party;
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter contained, the Fund and
Founders agree as follows:
1. SERVICES. The Fund hereby retains Founders to
provide the Services outlined on Exhibit A hereto, which
exhibit is incorporated herein by this reference. Founders
shall at all times use reasonable care, due diligence, and
act in good faith in performing its duties under this
Agreement.
2. COLLECTIVE AGREEMENT OBLIGATIONS. To the extent
that the TA Agreement and any other Collective Agreement (a)
may impose obligations upon the Fund to ensure that Founders
provides services, conforms to a standard of conduct,
adheres to a stipulated process or procedure, or otherwise
undertakes to perform a defined duty or responsibility or
(b) provides that Founders performs the foregoing
(collectively, the "Obligations"), Founders shall perform
the Obligations and shall at all times use reasonable care,
due diligence, and act in good faith in performing the
Obligations.
3. STAFF MAINTENANCE. Founders shall, at its own
expense, maintain such staff and employ or retain such
personnel as it shall from time to time determine to be
necessary or useful to the performance of its obligations
under this Agreement. Without limiting the generality of
the foregoing, such staff and personnel may include officers
of Founders and persons employed or otherwise retained by
Founders to provide or assist in providing services to the
Fund other than those Services to be provided pursuant to
this Agreement.
4. FACILITIES. Founders shall, at its own expense,
provide such office space, facilities, equipment, and other
property or resources as shall be necessary to provide the
Services to the Fund.
5. FUND INFORMATION. The Fund will, from time to
time, furnish or otherwise make available to Founders such
information relating to the business and affairs of the Fund
as Founders may reasonably require in order to discharge its
duties and obligations hereunder.
6. FEES. The Fund shall pay to Founders a prorated
monthly fee equal on an annual basis to $26.00 for each
shareholder account of the Fund considered to be an open
account at any time during the month. This fee shall
provide for the payment of the following:
a. The services rendered and facilities
furnished by Founders under this Agreement; and
b. The services rendered and facilities
furnished by IFTC and DST to the Fund pursuant to the
Collective Agreements.
In addition to the $26.00 per account fee, Founders,
IFTC, and DST will also be entitled to reimbursement from
the Fund for all reasonable out-of-pocket expenses incurred
by Founders, IFTC, and DST in connection with the
performance of Services under the Agreement and services
under the Collective Agreements.
Out-of-pocket expenses with respect to the Agreement
shall include, but are not limited to, expenditures for
postage, envelopes, banking fees, courier fees, overnight
mail fees, computer hardware and software licensing fees,
voice response unit fees, checks, continuous forms, reports
and statements, telephone line charges, telegraph,
stationery, supplies, costs of outside mailing firms, record
storage costs and media for storage of records (e.g.,
microfilm and computer tapes). Out-of-pocket expenses
incurred by Founders, IFTC, and/or DST in connection with
the performance of services under the Collective Agreements
shall include those out-of-pocket expenses to which each
Collective Agreement makes reference.
Any other expenses incurred by Founders at the request
or with the consent of the Fund will be reimbursed promptly
by the Fund.
As provided herein, Founders will use a portion of the
$26.00 account fee to pay IFTC and DST for services which
are performed by each entity pursuant to the Collective
Agreements. Upon assumption by Founders in the future of
certain duties currently performed by IFTC and/or DST
pursuant to the terms of the Collective Agreements, Founders
will retain an amount equal to the amount previously paid to
IFTC and/or DST for performing such duties.
In the event any termination fee is appropriately
charged to Founders or to the Fund pursuant to Section 2.02
of the Service Agreement, the fee shall be paid by the Fund
unless circumstances would dictate payment of the fee by
Founders.
In the event any late charges or interest charges are
incurred pursuant to Section 2.03 of the TA Agreement, such
charges are the responsibility of Founders and the Fund will
reduce the amount of its next payment to Founders pursuant
to this Agreement by such amount.
The monthly fee described in this Section 6. and any
out-of-pocket reimbursements due to Founders pursuant to
this Section shall be payable to Founders on the first
business day of the calendar month next succeeding the month
in which the services are rendered, or as soon thereafter as
such reimbursements can be determined.
In instances in which third parties establish omnibus
accounts with one or more of the Series which represent
pooled accounts of Participants whose transfer agency,
recordkeeping, or similar services are being provided by the
third party or its agent and not by Founders and/or IFTC
and/or DST, the Series will reimburse Founders for an amount
which shall not be in excess of the $26.00 account fee for
each Participant account, which amount Founders will have
previously paid to the third party.
In instances in which commissions are earned by a
broker-dealer third-party from executing portfolio
transactions on behalf of a Series, Founders is authorized
to enter into arrangements pursuant to which the commissions
may be credited by the broker-dealer against the Third Party
Fee otherwise payable by that Series to the broker-dealer,
on a basis which will have been negotiated between the
broker-dealer and Founders.
Any fees paid by the Fund to Founders as reimbursement
for payment by Founders to a third party in consideration of
its providing Third Party Services shall be paid monthly at
the rate of 1/12th of an annual fee not to exceed $26.00 per
Participant account. Such payments shall be made for a
Participant account in the month that it opens or closes, as
well as in each month in which the Participant account
remains open, regardless of its account balance.
In the event that the aggregate of the monthly fees per
Participant may on occasion exceed the aggregate monthly
Third Party Fees due to the third party, the applicable
Series will accrue the excess through the applicable
calendar year-end, which excess will be available to
reimburse Founders if, during any remaining month in the
calendar year, the aggregate monthly Third Party Fees
applicable to that Series paid by Founders exceed the
aggregate monthly fees per Participant. Any accrual
remaining at year-end will be credited to the respective
Series' general ledger expense account.
7. ACCESS TO FOUNDERS' RECORDS. Founders will permit
representatives of the Fund, including the Fund's
independent auditors, to have reasonable access to the
personnel and records of Founders in order to enable such
representatives to monitor the quality of services being
provided and the level of fees and reimbursements due
Founders pursuant to this Agreement. In addition, Founders
shall promptly deliver to the Board of Directors of the Fund
such information as may reasonably be requested from time to
time to permit the Board of Directors to make an informed
determination regarding the rendering of the Services, the
continuation of this Agreement, and the payments
contemplated to be made hereunder.
8. LIABILITY AND INDEMNIFICATION. So long as
Founders shall use reasonable care, due diligence, and act
in good faith in performing its duties under this Agreement,
Founders shall not be responsible for, and the Fund shall
indemnify and hold Founders harmless from and against, any
and all losses, liabilities, claims, demands, suits, costs,
and expenses (including reasonable attorneys' fees) which
may be asserted against Founders or for which Founders may
be held to be liable, which arise out of, or are
attributable to, Founders' discharge of its responsibilities
and obligations imposed by this Agreement.
The Fund shall not be responsible for, and Founders
shall indemnify and hold the Fund harmless from and against,
any and all losses, liabilities, claims, demands, suits,
costs, and expenses (including reasonable attorneys' fees)
which may be asserted against the Fund or for which the Fund
may be held to be liable, which arise out of, or are
attributable to, any negligence, willful misconduct, or lack
of due care of Founders in discharging the responsibilities
and obligations imposed upon Founders by this Agreement.
Founders and the Fund agree that each shall promptly
notify the other in writing of any situation which
represents or appears to involve a claim which may be the
subject of indemnification hereunder, although the failure
to provide such notification shall not relieve the
indemnifying party of its liability pursuant to this Section
8. The indemnifying party shall have the option to defend
against any such claim. In the event the indemnifying party
so elects, it will notify the indemnified party and shall
assume the defense of such claim, and the indemnified party
shall cooperate fully with the indemnifying party, at the
indemnifying party's expense, in the defense of such claim.
Notwithstanding the foregoing, the indemnified party shall
be entitled to participate in the defense of such claim at
its own expense through counsel of its own choosing. The
indemnified party shall not enter into any settlement of
such matter without the written consent of the indemnifying
party, which consent shall not unreasonably be withheld.
The indemnifying party shall not be obligated to indemnify
the indemnified party for any settlement entered into
without the written consent of the indemnifying party. If
the consent of the indemnified party is required to
effectuate any settlement and the indemnified party refuses
to consent to any settlement negotiated by the indemnifying
party, the liability of the indemnifying party for losses
arising out of or due to such matter shall be limited to the
amount of the rejected proposed settlement.
The obligations of Founders and the Fund pursuant to
this Section 8 shall survive the termination of this
Agreement.
9. EFFECT OF AGREEMENT. Nothing herein contained shall be
deemed to require the Fund to take any action contrary to
its Articles of Incorporation or its By-Laws or any
applicable law, regulation or order to which it is subject
or by which it is bound, or to relieve or deprive the
directors of the Fund and the Fund of their overall
responsibility for and control of the conduct of the
business and affairs of the Fund.
10. TERM AND TERMINATION. This Agreement shall remain in
effect until no later than May 31, 1998, and shall remain in
effect from year to year thereafter provided such
continuance is approved at least annually by the vote of a
majority of the directors of the Fund who are not parties to
this Agreement or "interested persons" (as defined in the
Act) of any such party, which vote must be cast in person at
a meeting called for the purpose of voting on such approval;
provided, however, that (a) the Fund may, at any time and
without the payment of any penalty, terminate this Agreement
upon 90 days' written notice to Founders; (b) the Agreement
shall immediately terminate in the event of its assignment
(within the meaning of the Act and the Rule thereunder)
unless the Board of Directors of the Fund approves such
assignment; and (c) Founders may terminate this Agreement
without payment of penalty on 180 days' written notice to
the Fund. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the
other party at the principal office of such party.
11. APPLICATION OF LAW. This Agreement shall be
construed in accordance with the laws of the State of
Colorado and the applicable provisions of the Act. To the
extent the applicable law of the State of Colorado or any of
the provisions herein conflict with the applicable provision
of the Act and other applicable laws, the latter shall
control.
IN WITNESS WHEREOF, the parties have executed and
delivered this Agreement on the day and year first above
written.
FOUNDERS FUNDS, INC.
By:__________________________
_______________, President
FOUNDERS ASSET MANAGEMENT LLC
By:__________________________
_______________, President
EXHIBIT A
To
SHAREHOLDER SERVICES AGREEMENT
Between
FOUNDERS FUNDS, INC. and
FOUNDERS ASSET MANAGEMENT LLC
The following Services will be provided by Founders to the
Fund:
1. TELEPHONE SERVICES
Founders' personnel will receive and process all
telephone requests received by Founders to: purchase,
redeem or exchange shares; open an account, add or
delete services for an account, explain Fund or market
conditions and/or performance, perform research into
account problems and correct such problems, and other
matters related to account servicing; change an account
address or distribution option; correct a registration
or account error; or send an additional account
statement. Founders will also make available to
shareholders a Voice Response Unit to provide routine
account and Fund information.
2. TRANSFER AGENCY SERVICES
Founders' personnel will discharge the following
duties:
Pick up all incoming mail and scan documents into the
DST image system (the DST image system is that system
used by IFTC in performing transfer agent services on
behalf of the Fund).
Open new accounts, purchase shares, and establish
services requested by new shareholders. Contact
shareholders in writing or via the phone if incomplete
or inaccurate information is contained in the
application.
Make subsequent purchases on behalf of shareholders and
401(k) plans. Deliver checks to bank, monitor bank
account(s), wire funds to appropriate custodial
account.
Receive returned (bounced) checks, cancel purchases,
and contact shareholders regarding any potential
losses.
Research all mail returned to Founders by the Post
Office and forward such mail if possible.
Retrieve information from microfilm, microfiche, paper
files, and/or the DST image system needed to respond to
inquiries and/or to resolve research.
Store previously scanned items as required by the SEC
and NASD.
Other routine partial transfer agency functions needed
to complete the duties typically expected of a transfer
agent performing the services outlined in this item 2.
3. RETIREMENT SERVICES
a. RETIREMENT PLAN TRANSFERS. Founders' personnel
will ensure that retirement plan transfers are
accomplished on a timely basis. Applications to
request transfers will be reviewed to ensure that the
application is in proper order before it is sent to the
shareholders' custodian. A Founders representative
will contact the shareholder with a personal note once
the transfer arrives at Founders. Founders will
maintain an updated list of the transfer requirements
imposed by transfer agents. A Founders representative
will contact the appropriate custodian to ensure that
the custodian has received the transfer application and
that the transfer occurs on a timely basis.
b. PROTOTYPE RETIREMENT PLANS. Founders' personnel
will provide the following services on prototype non-
TRAC2000 retirement plans (TRAC2000 retirement plans
are serviced on behalf of the Fund by a third party,
pursuant to separate contract):
(1) Review previous Adoption Agreements (if
applicable) and assist investors in completing the
Founders Adoption Agreement.
(2) Review the Founders Adoption Agreement to
ensure compliance with ERISA and IRS regulations.
(3) Complete the Summary Plan Description for the
Founders Adoption Agreement.
(4) Ensure that employers have all the necessary
forms to administer their plans.
(5) Review employee enrollment forms.
(6) Create documentation which consolidates the
information from the enrollment forms and forward
such documentation to the employer.
(7) Create and maintain documentation reflecting
contributions, loans, terminations and other types
of plan transactions.
(8) Handle all money movements including
purchases, exchanges, redemptions (due to
terminations or hardship withdrawals, or loans),
and similar functions.
c. REVIEW OF RETIREMENT ACCOUNTS. Founders'
personnel will periodically review retirement account
information and advise investors before reaching age 70-
1/2 that a distribution may be required.
4. QUALITY CONTROL
Founders' personnel will periodically conduct a quality
control audit on telephone purchase, redemption and
exchange requests, account changes and applications
received by Founders. Founders will provide quality
control with respect to other aspects of the transfer
agent's operations, such as the transfer agent's
resolution of shareholder inquiries. Founders will
perform quality control on retirement plans.
5. TRAINING
Founders will periodically train personnel of IFTC on
Founders' products and services using its own training
materials and training workshops conducted at the
offices of IFTC by Founders' customer service
representatives. Founders will continually provide
training to its investor services representatives with
regard to processing exchanges and redemptions,
maintaining accounts, liquidating accounts,
transferring accounts, providing "B" notices, and
servicing mutual fund accounts.
6. CORRESPONDENCE
a. SHAREHOLDER INQUIRIES. Founders' personnel will
respond to shareholder inquiries received by Founders
and to the extent feasible will resolve such inquiries.
b. GERMAN SHAREHOLDERS. Founders' personnel will
provide specialized service to German shareholders as
may be necessary and appropriate.
c. DUE DILIGENCE. Founders will arrange for the
mailing of W-8 and W-9 forms to shareholders to ensure
that the Fund is complying with IRS regulations.
d. REQUESTS FOR INFORMATION. Founders will respond
to requests it receives from shareholders for
additional prospectuses and account statements.
7. MONITORING CUSTOMER ACCOUNTS
a. TELEPHONE PURCHASES. Founders' personnel will
contact shareholders who have purchased shares by phone
but have not paid for such shares within the allowable
settlement period.
b. CANCELLED CHECKS. Founders' personnel will
contact shareholders who have cancelled their checks.
c. DORMANT ACCOUNTS. Founders' personnel will assist
in locating shareholders with dormant accounts.
d. ANNUAL REVIEW. Annually, Founders will review
open and closed accounts and arrange for the purging of
certain of these accounts.
e. SHORT-TERM TRADERS. Founders will monitor
shareholder accounts to uncover abuses of the telephone
exchange privilege described in the prospectus.
8. LARGE MONEY MANAGERS
Founders will assign a contact person to communicate
with large money managers and to ensure that their
transactions are timely and properly conducted and
their accounts are set up correctly and continually
updated.
9. USE OF IFTC'S SYSTEM AND FACILITIES
Founders hereby accepts responsibility for compliance
with the requirements of Section 6.06 of the TA
Agreement.
10. OTHER SERVICES
Founders will provide all other customary and
reasonable transfer agent and prototype non-TRAC2000
retirement plan services which are not being provided
to the Fund pursuant to the provisions of this
Agreement, the Collective Agreements, or other
agreements to which the Fund is a party.
