AGREEMENT AND PLAN OF
REORGANIZATION AND LIQUIDATION
This AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION is entered into
this ___ day of ______________________, 1997 by and between Principal Variable
Contract Fund, Inc., a Maryland Corporation (the "Surviving Corporation") and
Principal Aggressive Growth Fund, Inc., Principal Asset Allocation Fund, Inc.,
Principal Balanced Fund, Inc., Principal Bond Fund, Inc., Principal Capital
Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc., Principal
Government Securities Fund, Inc., Principal Growth Fund, Inc., Principal High
Yield Fund, Inc., Principal Money Market Fund, Inc., and Principal World Fund,
Inc. (individually, a Liquidating Corporation; together the "Liquidating
Corporations").
WHEREAS, The Liquidating Corporations are open-end management investment
companies registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, The Liquidating Corporations have authorized capital stock
consisting of the following shares of common stock, par value $.01 per share:
Principal Aggressive Growth Fund, Inc.......................100 Million
Principal Asset Allocation Fund, Inc........................100 Million
Principal Balanced Fund, Inc................................100 Million
Principal Bond Fund, Inc....................................100 Million
Principal Capital Accumulation Fund, Inc....................100 Million
Principal Emerging Growth Fund, Inc.........................100 Million
Principal Government Securities Fund, Inc...................100 Million
Principal Growth Fund, Inc..................................100 Million
Principal High Yield Fund, Inc..............................100 Million
Principal Money Market Fund, Inc............................500 Million
Principal World Fund, Inc...................................100 Million
WHEREAS, the Surviving Corporation was organized as a Maryland Corporation
pursuant to Articles of Incorporation and is presently authorized to issue 1.5
billion shares, par value $0.01 per share, of a single class divisible into an
indefinite number of different series and will be operated as a "series company"
as provided by Rule 18f-2 under the 1940 Act;
WHEREAS, Liquidating Corporations desire to reorganize into separate series
of a single corporation through a reorganization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, each Liquidating Corporation desires generally to accomplish this
change by transferring all of its assets to the series of Surviving Corporation
corresponding to it in consideration for the assumption by the Surviving
Corporation of all of each Liquidating Corporation's liabilities and the
issuance to each Liquidating Corporation of shares of the series of Surviving
Corporation corresponding to it, which shares each Liquidating Corporation will
thereupon distribute pro rata to its shareholders in complete liquidation, all
in accordance with the procedures and subject to the terms and conditions of
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
1. Plan of Reorganization and Liquidation.
(a) At the Closing each Liquidating Corporation will convey, transfer
and deliver to the Surviving Corporation all of its then existing
assets. In consideration thereof, the Surviving Corporation will
at the Closing (i) assume all of each Liquidating Corporation's
obligations and liabilities then existing, whether absolute,
accrued, contingent or otherwise, including without limitation,
all fees and expenses in connection with the transactions
contemplated hereby, and (ii) deliver to each Liquidating
Corporation a number of full and fractional shares of the
appropriate series of Surviving Corporation equal to the number of
each Liquidating Corporation's full and fractional shares then
outstanding.
(b) Upon consummation of the transactions described in paragraph (a)
of this Section 1, each Liquidating Corporation will liquidate and
the shares of the Surviving Corporation received by each
Liquidating Corporation will be distributed to its shareholders of
record as of the Closing Date, each shareholder to receive a
number of shares equal to the number of share then held by such
shareholder. Such liquidation and distribution will be accompanied
by the establishment of an open account on the share records of
the Surviving Corporation in the name of each shareholder of each
Liquidating Corporation and representing the respective pro rata
number of shares of the Surviving Corporation due such
shareholder.
(c) As soon as practicable after the Closing Date, each Liquidating
Corporation will take, in accordance with the Maryland General
Corporation Law, all steps as shall be necessary and proper to
effect a complete dissolution.
(d) Prior to the Closing and after each Liquidating Corporation has
taken the actions authorized pursuant to Section 3(e) hereof, the
shares of the Surviving Corporation heretofore held by each
Liquidating Corporation will be redeemed and canceled by the
Surviving Corporation.
2. Closing and Closing Date. The Closing will occur at 11:59 p.m. on
December 31, 1997, or at such other time and date as the parties may
mutually agree (the "Closing Date").
3. Conditions Precedent. The obligations of each Liquidating Corporation
and the Surviving Corporation to effectuate the Plan of Reorganization
and Liquidation shall be subject to the satisfaction of each of the
following conditions:
(a) Such authority and orders from the Securities and Exchange
Commission (the "Commission") and state securities commissions as
may be necessary to permit the parties to carry out the
transactions contemplated by this Agreement shall have been
received.
(b) One or more post-effective amendments to the Registration
Statement of Principal Capital Accumulation Fund, Inc. on Form
N-1A under the Securities Act of 1933 and the 1940 Act containing
(i) such amendments to such Registration Statement as are
determined by the Board of Directors of the Surviving Corporation
to be necessary and appropriate as a result of the Plan of
Reorganization and Liquidation and (ii) the adoption by the
Surviving Corporation as its own of such Registration Statement,
as so amended, shall have been filed with the Commission and such
post-effective amendment or amendments to the Registration
Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall
have been issued, and no proceeding for that purpose shall have
been initiated or threatened by the Commission (and not withdrawn
or terminated).
(c) Each party shall have received an opinion of counsel in form and
substance satisfactory to it, relating to its authority to engage
in the transactions contemplated hereby and to the effect that
(i) this Agreement has been duly authorized, executed and
delivered by each Liquidating Corporation and the Surviving
Corporation and constitutes a legal, valid and binding agreement
of each such party in accordance with its terms; (ii) the shares
of the Surviving Corporation to be issued pursuant to the terms
of this Agreement, will be validly issued, fully paid and
non-assessable; and (iii) the Surviving Corporation is duly
organized and validly existing under the laws of the State of
Maryland.
(d) Each party shall have received an opinion of counsel to the
effect that the reorganization contemplated by this Agreement
qualifies as a "reorganization" under Section 368(a)(1)(F) of the
Code.
(e) A vote approving this Agreement and the reorganization
contemplated hereby shall have been adopted by at least a
majority of the outstanding shares of common stock of each
Liquidating Corporation entitled to vote at an annual or special
meeting and the shareholders of each Liquidating Corporation
shall have voted at such meeting to authorize each Liquidating
Corporation to vote, and each Liquidating Corporation shall have
voted, as the sole shareholder of its corresponding series of the
Surviving Corporation, to:
(1) elect the Directors of each Liquidating Corporation as
Directors of the Surviving Corporation;
(2) approve (i) a management agreement between the Surviving
Corporation and Princor Management, Inc. (the "Manager"),
(ii) an Investment Service Agreement between and among the
Manager, Principal Mutual Life Insurance Company ("Principal
Mutual") and the Surviving Corporation (the "Service
Agreement"), (iii) with respect to the Surviving
Corporation's Balanced, Capital Value, Government, Growth,
International and MidCap series, a Sub-Advisory Agreement
between and among the Manager, Invista Capital Management,
Inc. and the Surviving Corporation, and (iv) with respect to
the Surviving Corporation's Aggressive Growth and Asset
Allocation series, a Sub-Advisory Agreement between and
among the Manager, Xxxxxx Xxxxxxx Asset Management, Inc. and
the Surviving Corporation (together, the "Advisory
Agreements"); and
(3) ratify the selection of Ernst & Young as the Surviving
Corporation's independent public accountants for the fiscal
year ending December 31, 1997.
(f) The Directors of the Surviving Corporation (and, to the extent
required by law, the Directors of the Surviving Corporation who
are not "interested persons" of the Surviving Corporation as
defined in the 0000 Xxx) shall have taken the following actions
at a meeting duly called for such purposes:
(1) approval of the Advisory Agreements;
(2) selection of Ernst & Young as the Surviving Corporation's
independent public accountants for the fiscal year ending
December 31, 1997;
(3) authorization of the issuance by the Surviving Corporation,
prior to the Closing, of a share of the Surviving
Corporation to each Liquidating Corporation in consideration
of the payment of $1.00 per share for the purpose of
enabling each Liquidating Corporation to vote on the matters
referred to in paragraph (e) of this Section 3;
(4) submission of the matters referred to in paragraph (e) of
this Section 3 to each Liquidating Corporation as the sole
shareholder of its corresponding series of the Surviving
Corporation; and
(5) authorization of the issuance by the Surviving Corporation
of shares at the Closing in exchange for the assets of each
Liquidating Corporation pursuant to the terms and provisions
of this Agreement.
At any time prior to the Closing, any of the foregoing conditions may
be waived by the Board of Directors of each Liquidating Corporation on
behalf of such Liquidating Corporation and the Directors of the
Surviving Corporation on behalf of the Surviving Corporation if, in
their judgment, such waiver will not have a material adverse effect on
the interests of the shareholders of such Liquidating Corporation.
4. Amendment. This Agreement may be amended at any time by action of the
Board of Directors of any Liquidating Corporation and the Directors of
the Surviving Corporation, notwithstanding approval thereof by the
shareholders of any Liquidating Corporation, provided that no
amendment shall have a material adverse effect on the interests of the
shareholders of any Liquidating Corporation unless approved by such
shareholders.
5. Termination. The Board of Directors of any Liquidating Corporation and
the Board of Directors of the Surviving Corporation may terminate this
Agreement and abandon the reorganization contemplated hereby,
notwithstanding approval thereof by the shareholders of any
Liquidating Corporation, at any time prior to the Closing, if
circumstances should develop that, in their judgment, make proceeding
with the plan inadvisable.
6. Governing Law. This Agreement shall be construed in accordance with
applicable federal law and the laws of the State of Maryland.
7. Further Assistance. The Liquidating Corporations and the Surviving
Corporation shall take further action as may be necessary or desirable
and proper to consummate the transactions contemplated hereby.
8. Entire Agreement. This Agreement embodies the entire agreement between
the parties and there are no agreements, understandings, restrictions
or warranties among the parties other than those set forth or provided
for herein.
9. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first above written.
Principal Aggressive Growth Fund, Inc.
Principal Asset Allocation Fund, Inc.
Principal Balanced Fund, Inc.
Principal Bond Fund, Inc.
Principal Capital Accumulation Fund, Inc.
Principal Emerging Growth Fund, Inc.
Principal Government Securities Fund, Inc.
Principal Growth Fund, Inc.
Principal High Yield Fund, Inc.
Principal Money Market Fund, Inc.
Principal World Fund, Inc.
As to each of the foregoing:
By:_________________________________
Title:_______________________________
Principal Variable Contracts Fund, Inc.
By:_________________________________
Title:________________________________
