FOUNDERS FUNDS INC, 497, 1996-05-08

FOUNDERS FUNDS INC
497, 1996-05-08

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P R O S P E C T U S

MAY 1, 1996

Discovery Fund
Frontier Fund
Passport Fund
Special Fund
International Equity Fund
Worldwide Growth Fund
Growth Fund
Blue Chip Fund
Balanced Fund
Government Securities Fund
Money Market Fund

[Logo]
FOUNDERS FUNDS

<PAGE>

[LOGO] FOUNDERS FUNDS

PROSPECTUS
MAY 1, 1996

Founders Funds offer investors many advantages, including:

O No commissions
O No deferred sales charges
O No-fee exchanges among the funds
O Automatic investment and withdrawal plans
O 24-hour account information
O No-fee IRAs and other retirement-oriented investment accounts

Founders Discovery, Frontier, Passport and Special Funds offer capital
appreciation as their investment objective. International Equity, Worldwide
Growth and Growth Funds seek long-term growth of capital as their objective.
Blue Chip Fund offers the opportunity for long-term growth of capital and
income, while Balanced Fund seeks current income and capital appreciation as its
objective. Government Securities Fund has the investment objective of current
income. All of these Funds reimburse Founders Asset Management, Inc.
("Founders") for distribution expenses pursuant to a Rule 12b-1 distribution
plan. Founders Money Market Fund seeks maximum current income consistent with
the preservation of capital and liquidity as its objective. THERE CAN BE NO
ASSURANCE THAT MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT.

This prospectus briefly tells you information you need to know before
investing. You should read it carefully and keep it for future reference

A STATEMENT OF ADDITIONAL INFORMATION dated May 1, 1996, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. You can obtain a copy without charge by calling Founders at
1-800-525-2440.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. SHARES OF
THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.

<PAGE>

PROSPECTUS
MAY 1, 1996

FOUNDERS FUNDS, INC. IS A FAMILY OF NO-LOAD MUTUAL FUNDS THAT OFFERS YOU A
VARIETY OF INVESTMENT OPPORTUNITIES. THE DESCRIPTIONS BELOW ARE DESIGNED TO HELP
YOU CHOOSE THE FUND THAT BEST FITS YOUR INVESTMENT OBJECTIVE. CERTAIN OF THE
FUNDS PAY DISTRIBUTION EXPENSES PURSUANT TO THEIR DISTRIBUTION PLANS.

DISCOVERY FUND
OBJECTIVE: CAPITAL APPRECIATION

Discovery Fund invests primarily in common stocks of small, rapidly growing
U.S. companies.

FRONTIER FUND
OBJECTIVE: CAPITAL APPRECIATION

Frontier Fund invests primarily in common stocks of small and medium-size
U.S. and foreign companies.

PASSPORT FUND
OBJECTIVE: CAPITAL APPRECIATION

Passport Fund invests primarily in common stocks of small, rapidly growing
companies outside of the U.S. These securities may represent companies in
established and emerging economies throughout the world.

SPECIAL FUND
OBJECTIVE: CAPITAL APPRECIATION

Special Fund invests primarily in common stocks of medium-size U.S.
companies.

INTERNATIONAL EQUITY FUND
OBJECTIVE: LONG-TERM GROWTH OF CAPITAL

International Equity Fund invests primarily in growth stocks of companies
in both emerging and established economies throughout the world, excluding the
United States.

<PAGE>

WORLDWIDE GROWTH FUND
OBJECTIVE: LONG-TERM GROWTH OF CAPITAL

Worldwide Growth Fund invests primarily in growth stocks of companies in
both emerging and established economies throughout the world.

GROWTH FUND
OBJECTIVE: LONG-TERM GROWTH OF CAPITAL

Growth Fund invests primarily in common stocks of well-established, high-
quality growth companies.

BLUE CHIP FUND
OBJECTIVE: LONG-TERM GROWTH OF CAPITAL AND INCOME

Blue Chip Fund invests primarily in common stocks of large,
well-established, stable and mature companies of great financial strength.

BALANCED FUND
OBJECTIVE: CURRENT INCOME AND CAPITAL APPRECIATION

Balanced Fund invests in a balanced portfolio of dividend-paying common
stocks, U.S. and foreign government obligations and a variety of corporate
fixed- income securities.
Government

SECURITIES FUND
OBJECTIVE: CURRENT INCOME

Government Securities Fund invests primarily in obligations of the U.S.
government.

MONEY MARKET FUND
OBJECTIVE: MAXIMUM CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL
AND LIQUIDITY

Money Market Fund invests in high-quality money market instruments. THERE
CAN BE NO ASSURANCE MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT.

<PAGE>

TABLE OF CONTENTS

Annual Fund Expense Information...................................... 6

Financial Highlights................................................. 8

Investment Objectives of the Funds................................... 18

Investment Management of the Funds................................... 24

Risks of Investment Policies Involving
Special Considerations.......................................... 27

Risks of Investments in Small and
Medium-Size Companies........................................ 27

Risks of Investments in Fixed-Income
Securities.................................................... 27

Risks of Investments in
Foreign Securities............................................ 29

Risks Involved in Foreign Currency
Transactions.................................................. 31

Other Investment Policies............................................ 33

Investing in the Founders Funds...................................... 39

Opening Your Account With Founders...............................39

Adding to Your Founders Funds Account........................... 41

Selling Shares From Your Founders
Funds......................................................... 43

Exchanging Shares of Your Founders
Funds......................................................... 45

Overall Policies Regarding Transactions......................... 46

Shareholder Services................................................. 49

Investor Services............................................... 49

24-Hour Account Information .................................... 49

Statements and Reports ......................................... 49

Establishing Additional Services................................ 50

General Information ................................................. 51

Share Price Determination....................................... 51

Dividends and Distributions..................................... 51

Dividend and Capital Gain
Distribution Options.......................................... 52

Taxes........................................................... 53

Founders Funds, Inc. and Its
Management.................................................... 53

Distribution Plans.............................................. 55

Voting Rights................................................... 56

Transfer Agent and Custodian.................................... 57

Fund Performance Information.................................... 57

<PAGE>

HOW TO CONTACT US

INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, FUND ACCOUNTANT AND SHAREHOLDER
SERVICE AGENT
Founders Asset Management, Inc.
Founders Financial Center
2930 East Third Avenue
Denver, CO 80206
(303) 394-4404
Fax: (303) 394-4021

MAILING ADDRESS FOR SHAREHOLDER INVESTMENTS AND CORRESPONDENCE
P.O. Box 173655
Denver, CO 80217-3655

DELIVERY ADDRESS FOR CERTIFIED, REGISTERED AND OVERNIGHT MAIL
2930 East Third Avenue
Denver, CO 80206-5002

TOLL-FREE INVESTOR SERVICE NUMBER
1-800-525-2440 Monday through Friday, 7AM to 6:30PM, Mountain time Saturday, 9AM
to 2PM, Mountain time

TOLL-FREE SERVICE FOR EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-934-GOLD (4653) Monday through Friday, 8AM to 5PM, Mountain time

TOLL-FREE SERVICE FOR DEALER, BROKER AND ADVISER TRADES
1-800-DEALER-3 (1-800-332-5373) Monday through Friday, 8AM to 5PM, Mountain time

CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO
64105-1716
(816) 435-1000
Please do not mail transactions requiring processing to this address.

<PAGE>

ANNUAL FUND EXPENSE INFORMATION
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES

Inter- World- Govern-
national wide Blue ment Money
Discovery Frontier Passport Special Equity Growth Growth Chip Balanced Securities Market
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Maximum Sales Load NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE
Imposed on Purchases

Maximum Sales Load NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE
Imposed on
Reinvested Dividends

Deferred Sales Load NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE

Redemption Fee NONE* NONE* NONE* NONE* NONE* NONE* NONE* NONE* NONE* NONE* NONE

Exchange Fee NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE NONE

<FN>
* A fee of $6.00 will be assessed for wire redemptions.
</TABLE>

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)

Management Fees.....1.00% .97% 1.00% .76% 1.00% 1.00% .74% .64% .65% .65% .50%

12b-1 Fees*..........25% .25% .25% .25% .25% .25% .25% .25% .25% .10% ----

Other Expenses**.....38% .35% .59% .34% .75%+ .40% .29% .33% .33% 55% .39%

Total Fund Operating

Expenses............1.63% 1.57% 1.84% 1.35% 2.00%+ 1.65% 1.28% 1.22% 1.23% 1.30% .89%
<FN>

* Long-term shareholders of a 12b-1 Fund may over time pay more in 12b-1
fees than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc., which
currently range from 6.25% to 8.5% of the amount invested. The 12b-1 Funds
may engage in directed-brokerage arrangements which will have no adverse
effect either on the level of brokerage commissions paid by the Funds or
on any Fund's expenses. See the section entitled "Distribution Plans."

** Includes, but is not limited to, fees and expenses of directors, custodian
bank, legal counsel and auditors, securities pricing services, transfer
agency fees, costs of services furnished by Founders under a shareholder
servicing agreement and a fund accounting agreement, costs of registration
of Fund shares under applicable laws, and costs of printing and
distributing reports to shareholders.

+ Other expenses are estimated, since the Fund did not commence the public
offering of its shares until December 29, 1995.

</TABLE>

<PAGE>

EXAMPLE:

You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return and no redemption:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Discovery Fund $ 16.71 $ 51.81 $ 89.29 $ 94.46
Frontier Fund 16.09 49.93 86.11 187.84
Passport Fund 18.86 58.36 100.36 217.35
Special Fund 13.84 43.03 74.38 163.21
International Equity Fund* 20.50 63.33 108.73 234.47
Worldwide Growth Fund 16.91 52.43 90.35 196.66
Growth Fund 13.12 40.83 70.62 155.26
Blue Chip Fund 12.51 38.94 67.39 148.40
Balanced Fund 12.61 39.25 67.93 149.55
Government Securities Fund 13.33 41.46 71.69 157.54
Money Market Fund 9.12 28.50 49.50 109.97

* Based on expenses of 2.00%. Expenses are estimated, since the Fund did not
commence the public offering of its shares until December 29, 1995.

The purpose of this example is to help you understand the various direct and
indirect costs and expenses of investing in shares of Founders Funds, Inc. an
annual fee of $10 may be deducted from accounts with a share value less than
$1,000. The figures are based on fiscal year-end 1995. A more complete
description of each fund's costs and expenses is provided in sections titled
"Founders Funds, Inc. and Its Management," "Distribution Plans," and "Selling
Shares From Your Founders Funds."

Since the assumed 5% annual return is hypothetical, the examples at left should
not be considered a representation of past or future expenses or returns. Actual
fund expenses and returns may vary from year to year and may be higher or lower
than those shown above. Lower expenses benefit Fund shareholders by increasing a
Fund's total return.

<PAGE>
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

The following financial information has been audited by Smith, Brock & Gwinn,
the Funds' independent accountants, whose report thereon is included with the
Funds' 1995 Annual Report to Shareholders. This information should be read in
conjunction with the audited financial statements and the related Independent
Auditor's Report appearing in the Funds' 1995 Annual Report to Shareholders.
Further information about the performance of the Funds will be contained in the
Company's annual report to shareholders. The Funds' 1995 annual report and
subsequent years' annual reports may be obtained without charge by writing
Founders Financial Center, 2930 East Third Avenue, Denver, Colorado 80206 or by
calling 1-800-525-2440. Copies of the 1995 annual report of the Funds are now
available. Copies of the 1996 annual report of the Funds will be available on or
about March 1, 1997.

<TABLE>
<CAPTION>
DISCOVERY FUND*

Years Ended December 31
---------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990

PER SHARE DATA
Net Asset Value --
Beginning of Period $ 19.88 $21.55 $19.93 $17.52 $11.22 $10.00

---------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (0.12) (0.12) (0.15) (0.03) (0.04) 0.10
Net Gains or Losses on
Securities (Both Realized
and Unrealized) 6.29 (1.55) 2.29 2.68 7.02 1.22
------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 6.17 (1.67) 2.14 2.65 6.98 1.32

------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (From Net
Investment Income) 0.00 0.00 0.00 0.00 0.00 (0.10)
Distributions (From
Capital Gains) (4.35) 0.00 (0.52) (0.24) (0.68) 0.00
------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (4.35) 0.00 (0.52) (0.24) (0.68) (0.10)
------------------------------------------------------------------------------------
Net Asset Value --
End of Period $21.70 $19.88 $21.55 $19.93 $17.52 $11.22
====================================================================================

TOTAL RETURN 31.3% 7.8%) 10.8% 15.2% 62.5% 13.2%

RATIOS/SUPPLEMENTAL DATA

Net Assets--End of Period
(000 Omitted) $216,623 $185,310 $226,069 $151,983 $47,678 $7,035

Ratio of Expenses to Average
Net Assets 1.63%++ 1.67% 1.65% 1.85% 1.77% 2.03%

Ratio of Net Income to Average
Net Assets (0.60%) (0.62%) (0.97%) (0.67%) (0.55%) 1.68%

Portfolio Turnover Rate 118% 72% 99% 111% 165% 271%

Average Commission Rate Paid $0.0575 -- -- -- -- --

<FN>
* No activity in inception year of 1989

++ Ratio reflects total expenses, including fees paid indirectly with brokerage
commissions and fees offset by earnings credits. Excluding indirectly paid
expenses for the year ended December 31, 1995, the expense ratio was 1.58%.

</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>

FRONTIER FUND

Years Ended December 31 Period of
---------------------------------------------------------------------------------------------------------

1995 1994 1993 1992 1991 1990 1989 1988 1/22/87-
12/31/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE DATA
Net Asset Value --
Beginning of Period $26.50 $27.94 $25.03 $24.21 $16.87 $18.49 $13.45 $11.03 $10.00
---------------------------------------------------------------------------------------------------------

INCOME FROM INVESTMENT
OPERATIONS

Net Investment Income (0.02) (0.07) (0.12) (0.11) 0.01 0.15 0.12 (0.06) (0.09)

Net Gains or Losses
on Securities (Both
Realized and 9.76 (0.72) 4.23 2.24 8.27 (1.53) 5.81 3.26 1.70
Unrealized)
---------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 9.74 (0.79) 4.11 2.13 8.28 (1.38) 5.93 3.20 1.61
---------------------------------------------------------------------------------------------------------

LESS DISTRIBUTIONS
Dividends (From Net
Investment Income 0.00 0.00 0.00 0.00 (0.01) (0.16) (0.05) 0.00 0.00

Distributions (From
Capital Gains) (5.16) (0.65) (1.20) (1.31) (0.93) (0.08) (0.84) (0.78) (0.58)
---------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (5.16) (0.65) (1.20) (1.31) (0.94) (0.24) (0.89) (0.78) (0.58)
---------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $31.08 $26.50 $27.94 $25.03 $24.21 $16.87 $18.49 $13.45 $11.03
=========================================================================================================

TOTAL RETURN 37.0% (2.8%) 16.5% 8.9% 49.3% (7.5%) 44.3% 29.2% 16.1%

RATIOS/SUPPLEMENTAL DATA
Net Assets--
End of Period
(000 Omitted) $331,720 $247,113 $254,248 $146,484 $103,209 $39,269 $50,318 $8,771 $3,318

Ratio of Expenses to
Average Net Assets 1.57%++ 1.62% 1.66% 1.83% 1.68% 1.71% 1.46% 1.89% 2.25%+

Ratio of Net Income
to Average
Net Assets (0.07%) (0.25%) (0.75%) (0.58%) 0.05% 0.78% 0.38% (0.43%) (0.74%)+

Portfolio Turnove
Rate 92% 72% 109% 155% 158% 207% 198% 312% 588%

Average Commission
Rate Paid $0.0638 -- -- -- -- -- -- -- ---

<FN>
+ Annualized

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

PASSPORT FUND

Years Ended December 31 Period of
-----------------------------------

1995 1994 11/16/93-
12/31/93
PER SHARE DATA
Net Asset Value --
Beginning of Period $9.42 $10.53 $10.00
----------------------------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.02 0.00

Net Gains or Losses on
Securities (Both Realized
and Unrealized) 2.26 (1.11) 0.53
----------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 2.30 (1.09) 0.53
----------------------------------

LESS DISTRIBUTIONS
Dividends (From Net
Investment Income) (0.04) (0.02) 0.00

Distributions (From
Capital Gains) 0.00 0.00 0.00
----------------------------------
TOTAL DISTRIBUTIONS (0.04) (0.02) 0.00
----------------------------------
Net Asset Value --
End of Period $11.68 $9.42 $10.53
==================================

TOTAL RETURN 24.4% (10.4%) 5.3%

RATIOS/SUPPLEMENTAL DATA
Net Assets--End of Period
(000 Omitted) $49,922 $16,443 $18,567

Ratio of Expenses to Average
Net Assets 1.84%++ 1.88% 1.70%+

Ratio of Net Income to
Average Net Assets 0.60% 0.12% 0.18%+

Portfolio Turnover Rate 37% 78% 6.0%

Average Commission Rate Paid $0.0199 -- --

+ Annualized

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
SPECIAL FUND

Years Ended December 31
-----------------------------------------------------------------------------------------------------------------

1995 1994 1993 1992 1991 1990 1989 1988 1987* 1986*

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $7.01 $7.67 $7.76 $7.59 $5.03 $6.64 $5.47 $5.14 $5.60 $5.34
-----------------------------------------------------------------------------------------------------------------

INCOME FROM
INVESTMENT
OPERATIONS
Net Investment 0.00 (0.02) (0.01) (0.01) 0.08 0.09 0.16 0.03 0.04 0.04
Income

Net Gains or Losses
on Securities (Both
Realized and
Unrealized) 1.79 (0.36) 1.25 0.64 3.09 (0.79) 1.97 0.65 0.25 0.97
-----------------------------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 1.79 (0.38) 1.24 0.63 3.17 (0.70) 2.13 0.68 0.29 1.01
-----------------------------------------------------------------------------------------------------------------
LESS
DISTRIBUTIONS
Dividends (From Net
Investment Income) 0.00 0.00 0.00 0.00 (0.04) (0.10) (0.15) (0.04) (0.03) (0.06)

Distributions (From
Capital Gains) (1.75) (0.28) (1.33) (0.46) (0.57) (0.81) (0.81) (0.31) (0.72) (0.69)
-----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.75) (0.28) (1.33) (0.46) (0.61) (0.91) (0.96) (0.35) (0.75) (0.75)
-----------------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $7.05 $7.01 $7.67 $7.76 $7.59 $5.03 $6.64 $5.47 $5.14 $5.60
=================================================================================================================

TOTAL RETURN 25.7% (4.9%) 16.0% 8.3% 63.7% (10.4%) 39.2% 13.2% 5.2% 18.9%

RATIOS/SUPPLE-
MENTAL DATA
Net Assets--End of $388,754 $299,190 $432,710 $456,793 $226,154 $57,951 $94,554 $62,990 $66,797 $70,210
Period (000 Omitted)

Ratio of Expenses to
Average Net Assets 1.35%++ 1.36% 1.33% 1.23% 1.15% 1.20% 1.06% 1.12% 1.14% 1.06%

Ratio of Net Income
to Average Net (0.00%) (0.27%) (0.14%) (0.05%) 0.76% 1.54% 1.95% 0.59% 0.45% 0.73%
Assets

Portfolio Turnover
Rate 263% 272% 285% 223% 102% 146% 151% 160% 210% 138%

Average Commission $0.0648 -- -- -- -- -- -- -- -- --
Rate Paid
<FN>
* Restated to reflect 5-for-1 split on August 31, 1987

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>

WORLDWIDE GROWTH FUND*

Years Ended December 31
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $17.09 $17.94 $14.13 $13.92 $10.38 10.00
--------------------------------------------------------------------------------------

INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (0.09) (0.02) (0.02) 0.00 0.03 0.29

Net Gains or Losses on
Securities (Both Realized
and Unrealized) 3.43 (0.37) 4.24 0.21 3.58 0.38
--------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 3.52 (0.39) 4.22 0.21 3.61 0.67
--------------------------------------------------------------------------------------

LESS DISTRIBUTIONS
Dividends (From Net
Investment Income) (0.09) 0.00 0.00 0.00 (0.03) (0.29)

Distributions (From
Capital Gains) (0.65) (0.46) (0.41) 0.00 (0.04) 0.00
--------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.74) (0.46) (0.41) 0.00 (0.07) (0.29)
--------------------------------------------------------------------------------------
Net Asset Value --
End of Period $19.87 $17.09 $17.94 $14.13 $13.92 $10.38
======================================================================================

TOTAL RETURN 20.6% (2.2%) 29.9% 1.5% 34.8% 6.7%

RATIOS/SUPPLEMENTAL DATA
Net Assets--End of Period
(000 Omitted) $228,595 $104,044 $85,214 $36,622 $20,305 $5,493

Ratio of Expenses
to Average
Net Assets 1.65%++ 1.66% 1.80% 2.06% 1.90% 2.10%

Ratio of Net Incom
to Average
Net Assets 0.61% (0.14%) (0.19%) 0.01% 0.38% 3.21%

Portfolio Turnover Rate 54% 87% 117% 152% 84% 170%

Average Commission
Rate Paid $0.0446 -- -- -- -- --

<FN>
* No activity in inception year of 1989

<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
GROWTH FUND

Years Ended
Years Ended December 31 Period of October 31
-------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 11/1/87- 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/87
PER SHARE
DATA
Net Asset Value --
Beginning of $11.63 $12.38 $10.54 $11.22 $8.27 $9.41 $7.61 $7.41 $8.91 $9.87 $7.47
Period
------------------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income 0.02 (0.02) (0.01) 0.01 0.07 0.13 0.07 0.13 0.02 0.11 0.10

Net Gains or
Losses on
Securities (Both
Realized and 5.27 (0.39) 2.70 0.48 3.82 (1.13) 3.07 0.22 0.22 0.38 2.47
Unrealized)
------------------------------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 5.29 (0.41) 2.69 0.49 3.89 (1.00) 3.14 0.35 0.24 0.49 2.57
------------------------------------------------------------------------------------------------------------------
LESS
DISTRIBUTIONS
Dividends (From
Net Investment
Income) (0.02) 0.00 0.00 (0.01) (0.07) (0.13) (0.07) (0.15) (0.13) (0.11) (0.17)

Distributions
(From Capital (2.13) (0.34) (0.85) (1.16) (0.87) (0.01) (1.27) 0.00 (1.61) (1.34) 0.00
Gains)
------------------------------------------------------------------------------------------------------------------
TOTAL
DISTRIBUTIONS (2.15) (0.34) (0.85) (1.17) (0.94) (0.14) (1.34) (0.15) (1.74) (1.45) (0.17)
------------------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $14.77 $11.63 $12.38 $10.54 $11.22 $8.27 $9.41 $7.61 $7.41 $8.91 $9.87
==================================================================================================================

TOTAL RETURN 4.56% (3.4%) 25.5% 4.3% 47.4% (10.6%) 41.7% 4.8% 2.6% 6.0% 34.8%

RATIOS/SUPPLE-
MENTAL DATA
Net Assets--End of
Period (000 $655,927 $307,988 $343,423 $145,035 $140,726 $87,669 $111,938 $53,023 $68,920 $58,262 $61,626
Omitted)

Ratio of Expenses
to Average Net
Assets 1.28%++ 1.33% 1.32% 1.54% 1.45% 1.45% 1.28% 1.38% 1.54%+ 1.25% 1.27%

Ratio of Net
Income to Average
Net Assets 0.12% (0.17%) (0.15%) 0.06% 0.65% 1.53% 0.77% 1.74% 2.43%+ 0.99% 1.19%

Portfolio Turnover
Rate 130% 172% 131% 216% 161% 178% 167% 179% 20% 147% 142%

Average
Commission Rate
Paid $0.0698 -- -- -- -- -- -- -- -- -- --

<FN>
+ Annualized

<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
BLUE CHIP FUND
Years Ended
Years Ended December 31 Period of September 30
-----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 10/1/87- 1987 1986
12/31/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
DATA
Net Asset
Value --
Beginning of
Period $6.16 $6.49 $6.91 $7.67 $6.67 $7.32 $6.31 $6.14 $9.98 $10.68 $10.01
----------------------------------------------------------------------------------------------------------------------
INCOME
FROM
INVEST-
MENT
OPERA-
TIONS
Net
Investment
Income 0.09 0.06 0.04 0.08 0.11 0.17 0.16 0.18 0.06 0.20 0.28

Net Gains or
Losses on
Securities
(Both
Realized and
Unrealized) 1.70 (0.02) 0.96 (0.10) 1.74 (0.14) 2.05 0.43 (2.14) 2.58 2.56
----------------------------------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 1.79 0.04 1.00 (0.02) 1.85 0.03 2.21 0.61 (2.08) 2.78 2.84
----------------------------------------------------------------------------------------------------------------------
LESS
DISTRIBU-
TIONS
Dividends
(From Net
Investment
Income) (0.09) (0.06) (0.04) (0.08) (0.11) (0.17) (0.16) (0.19) (0.05) (0.26) (0.32)

Distributions
(From
Capital (1.17) (0.31) (1.38) (0.66) (0.74) (0.51) (1.04) (0.25) (1.71) (3.22) (1.85)
Gains)
----------------------------------------------------------------------------------------------------------------------
TOTAL
DISTRIBUTIONS (1.26) (0.37) (1.42) (0.74) (0.85) (0.68) (1.20) (0.44) (1.76) (3.48) (2.17)
----------------------------------------------------------------------------------------------------------------------
Net Asset
Value -- End
of Period $6.69 $6.16 $6.49 $6.91 $7.67 $6.67 $7.32 $6.31 $6.14 $9.98 $10.68
======================================================================================================================
TOTAL
RETURN 29.1% 0.5% 14.5% (0.3%) 28.3% 0.4% 35.6% 10.1% (21.2%) 35.8% 34.5%

RATIOS/SUPPLEMENTAL
DATA
Net Assets--
End of
Period (000 $375,200 $311,051 $306,592 $290,309 $290,155 $233,630 $232,468 $173,342 $174,554 $239,824 $174,999
Omitted)

Ratio of
Expenses to
Average Net
Assets 1.22%++ 1.21% 1.22% 1.23% 1.10% 1.07% 0.98% 1.00% 0.98%+ 0.87% 0.74%

Ratio of Net
Income to
Average Net
Assets 1.19% 0.88% 0.57% 1.13% 1.52% 2.35% 2.03% 2.81% 2.41%+ 2.11% 2.64%

Portfolio
Turnover 235% 239% 212% 103% 95% 82% 64% 58% 31% 56% 42%
Rate

Average
Commission
Rate Paid $0.0697 -- -- -- -- -- -- -- -- -- --
<FN>
+ Annualized
++ Ratio reflects total expenses, including fees paid indirectly with brokerage
commissions and fees offset by earnings credits. Excluding indirectly paid
expenses for the year ended December 31, 1995, the expense ratio was 1.17%.
</TABLE>
14

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
BALANCED FUND

Years Ended
Years Ended December 31 Period of September 30
------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 10/1/87- 1987* 1986*
12/31/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE DATA
Net Asset Value --
Beginning of Period $8.56 $8.93 $8.30 $8.19 $7.22 $7.97 $6.89 $6.55 $8.72 $7.89 $7.26
---------------------------------------------------------------------------------------------------------

INCOME FROM
INVESTMENT
OPERATIONS
Net Investment 0.28 0.20 0.22 0.27 0.31 0.35 0.32 0.38 0.07 0.32 0.32
Income

Net Gains or Losses
on Securities (Both
Realized and
Unrealized) 2.21 (0.37) 1.58 0.21 1.30 (0.75) 1.39 0.34 (1.29) 1.37 0.83
----------------------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 2.49 (0.17) 1.80 0.48 1.61 (0.40) 1.71 0.72 (1.22) 1.69 1.15
----------------------------------------------------------------------------------------------------------
LESS
DISTRIBUTIONS
Dividends (From Net
Investment Income) (0.28) (0.20) (0.21) (0.28 (0.31) (0.35) (0.32) (0.38) (0.08) (0.42) (0.37)

Distributions (From
Capital Gains) (1.19) 0.00 (0.96) (0.09 (0.33) 0.00 (0.31) 0.00 (0.87) (0.44) (0.15)
----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.47) (0.20) (1.17) (0.37 (0.64) (0.35) (0.63) (0.38) (0.95) (0.86) (0.52)
----------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $9.58 $8.56 $8.93 $8.30 $8.19 $7.22 $7.97 $6.89 $6.55 $8.72 $7.89
==========================================================================================================

TOTAL RETURN 29.4% (1.9%) 21.9% 6.0% 22.9% (5.0%) 25.3% 11.1% (13.9%) 22.9% 16.8%

RATIOS/SUPPLEMENTAL
DATA
Net Assets--End
of Period
(000 Omitted) $130,346 $95,226 $72,859 $31,538 $18,790 $13,650 $15,082 $12,636 $13,159 $16,885 $12,117

Ratio of Expenses to
Average Net Assets 1.23++ 1.26% 1.34% 1.88% 1.73% 1.65% 1.52% 1.64% 1.84%+ 1.66% 1.59%

Ratio of Net Income
to Average Net 2.92% 2.37% 2.30% 3.57% 4.01% 4.63% 4.19% 5.39% 4.16%+ 4.03% 4.44%
Assets

Portfolio Turnover
Rate 286% 258% 251% 96% 133% 103% 85% 182% 141% 133% 178%

Average Commission
Rate Paid $0.0668 -- -- -- -- -- -- -- -- -- --

<FN>
* Restated to reflect 2-for-1 split on November 30, 1987
+ Annualized

15
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND

Years Ended December 31 Period of
---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 3/1/88
12/31/88

<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $8.78 $10.02 $10.19 $10.48 $9.85 $10.13 $9.68 $10.00
----------------------------------------------------------------------------------------------------------

INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.45 0.52 0.46 0.51 0.60 0.69 0.78 0.64

Net Gains or Losses on
Securities (Both
Realized and Unrealized) 0.51 (1.26) 0.47 0.03 0.81 (0.28) 0.46 (0.32)
---------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 0.96 (0.74) 0.93 0.54 1.41 0.41 1.24 0.32
---------------------------------------------------------------------------------------------------------

LESS DISTRIBUTIONS
Dividends (From
Net Investment Income) (0.45) (0.50) (0.46) (0.51) (0.60) (0.69) (0.79) (0.64)

Distributions
(From Capital Gains) 0.00 0.00 (0.64) (0.32) (0.18) 0.00 0.00 0.00
---------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.45) (0.50) (1.10) (0.83) (0.78) (0.69) (0.79) (0.64)
---------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $9.29 $8.78 $10.02 $10.19 $10.48 $9.85 $10.13 $9.68
=========================================================================================================

TOTAL RETURN 11.1% (7.5%) 9.3% 5.3% 14.9% 4.4% 13.3% 3.2%

RATIOS/SUPPLEMENTAL
DATA
Net Assets--
End of Period
(000 Omitted) $20,263 $21,323 $30,465 $25,047 $18,146 $7,424 $6,460 $4,392

Ratio of Expenses
to Average
Net Assets* 1.30%++ 1.34% 1.18% 1.18% 1.12% 1.03% 0.65% 0.26%+

Ratio of Net Income
to Average
Net Assets* 4.92% 5.52% 4.33% 4.83% 5.89% 7.15% 7.90% 7.67%+

Portfolio Turnover Rate 141% 379% 429% 204% 261% 103% 195% 194%

<FN>
* In the absence of voluntary expense reimbursements and waivers from Founders,
the Expense Ratios would have been 1.45% (1995), 1.51% (1994), 1.37% (1993),
1.43% (1992), 1.42% (1991), 1.53% (1990), 1.48% (1989) and 1.33% (1988), and the
Net Income Ratios would have been 4.77% (1995), 5.35% (1994), 4.14% (1993),
4.58% (1992), 5.59% (1991), 6.65% (1990), 7.07% (1989) and 6.60% (1988).

+ Annualized

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET FUND

Years Ended
Years Ended December 31 Period of May 31
------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 6/1/87- 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/87
PER SHARE DATA
Net Asset Value --
Beginning of Period
$1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------------------------------------------------------

INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income 0.05 0.03 0.02 0.03 0.05 0.07 0.08 0.07 0.04 0.05 0.07

Net Gains or Losses
on Securities (Both
Realized and
Unrealized) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 0.05 0.03 0.02 0.03 0.05 0.07 0.08 0.07 0.04 0.05 0.07
-----------------------------------------------------------------------------------------------------------------

LESS
DISTRIBUTIONS
Dividends (From Net
Investment Income) (0.05) (0.03) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (0.04) (0.05) (0.07)

Distributions (From
Capital Gains) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.05) (0.03) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (0.04) (0.05) (0.07)
-----------------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================================================================

TOTAL RETURN 5.1% 3.4% 2.2% 2.8% 5.1% 7.3% 8.1% 6.9% 4.0% 5.6% 7.8%

RATIOS/SUPPLEMENTAL
DATA
Net Assets--End of
Period (000 $125,646 $201,342 $142,399 $120,295 $99,765 $125,440 $84,281 $54,168 $46,444 $41,471 $22,257
Omitted)

Ratio of Expenses to
Average Net Assets* 0.89%++ 0.91% 0.95% 0.95% 0.99% 0.94% 0.77% 0.80% 0.90%+ 0.90% 0.90%

Ratio of Net Income
to Average Net
Assets* 5.11% 3.49% 2.26% 2.78% 5.03% 7.26% 8.22% 6.75% 6.16%+ 5.39% 6.82%

<FN>
* In the absence of voluntary expense reimbursements and waivers from Founders,
the Expense Ratios would have been 0.99% (1993), 1.01% (1992), 1.02% (1991),
0.79% (1989) and 0.81% (1988), and the Net Income Ratios would have been 2.22%
(1993), 2.72% (1992), 5.00% (1991), 8.20% (1989), and 6.74% (1988)

+ Annualized

<PAGE>

INVESTMENT OBJECTIVES OF THE FUNDS

The Descriptions Of The Funds Below Are Designed To Help You Choose The Fund
That Best Fits Your Investment Objectives. You May Want To Pursue Your
Objectives By Investing In More Than One Fund.

AGGRESSIVE GROWTH FUNDS

DISCOVERY FUND

The investment objective of Discovery Fund is capital appreciation.

To achieve its objective, the Fund normally will invest at least 65% of
its total assets in common stocks of small, rapidly growing U.S. companies.
These companies are generally smaller than those selected for Frontier Fund.
Typically, these companies are not listed on a national securities exchange but
trade on the over-the-counter market and generally have either market
capitalizations or revenues between $10 -- $500 million. Although the Fund will
normally invest in common stocks of U.S. companies, it may invest up to 30% of
its total assets in foreign securities. For a further explanation of this Fund's
investment policies, see the sections entitled "Risks of Investment Policies
Involving Special Considerations" on page 27 and "Other Investment Policies" on
page 33, and the subsection entitled "Risks of Investments in Small and
Medium-Size Companies" on page 27.

FRONTIER FUND

The investment objective of Frontier Fund is capital appreciation.

To achieve its objective, the Fund normally will invest at least 65% of
its total assets in common stocks of small and medium-size U.S. and foreign
companies. Ordinarily, these U.S. companies are not listed on a national
securities exchange but will be traded on the over-the-counter market and
generally have either market capitalizations or revenues of $200 million--$1
billion. These companies are usually larger than those selected for Discovery
Fund. The Fund will normally be at least 50% invested in U.S. companies, with no
more than 25% invested in any one foreign country. The Fund has the flexibility
to be completely invested in U.S. or foreign securities, depending on investment
opportunities. The Fund will normally invest in small and medium-size companies;
however, it may also invest in large companies if, in Founders' opinion, they
represent better prospects for capital appreciation. For a further explanation
of this Fund's investment policies, see the sections

<PAGE>

entitled, "Risks of Investment Policies Involving Special Considerations" on
page 27 and "Other Investment Policies" on page 33, and the subsections entitled
"Risks of Investments in Small and Medium-Size Companies" on page 33, "Risks of
Investments in Foreign Securities" on page 27, and "Risks Involved in Foreign
Currency Transactions" on page 31.

PASSPORT FUND

The investment objective of Passport Fund is capital appreciation.

To achieve its objective, the Fund invests primarily in securities
issued by foreign companies which have market capitalizations or annual revenues
of $1 billion or less. These securities may represent companies in both
established and emerging economies throughout the world.

At least 65% of the Fund's total assets will normally be invested in
foreign securities representing a minimum of three countries. The Fund may
invest in larger foreign companies or in U.S.-based companies if, in Founders'
opinion, they represent better prospects for appreciation. For a further
explanation of this Fund's investment policies, see the sections entitled "Risks
of Investment Policies Involving Special Considerations" on page 20 and "Other
Investment Policies" on page 27, and the subsections entitled "Risks of
Investments in Small and Medium-Size Companies" on page 33, "Risks of
Investments in Foreign Securities" on page 27, and "Risks Involved in Foreign
Currency Transactions" on page 31.

SPECIAL FUND

The investment objective of Special Fund is capital appreciation.

To achieve its objective, the Fund normally will invest at least 65% of
its total assets in common stocks of medium-size U.S. companies. These companies
are usually larger than those selected for Frontier Fund. The Fund may also own
large companies if, in Founders' opinion, they represent better prospects for
capital appreciation. Furthermore, the Fund may invest up to 30% of its total
assets in foreign securities, with no more than 25% invested in any one foreign
country. For a further explanation of this Fund's investment policies, see the
sections entitled "Risks of Investment Policies Involving Special
Considerations" on page 27 and "Other Investment Policies" on page 27, and the
subsection entitled "Risks of Investments in Small and Medium-Size Companies" on
page 27.

19
<PAGE>
GROWTH FUNDS

INTERNATIONAL EQUITY FUND
The investment objective of International Equity Fund is long-term growth of
capital.

To achieve its objective, the Fund normally will invest at least 65% of
its total assets in foreign equity securities representing a minimum of three
countries outside of the United States. The Fund will not invest more than 50%
of its assets in the securities of any one foreign country. Normally, the Fund
will invest in companies located throughout the world, except the United States,
including companies in both established and emerging economies.

The Fund will invest principally in equity securities (common stocks
and securities convertible into common stocks, including convertible debt
obligations and convertible preferred stock), although it may also purchase debt
securities of investment grade or investment grade quality as determined by the
Fund's portfolio manager.

For a further explanation of the Fund's investment policies, see the
sections entitled "Risks of Investment Policies Involving Special
Considerations" on page 27 and "Other Investment Policies" on page 33, and the
subsections entitled "Risks of Investments in Small and Medium-Sized Companies"
on page 27, "Risks of Investments in Foreign Securities" on page 29, and "Risks
Involved in Foreign Currency Transactions" on page 31.

WORLDWIDE GROWTH FUND

The investment objective of Worldwide Growth Fund is long-term growth of
capital.

To achieve its objective, the Fund normally will invest at least 65% of
its total assets in equity securities of growth companies in a variety of
markets throughout the world. The Fund will emphasize common stocks of both
emerging and established growth companies that generally have proven performance
records and strong market positions. The Fund's portfolio will usually consist
of investments in companies in various countries throughout the world, but it
will always invest at least 65% of its total assets in three or more countries.
The Fund will not invest more than 25% of its total assets in the securities of
any one foreign country.

The Fund has the ability to purchase securities in any foreign country
as well as in the United States. For a further explanation of this Fund's
investment policies, see the sections entitled "Risks of Investment Policies
Involving Special Considerations" on page 27 and "Other Investment Policies" on
page 33, and the subsections entitled "Risks of Investments in Small and
Medium-Size Companies" on page 27, "Risks of Investments in Foreign Securities"
on page 29, and "Risks Involved in Foreign Currency Transactions" on page 31.

<PAGE>

GROWTH FUND

The investment objective of Growth Fund is long-term growth of capital.

To achieve its objective, the Fund normally will invest at least 65% of
its total assets in common stocks of well-established, high-quality growth
companies. These companies tend to have strong performance records, solid market
positions and reasonable financial strength, and have continuous operating
records of three years or more. The Fund may also invest up to 30% of its total
assets in foreign securities, with no more than 25% invested in any one foreign
country. For a further explanation of this Fund's investment policies, see the
sections entitled "Risks of Investment Policies Involving Special
Considerations" on page 27 and "Other Investment Policies" on page 33.

GROWTH AND INCOME FUNDS

BLUE CHIP FUND

The investment objective of Blue Chip Fund is long-term growth of capital and
income.

To achieve its objective, the Fund invests primarily in common stocks
of large, well-established, stable and mature companies of great financial
strength, commonly known as "blue chip" companies. "Blue chip" companies have
long records of profitability and dividend payments and a reputation for quality
management, products and services. The Fund normally invests at least 65% of its
total assets in "blue chip" stocks that (1) are included in the Dow Jones
Industrial Average, the Standard & Poor's Daily Stock Price Index of 500 common
stocks, or the New York Stock Exchange Index, each of which is a widely
recognized index of stock market performance; (2) generally pay regular
dividends; and (3) have a market capitalization of at least $1 billion.
Furthermore, the Fund may also invest in non-dividend paying companies if, in
Founders' opinion, they offer better prospects for capital appreciation. The
Fund may also invest up to 30% of its total assets in foreign securities. For a
further explanation of this Fund's investment policies, see the sections
entitled "Risks of Investment Policies Involving Special Considerations" on page
20 and "Other Investment Policies" on page 24.

BALANCED FUND

The investment objective of Balanced Fund is current income and capital
appreciation.

To achieve its objective, the Fund invests in a balanced portfolio of
dividend-paying common stocks, U.S. and foreign government obligations and a
variety of corporate fixed-income securities. The Fund emphasizes investment in
common stocks with the potential for increased dividends, as well as capital
appreciation. The Fund will maintain a minimum of 25% of its total assets in
fixed-income, investment-grade securities rated Baa or higher by Moody's
Investors Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's
Ratings Group ("S&P"). Securities rated Baa or BBB are considered to be of low
investment grade by these services.

Up to 5% of the Fund's total assets may be invested in lower-grade (Ba
or

<PAGE>

less by Moody's, BB or less by S&P) or unrated straight debt securities,
generally referred to as junk bonds, where the investment adviser determines
that such securities present attractive opportunities. The Fund will not invest
in securities rated lower than B. Securities rated B generally lack
characteristics of a desirable investment and are deemed speculative with
respect to the issuer's capacity to pay interest and repay principal over a long
period of time. See "Appendix" of the STATEMENT OF ADDITIONAL INFORMATION, which
may be obtained without charge by calling Founders at 1-800-525-2440, for a
description of debt security ratings. The Fund may also invest in convertible
corporate obligations and preferred stocks, and may invest up to 30% of its
total assets in foreign securities that pay current dividends or interest. The
Fund will not invest more than 25% of its total assets in the securities of any
one foreign country. Normally, the Fund will invest a significant percentage (up
to 75%) of its total assets in dividend-paying common stocks, convertible
corporate obligations, and preferred stocks. There is, however, no limit on the
amount of straight debt securities in which the Fund may invest.

Furthermore, the Fund has the ability to write covered call options on
stocks. However, this investment practice is not currently in use. If it is
implemented, you will be notified. For a further explanation of this Fund's
investment policies, see the sections entitled "Risks of Investment Policies
Involving Special Considerations" on page 27 and "Other Investment Policies" on
page 33.

INCOME-ORIENTED FUNDS

GOVERNMENT SECURITIES FUND

The investment objective of Government Securities Fund is current income.

To achieve its objective, the Fund invests at least 65% of its total
assets in obligations of the United States government, such as Treasury bills,
notes and bonds and Government National Mortgage Association (GNMA) pass-through
securities, which are supported by the full faith and credit of the United
States Treasury. Additionally, the Fund may invest in obligations of other
agencies and instrumentalities of the United States government and may invest in
securities issued by foreign governments and/or their agencies denominated
either in U.S. currency or in foreign currencies. The Fund will not invest more
than 25% of its total assets in the securities of any one foreign country. The
maturity of the Fund's investments will be long (ten or more years),
intermediate (three to ten years), or short (three years or less). The
proportion invested by the Fund in each category can be expected to vary
depending upon the evaluation of market patterns and trends by Founders. The
market value of the securities in which the Fund invests will fluctuate.
Accordingly, the value of the shares will vary from day to day. For a further
explanation of this Fund's investment policies, see the sections entitled "Risks
of Investment Policies Involving Special Considerations" on page 27 and "Other
Investment Policies" on page 33.

<PAGE>

MONEY MARKET FUND

The investment objective of Money Market Fund is maximum current income
consistent with the preservation of capital and liquidity.

To achieve its objective, the Fund invests in high-quality money market
instruments with minimal credit risks which mature in twelve months or less. The
Fund may also invest in certain foreign securities. Although no assurances can
be provided, the Fund will use its best efforts, under normal circumstances, to
maintain a constant net asset value of $1.00 per share. The Fund declares
dividends daily. For a further explanation of this Fund's investment policies,
see the sections entitled "Risks of Investment Policies Involving Special
Considerations" on page 27 and "Other Investment Policies" on page 33.

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives of the Funds described above are fundamental
and may not be changed by the Board of Directors without shareholder approval.
The means to be used by the Funds in achieving their respective
objectives--including concentrations by Blue Chip Fund, International Equity
Fund, Worldwide Growth Fund, Passport Fund, and Government Securities Fund in
designated types of investments--are generally nonfundamental Fund policies
which may be changed by the Board of Directors of the Funds without the approval
of shareholders to the extent permitted by applicable law, regulation, or
regulatory policy. A more detailed explanation of some of these policies,
together with a list of additional fundamental and nonfundamental investment
policies and restrictions, is contained in the STATEMENT OF ADDITIONAL
INFORMATION, which may be obtained without charge by calling Founders at
1-800-525-2440. There can be no assurance, of course, that a Fund will achieve
its stated investment objective.

<PAGE>

INVESTMENT MANAGEMENT OF THE FUNDS

INVESTMENT PHILOSOPHY

Investment management of the Funds is provided by Founders Asset
Management, Inc. ("Founders"), a registered investment adviser first established
as an asset manager in 1938. Founders is a "growth-style" manager of equity
portfolios and gives priority to the selection of individual securities that
have the potential to provide superior results over time, despite short-term
volatility. Under normal circumstances, Founders' approach to investment
management gives greater emphasis to the fundamental financial, marketing and
operating strengths of the companies whose securities it buys, and is less
concerned with the short-term impact of changes in macroeconomic and market
conditions. Founders focuses on purchasing the stocks of companies with strong
management and market positions that have earnings prospects that are
significantly above the average for their market sectors.

PORTFOLIO MANAGEMENT

To facilitate the day-to-day investment management of the Funds,
Founders employs a unique team-andlead-manager system for its equity funds. The
management team is comprised of several members of the Investment Department,
including Founders' Chief Investment Officer, lead portfolio managers, assistant
portfolio managers, portfolio traders and research analysts. Team members share
responsibility for providing ideas, information, knowledge and expertise in the
management of the Funds. Each team member has one or more areas of expertise
that are applied to the management of the Funds. Daily decisions on portfolio
selection for each equity fund rest with a lead portfolio manager assigned to
the Fund who, through participation in the team process, utilizes the input and
advice of the management team in making purchase and sale determinations.

Founders Government Securities Fund and Money Market Fund also employ a
team-and-leadmanager system to facilitate day-to-day investment management of
these Funds. Unlike Founders' equity funds, however, the lead portfolio manager
for these income-oriented funds may rotate among the lead portfolio managers of
Founders Balanced Fund, International Equity Fund, Worldwide Growth Fund and
Passport Fund, and Founders' Chief Investment Officer. Any one of these
individuals may, on occasion, assume lead portfolio management responsibilities
for either of the two income-oriented Funds.

The investment team as a group can earn bonus compensation based on the
relative performance of each of the

<PAGE>

Funds when compared to a group of funds with similar investment objectives.
Bonus compensation is paid by Founders and not by the Funds. Founders'
investment management team consists of the following individuals:

BJORN K. BORGEN, Chairman, Chief Executive Officer, and Chief Investment
Officer
Mr. Borgen has been Founders' Chief Investment Officer since 1969. He
is responsible for establishing investment policies and strategies for
the Founders Funds and assigning the lead portfolio manager for each
Fund. A graduate of the University of Wisconsin, Mr. Borgen received
his MBA from Harvard Graduate School of Business.

MICHAEL K. HAINES, Senior Vice President of Investments
Mr. Haines has been with Founders for nine years, serving as an
assistant portfolio manager, and as lead portfolio manager for Founders
Frontier Fund since 1990. Mr. Haines served as the portfolio or
coportfolio manager of Founders Discovery Fund from 1989 until July
1995. A graduate of The Colorado College, Mr. Haines received his MBA
from the University of Denver.

MICHAEL W. GERDING, Vice President of Investments
Mr. Gerding is a chartered financial analyst who has been part of
Founders' investment department for five years. Mr. Gerding has served
as the lead portfolio manager for Founders International Equity,
Worldwide Growth, and Passport Funds since 1995, 1990, and 1993,
respectively. Prior to joining Founders, he served as a portfolio
manager and research analyst with NCNB Texas for several years. Mr.
Gerding earned a BBA in finance and an MBA from Texas Christian
University.

CHARLES HOOPER, Vice President of Investments
Mr. Hooper has 25 years of experience in finance and investments.
Prior to joining Founders in 1991, he served as a portfolio manager
for Waddell & Reed Asset Management Company. Since 1991, Mr. Hooper
has served as the lead portfolio manager for Founders Special Fund.
Mr. Hooper is a graduate of Southern Methodist University and The
American School of International Management.

<PAGE>

EDWARD F. KEELY, Vice President of Investments
Mr. Keely is a chartered financial analyst who joined Founders in 1989
and assumed lead portfolio manager responsibilities for Founders
Growth Fund in 1994. During the prior two years, he served as
assistant portfolio manager of Founders Discovery and Frontier Funds.
A graduate of The Colorado College, Mr. Keely holds a bachelor of arts
degree in economics.

PATRICK S. ADAMS, Portfolio Manager
Mr. Adams, a chartered financial analyst, joined Founders in 1993,
following three years as a senior portfolio manager/analyst for First
America Investment Corporation. Prior to that, he served for five
years as a fund manager and senior analyst for Capital Management
Group. He has served as the lead portfolio manager for Founders Blue
Chip and Balanced Funds since 1993. A graduate of Ohio State
University, Mr. Adams received his MBA from Xavier University.

DAVID G. KERN, Portfolio Manager
Mr. Kern joined Founders in 1995. He currently serves as the portfolio
manager for Founders Discovery Fund, having assumed responsibility as
the Fund's sole lead portfolio manager during the third quarter of
1995. Prior to his association with Founders, Mr. Kern served for five
years as a vice president and assistant portfolio manager for Delaware
Management Company. A graduate of Lehigh University with a degree in
business and economics, Mr. Kern is also a chartered financial
analyst.

DOUGLAS A. LOEFFLER, Assistant Portfolio Manager
Mr. Loeffler is a chartered financial analyst who joined Founders in
1995 as a senior international equities analyst. Prior to joining
Founders, he served for seven years as an international equities
analyst for Scudder, Stevens, and Clark. He currently serves as
assistant portfolio manager for Founders International Equity Fund. A
graduate of Washington State University, Mr. Loeffler received an MBA
in finance from the University of Chicago.

<PAGE>

RISKS OF INVESTMENT POLICIES INVOLVING SPECIAL CONSIDERATIONS

RISKS OF INVESTMENTS IN SMALL AND MEDIUM-SIZE COMPANIES

Discovery Fund, Frontier Fund, Passport Fund, and Special Fund normally
invest a significant proportion of each Fund's assets in the securities of small
and medium-size companies. Worldwide Growth Fund and International Equity Fund
may also invest in the securities of such companies. As used in this prospectus,
small and medium-size companies are those which are still in the developing
stages of their life cycles and are able to achieve rapid growth in both sales
and earnings. Capable management and fertile operating areas are two of the most
important characteristics of such companies. In addition, these companies should
employ sound financial and accounting policies; demonstrate effective research
and successful product development and marketing; provide efficient service; and
possess pricing flexibility. Discovery, Frontier, Passport, Special,
International Equity, and Worldwide Growth Funds try to avoid investing in
companies where operating results may be affected adversely by excessive
competition, severe governmental regulation, or unsatisfactory productivity

Investments in small and medium-size companies involve greater risk
than is customarily associated with more established companies. These companies
often have sales and earnings growth rates which exceed those of large
companies. Such growth rates may in turn be reflected in more rapid share price
appreciation. However, smaller companies often have limited operating histories,
product lines, markets, or financial resources, and they may be dependent upon
one-person management. These companies may be subject to intense competition
from larger entities, and the securities of such companies may have limited
marketability and may be subject to more abrupt or erratic movements in price
than securities of larger companies or the market averages in general.
Therefore, the net asset values of Discovery, Frontier, Passport, Special,
International Equity, and Worldwide Growth Funds' shares may fluctuate more
widely than the popular market averages.

RISKS OF INVESTMENTS IN FIXED-INCOME SECURITIES

Discovery, Frontier, Passport, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, and Balanced Funds (the "Equity Funds") may invest in
convertible securities, preferred stocks, bonds, debentures, and other corporate
obligations when

<PAGE>

Founders believes that these investments offer opportunities for capital
appreciation. Current income will not be a substantial factor in the selection
of these securities by the Equity Funds.

The Equity Funds will only invest in bonds, debentures, and corporate
obligations--other than convertible securities and preferred stock--rated
investment grade (BBB or higher) at the time of purchase. Bonds in the lowest
investment grade category (BBB) have speculative characteristics, with changes
in the economy or other circumstances more likely to lead to a weakened capacity
of the bonds to make principal and interest payments than would occur with bonds
rated in higher categories. Convertible securities and preferred stocks
purchased by the Equity Funds may be rated in medium and lower categories by
Moody's or S&P (Ba or lower by Moody's and BB or lower by S&P) but will not be
rated lower than B. The Equity Funds may also invest in unrated convertible
securities and preferred stocks in instances in which Founders believes that the
financial condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities eligible for
purchase by the Funds rated in categories no lower than B. Securities rated B
are referred to as "high-risk" securities, generally lack characteristics of a
desirable investment, and are deemed speculative with respect to the issuer's
capacity to pay interest and repay principal over a long period of time. See
"Appendix" of the STATEMENT OF ADDITIONAL INFORMATION, which may be obtained
without charge by calling Founders at 1-800-525-2440, for a description of debt
security ratings.

At no time will any Fund have more than 5% of its total assets invested
in any fixed-income securities which are unrated or are rated below investment
grade either at the time of purchase or as a result of a reduction in rating
after purchase.

The fixed-income securities in which the Founders Equity Funds may
invest are generally subject to two kinds of risk: credit risk and market risk.
Credit risk relates to the ability of the issuer to meet interest or principal
payments, or both, as they come due. The ratings given a security by Moody's and
S&P provide a generally useful guide as to such credit risk. The lower the
rating given a security by such rating service, the greater the credit risk such
rating service perceives to exist with respect to such security. Increasing the
amount of Fund assets invested in unrated or lower-grade securities, while
intended to increase the yield produced by those assets, also will increase the
credit risk to which those assets are subject.

Market risk relates to the fact that the market values of securities in
which the Founders Equity Funds may invest generally will be affected by changes
in the level of interest rates. An increase in interest rates will tend to
reduce the market values of such securities, whereas a decline in interest rates
will tend to increase their values. Medium- and lower-rated securities (Baa or
BBB and lower) and non-rated securities of comparable quality tend to be subject
to wider fluctuations in yields and market values than higher-rated securities.
Medium-rated securities (those rated Baa or BBB) have speculative
characteristics while lower-rated securities are predominantly speculative.
Equity

<PAGE>

Funds are not required to dispose of debt securities whose ratings are
downgraded below these ratings subsequent to a Fund's purchase of the
securities. Relying in part on ratings assigned by credit agencies in making
investments will not protect the Equity Funds from the risk that fixed-income
securities in which they invest will decline in value, since credit ratings
represent evaluations of the safety of principal, dividend and interest payments
on preferred stocks and debt securities, not the market values of such
securities, and such ratings may not be changed on a timely basis to reflect
subsequent events.

Founders seeks to reduce overall risk associated with the investments
of the Founders Equity Funds through diversification and consideration of
relevant factors affecting the value of securities. No assurance can be given,
however, regarding the degree of success that will be achieved in this regard or
in any Equity Fund's achieving its investment objectives.

RISKS OF INVESTMENTS IN FOREIGN SECURITIES

Each of the Funds (except Government Securities and Money Market Funds)
may invest without limit in American Depositary Receipts and all of the Funds
may invest in foreign securities. The term "foreign securities" refers to
securities of issuers, wherever organized, which, in the judgment of management,
have their principal business activities outside of the United States. The
determination of whether an issuer's principal activities are outside of the
United States will be based on the location of the issuer's assets, personnel,
sales, and earnings, and specifically on whether more than 50% of the issuer's
assets are located, or more than 50% of the issuer's gross income is earned,
outside of the United States, or on whether the issuer's sole or principal stock
exchange listing is outside of the United States. Foreign securities typically
will be traded on the applicable country's principal stock exchange but may also
be traded on regional or over-the-counter exchanges.

American Depositary Receipts ("ADRs") are receipts, typically issued by
a U.S. bank or trust company, evidencing ownership of the underlying foreign
securities. ADRs are denominated in U.S. dollars and trade in the U.S.
securities markets. ADRs may be issued in sponsored or unsponsored programs. In
sponsored programs, the issuer makes arrangements to have its securities traded
in the form of ADRs; in unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although the regulatory requirements
with respect to sponsored and unsponsored programs are generally similar, the
issuers of unsponsored ADRs are not obligated to disclose material information
in the United States and, therefore, such information may not be reflected in
the market value of the ADRs. ADRs are subject to certain of the same risks as
direct investments in foreign securities, including the risk that changes in the
value of the currency in which the security underlying an ADR is denominated
relative to the U.S. dollar may adversely affect the value of the ADR.

Money Market Fund's foreign investments are limited to
dollar-

<PAGE>

denominated obligations of foreign depository institutions or their U.S.
branches, or foreign branches of U.S. depository institutions. Foreign
investments of Government Securities Fund are limited to securities issued by
foreign governments and/or their agencies. Foreign investments of Money Market
and Government Securities Funds will be limited primarily to securities of
issuers from the major industrialized nations, such as the United Kingdom,
France, Canada, Germany and Japan.

Foreign investments of Passport, Worldwide Growth, and International
Equity Funds may include securities issued by companies located in countries not
considered to be major industrialized nations. Such countries are subject to
more economic, political and business risk than major industrialized nations,
and the securities they issue are expected to be more volatile and more
uncertain as to payments of interest and principal. The secondary market for
such securities is expected to be less liquid than for securities of major
industrialized nations. Such countries may include (but are not limited to)
Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Chile, China, Colombia,
Costa Rica, Czech Republic, Denmark, Ecuador, Egypt, Finland, Greece, Hong Kong,
Hungary, India, Indonesia, Ireland, Italy, Israel, Jordan, Malaysia, Mexico,
Netherlands, New Zealand, Nigeria, North Korea, Norway, Pakistan, Paraguay,
Peru, Philippines, Poland, Portugal, Singapore, Slovak Republic, South Africa,
South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey,
Uruguay, Venezuela, Vietnam and the countries of the former Soviet Union.
Investments of Passport, Worldwide Growth, and International Equity Funds may
include securities created through the Brady Plan, a program under which heavily
indebted countries have restructured their bank debt into bonds.

Since Passport, Worldwide Growth, and International Equity Funds'
assets will be invested primarily in foreign securities and since substantially
all of the Funds' revenues will be received in foreign currencies, the Funds'
net asset values will be affected by changes in currency exchange rates. For
example, the dollar equivalent of the Funds' net assets and distributions will
be affected adversely by a reduction in the value of a particular foreign
currency relative to the U.S. dollar. In contrast, in periods during which the
U.S. dollar generally declines, the returns on foreign securities generally are
enhanced. The Funds will pay dividends in dollars and will incur currency
conversion costs.

Investments in foreign securities involve certain risks which are not
typically associated with U.S. investments. These risks include fluctuations in
exchange rates of foreign currencies, which will affect the value of the assets
of a Fund as measured in U.S. dollars, and the costs incurred by a Fund in
connection with conversion between various currencies. Other considerations
include the possible imposition of exchange control regulations or currency
restrictions which would prevent cash from being brought back to the United
States, and the reduced availability of public information with respect to
issuers of foreign securities. There is less governmental supervision of foreign
stock exchanges, security

<PAGE>

brokers, and issuers of securities. Accounting, auditing and financial reporting
standards are less uniform than those applicable to U.S. companies. Foreign
markets have substantially less volume than U.S. markets, and are not generally
as liquid as, and may be more volatile than, those in the United States.
Brokerage commissions and other transaction costs are generally higher than in
the United States. Additionally, there exists the possibility of expropriation
or confiscatory taxation; limitations on the removal of funds or other assets of
the Fund; political, economic or social instability; or diplomatic developments
which could affect U.S. investments in foreign countries. The operating expense
ratio of a Fund which invests in foreign securities may be higher than that of a
fund which invests primarily in U.S. securities because certain costs (such as
custody fees) are higher. A complete description of these risks is contained in
the STATEMENT OF ADDITIONAL INFORMATION, which may be obtained without charge
from Founders at 1-800-525-2440.

RISKS INVOLVED IN FOREIGN CURRENCY TRANSACTIONS

All of the Funds (except for Money Market Fund) currently are permitted
to use forward foreign currency contracts in connection with the purchase or
sale of a specific security.

A forward foreign currency contract ("forward contract") involves an
obligation to purchase or sell a specific foreign 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. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no margin or other deposit requirement, and no commissions are
charged at any stage for trades.

The current investment policy for the Funds provides that the Funds may
conduct their foreign currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign exchange currency market, or on
a forward basis to "lock in" the U.S. dollar price of the security. By entering
into a forward contract for the purchase or sale, for a fixed amount of U.S.
dollars, of the amount of foreign currency involved in the underlying
transactions, the Funds attempt to protect themselves against possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the applicable foreign currency during the period between the date on which the
security is purchased or sold and the date on which such payments are made or
received.

In addition, Discovery, Frontier, Passport, International Equity, and
Worldwide Growth Funds are each permitted to enter into forward contracts for
hedging purposes. 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), these Funds are permitted to 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

<PAGE>

securities denominated in that 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.

Discovery, Frontier, Passport, International Equity, and Worldwide
Growth Funds generally will not enter into forward contracts with a term greater
than one year. In addition, the Funds generally will not 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
in excess of the value of the Funds' portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
possibility of changes in currency exchange rates will be incorporated into the
Funds' long-term investment strategies.

While forward contracts will 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 which it is
intended to protect, the desired protection may not be obtained

In the event that forward contracts and any securities placed in a
segregated account in an amount at least equal to the value of the total assets
of a Fund committed to the consummation of a forward contract are considered to
be illiquid, the securities would be subject to the applicable Fund's limitation
on investing in illiquid securities, as discussed below.

For additional information regarding risks involved in foreign
securities transactions, including forward contracts, please refer to the Funds'
STATEMENT OF ADDITIONAL INFORMATION, which may be obtained without charge by
calling Founders at 1-800-525-2440.

<PAGE>

OTHER INVESTMENT POLICIES

TEMPORARY INVESTMENTS

Money Market Fund invests in U.S. government obligations, commercial
paper, bank obligations, repurchase agreements relating to each of these
securities, and negotiable U.S. dollar-denominated obligations of domestic and
foreign branches of U.S. depository institutions, U.S. branches of foreign
depository institutions, and foreign depository institutions. Government
Securities Fund invests at least 65% of its total assets in U.S. government
obligations and may also acquire the other types of securities and repurchase
agreements in which Money Market Fund may invest. All or part of the assets of
the other Funds may be invested temporarily in these securities, in such
repurchase agreements, in cash, or in other cash equivalents, if Founders
determines it to be appropriate for purposes of enhancing liquidity or
preserving capital in light of prevailing market or economic conditions. There
can be no assurance that any Fund will be able to achieve its investment
objective. While a Fund is in a defensive position, the opportunity to achieve
capital growth will be limited, and, to the extent that this assessment of
market conditions is incorrect, the Fund will be foregoing the opportunity to
benefit from capital growth resulting from increases in the value of equity
investments.

U.S. government obligations include Treasury bills, notes and bonds;
Government National Mortgage Association (GNMA) pass-through securities; and
issues of United States agencies, authorities and instrumentalities. Obligations
of other agencies and instrumentalities of the U.S. government include
securities issued by the Federal Farm Credit Bank System (FFCB), the Federal
Agricultural Mortgage Corporation ("Farmer Mac"), the Federal Home Loan Bank
System (FHLB), the Financing Corporation (FICO), Federal Home Loan Mortgage
Corporation (FHLMC), the Federal National Mortgage Association (FNMA), the
Student Loan Marketing Association (SLMA), the International Bank for
Reconstruction and Development (IBRD or "World Bank"), and the U.S. Small
Business Administration (SBA). Some government obligations, such as GNMA
pass-through certificates, are supported by the full faith and credit of the
United States Treasury. Other obligations, such as securities of the FHLB, are
supported by the right of the issuer to borrow from the United States Treasury;
and others, such as bonds issued by FNMA (a private corporation), are supported
only by the credit of the agency, authority or instrumentality.

Commercial paper purchased by Money Market Fund must be a First Tier

<PAGE>

Security as defined by the Securities and Exchange Commission ("SEC"). First
Tier Securities are securities which are rated by at least two nationally
recognized statistical rating organizations (NRSROs), or by the only NRSRO that
has rated the security, in the highest short-term rating category, or comparable
unrated securities. For a list of NRSROs and a description of their ratings, see
the "Appendix" in the STATEMENT OF ADDITIONAL INFORMATION, which may be obtained
without charge by calling Founders at 1-800-525-2440. A Fund may also acquire
certificates of deposit and bankers' acceptances of banks which meet criteria
established by the Funds' board of directors. A certificate of deposit is a
short-term obligation of a bank. A banker's acceptance is a time draft drawn by
a borrower on a bank, usually relating to an international commercial
transaction.

The obligations of foreign branches of U.S. depository institutions may
be general obligations of the parent depository institution in addition to being
an obligation of the issuing branch. These obligations, and those of foreign
depository institutions, may be limited by the terms of the specific obligation
and by governmental regulation. The payment of these obligations, both interest
and principal, also may be affected by governmental action in the country of
domicile of the institution or branch, such as imposition of currency controls
and interest limitations. In connection with these investments, a Fund will be
subject to the risks associated with the holding of portfolio securities
overseas, such as possible changes in investment or exchange control
regulations, expropriation, confiscatory taxation, or political or financial
instability.

Obligations of U.S. branches of foreign depository institutions may be
general obligations of the parent depository institution in addition to being an
obligation of the issuing branch, or may be limited by the terms of a specific
foreign regulation applicable to the depository institutions and by government
regulation (both domestic and foreign).

A repurchase agreement is a transaction under which the 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 Investment Company Act of 1940. The Funds may
enter into repurchase agreements with banks or well-established securities
dealers meeting the criteria established by the Funds' board of directors. All
repurchase agreements entered into by the Funds will be fully collateralized and
marked to market daily. In the event of default by the seller under a repurchase
agreement, the Fund may experience difficulties in exercising its rights to the
underlying security and may incur costs in connection with the disposition of
that security. None of the Funds adopted has any limits on the amounts of their
total assets that may be invested in repurchase agreements which mature in less
than seven days. See the following section for each Fund's limit on investments
in illiquid securities and in repurchase agreements which mature in more than
seven days.

<PAGE>

ILLIQUID SECURITIES

Each of the Funds except Money Market Fund may invest up to 15% of the
market value of its net assets, measured at the time of purchase, in securities
which are not readily marketable, including repurchase agreements maturing in
more than seven days and foreign securities not listed on a recognized foreign
or domestic exchange. Securities which are not readily marketable are those
which, for whatever reason, cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the applicable
Fund has valued the investment.

Restricted securities include securities which are not only not readily
marketable, but securities which cannot be resold or distributed to the public
without an effective registration statement under the Securities Act of 1933.
Founders Blue Chip Fund, Frontier Fund, and Money Market Fund are prohibited by
fundamental investment policies from investing any percentage of their net
assets in restricted securities. All other Founders Funds may invest a maximum
of 5% of their net assets in restricted securities.

Investments in illiquid securities, including securities which are not
readily marketable and restricted securities, involve certain risks to the
extent that a Fund may be unable to dispose of such a security at the time
desired or at a reasonable price. In addition, in order to resell a restricted
security, a Fund might have to bear the expense and incur the delays associated
with effecting registration.

Money Market Fund may enter into repurchase agreements if, as a result
thereof, no more than 10% of the market value of its net assets would be subject
to repurchase agreements maturing in more than seven days. Each of the Funds
except Blue Chip Fund, Frontier Fund, and Money Market Fund may invest in Rule
144A securities (securities issued in offerings made pursuant to Rule 144A under
the Securities Act of 1933). Rule 144A securities are restricted securities
which may or may not be deemed to be readily marketable. The Funds' board of
directors has adopted guidelines and procedures for Founders to follow in
determining whether a Rule 144A security may be deemed to be readily marketable.
Factors considered in evaluating whether such a security is readily marketable
include eligibility for trading, trading activity, dealer interest, purchase
interest, and ownership transfer requirements. Founders is required to monitor
the readily marketable nature of each Rule 144A security on a basis no less
frequently than quarterly. The Funds' directors monitor the determinations of
Founders quarterly. Readily marketable Rule 144A securities may be resold to
qualified institutional buyers as defined under Rule 144A. The liquidity of each
Fund's investments in Rule 144A securities could be impaired if institutional
investors become disinterested in purchasing such securities. For more
information concerning Rule 144A securities, see the Funds' STATEMENT OF
ADDITIONAL INFORMATION, which may be obtained without charge by calling Founders
at 1-800-525-2440.

<PAGE>

BORROWING

Each Fund may borrow money from banks for extraordinary or emergency
purposes in amounts up to 10% of the Fund's net assets (International Equity
Fund may effect such borrowings in amounts up to 33-1/3% of its net assets). If
a Fund borrows money, its share price may be subject to greater fluctuation
until the borrowing is repaid. Each Fund will attempt to minimize such
fluctuations by not purchasing securities when borrowings are greater than 5% of
the value of the Fund's total assets.

FUTURES CONTRACTS AND OPTIONS

All Funds except Money Market Fund may enter into futures contracts (or
options thereon) for hedging purposes. The acquisition or sale of a futures
contract could occur, for example, if a Fund held or considered purchasing
equity securities and sought to protect itself from fluctuations in prices
without buying or selling those securities. The Funds may also enter into
interest rate and foreign currency futures contracts. Interest rate futures
contracts currently are traded on a variety of fixed-income securities. Foreign
currency futures contracts currently are traded on the British pound, Canadian
dollar, Japanese yen, Swiss franc, German mark and on Eurodollar deposits.

An option is a right to buy or sell a security at a specified price
within a limited period of time. Balanced Fund may write ("sell") covered call
options on stocks. Each Fund retains the freedom to write options on any or all
of its portfolio securities from time to time as Founders shall deem
appropriate. The extent of the Funds' option writing activities will vary from
time to time depending upon Founders' evaluation of market, economic and
monetary conditions.

All Funds except Money Market and Government Securities Funds may
purchase options on stock indices. A call option on a stock index gives a
purchaser the right to buy, and a put option on a stock index gives a purchaser
the right to sell, a designated number of shares of the underlying instrument
(the stock index) at the option exercise price. 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 stocks owned by a Fund. Whether a Fund will realize a gain or a
loss from its option activities depends upon movements in the level of stock
prices generally or in an industry or market segment, rather than movements in
the price of a particular stock. Purchasing call and put options on stock
indices involves the risk that Founders may be incorrect in its expectations as
to the extent of stock market movements or the time within which the options are
based.

<PAGE>

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 clearing house 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 an option is exercised, parties will
be subject to all the risks associated with trading of futures contracts. 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.

A Fund will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of its
total assets after taking into account unrealized profits and losses on options
entered into. All of the Funds except Money Market Fund may 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.

The successful use of the investment practices described above with
respect to futures contracts, options on futures contracts, and options on
securities indices, securities, and foreign currencies draws upon skills and
experience which are different from those needed to select the other securities
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. The Funds will not use
such practices for speculative purposes. A more detailed explanation of these
practices and securities, some of which are known as derivatives, is located in
the STATEMENT OF ADDITIONAL INFORMATION, which may be obtained without charge by
calling Founders at 1-800-525-2440.

PORTFOLIO TURNOVER

Each Fund reserves the right to sell its portfolio securities,
regardless of the length of time that they have been held, when it is determined
by Founders that those securities have attained or are unable to meet the
investment objective of the Fund. Discovery, Frontier, Special, Passport,
Worldwide Growth, and Growth Funds may engage in short-term trading and
therefore normally will have annual portfolio turnover rates in excess of 100%.
Fund management estimates that International Equity, which may also engage in
short-term trading, will have an annual portfolio turnover rate which will not
exceed 200%. In addition, during periods when Balanced Fund engages in option
transactions, its annual portfolio turnover rate is likely to exceed 100%.
Portfolio turnover rates in excess of 100%, which are considered to be high,
often may be greater than those of other investment companies seeking capital
appreciation. Such turnover rates would cause a Fund to incur greater brokerage
commissions than would otherwise be the case. Such turnover rates may also
generate larger taxable income and

<PAGE>

taxable capital gains than would result from lower portfolio turnover rates and
may create higher tax liability for the Funds' shareholders. A 100% portfolio
turnover rate would occur if all of the securities in the portfolio were
replaced during the period. Portfolio turnover rates may also increase as a
result of the need for a Fund to effect significant amounts of purchases or
redemptions of portfolio securities due to economic, market, or other factors
that are not within Founders' control. Further information with respect to the
Funds' portfolio turnover rates is discussed in the Funds' STATEMENT OF
ADDITIONAL INFORMATION, which may be obtained without charge by calling Founders
at 1-800-525-2440. The portfolio turnover rates of all Funds except Money Market
Fund are located in the section entitled "Financial Highlights."

<PAGE>

INVESTING IN THE FOUNDERS FUNDS

OPENING YOUR ACCOUNT WITH FOUNDERS

THE FOLLOWING ACCOUNTS MAY BE ESTABLISHED USING A REGULAR FOUNDERS NEW ACCOUNT
APPLICATION:

INDIVIDUAL OR JOINT TENANTS. Individual accounts have one owner. Joint
accounts have two or more owners. Unless specified otherwise, joint accounts are
set up with rights of survivorship.

TRANSFER ON DEATH. A way to provide beneficiaries on an Individual or
Joint Tenant account. CALL 1-800-525-2440 FOR ADDITIONAL INFORMATION.

UGMA OR UTMA. (Uniform Gifts to Minors Act or Uniform Transfers to Minors
Act) These accounts are a way to give money to a child or to help a child save
on his/her own. Depending on state laws, Founders will set the account up as an
UGMA or UTMA.

TRUST. The trust needs to be effective before the account may be
established.

CORPORATION OR OTHER ENTITY. The accounts are owned by the corporation or
entity. Please attach a certified copy of your corporate resolution showing the
person(s) authorized to act on this account.

THE FOLLOWING RETIREMENT ACCOUNTS REQUIRE A SPECIAL APPLICATION:

IRAS. Any adult under 701/2 who has earned income may contribute up to
$2,000 (or 100% of compensation, which ever is less) per tax year. If your
spouse is not employed, you can contribute up to $2,250 annually to two IRAs in
any manner, as long as no more than $2,000 is contributed to a single plan.
COMPLETE A FOUNDERS IRA APPLICATION.

ROLLOVER OR CONDUIT IRAS. Distributions from qualified employer-sponsored
retirement plans (and, in most cases, from any IRA) retain their tax advantages
when rolled over to an IRA within 60 days. You may also request that Founders
contact the current holder of your IRA (or other qualified retirement plan if
you are leaving your current job and wish to avoid a mandatory 20% withholding
tax) and have the money transferred directly to Founders. COMPLETE A FOUNDERS
IRA APPLICATION AND A DIRECT ROLLOVER/TRANSFER FORM.

SEP-IRAS AND SAR-SEPS. A simplified retirement plan with minimal
reporting and disclosure requirements. Allows employers to make direct
contributions to employees' IRAs. CALL 1-800-525-2440 FOR INSTRUCTIONS.

<PAGE>

PROFIT SHARING AND MONEY PURCHASE PENSION PLANS. Allow self-employed
persons or small business owners and their employees to make tax-deductible
contributions for themselves and any eligible employee. CALL 1-800-934-GOLD
(4653) FOR INSTRUCTIONS.

403(B) CUSTODIAL ACCOUNTS. Available to employees of most tax-exempt
institutions, such as schools, hospitals, and charitable organizations. CALL
1-800-934-GOLD (4653) FOR INSTRUCTIONS.

401(K) PROGRAMS. Allow employees of corporations (large or small) to
contribute a percentage of their wages on a tax-deferred basis. CALL
1-800-934-GOLD (4653) FOR ADDITIONAL INFORMATION.

MINIMUM INITIAL INVESTMENTS

$1,000 minimum for most regular accounts.

$500 minimum for IRAs and UGMA accounts.

No minimum with Automatic Investment Plan of $50 or more per month.

$250 minimum for Founders' employees and their household family members.

OPENING YOUR ACCOUNT BY MAIL
Founders Funds
P.O. Box 173655
Denver, CO 80217-3655

Complete the application.

Make your check payable to "Founders Funds, Inc." Founders Funds does not
accept third-party checks.

Mail to the above address. If you are using an overnight service or
sending your request via certified or registered mail, send your application and
payment to:

Founders Funds
2930 East Third Avenue
Denver, CO 80206-5002

OPENING YOUR ACCOUNT IN PERSON

Founders Financial Center
2930 East Third Avenue
(at Milwaukee)
Denver, CO

Visit us at the Founders Financial Center at the above address.

Hours are 8AM to 5PM Mountain time, Monday through Friday.

Call us at 1-800-525-2440 for directions.

<PAGE>
NEW ACCOUNTS OPENED BY EXCHANGE

1-800-525-2440
If you already have an account with Founders and have exchange
privileges, you can call the above number to open an account in another Founders
fund by exchange. The names of the account owners (and account registrations)
need to be identical on both accounts.

OPENING YOUR ACCOUNT THROUGH A BROKER

Be sure to read the broker's program materials for disclosures on fees
and service features that may differ from those in this prospectus. A broker may
charge a commission, transaction fee, or have different account minimums. If you
deal directly with Founders, no commission or fee is charged.

ADDING TO YOUR FOUNDERS FUNDS ACCOUNT

MINIMUM ADD-ON INVESTMENT

$100 for mail, TeleTransfer and wire payments

$50 for Automatic Investment Plan payments

$25 for Founders' employees and their household family members

BY MAIL

Founders Funds
P.O. Box 173655
Denver, CO 80217-3655

Make your check payable to "Founders Funds, Inc."

Enclose the purchase stub (from your most recent confirmation or
quarterly statement); if you do not have one, write the Fund name and your
account number on the check. For IRAs, please state the contribution year.

Founders Funds does not normally accept third-party checks. Please call
1-800-525-2440 for more information.

Mail it to the above address. If you are sending your request via
registered or certified mail or using an overnight service, direct your
investment to:

Founders Funds
2930 East Third Avenue
Denver, CO 80206-5002

<PAGE>

IN PERSON

Founders Financial Center
2930 East Third Avenue (at Milwaukee)
Denver, CO

Visit us at the Founders Financial Center at the above address.

Hours are 8AM to 5PM Mountain time, Monday through Friday.

Call us at 1-800-525-2440 for directions.

BY WIRE

Wire funds to:

Investors Fiduciary Trust Company
ABA # 101003621
For Credit to Account # 751-842-0

PLEASE INDICATE THE FUND NAME AND YOUR ACCOUNT NUMBER, AND INDICATE THE
NAME(S) OF THE ACCOUNT OWNER(S).

BY AUTOMATED TELEPHONE SERVICE
1-800-947-FAST (3278)

Follow instructions provided.

All purchases through automated telephone service are TeleTransfer
purchases as explained in the TeleTransfer section.

BY AUTOMATIC INVESTMENT PLAN (AIP) AND TELETRANSFER

1-800-525-2440
AIP allows shareholders to make regular, electronic purchases directly
from a checking or savings account; TeleTransfer allows similar purchases (and
redemptions) at your request.

AIP and TeleTransfer may be established when your account is opened. Call
Founders at the above number to request a form to add these features to an
existing account.

Once established, AIP purchases normally take place automatically on
approximately the 5th and/or 20th of the month. Later in the year, the Fund
expects to offer this service on alternate dates.

TeleTransfer purchases take place at your request and are executed at the
closing price of the business day you call. Call Founders at the above number to
request such a purchase.

Shareholders establishing AIP are eligible automatically to make
TeleTransfer transactions; either AIP or TeleTransfer shareholders automatically
receive telephone redemption privileges. See the section entitled, "Selling
Shares From Your Founders Funds - By Phone."

Founders charges no fee to process AIP or TeleTransfer transactions.

<PAGE>

SELLING SHARES FROM YOUR FOUNDERS FUNDS

GENERAL REDEMPTION POLICIES

HOLD ON PURCHASES. Purchases by check or TeleTransfer (other than those
by cashier's check) will be placed on hold for a maximum 10-day period. During
this time, you may make exchanges to another fund but may not receive the
proceeds of redemption until bank clearance of your purchase check (which may
take up to 10 days). Notwithstanding the fact that payment may be delayed,
redemption share pricing shall be determined in accordance with the procedures
outlined in the section entitled "Share Price Determination" elsewhere in this
prospectus.

DESTINATION OF REDEMPTIONS. All requests to send funds to an address that
has been changed in the past 30 days, to an address other than the address of
record or to a financial institution/account other than the banking information
we have on file must be accompanied by a signature guarantee.

REDEMPTIONS IN EXCESS OF $250,000. For Discovery, Frontier, Passport,
Special, International Equity, Worldwide Growth, Growth, Blue Chip, Balanced,
and Government Securities Funds: Shares will normally be redeemed in cash,
although Founders retains the right to redeem shares in kind by delivery of
readily marketable securities selected from a Fund's assets at its discretion
under unusual circumstances, such as a period with an unusually large number of
redemption requests, in order to protect the interests of the remaining
shareholders. However, the Company has elected to be governed by Rule 18f-1
under the Investment Company Act of 1940, pursuant to which the Company is
obligated during any 90-day period to redeem shares for any one shareholder
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund at the beginning of that period. The method of valuing securities used to
make redemptions in kind will be the same as the method of valuing portfolio
securities described under "Determination of Net Asset Value" in the STATEMENT
OF ADDITIONAL INFORMATION, which may be obtained without charge by calling
Founders at 1-800-525-2440, and such valuation will be made as of the same time
the redemption price is determined. The investor will incur brokerage costs in
converting these securities into cash. Fund shares have not been redeemed in
kind during the past ten years.

INDIVIDUAL, JOINT TENANT, TRANSFER ON DEATH AND UGMA/UTMA ACCOUNTS:
Letter of instruction needs to be signed by all persons required to sign for
transactions. Be sure to sign just as your names appear on the account or in our
records. Please tell us the number of shares or dollars you wish to redeem, the
names of the account owners, the fund and account number, and your social
security or tax identification number. Requests to sell $50,000 or more require
a signature guarantee.

RETIREMENT ACCOUNTS: Please call for the appropriate form;
1-800-525-2440.

<PAGE>

TRUST ACCOUNTS: The trustee needs to sign the letter indicating his/ her
capacity as trustee. If the trustee's name is not in the account registration,
you will need to provide a certificate of incumbency dated within the past 60
days. Please tell us the number of shares or dollars you wish to redeem, the
names of the account owners, the fund and account number, and your social
security or tax identification number. A signature guarantee is required for
redemptions of $50,000 or more.

CORPORATION OR OTHER ENTITY: A corporate resolution complete with a
corporate seal or signature guarantee needs to be included. Please tell us the
number of shares or dollars you wish to redeem, the names of the account owners,
the fund and account number, and your social security or tax identification
number. At least one person authorized to act on the account needs to sign the
letter.

REDEMPTIONS BY PHONE
1-800-525-2440

If we have received written authorization from you for phone redemption
for your account, you merely need to phone us at the above number to sell
shares.

Proceeds may be sent only to the address or bank of record.

Minimum redemption by phone: $100 for a redemption delivered by check or
electronic transfer (TeleTransfer); $1,000 for a redemption delivered by wire.

Phone redemption is not available on retirement accounts and certain
other accounts.

Founders may not be responsible for the authenticity of phone
instructions. See the section entitled "Overall Policies Regarding Transactions
- - Those Conducted by Phone, Fax, Automated Telephone Service, or an On-Line
Computer Service" elsewhere in this Prospectus.

IN WRITING
Founders Funds
P.O. Box 173655
Denver, CO 80217-3655

Please review the preceding section on redemption policies and mail your
request to the above address. If you are using certified or registered mail or
an overnight service, send your request to:

Founders Funds
2930 East Third Avenue
Denver, CO 80206-5002

IN PERSON

Founders Financial Center
2930 East Third Avenue (at Milwaukee)
Denver, CO

<PAGE>

METHOD PROCEEDS WILL BE DELIVERED TO YOU:

BY CHECK. Checks are sent to the address of record. Requests that a check
be sent elsewhere require a signature guarantee.

BY WIRE. $6.00 fee; $1,000 minimum; monies usually received the business
day after the date you sell. Unless otherwise specified, fee will be deducted
from redemption proceeds.

TELETRANSFER. No fee; monies usually received two business days after you
sell.

Where not specified, proceeds will be delivered via check.

VIA CHECKWRITING

Available on Founders Government Securities and Money Market Funds.

May be established after account is opened.

Call 1-800-525-2440 to request the appropriate form.

There is no fee for this service.

Minimum amount per check: $500

Maximum amount per check: $250,000

Founders may perform a credit check on shareholders requesting
checkwriting privileges.

EXCHANGING SHARES OF YOUR FOUNDERS FUNDS

Minimum amount for exchanges is $100.

BY PHONE
1-800-525-2440: Investor Services
1-800-947-FAST (3278): Automated Telephone Service
If you have an account with Founders and have not declined telephone
exchange privileges in writing, you may exchange from one fund to another by
calling one of the above numbers. The names of the account owners (and account
registrations) need to be identical on both accounts.

Founders may not be responsible for the authenticity of phone
instructions. See the section entitled, "Overall Policies Regarding Transactions
- - Those Conducted by Phone, Fax, Automated Telephone Service or an On-Line
Computer Service" elsewhere in this Prospectus.

Founders may not be responsible for the authenticity of fax instructions.
See the section entitled, "Overall Policies Regarding Transactions - Those
Conducted by Phone, Fax, Automated Telephone Service or an On-Line Computer
Service" elsewhere in this Prospectus.

<PAGE>

IN WRITING VIA U.S. MAIL OR FAX
Founders Funds
P.O. Box 173655
Denver, CO 80217-3655

Fax (303) 394-4021
Kindly include in your letter the names of the account owners, the fund
and account number you wish to exchange from, your social security or tax
identification number, the dollar or share amount of the transaction, and the
account you wish to exchange into. Remember that all account owners need to sign
the request exactly as their names appear on the account.

EXCHANGE POLICIES

To maintain competitive expense ratios and avoid disrupting the
management of each Fund's portfolio, the Funds reserve the right to suspend or
terminate this exchange privilege for any shareholder (including a shareholder
whose account is managed by an adviser) when the total exchanges out of any one
of the Funds exceed four in any calendar year. Founders will provide written
notification to any investor whose exchange privilege is being revoked and will
provide an effective date of revocation, which will not be less than fifteen
(15) calendar days after the notification date.

OVERALL POLICIES REGARDING TRANSACTIONS

THOSE CONDUCTED BY PHONE, FAX, AUTOMATED TELEPHONE SERVICE, OR AN ON-
LINE COMPUTER SERVICE: Neither the Funds, Founders, nor any of their agents is
responsible for the authenticity of exchange or redemption instructions received
by one of the aforementioned methods. Automatically by signing a "New Account
Application" (unless specifically declined on the Application), by providing
other written (for redemptions) or verbal (for exchanges) authorization, or by
requesting Automatic Investment Plan privileges, you agree to release the Funds,
Founders, and their agents from any and all liability for acts or omissions done
in good faith under the authorizations contained in the application, including
their possibly effecting fraudulent transactions. As a result of your executing
such a release, you bear the risk of loss from a fraudulent transaction.
However, if the Fund fails to employ reasonable procedures to attempt to confirm
that instructions are genuine, the Fund may be liable for any such losses. These
procedures include, but are not necessarily limited to, one or more of the
following: requiring personal identification prior to acting upon instructions;
providing written confirmation of such transactions; and/or tape-recording
telephone instructions.

EFFECTIVE DATE OF TRANSACTIONS. Transaction requests received in good
order prior to the close of the New York Stock Exchange on a given date will be
effective that date. However,

<PAGE>

under certain circumstances, payment of redemption proceeds may be delayed for
up to six (6) business days to allow for the orderly liquidation of securities.
Also, when the New York Stock Exchange is closed (or when trading is restricted)
for any reason other than its customary weekend or holiday closing, or under any
emergency circumstances, as determined by the SEC, we may suspend redemptions or
postpone payments. If you are unable to reach us by phone, consider sending your
order by overnight mail; exchange requests may be faxed to (303) 394-4021.

FAX TRANSMISSIONS. Redemption requests received by fax will not be
processed.

CERTIFICATES. If you are selling shares previously issued in certificate
form, you will need to include these certificates along with your
redemption/exchange request.

U.S. DOLLARS. Purchases need to be made in U.S. dollars, and checks need
to be drawn on U.S. banks. No cash can be accepted.

TRANSACTION REQUESTS THAT ARE NOT IN GOOD ORDER CANNOT BE EXECUTED. YOU
WILL BE CONTACTED IN WRITING IF THIS OCCURS. CALL FOUNDERS AT 1-800-525-2440 IF
YOU HAVE ANY QUESTIONS ABOUT THESE PROCEDURES.

FOUNDERS CANNOT ACCEPT CONDITIONAL TRANSACTIONS REQUESTING THAT A
TRANSACTION OCCUR ON A SPECIFIC DATE OR AT A SPECIFIC SHARE PRICE.

SIGNATURE GUARANTEE REQUIREMENTS. Signature guarantees are required for
certain transactions and are an industry-wide method of maintaining the security
of customer accounts. Such guarantees may be obtained from a bank, broker,
dealer, credit union (if authorized under state law), securities
exchange/association, clearing agency, or savings association. A NOTARY PUBLIC
CANNOT PROVIDE A SIGNATURE GUARANTEE.

RETURNED CHECKS. If your check is returned unpaid to Founders, your
purchase will be canceled and you will be liable for any losses or fees incurred
by the fund or its agents. If you are a current shareholder, shares will be
redeemed from other accounts, if needed, to reimburse the fund.

TAXES. Remember that for tax purposes, redemptions in non-tax deferred
accounts may have tax consequences, as you may need to recognize a gain or loss.
Likewise, exchanges from one fund to another represent a sale from one fund and
a purchase of another and may result in a gain or loss that you will need to
recognize on your tax return.

ACCOUNT MINIMUMS. The Fund requires a minimum of $1,000 per account in
order to maintain competitive expense ratios. (The minimum is $500 for IRAs and
UGMAs/ UTMAs.) If at any time, due to redemptions or exchanges, or upon the
discontinuance of an Automatic Investment Plan, the total value of your account
falls below this minimum, we may either charge a fee of $10, which will be
automatically deducted from the account, or close your account and mail the
proceeds to the address of record. The decision to levy the fee or close the
account will be based on a determination of the best interests of the Fund. We
will give you at least 60 days' written notice informing you

<PAGE>

that your account will be closed or that the $10 fee will be charged, so that
you may make an additional investment to bring the account up to the required
minimum balance.

TAX IDENTIFICATION. Please make sure to complete the "Signature(s)"
section on your "New Account Application" when you open your account. If you do
not provide us with the above information, federal tax law requires the ^ Fund
to withhold 31% of dividends, capital gains distributions, redemptions and
exchange proceeds. Founders Funds, Inc. may also refuse to sell shares to any
person who does not furnish at the time of purchase a certified social security
or tax identification number. If fund shares are purchased by a person who has
not provided a certified taxpayer identification number, certain action may be
taken, as deemed necessary by the fund, including redeeming some or all of the
shareholder's shares. In addition, your account may be reduced by $50 to
reimburse Founders Funds, Inc. for the penalty that the Internal Revenue Service
will impose on the company for failure to report your taxpayer identification
number on information reports.

FOUNDERS RESERVATIONS. Founders reserves the right to (1) reject any
investment or application; (2) cancel any purchase due to nonpayment; (3) modify
the conditions of purchase at any time; (4) waive or lower investment minimums;
(5) limit the amount that may be purchased; and (6) perform a credit check on
shareholders establishing a new account or requesting checkwriting privileges.

<PAGE>

SHAREHOLDER SERVICES

INVESTOR SERVICES
1-800-525-2440
Founders Service Representatives are available at the above number to
assist you from Monday through Friday, from 7AM to 6:30PM, Mountain time, and on
Saturday, from 9AM to 2PM, Mountain time. For your protection, calls to Investor
Services are recorded.

FUND AND MARKET NEWS UPDATES

Founders INSIGHT features the latest news about the Founders Funds and is
available 24 hours a day. Call 1-800-525-2440 and press option 5 on your
Touchtone phone.

DAILY CLOSING PRICES

Founders QUOTELINE features the latest closing prices for the Founders
Funds, updated each business day. Call 1-800-232-8088.

24-HOUR ACCOUNT INFORMATION

BY PHONE
1-800-947-FAST (3278)

Founders' automated telephone service enables you to access account
information as well as conduct exchanges and purchases 24 hours a day with a
Touchtone phone. Dial the above number.

BY ON-LINE COMPUTER SERVICES
Account information is available through the online computer service,
America Online (AOL). Contact either AOL directly or Founders at 1-800-525-2440.

STATEMENTS AND REPORTS

CONFIRMATION STATEMENTS: Sent after each transaction, except in certain
retirement accounts and where the only transaction is a monthly dividend
repurchase or an Automatic Investment Plan purchase.

ACCOUNT STATEMENTS: Sent at the end of each quarter.

SHAREHOLDER REPORTS: Sent twice a year; after the end of June and after
year-end.

STATEMENT OF ADDITIONAL INFORMATION: A STATEMENT OF ADDITIONAL
INFORMATION dated May 1, 1996 has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. You can obtain a copy
without charge by calling Founders at 1-800-525-2440.

<PAGE>

ESTABLISHING ADDITIONAL SERVICES
1-800-525-2440
Shareholders may call to request a form to add or delete the following
services:

CHECKWRITING. Available on Founders Money Market and Government
Securities Funds only.

TELEPHONE REDEMPTION. Available for regular (nonretirement) accounts
only.

TELEPHONE EXCHANGE.

FUND-TO-FUND INVESTMENT PLAN. Allows shareholders to automatically
withdraw a fixed dollar amount each month from one Founders Fund to purchase
shares in another Founders Fund.

DISTRIBUTION PURCHASE PROGRAM. Permits shareholders to have capital gains
distributions and/or dividends from one Founders Fund automatically reinvested
to purchase shares of another Founders Fund.

AUTOMATIC INVESTMENT PLAN. Allows shareholders to make automatic
purchases from a bank account once or twice a month.

TELETRANSFER PROGRAM. Allows shareholders to purchase or redeem shares in
the Founders Funds with a simple phone call at any time. Purchase or redemption
amounts are automatically transferred to/from the shareholder's bank account.
Shareholders selecting an Automatic Investment Plan are automatically authorized
to participate in the TeleTransfer program.

SYSTEMATIC WITHDRAWAL PLAN. Permits the shareholder to receive a fixed
sum on a monthly, quarterly or annual basis from accounts with a value of $5,000
or more. Payments may be sent electronically to your bank or to you in check
form.

DIVIDEND AND DISTRIBUTION OPTIONS. Either or both may be paid in cash or
reinvested.

<PAGE>

GENERAL INFORMATION

SHARE PRICE DETERMINATION

The daily net asset value per share is determined at the close of regular
trading on the New York Stock Exchange (currently 4PM Eastern time) on each day
such Exchange is open. Net asset value per share is calculated for purchases and
redemptions by dividing the current market value of total assets, less all
liabilities, by the total number of shares outstanding. If market quotations are
not readily available, the Funds' securities or other assets will be valued at
fair value as determined in good faith by the Funds' board of directors. Net
asset value per share at the time of redemption may be more or less than the
price originally paid to purchase shares, depending primarily upon a Fund's
investment performance.

Investments and requests to redeem shares received by Founders before
the close of business on the New York Stock Exchange are effective on, and will
receive the price determined, that day. Redemption requests received thereafter
are effective on, and receive the price determined, the next day the New York
Stock Exchange ("Exchange") is open.

Investments are considered received only when your check or wired funds
are received by Founders. Wired funds are considered received on the day they
are deposited in the custodian bank account if your phone call is received
before the close of business on the Exchange, usually 4PM Eastern time, and the
money is deposited that day.

Founders Funds, Inc. will use its best efforts, under normal
circumstances, to maintain the net asset value of Money Market Fund at $1.00 per
share using the amortized cost method. Additional information concerning the
computation of net asset value appears in the STATEMENT OF ADDITIONAL
INFORMATION, which may be obtained without charge by calling Founders at
1-800-525-2440.

DIVIDENDS AND DISTRIBUTIONS

Discovery, Frontier, Passport, Special, International Equity, Worldwide
Growth, Growth, and Blue Chip Funds intend to distribute net realized investment
income and any net realized capital gains, after utilization of capital loss
carryforwards, in December of every year. Balanced Fund intends to distribute
net realized investment income on a quarterly basis in March, June, September,
and December of every year, and any net realized capital gains, after
utilization of capital loss carryforwards, in December of every year. Government
Securities Fund intends to declare dividends daily and distribute net realized
investment income monthly, and distribute any net

<PAGE>

realized capital gains, after utilization of capital loss carryforwards, in
December of every year. Money Market Fund declares dividends daily, which are
paid on the first business day of every month. Shares of Government Securities
and Money Market Funds begin receiving dividends no later than the next business
day following the day when
funds are received by Founders.

The Funds will be subject to an annual 4% excise tax if they fail to meet
certain calendar-year distribution requirements. In order to prevent imposition
of the excise tax, it may be necessary for the Funds to make distributions in
addition to those described in the previous paragraph.

Dividends paid by the Fund from net investment income, as well as
distributions of net realized short-term capital gains, are, for federal income
tax purposes, taxable as ordinary income to shareholders. At the end of each
calendar year, shareholders are sent full information on dividends and capital
gain distributions, including information as to the portion taxable as ordinary
income and long-term capital gains. Information concerning the amount of
dividends eligible for the dividends-received deduction available for
corporations is contained in the Funds' annual report or may be obtained upon
request by calling Founders.

DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS

You may elect to have your income dividends and capital gains
distributions reinvested in additional shares. We will assign you this option
automatically if you make no choice on the application. Otherwise:

(a) you may elect to have your income dividends and short-term capital
gains paid to you in cash and your long-term capital gains
distributions reinvested; or

(b) you may elect to have your income dividends and short-term capital
gain reinvested and your long-term capital gains distributions paid
to you in cash; or

(c) you may elect to have both your income dividends and capital gains
distributions paid to you in cash. Income dividends and capital gain
distributions will be reinvested without a sales charge at the net
asset value on the ex-dividend date. If you have elected to receive
your dividends or capital gains in cash and the Postal Service cannot
deliver your checks, or if your checks remain uncashed for six months,
Founders reserves the right to reinvest your distribution checks in
your account at the then-current net asset value and to reinvest all
the account's subsequent distributions in shares of that fund. If your
investment is in the form of a retirement plan, all dividends and
capital gains distributions must be reinvested in your account.

<PAGE>

TAXES

Each of the Funds intends to qualify annually as a regulated investment
company. Generally, regulated investment companies are relieved of federal
income tax on the income that they earn and distribute to their shareholders.

All dividends of net investment income from the Fund will be taxable to
you as ordinary income. A portion of such dividends may qualify for the
dividends received deduction for corporations, although distributions from
Government Securities and Money Market Funds generally are not expected to
qualify. All distributions from net short-term capital gains will be taxable to
you as ordinary income.

Distributions from each Fund generally will be taxable to you in the
tax year in which they are received. However, generally, dividends declared by a
Fund in October, November or December of any calendar year, with a record date
in such a month, and paid during the following January will be treated as if
they were paid by the Fund and received by you on December 31 of the calendar
year in which they were declared.

Each Fund will send you detailed tax information each year, including
information regarding the amounts and types of its distributions.

Shareholders also may be subject to state and local taxes on income
from their investment in a Fund. Foreign shareholders may be subject to federal
income tax rules that differ from those described above. All shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences of an investment in a Fund.

FOUNDERS FUNDS, INC. AND ITS MANAGEMENT

Founders Funds, Inc. is an open-end diversified investment management
company organized as a Maryland corporation on June 19, 1987. Founders serves as
investment adviser to each of the Funds. The affairs of Founders Funds, Inc.,
including the services provided by Founders, are subject to the supervision and
general oversight of the Funds' board of directors.

Founders Funds, Inc. and Founders Asset Management, Inc. have adopted a
strict code of ethics which limits directors, officers, investment personnel,
and other Founders employees in investing in securities for their own accounts.
The code of ethics requires pre-clearance of personal securities transactions
and imposes restrictions and reporting requirements upon such transactions. The
code of ethics, which complies in all material respects with the recommendations
set forth in the Report of the Advisory Group on Personal Investing of the
Investment Company Institute, requires maintenance of the highest standards of
integrity and conduct. In engaging in personal business activities, personnel of
Founders and the Funds must act in the best interests of the Funds and their
shareholders. The Funds and Founders carefully monitor compliance with the code
of ethics by their respective personnel.

Founders, which has acted as an investment adviser since 1938, manages
the investment of each Fund's assets and provides certain administrative
services to each Fund. For these services, each Fund pays Founders an investment

<PAGE>

advisory fee which, during the most recent fiscal year, represented the
following percentages of each Fund's average daily net assets: Discovery Fund -
1.00%; Frontier Fund - 0.97%; Passport Fund - 1.00%; Special Fund - 0.76%;
International Equity Fund - 0.00%; Worldwide Growth Fund - 1.00%; Growth Fund -
0.74%; Blue Chip Fund - 0.64%; Balanced Fund - 0.65%; Government Securities Fund
- - 0.65% ; and Money Market Fund - 0.50%. Investment advisory fees to be paid by
International Equity Fund are anticipated to represent 1.00% of the Fund's
average daily net assets. The fees currently paid by Discovery, Frontier,
Passport, Special, Worldwide Growth, Growth, and Government Securities Funds and
the fees anticipated to be paid by International Equity Fund are higher than the
fees generally charged by most investment companies having similar objectives
and policies but are, in the opinion of the Funds' management, comparable to
those of numerous other similar mutual funds.

Each investment advisory agreement between a Fund and Founders provides
that expenses relating to the Fund's operations which are not expressly assumed
by Founders shall be paid by the Fund, including the fee paid to Founders,
shareholder servicing costs, directors fees and expenses, legal and auditing
fees, custodian fees, printing and supplies, taxes, registration fees and
distribution expenses. Each Fund's total expenses for 1995 (excluding brokerage
commissions) represented the following percentages of average daily net assets:
Discovery Fund - 1.63%; Frontier Fund - 1.57%; Passport Fund - 1.84%; Special
Fund - 1.35%; International Equity Fund -0.00%; Worldwide Growth Fund - 1.65%;
Growth Fund - 1.28%; Blue Chip Fund - 1.22%; Balanced Fund - 1.23%; Government
Securities Fund - 1.30%; and Money Market Fund - 0.89%. Total expenses to be
paid by International Equity Fund are anticipated to represent 2.00% of the
Fund's average daily net assets.

Subject to the policy of seeking the best execution of orders at the
most favorable prices, sales of shares of the Funds may be considered as a
factor in the selection of brokerage firms to execute Fund portfolio
transactions. The STATEMENT OF ADDITIONAL INFORMATION, which may be obtained
without charge by calling Founders at 1-800-525-2440, further explains the
selection of brokerage firms.

In addition, each of the Funds has entered into shareholder services
agreements with Founders, pursuant to which Founders provides certain
shareholder-related and transfer agent services to the Funds. For such services,
Founders Funds, Inc. pays Founders a monthly fee which is combined with fees
charged the Funds by Investors Fiduciary Trust Company, the Funds' transfer
agent. Out-of-pocket reimbursements are also paid by the Funds. In 1995,
Founders received aggregate shareholder services and transfer agent fees of
$25.42 for each shareholder account. Of this amount, $8.05 per shareholder
account was paid to Investors Fiduciary Trust Company. Due to a reduction in
such aggregate fees to $25 per account per annum effective June 1, 1995,
Founders anticipates that per account fees for providing such services in 1996
will be less than those paid by the Funds in 1995.

Transfer agent fees charged by

<PAGE>

Investors Fiduciary Trust Company and Founders Asset Management, Inc. are not
charged to each shareholder's or participant's account, but are expenses of the
Fund to be paid from the Fund's assets. Registered broker-dealers, third-party
administrators of tax-qualified retirement plans, and other entities which
establish omnibus accounts with the Funds may provide sub-transfer agency,
recordkeeping, or similar services to participants in the omnibus accounts which
reduce or eliminate the need for identical services to be provided on behalf of
the participants by Investors Fiduciary Trust Company and/or Founders. In such
cases, Founders is authorized to pay the entity a sub-transfer agency or
recordkeeping fee in an annualized amount up to $25 per participant in the
entity's omnibus account, from transfer agency fees applicable to each
participant's account which are paid to Founders by the Funds. Entities
receiving such fees may also receive 12b-1 fees described under "Distribution
Plans," below.

Founders Asset Management, Inc. also performs portfolio accounting for
the Funds which includes, among other duties, calculating net asset value,
monitoring compliance with regulatory requirements, and reporting. Founders
Funds, Inc. pays Founders a fee equal to 0.06% of the first $500 million of the
net assets of the Company and 0.02% of the net assets of the Company in excess
of $500 million, allocated on a pro rata basis among the portfolio companies
based on relative net assets, plus out-of-pocket reimbursement. In 1995,
Founders received aggregate portfolio accounting fees of $621,147.

DISTRIBUTION PLANS

Discovery, Frontier, Passport, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced, and Government Securities Funds each has
adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940. Each Plan provides that the Fund may pay distribution and related
expenses of up to 0.25 of 1% each year of its average daily net assets. Expenses
permitted to be paid by a Fund under its Plan include preparation, printing and
mailing of prospectuses; reports to shareholders such as semiannual and annual
reports, performance reports, and newsletters; sales literature and other
promotional material to prospective investors; direct mail solicitation;
advertising; public relations; compensation of sales personnel, brokers,
financial planners or others for their assistance with respect to the
distribution of the Fund's shares, including compensation for such services to
personnel of Founders or of affiliates of Founders; providing payments to any
financial intermediary for shareholder support, administrative, and accounting
services with respect to the shareholders of the Fund; and such other expenses
as may be approved from time to time by the Funds' board of directors and as may
be permitted by applicable statute, rule or regulation. Plan payments may be
made only to reimburse expenses incurred during a rolling twelve-month period,
subject to the annual limitation of 0.25 of 1% of average daily net assets. Any
reimbursable expenses incurred by Founders in excess of this limitation are not
reimbursable and will be borne by Founders. In addition, Founders may

<PAGE>

from time to time make additional payments from its revenues to securities
dealers and other financial institutions that provide distribution-related,
recordkeeping, and/or other administrative services to the Funds. The Funds'
board of directors reviews a quarterly written report of amounts expended under
each Plan and the purposes of the expenditures. For each Fund's most recent
fiscal year (1995), expenditures under the plan represented the following
percentage of average daily net assets: Discovery Fund - 0.25%; Frontier Fund -
0.25%; Passport Fund - 0.25%; Special Fund - 0.25%; International Equity Fund -
0.00%; Worldwide Growth Fund - 0.25%; Growth Fund - 0.25%; Blue Chip Fund -
0.25%; Balanced Fund - 0.25%; and Government Securities Fund - 0.10%.
Expenditures under the plan to be paid by International Equity Fund are
anticipated to represent 0.25% of the Fund's daily net assets.

12b-1 Fees ("Fee") are paid to broker-dealers and to other entities for
recordkeeping, shareholderrelated, distribution, accounting, and/or other
services to investors purchasing shares of a 12b-1 Fund through various sales
and/or shareholder services programs. The Fee is computed at an annual rate not
in excess of 0.25 of 1% of the average daily account balances of investments in
each 12b-1 Fund made by the entity on behalf of investors participating in the
entity's program. The directors of the 12b-1 Funds have authorized Founders to
place a portion of the Funds' brokerage transactions with certain of these
entities, which are broker-dealers or affiliates of broker-dealers, if Founders
reasonably believes that the entity is able to provide best execution of orders
at most favorable prices. Commissions earned by the entity from executing
portfolio transactions may be credited by the entity against the Fee charged to
that Fund. 12b-1 fees not expended as a result of the application of such credit
will not be used for other distribution expenses. These directed-brokerage
arrangements have no adverse effect either on the level of brokerage commissions
paid by the Funds or on any Fund's expenses.

VOTING RIGHTS

Each full share of the Funds has one vote and fractional shares have
proportionate voting rights. Shares of the Funds are generally voted in the
aggregate except where voting by each Fund is required by law. Founders Funds,
Inc. is not required to hold regular annual meetings of shareholders and does
not intend to do so; however, the Board of Directors will call special meetings
of shareholders for action by shareholder vote as may be requested in writing
generally by the holders of 10% or more of the outstanding shares of each Fund
or as may be required by applicable law or the Funds' Articles of Incorporation,
and each Fund will assist shareholders in communicating with other shareholders
as required by the Investment Company Act of 1940. Directors may be removed by
action of the holders of a majority or more of the outstanding shares of all of
the Funds.

<PAGE>

TANSFER AGENT AND CUSTODIAN

Investors Fiduciary Trust Company, under contracts with the Funds,
performs all of these functions:

+ transfer agent
+ dividend disbursing agent
+ redemption agent
+ custodian of the portfolio securities and cash of each fund

Founders Asset Management, Inc., under contracts with the Funds,
provides selected transfer agency services for the Funds. See "Founders Funds,
Inc. and Its Management," on page 35.

FUND PERFORMANCE INFORMATION

Founders Funds, Inc. may, from time to time, include the yield or total
return of the Funds (other than Money Market Fund) in advertisements or reports
to shareholders or prospective investors. Any quotations of yield will be based
on all investment income per share earned during a given 30-day period
(including dividends and interest), less expenses accrued during the period
("net investment income"), and will be computed by dividing net investment
income by the maximum public offering price per share on the last day of the
period. Quotations of average annual total return for a Fund will be expressed
in terms of the average annual compounded rate of return on a hypothetical
investment in the Fund over a period of 1, 5 and 10 years (up to the life of the
Fund); will reflect the deduction of a proportional share of Fund expenses (on
an annual basis); and will assume that all dividends and distributions are
reinvested when paid.

Performance information for a Fund may be compared in reports and
advertisements to:

(1) the Standard & Poor's 500 Stock Index, the Dow Jones Industrial
Average, or other unmanaged indices so that investors may compare a Fund's
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general;

(2) other groups of mutual funds tracked by independent research firms
which mark mutual funds by overall performance, investment objectives and
assets, or tracked by other services, companies, publications, or persons, that
rank mutual funds on overall performance or other criteria, such as Lipper
Analytical Services, Money, Morningstar, Kiplinger's Personal Finance, CDA
Weisenberger, Financial World, Wall Street Journal, U.S. News, Barron's, USA
Today, Business Week, Investor's Business Daily, Fortune, Mutual Funds Magazine
and Forbes; and

(3) the Consumer Price Index (measured for inflation) to assess the
real rate of return from an investment in the Funds. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.

Other unmanaged indices which may be used by the Funds in providing
comparison data of performance and shareholder service include Lehman Brothers,
National Association of Securities Dealers Automated Quotations, Frank Russell
Company, Value Line Investment Survey, American Stock Exchange, Morgan Stanley
Capital

<PAGE>

International, Wilshire Associates, Financial Times Stock Exchange, New York
Stock Exchange, the Nikkei Stock Average, and the Deutcher Atkienindex.
Performance information for any Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance figures are based upon historical
investment results and are not intended to indicate future performance. See the
STATEMENT OF ADDITIONAL INFORMATION, which may be obtained without charge by
calling Founders at 1-800-525-2440.

Founders Funds, Inc. may also advertise assessments and analyses of the
quality of the Funds' shareholder services published by analytical and other
recognized magazines which compare the quality of such services provided by
mutual fund complexes.

The Lipper Analytical Services mutual fund rankings and comparisons
which may be provided by the Funds in performance reports will be drawn from the
following Lipper mutual fund groupings:

LIPPER MUTUAL FUND

FUND GROUPING
- --------------------------------------------------------------------------------

Discovery.......................................Small Company Growth Funds
Frontier........................................Small Company Growth Funds
Passport...............................................International Funds
Special.........................................Capital Appreciation Funds
International Equity.....................International Small Company Funds
Worldwide Growth..............................................Global Funds
Growth........................................................Growth Funds
Blue Chip..........................................Growth and Income Funds
Balanced....................................................Balanced Funds
Government Securities................................U.S. Government Funds

<PAGE>

[Logo]

FOUNDERS FUNDS

FOUNDERS ASSET MANAGEMENT, INC.
INVESTMENT ADVISER AND FUND DISTRIBUTOR

Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
Toll-Free: 1-800-525-2440

DIRECTORS
John K. Langum, Chairman
William H. Baughn
Bjorn K. Borgen
Alan S. Danson
Ranald H. Macdonald III
Jay A. Precourt
Eugene H. Vaughan, Jr.
Jonathan F. Zeschin

This wrapper is not part of the prospectus.

<PAGE>

FOUNDERS
FUNDS, INC.

Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
TOLL FREE 1-800-525-2440

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1996

- --------------------------------------------------------------------------------
FOUNDERS ASSET MANAGEMENT, INC., DISTRIBUTOR
- --------------------------------------------------------------------------------

A prospectus for the Funds dated May 1, 1996 provides the basic information
you should know before investing and may be obtained without charge from
Founders Asset Management, Inc. ("Founders") at the telephone number and address
shown above. This Statement of Additional Information, which is not a
prospectus, contains information in addition to and in more detail than in the
prospectus. It is intended to provide you with additional information regarding
the activities and operations of the Funds, and should be read in conjunction
with the prospectus.

Founders Discovery, Frontier, Passport, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced, and Government Securities Funds reimburse
Founders for distribution expenses pursuant to a distribution plan.

<PAGE>

TABLE OF CONTENTS

INVESTMENT OBJECTIVES AND POLICIES................................... 1
Options On Stock Indices and Stocks ........................ 1
Futures Contracts........................................... 3
Options on Futures Contracts................................ 6
Options on Foreign Currencies............................... 7
Risk Factors of Investing in Futures and Options............ 7
Foreign Securities.......................................... 8
Forward Contracts For Purchase or Sale of Foreign
Currencies................................................. 9
Illiquid Securities......................................... 10
Rule 144A Securities........................................ 11
Fixed Income Securities..................................... 11
Repurchase Agreements....................................... 13
Convertible Securities...................................... 13
Mortgage-Related Securities................................. 13

INVESTMENT RESTRICTIONS.............................................. 16

DIRECTORS AND OFFICERS............................................... 34

INVESTMENT ADVISER AND DISTRIBUTOR................................... 37

SHAREHOLDER SERVICING............................................... 42
Fund Accounting and Administrative Services Agreement...... 42
Shareholder Services Agreement............................. 43
Transfer Agency Agreement.................................. 43

BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER RATES................... 44

DETERMINATION OF NET ASSET VALUE.................................... 47

YIELD AND PERFORMANCE INFORMATION................................... 49

REDEMPTION PAYMENTS................................................. 51

DIVIDENDS, DISTRIBUTIONS AND TAXES.................................. 51

ADDITIONAL INFORMATION.............................................. 55
Capital Stock.............................................. 55
Code of Ethics............................................. 55
Custodian.................................................. 56
Independent Certified Public Accountants................... 57
Registration Statement..................................... 57
Financial Statements....................................... 57

-i-

<PAGE>

APPENDIX - CORPORATE BOND, COMMERCIAL PAPER, AND PREFERRED

STOCK RATINGS...................................................... 58
Corporate Bonds........................................... 58
Commercial Paper.......................................... 59
Description of Moody's Investors Service, Inc.'s
Preferred Stock Ratings.................................. 60
Description of Standard & Poor's Ratings Group's
Preferred Stock Ratings.................................. 60

-ii-

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

OPTIONS ON STOCK INDICES AND STOCKS (FOUNDERS DISCOVERY, FRONTIER, PASSPORT,
SPECIAL, INTERNATIONAL EQUITY, WORLDWIDE GROWTH, GROWTH, BLUE CHIP, AND BALANCED
FUNDS)

An option is a right to buy or sell a security at a specified price
within a limited period of time. Balanced Fund may write ("sell") covered call
options on stocks. All Funds except Money Market and Government Securities Funds
may purchase put and call options on stock indices.

For the right to buy or sell the underlying instrument (e.g.,
individual stocks or stock indices), 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 which 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 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
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.

Transactions in options are subject to limitations, established by each
of the exchanges upon which options are traded, governing the maximum number of
options which 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 Statement of
Additional Information, Founders believes that these limitations will not affect
the purchase of stock index options by the Funds.

Balanced Fund is the only Fund which may write (sell) options on
stocks. The Fund retains the freedom to write options on any or all of its
portfolio securities and at such time and from time to time as Founders shall
determine to be appropriate. No specified percentage of the Fund's assets is
invested in securities with respect to which options may be written. The extent
of the Fund's option writing activities will vary from time to time depending
upon Founders' evaluation of market, economic and monetary conditions.

When Balanced 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

<PAGE>

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.

Balanced 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 Balanced 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.

As indicated, all Funds except Money Market and Government Securities
Funds may purchase options on stock indices. A call option on a stock index
gives a Purchaser the right to buy, and a put option on a stock index gives a
purchaser the right to sell, a designated number of shares of the underlying
instrument (the stock index) at the option exercise price. The Funds purchase
put options on stock indices to protect the Funds' portfolios against decline in
value. The Funds 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 stock indices also permits
greater time for evaluation of investment alternatives. When Founders believes
that the trend of stock prices may be downward, particularly for a short period
of time, the purchase of put options on stock indices may eliminate the need to
sell less liquid stocks 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
the Funds 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 stocks owned by the Funds.

Upon purchase by all Funds except Money Market and Government
Securities Funds of a call on a stock index, the Funds pay a premium and have
the right during the call period to require the seller of such a call, upon
exercise of the call, to deliver to the Funds 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 Funds of a put on a stock index, the Funds pay a premium and
have the right during the put period to require the seller of such a put, upon
exercise of the put, to deliver to the Funds an amount of cash if the closing
level of the stock 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 stock index. Buying stock
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 ("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 Fund's
portfolios.

<PAGE>

The value of a stock index option depends upon movements in the level
of the stock index rather than the price of a particular stock. Whether a Fund
will realize a gain or a loss from its option activities depends upon movements
in the level of stock prices generally or in an industry or market segment,
rather than movements in the price of a particular stock. Purchasing call and
put options on stock indices involves the risk that Founders may be incorrect in
its expectations as to the extent of the various stock 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 stock 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 stock 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 stock for the duration of the option.

FUTURES CONTRACTS

All Funds except Money Market Fund may enter into futures contracts (or
options thereon) for hedging purposes. U.S. futures contracts are traded on
exchanges which 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 which is a member of the relevant contract
market. Although futures contracts by their terms call for the delivery or
acquisition of the underlying commodities or a cash payment based on the value
of the underlying commodities, in most cases the contractual obligation is
offset before the delivery date of the contract by buying, in the case of a
contractual obligation to sell, or selling, in the case of a contractual
obligation to buy, an identical futures contract on a commodities exchange. Such
a transaction cancels the obligation to make or take delivery of the
commodities.

The acquisition or sale of a futures contract could occur, for example,
if a Fund held or considered purchasing equity securities and sought to protect
itself from fluctuations in prices without buying or selling those securities.
For example, 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.

The Funds may also 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,

<PAGE>

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 Founder's investment judgment were
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 which 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
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.

<PAGE>

assets after taking into account unrealized profits and losses on options
entered into. In the case of an option that is "in-the-money," the in-the-money
amount may be excluded in computing such 5%. In general a call option on a
future is "in-the-money" if the value of the future exceeds the exercise
("strike") price of the call; a put option on a future is "in-the-money" if the
value of the future which is the subject of the put is exceeded by the strike
price of the put. The Funds may use futures and options thereon solely for bona
fide hedging or for other non-speculative purposes. As to long positions which
are used as part of a Fund's portfolio strategies and are incidental to its
activities in the underlying cash market, the "underlying commodity value" of
the Fund's futures and options thereon must not exceed the sum of (i) cash set
aside in an identifiable manner, or short-term U.S. debt obligations or other
dollar-denominated high-quality, short-term money instruments so set aside, plus
sums deposited on margin; (ii) cash proceeds from existing investments due in 30
days; and (iii) accrued profits held at the futures commission merchant. The
"underlying commodity value" of a future is computed by multiplying the size of
the future by the daily settlement price of the future. For an option on a
future, that value is the underlying commodity value of the future underlying
the option.

Unlike the situation in which a Fund purchases or sells a security, no
price is paid or received by a Fund upon the purchase or sale of a futures
contract. Instead, the Fund is required to deposit in a segregated asset account
an amount of cash or qualifying securities (currently U.S. Treasury bills),
currently in a minimum amount of $15,000. This is called "initial margin." Such
initial margin is in the nature of a performance bond or good faith deposit on
the contract. However, since losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Fund may be
required to make additional payments during the term of a contract to its
broker. Such payments would be required, for example, where, during the term of
an interest rate futures contract purchased by the Fund, there was a general
increase in interest rates, thereby making the Fund's portfolio securities less
valuable. In all instances involving the purchase of financial futures contracts
by a Fund, an amount of cash together with such other securities as permitted by
applicable regulatory authorities to be utilized for such purpose, at least
equal to the market value of the future contracts, will be deposited in a
segregated account with the Fund's custodian to collateralize the position. At
any time prior to the expiration of a futures contract, the Fund may elect to
close its position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract.

Because futures contracts are generally settled within a day from the
date they are closed out, compared with a settlement period of seven days for
some 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

All Funds except Money Market and Government Securities Funds may
purchase put and call 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 clearing house establishes a corresponding short
position for the

<PAGE>

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.

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 clearing house assigns exercise notices
on a random basis to those of its members which 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 which 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 purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. See
"Options on Foreign Currencies" below. 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, when a Fund is not fully
invested it could buy a call option on a futures contract to hedge against a
market advance.

The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund would be able to buy a put option on a futures contract to hedge
the Fund's portfolio against the risk of falling prices.

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. In addition to the correlation risks discussed above, 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.

OPTIONS ON FOREIGN CURRENCIES

All of the Funds except Money Market Funds may 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 diminutions 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 which otherwise would have resulted. Conversely, when a rise is
projected in the U.S. dollar value of a currency in which securities to 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.

<PAGE>

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.

RISK FACTORS OF INVESTING IN FUTURES AND OPTIONS

The successful use of the investment practices described above with
respect to futures contracts, options on futures contracts, and options on
securities indices, securities, and foreign currencies draws upon skills and
experience which are different from those needed to select the other instruments
in which the Funds invest. 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
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 Balanced 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)

<PAGE>

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.

FOREIGN SECURITIES

Investments in foreign countries involve certain risks which are not
typically associated with U.S. investments. There may be less publicly available
information about foreign companies comparable to reports and ratings published
about U.S. companies. Foreign companies are not generally subject to uniform
accounting, auditing, and financial reporting standards and requirements
comparable to those applicable to U.S. companies. There also may be less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the United States.

Foreign stock markets may have substantially less volume than the New
York Stock Exchange, and securities of some foreign companies may be less liquid
and may be more volatile than securities of comparable U.S. companies. Brokerage
commissions and other transaction costs on foreign securities exchanges
generally are higher than in the United States.

Because investment in foreign companies will usually involve currencies
of foreign countries, and because a Fund may temporarily hold funds in bank
deposits in foreign currencies during the course of investment programs, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversion between various currencies. A change in the value of any foreign
currency relative to the U.S. dollar, when the Fund holds that foreign currency
or a security denominated in that foreign currency, will cause a corresponding
change in the dollar value of the Fund assets denominated or traded in that
country. Moreover, there is the possibility of expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of the Fund,
political, economic or social instability or diplomatic developments which could
affect U.S. investments in foreign countries.

Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes, thus reducing the net return on such
investments compared with U.S. investments. The operating expense ratio of a
Fund which invests in foreign securities can be expected to be higher than that
of a fund which invests exclusively in domestic securities, since the expenses
of the Fund, such as foreign custodial costs, are higher. In addition, the Fund
incurs costs in converting assets from one currency to another.

FORWARD CONTRACTS FOR PURCHASE OR SALE OF FOREIGN CURRENCIES

The Funds generally conduct their foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign exchange currency market. When a Fund purchases or sells a security
denominated in a foreign currency, it may enter into a forward foreign currency
contract ("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,

<PAGE>

at the same time they tend to limit any potential gain which might result should
the value of such currency increase. The Funds will not 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. When Founders believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar, Discovery Fund, Frontier Fund, Passport Fund,
International Equity Fund, and Worldwide Growth Fund may each enter into a
forward contract to sell, for a fixed amount of dollars, the amount of foreign
currency approximating the value of some or all of those Funds' portfolio
securities denominated in such foreign currency. Frontier Fund does not intend
to sell such foreign currencies on a regular or continuous basis, and will not
do so if, as a result, the Fund will have more than 15% of the value of its
total assets committed to the consummation of such foreign currency sales.
Discovery Fund, Frontier Fund, Passport Fund, International Equity Fund, and
Worldwide Growth Fund also will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate those Funds to deliver an amount of foreign currency in
excess of the value of their portfolio securities or other assets denominated in
that currency. The custodian will place cash or high grade liquid debt
securities in a separate account with the custodian of Discovery Fund, Frontier
Fund, Passport Fund, International Equity Fund, and Worldwide Growth Fund in an
amount at least equal to the value of their total assets committed to the
consummation of forward contracts entered into under the above circumstances. If
the value of the securities placed in the separate account declines, additional
cash or securities will be placed in the account on a daily basis so that the
value of the account will at least equal the amount of those Funds' commitments
with respect to such contracts. Forward contracts and the securities placed in a
separate account 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 Discovery
Fund, Frontier Fund, Passport Fund, International Equity Fund, and Worldwide
Growth Fund of a foreign currency, those Funds 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 Discovery Fund, Frontier Fund, Passport Fund, International Equity
Fund, or Worldwide Growth Fund retain the portfolio security and engage in an
offsetting transaction, they will incur a gain or loss to the extent that there
has been movement in spot or forward contract prices. If any one of those Funds
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

<PAGE>

currency it has agreed to 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.

Dealings in forward contracts by Discovery Fund, Frontier Fund,
Passport Fund, International Equity Fund, and Worldwide Growth Fund will be
limited to the transactions described above. Of course, those Funds are not
required to enter into such transactions with regard to their foreign
currency-denominated securities and will not do so unless deemed appropriate by
Founders. It also should be realized that this method of protecting the value of
the 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 which 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 which might result should the value of such
currency increase.

ILLIQUID SECURITIES

As discussed in the Prospectus, certain of the Funds may invest up to
15% of the value of their net assets, measured at the time of investment, in
investments which are not readily marketable. Subject to the overall 15%
limitation upon investments which are not readily marketable, certain of these
Funds may invest up to 5% of the value of their net assets in restricted
securities. Restricted securities are securities which normally are not readily
marketable due to restrictions on resale resulting from the fact that the
securities have not been registered under the Securities Act of 1933 (the "1933
Act"). Restricted securities and securities which are not readily marketable are
illiquid securities. Illiquid securities are securities which may be subject to
resale restrictions or which, due to their market or the nature of the security,
have no readily available markets for their disposition. These limitations on
resale and marketability may have the effect of preventing a Fund from disposing
of such a security at the time desired or at a reasonable price. In addition, in
order to resell a restricted security, a Fund might have to bear the expense and
incur the delays associated with effecting registration. In purchasing illiquid
securities, no Funds intend to engage in underwriting activities, except to the
extent a Fund may be deemed to be a statutory underwriter under the Securities
Act in disposing of such securities. Illiquid securities will be purchased for
investment purposes only and not for the purpose of exercising control or
management of other companies.

RULE 144A SECURITIES

In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend on an efficient institutional market in which such
unregistered securities can readily be resold or on an issuer's ability to honor
a demand for repayment. Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain institutions is not
dispositive of the liquidity of such investments.

Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Certain of the Funds may invest in Rule 144A
securities which, as disclosed in the Prospectus, are restricted securities
which may or may not be readily marketable. Rule 144A securities are readily
marketable if institutional markets for the securities develop pursuant to Rule
144A which provide both readily ascertainable values for the securities and the
ability to liquidate the securities when liquidation is deemed necessary or
advisable. However, an insufficient number of qualified institutional buyers
interested in purchasing a Rule 144A security held by one of the Funds could
affect

<PAGE>

adversely the marketability of the security. In such an instance, the Fund might
be unable to dispose of the security promptly or at reasonable prices.

The board of directors of the Funds has delegated to Founders the
authority to determine that a liquid market exists for securities eligible for
resale pursuant to Rule 144A under the 1933 Act, or any successor to such rule,
and that such securities are not subject to the Funds' limitations on investing
in illiquid securities, securities that are not readily marketable, or
securities which do not have readily available market quotations. Under
guidelines established by the directors, Founders will consider the following
factors, among others, in making this determination: (1) the unregistered nature
of a Rule 144A security; (2) the frequency of trades and quotes for the
security; (3) the number of dealers willing to purchase or sell the security and
the number of additional potential purchasers; (4) dealer undertakings to make a
market in the security; and (5) the nature of the security and the nature of
market place trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfers). As indicated, Rule
144A securities will remain subject to each Fund's respective limitations on
investments in restricted securities, those securities for which there are legal
and contractual restrictions on resale.

FIXED INCOME SECURITIES

With the exception of Government Securities and Money Market Funds,
which are prohibited from making such investments, each of the Funds may invest
up to 5% of their assets in convertible securities and preferred stocks which
are unrated or are rated below investment grade either at the time of purchase
or as a result of reduction in rating after purchase. Investments in lower rated
or unrated securities are generally considered to be of high risk. These debt
securities, commonly referred to as junk bonds, are generally subject to two
kinds of risk, credit risk and market risk. Credit risk relates to the ability
of the issuer to meet interest or principal payments, or both, as they come due.
The ratings given a security by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P") provide a generally useful guide as to
such credit risk. The Appendix to this Statement of Additional Information
provides a description of such debt security ratings. The lower the rating given
a security by a rating service, the greater the credit risk such rating service
perceives to exist with respect to the security. Increasing the amount of a
Fund's assets invested in unrated or lower grade securities, while intended to
increase the yield produced by those assets, will also increase the risk to
which those assets are subject.

Market risk relates to the fact that the market values of debt
securities in which a Fund invests generally will be affected by changes in the
level of interest rates. An increase in interest rates will tend to reduce the
market values of such securities, whereas a decline in interest rates will tend
to increase their values. Medium and lower rated securities (Baa or BBB and
lower) and non-rated securities of comparable quality tend to be subject to
wider fluctuations in yields and market values than higher rated securities and
may have speculative characteristics. In order to decrease the risk in investing
in debt securities, in no event will a Fund ever invest in a debt security rated
below B by Moody's or by S&P. Of course, relying in part on ratings assigned by
credit agencies in making investments will not protect the Funds from the risk
that the securities in which they invest will decline in value, since credit
ratings represent evaluations of the safety of principal, dividend, and interest
payments on debt securities, and not the market values of such securities, and
such ratings may not be changed on a timely basis to reflect subsequent events.

Because investment in medium and lower rated securities involves both
greater credit risk and market risk, achievement of the Funds' investment
objectives may be more dependent on the investment adviser's own credit analysis
than is the case for funds that do not invest in such securities. In addition,
the share price and yield of these Funds may fluctuate more than in the case of
funds investing in higher quality, shorter term

<PAGE>

securities. Moreover, a significant economic downturn or major increase in
interest rates may result in issuers of lower rated securities experiencing
increased financial stress, which would adversely affect their ability to
service their principal, dividend, and interest obligations, meet projected
business goals, and obtain additional financing. In this regard, it should be
noted that while the market for high yield debt securities has been in existence
for many years and from time to time has experienced economic downturns in
recent years, this market has involved a significant increase in the use of high
yield debt securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not, therefore, provide an accurate
indication of future performance of the high yield debt securities market,
particularly during periods of economic recession. Furthermore, expenses
incurred in recovering an investment in a defaulted security may adversely
affect a Fund's net asset value. Finally, while the Funds' investment adviser
attempts to limit purchases of medium and lower rated securities to securities
having an established secondary market, the secondary market for such securities
may be less liquid than the market for higher quality securities. The reduced
liquidity of the secondary market for such securities may adversely affect the
market price of, and ability of a Fund to value, particular securities at
certain times, thereby making it difficult to make specific valuation
determinations. The Funds do not invest in any medium and lower rated securities
which present special tax consequences, such as zero coupon bonds or pay-in-kind
bonds.

The Funds' investment adviser seeks to reduce the overall risks
associated with the Funds' investments through diversification and consideration
of factors affecting the value of securities it considers relevant. No assurance
can be given, however, regarding the degree of success that will be achieved in
this regard or that the Funds will achieve their investment objectives.

REPURCHASE AGREEMENTS

As discussed in the Funds' Prospectus, the Funds may enter into
repurchase agreements with respect to money market instruments eligible for
investment by the Funds with member banks of the federal reserve system,
registered broker-dealers, and registered government securities dealers. A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the collateral securities acquired
by a Fund (including accrued interest earned thereon) must have a total value at
least equal to the value of the repurchase agreement, and are held as collateral
by the Funds' custodian bank until the repurchase agreement is completed.
Repurchase agreements maturing in more than seven days are considered illiquid
and will be subject to each Fund's limitation with respect to illiquid
securities. For a further explanation, see the section entitled "Illiquid
Securities" on page 10.

None of the Funds have adopted any limits on the amounts of their total
assets that may be invested in repurchase agreements which mature in less than
seven days. Each of the Funds except Money Market Fund may invest up to 15% of
the market value of its net assets, measured at the time of purchase, in
securities which are not readily marketable, including repurchase agreements
maturing in more than seven days. Money Market Fund may enter into repurchase
agreements if, as a result thereof, no more than 10% of the market value of its
net assets would be subject to repurchase agreements maturing in more than seven
days.

CONVERTIBLE SECURITIES

All Funds except Government Securities and Money Market Funds may buy
securities convertible into common stock if, for example, the Fund's investment
adviser believes that a company's convertible securities are undervalued in the
market. Convertible securities eligible for purchase include convertible bonds,
convertible preferred stocks, and warrants. A warrant is an instrument issued by
a corporation which gives the holder the

<PAGE>

right to subscribe to a specific amount of the corporation's capital stock at a
set price for a specified period of time. Warrants do not represent ownership of
the securities, but only the right to buy the securities. The prices of warrants
do not necessarily move parallel to the prices of underlying securities.
Warrants may be considered speculative in that they have no voting rights, pay
no dividends, and have no rights with respect to the assets of a corporation
issuing them. Warrant positions will not be used to increase the leverage of a
Fund; consequently, warrant positions are generally accompanied by cash
positions equivalent to the required exercise amount.

MORTGAGE-RELATED SECURITIES

Government Securities Fund may invest in mortgage-related securities,
which are interests in pools of mortgage loans made to residential home buyers,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental and government-related
organizations (see "Mortgage Pass-Through Securities"). The Fund may also invest
in debt securities which are secured with collateral consisting of
mortgage-related securities (see "Collateralized Mortgage Obligations"), and in
other types of mortgage-related securities.

Mortgage Pass-Through Securities. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or at specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential or
commercial mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying property, refinancing or foreclosure,
net of fees or costs which may be incurred. Some mortgage-related securities
(such as securities issued by the Government National Mortgage Association
("GNMA")) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether or not
the mortgagor actually makes the payment.

GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages.

Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.

FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs")

<PAGE>

which represent interests in conventional mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal, but PCs are not backed by the full faith and credit of
the U.S. Government.

Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to a Fund's
industry concentration restrictions, by virtue of the exclusion from that test
available to all U.S. Government securities. The assets underlying such
securities may be represented by a portfolio of first lien residential mortgages
(including both whole mortgage loans and mortgage participation interests) or
portfolios of mortgage pass-through securities issued or guaranteed by GNMA,
FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn
be insured or guaranteed by the Federal Housing Administration or the Department
of Veterans Affairs.

Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between
a mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.

CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.

In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begin to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.

FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs,
payments of principal and interest on the CMOs are made semiannually, as opposed
to monthly. The amount of principal payable on each semiannual payment date is
determined in accordance with FHLMC's mandatory sinking fund schedule, which, in
turn, is equal to approximately 100% of FHA prepayment experience applied to the
mortgage collateral pool. All sinking fund payments in the CMOs are allocated to
the retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.

<PAGE>

If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.

Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.

Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, thereby affecting the investment's average life and
perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.

Market risk reflects the risk that the price of the security may
fluctuate over time. The price of mortgage-backed securities may be particularly
sensitive to prevailing interest rates, the length of time the security is
expected to be outstanding, and the liquidity of the issue. In a period of
unstable interest rates, there may be decreased demand for certain types of
mortgage-backed securities, and a fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold.

Credit risk reflects the risk that a Fund may not receive all or part
of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. With respect to GNMA
certificates, although GNMA guarantees timely payment even if homeowners delay
or default, tracking the "pass-through" payments may, at times, be difficult.

INVESTMENT RESTRICTIONS

The investment restrictions set forth below are fundamental
("Fundamental") policies of each Fund, i.e., they may not be changed with
respect to a Fund without approval of the lesser of (i) 67% or more of the
Fund's shares present at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. Other investment practices which
may be changed by the Board of Directors without the approval of shareholders to
the extent permitted by applicable law, regulation or regulatory policy are
considered non-fundamental ("NonFundamental"). If a percentage restriction is
adhered to at the time of investment, a later increase or decrease in percentage
beyond the specified limit that results from a change in values or net assets
will not be considered a violation.

Subject to the preceding considerations, as a Fundamental or
Non-Fundamental restriction, each Fund may not:

<PAGE>

Fundamental
- -----------

1. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions.

2. Sell securities short. Special Fund may make short sales under
certain circumstances as described elsewhere in this Statement of Additional
Information under the Fund's Fundamental Policies.

3. Make loans to other persons; 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 may also 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.

4. Underwrite the securities of other issuers.

5. Invest in commodities, commodity futures contracts, real estate,
real estate mortgage loans or other illiquid interests in real estate, including
limited partnership interests therein, except that a Fund may invest in
securities of issuers which invest in commodities, commodity futures, real
estate, real estate mortgage loans or other illiquid interests in real estate,
and in readily marketable interests in real estate investment trusts.

6. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry.

7. Issue any senior securities.

Non-Fundamental
- ---------------

1. Invest in interests in oil, gas or other mineral exploration or
development programs or leases, although a Fund may invest in the securities of
issuers which invest in or sponsor such programs or leases.

2. With the exception of Money Market Fund, invest more than 15% of the
market value of its net assets in securities which are not readily marketable,
including repurchase agreements maturing in over seven days and foreign
securities not listed on a recognized foreign or domestic exchange. Money Market
Fund may invest up to 10% of its net assets in repurchase agreements maturing in
over seven days.

As a non-fundamental investment policy, in periods of uncertain market
and economic conditions, as determined by each Fund's investment adviser, each
Fund may depart from its basic investment objective and assume a defensive
position with all or a large portion of its assets temporarily invested in high
quality corporate bonds or notes and government issues, or held in cash.

The following is a list of each Fund's Fundamental and Non-Fundamental
investment restrictions, as indicated. As to each Fund, the Fund may not:

<PAGE>

DISCOVERY FUND

Fundamental
- -----------

1. Invest in commodities, commodity futures contracts, real estate,
real estate mortgage loans or other illiquid interests in real estate, except
that (i) the Fund may invest in securities of issuers which invest in
commodities, commodity futures, real estate, real estate mortgage loans or other
illiquid interests in real estate and (ii) the Fund may enter into forward
foreign currency exchange contracts.

2. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. In applying this restriction, the Fund uses industry
classifications based, where applicable, on Bridge Information Systems, Reuters,
the S&P Stock Guide published by Standard & Poor's, information obtained from
Bloomberg L.P. and Moody's International, and/or the prospectus of the issuing
company. Selection of an appropriate industry classification resource will be
made by the Fund's portfolio manager in the exercise of his or her reasonable
discretion.

3. 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.

Non-Fundamental
- ---------------

1. Participate in any joint trading account.

2. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

3. 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.

4. Purchase securities of other investment companies, except that the
Fund may purchase such securities in the open market where no commission or
profit to a sponsor or 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.

5. Invest in companies for the purpose of exercising control or
management.

6. 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.

<PAGE>

7. Invest more than 5% of the market value of its net assets in
restricted securities.

8. Purchase warrants, valued at the lower of cost or market, in excess
of 5% of total assets, except that the purchase of warrants not listed on the
New York or American Stock Exchanges is limited to 2% of total net assets.

9. 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.

The Fund may invest up to 30% of the market value of its total assets
in foreign securities. This restriction does not apply to dollar-denominated
American Depository Receipts which are traded in the United States on exchanges
or over-the-counter.

FRONTIER FUND

Fundamental
- -----------

2. Make any investment which would concentrate 25% or more of the
Fund's total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. In applying this restriction, the Fund uses industry
classifications based, where applicable, on Bridge Information Systems, Reuters,
the S&P Stock Guide published by Standard & Poor's, information obtained from
Bloomberg L.P. and Moody's International, and/or the prospectus of the issuing
company. Selection of an appropriate industry classification resource will be
made by the Fund's portfolio manager in the exercise of his or her reasonable
discretion.

3. Invest in restricted securities.

4. 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.

Non-Fundamental
- ---------------

1. Participate in any joint trading account.

2. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

3. 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.

<PAGE>

5. Invest in companies for the purpose of exercising control or
management.

7. Purchase warrants, valued at the lower of cost or market, in excess
of 5% of total assets, except that the purchase of warrants not listed on the
New York or American Stock Exchanges is limited to 2% of total net assets.

8. 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.

The Fund may invest without limitation in U.S. or foreign securities,
although it normally will be at least 50% invested in U.S. companies, with no
more than 25% of its total assets invested in any one foreign country.

PASSPORT FUND

Fundamental
- -----------

<PAGE>

3. 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.

Non-Fundamental
- ---------------

1. Participate in any joint trading account.

2. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

3. 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.

5. Invest in companies for the purpose of exercising control or
management.

7. Invest more than 5% of the market value of its net assets in
restricted securities.

BLUE CHIP FUND

Fundamental
- -----------

<PAGE>

and (ii) the Fund may hedge a foreign securities transaction by entering into
forward foreign currency transactions.

3. Invest in restricted securities.

4. 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.

Non-Fundamental
- ---------------

1. Participate in any joint trading account.

2. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

3. 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.

5. Invest in companies for the purpose of exercising control or
management.

<PAGE>

SPECIAL FUND

Fundamental
- -----------

1. 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.

2. Underwrite the securities of other issuers, except in those
instances where the Fund acquires restricted securities which it would not be
free to sell without registering and being deemed an underwriter for purposes of
the Securities Act of 1933.

3. Invest in commodities, commodity futures contracts, real estate,
real estate mortgage loans or other illiquid interests in real estate, except
that (i) the Fund may invest in securities of issuers which invest in
commodities, commodity futures, real estate, real estate mortgage loans or other
illiquid interests in real estate and (ii) the Fund may hedge a foreign
securities transaction by entering into forward foreign currency transactions.

4. Participate in any joint trading account.

5. 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.

6. Purchase more than 10% of any class of securities or purchase more
than 10% of the voting securities of any single issuer.

7. 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.

8. Purchase securities of other investment companies, except that the
Fund may purchase such securities in the open market where no commission or
profit to a sponsor or 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

<PAGE>

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.

9. 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.

10. Invest in companies for the purpose of exercising control or
management.

11. Issue any senior securities, except that the Fund may borrow from
banks so long as the requisite asset coverage has been provided.

12. Borrow from banks unless if immediately after such borrowing the
value of the assets of the Fund (including the amount borrowed) less its
liabilities (not including the borrowing) is at least three times the amount of
the borrowing. While borrowings are outstanding, no purchases of securities will
be made. Interest on borrowings will reduce a Fund's income.

13. 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.

Non-Fundamental
- ---------------

1. Purchase any securities of other investment companies.

2. 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.

3. Invest more than 5% of the market value of its net assets in
restricted securities.

4. Purchase warrants, valued at the lower of cost or market, in excess
of 5% of total assets, except that the purchase of warrants not listed on the
New York or American Stock Exchanges is limited to 2% of total net assets.

5. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. In applying this restriction, the Fund uses industry
classifications based, where applicable, on Bridge Information Systems, Reuters,
the S&P Stock Guide published by Standard & Poor's, information obtained from
Bloomberg L.P. and Moody's International Equity, and/or the prospectus of the
issuing company. Selection of an appropriate industry classification resource
will be made by the Fund's portfolio manager in the exercise of his or her
reasonable discretion.

23
<PAGE>

INTERNATIONAL EQUITY FUND

Fundamental
- -----------

3. Borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an aggregate amount not
exceeding 33-1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings that exceed
33-1/3% of the value of the Fund's total assets by reason of a decline in total
assets will be reduced within three ^ days, not including Sundays and holidays,
to the extent necessary to comply with the 33-1/3% limitation. This restriction
shall not prohibit deposits of assets to margin or guarantee positions in
futures, options, or forward contracts, or the segregation of assets in
connection with such contracts.

Non-Fundamental
- ---------------

1. Participate in any joint trading account.

2. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

3. 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.

<PAGE>

5. Invest in companies for the purpose of exercising control or
management.

6. 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.

7. Invest more than 5% of the market value of its net assets in
restricted securities.

WORLDWIDE GROWTH FUND

Fundamental
- -----------

3. 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.

Non-Fundamental
- ---------------

1. Participate in any joint trading account.

2. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

3. 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.

<PAGE>

5. Invest in companies for the purpose of exercising control or
management.

7. Invest more than 5% of the market value of its net assets in
restricted securities.

GROWTH FUND

Fundamental
- -----------

1. Invest in commodities, commodity futures contracts, real estate,
real estate mortgage loans or other illiquid interests in real estate, except
that (i) the Fund may invest in securities of issuers which invest in
commodities, commodity futures, real estate, real estate mortgage loans or other
illiquid interests in real estate and (ii) the Fund may hedge a foreign
securities transaction by entering into forward foreign currency transactions.

2. Participate in any joint trading account.

3. Purchase more than 10% of any class of securities or purchase more
than 10% of the voting securities of any single issuer.

4. 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.

<PAGE>

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.

6. 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.

7. Invest in companies for the purpose of exercising control or
management.

8. 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.

9. 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.

10. 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 assets would be
invested in securities of that issuer.

11. 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.

Non-Fundamental
- ---------------

1. Purchase or sell puts, calls, straddles, spreads or combinations
thereof.

2. Invest more than 5% of the market value of its net assets in
restricted securities.

3. Purchase warrants, valued at the lower of cost or market, in excess
of 5% of total assets, except that the purchase of warrants not listed on the
New York or American Stock Exchanges is limited to 2% of total net assets.

4. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. In applying this restriction, the Fund uses industry
classifications based, where applicable, on Bridge Information Systems, Reuters,
the S&P Stock Guide published by Standard & Poor's, information obtained from
Bloomberg L.P. and Moody's International, and/or the prospectus of the issuing
company. Selection of an appropriate industry classification resource will be
made by the Fund's portfolio manager in the exercise of his or her reasonable
discretion.

27
<PAGE>

BALANCED FUND

Fundamental
- -----------

1. Invest in commodities, commodity futures contracts, real estate,
real estate mortgage loans or other illiquid interests in real estate, except
that (i) the Fund may invest in securities of issuers which invest in
commodities, commodity futures, real estate, real estate mortgage loans or other
illiquid interests in real estate and (ii) the Fund may hedge a foreign
securities transaction by entering into forward foreign currency transactions.

2. Participate in any joint trading account.

3. 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.

4. Purchase more than 10% of any class of securities or purchase more
than 10% of the voting securities of any single issuer.

5. 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.

6. Purchase securities of other investment companies, except that the
Fund may purchase such securities in the open market where no commission or
profit to a sponsor or 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.

7. 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.

8. Invest in companies for the purpose of exercising control or
management.

<PAGE>

10. 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.

Non-Fundamental
- ---------------

1. Purchase any securities of other investment companies.

3. Invest more than 5% of the market value of its net assets in
restricted securities.

5. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. In applying this restriction, the Fund uses industry
classifications based, where applicable, on Bridge Information Systems, Reuters,
the S&P Stock Guide published by Standard & Poor's, information obtained from
Bloomberg L.P. and Moody's International, and/or the prospectus of the issuing
company. Selection of an appropriate industry classification resource will be
made by the Fund's portfolio manager in the exercise of his or her reasonable
discretion.

GOVERNMENT SECURITIES FUND

Fundamental
- -----------

1. Invest in commodities, commodity futures contracts, real estate,
real estate mortgage loans or other illiquid interests in real estate, except
that (i) the Fund may invest in securities of issuers which invest in
commodities, commodity futures, real estate, real estate mortgage loans or other
illiquid interests in real estate and (ii) the Fund may hedge a foreign
securities transaction by entering into forward foreign currency transactions.

2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. In applying this restriction, the Fund uses industry
classifications based, where applicable, on Bridge Information Systems, Reuters,
the S&P Stock Guide published by Standard & Poor's, information obtained from
Bloomberg L.P. and Moody's International, and/or the prospectus of the issuing
company. Selection of an appropriate

<PAGE>

industry classification resource will be made by the Fund's portfolio manager in
the exercise of his or her reasonable discretion.

3. 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.

4. 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.

Non-Fundamental
- ---------------

1. Participate in any joint trading account.

2. Purchase or sell puts, calls, straddles, spreads or combinations
thereof.

3. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

4. 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.

5. Purchase securities of other investment companies, except that the
Fund may purchase such securities in the open market where no commission or
profit to a sponsor or 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.

6. Invest in companies for the purpose of exercising control or
management.
7. 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.

8. Invest more than 5% of the market value of its net assets in equity
securities.

MONEY MARKET FUND

Fundamental

1. Make loans to other persons; 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. The Fund may also enter into

<PAGE>

repurchase agreements by purchasing money market instruments with a simultaneous
agreement with the seller to repurchase them at the original purchase price plus
accrued interest.

2. Purchase or sell puts, calls, straddles, spreads or combinations
thereof.

3. Purchase more than 10% of any class of securities of a single
issuer.

4. Make any investment which would concentrate 25% or more of the
Fund's total assets in the securities of issuers having their principal business
activities in the same industry, provided that (i) this limitation does not
apply to obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities and (ii) this limitation does not apply to obligations of
domestic commercial banks. In applying this restriction, the Fund uses industry
classifications based, where applicable, on Bridge Information Systems, Reuters,
the S&P Stock Guide published by Standard & Poor's, information obtained from
Bloomberg L.P. and Moody's International, and/or the prospectus of the issuing
company. Selection of an appropriate industry classification resource will be
made by the Fund's portfolio manager in the exercise of his or her reasonable
discretion.

5. 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.

6. Purchase securities of other investment companies except in
connection with a purchase or acquisition in accordance with a plan of
reorganization, merger or consolidation.

8. 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.

9. 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.

10. Purchase common stocks, preferred stocks, warrants or other equity
securities.

11. 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.

12. 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.

31
<PAGE>

Non-Fundamental
- ---------------

1. Participate in any joint trading account.

2. Invest in companies for the purpose of exercising control or
management.

3. Mortgage, pledge or hypothecate any assets except to secure
permitted borrowings.

* * *

The Company has given an undertaking to the State of Arkansas that it
will not purchase puts, calls, straddles, spreads or any combination thereof if,
by reason thereof, the value of any Fund's aggregate investments in such classes
of securities would exceed 5% of the Fund's total assets.

The Company has given the following undertakings to the State of
California: (1) if any Fund purchases or retains securities issued by other
open-end investment companies, the Fund's investment adviser will waive its
advisory fee on the assets of the Fund which are invested in the other open-end
investment company during the time that such assets are so invested; (2) each
Fund's option transactions will comply with Rule 260.140.85(b) under the
California Corporate Securities Law of 1968; (3) the aggregate value of the
securities underlying the calls written by any Fund, or the obligations
underlying the puts written by any Fund, as of the date the options are sold,
shall not exceed 25% of the Fund's net assets; (4) no Fund may engage in the
writing of puts and calls unless the security underlying the put or call is
within the Fund's investment policies and the option is issued by the Options
Clearing Corporation; and (5) no Fund may purchase and sell puts and calls on
securities, stock index futures, or options on stock index futures, or financial
futures, or options on financial futures, unless such options are written by
other persons and the options or futures are offered through the facilities of a
national securities or commodities exchange, or are offered by a broker-dealer
which is on the Federal Reserve Bank's list of primary government securities
dealers.

<PAGE>
DIRECTORS AND OFFICERS

The directors and officers of the Company, their principal occupations
for the last five years and their affiliations, if any, with Founders, are as
follows:

JOHN K. LANGUM
Diamond T. Ranch
9820 East Old Spanish Trail
Tucson, Arizona
Chairman and Executive Committee Member
Economic Consultant. President, Business Economics, Inc., a firm
engaged in economics and business research and publications,
Tucson, Arizona. Born: June 18, 1913

WILLIAM H. BAUGHN
555 Baseline Road
Boulder, Colorado
Director and Executive Committee Member
President Emeritus, University of Colorado. Dean Emeritus,
Graduate School of Business, University of Colorado. Born: August
27, 1918

BJORN K. BORGEN*
President, Executive Committee Member, and Director
Chairman, Chief Executive Officer, Chief Investment Officer,
Secretary, and Director of Founders. Born: September 22, 1937

ALAN S. DANSON
6400 S. Jamaica Circle
Englewood, CO 80111
Director
Independent financial consultant. Between March 1, 1991, and June
30, 1993, Mr. Danson was President and Chief Executive Officer of
ACCI Securities, Inc., a wholly-owned subsidiary of Acciones y
Valores de Mexico, S.A. de C.V., a Mexican brokerage firm. Mr.
Danson was Director of International Relations of Acciones y
Valores between March 1, 1990, and February 28, 1991. Prior to
joining Acciones y Valores, Mr. Danson was President of
Integrated Medical Systems, Inc., a privately held company based
in Golden, Colorado. Born: June 15, 1939

RANALD H. MACDONALD III
727 Marion Street
Denver, Colorado
Director
Self-employed real estate developer operating under the trade
name of Macdonald & Co. Born: December 12, 1923

JAY A. PRECOURT
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, Texas
Director
Chief Executive Officer and Director, Tejas Gas Corporation,
Houston, Texas; Director, Bariod Corporation, Houston, Texas;
Director, Apache Corporation, Houston, Texas; Director, Alley
Theater, Houston, Texas; Director and Chairman of the Advisory
Board, Southwest CEO Council, Houston, Texas. Until 1988,
President of the Energy Related Group and Director, Hamilton Oil
Corporation, Denver, Colorado; President and Chief Executive
Officer, Carbon Coal Company, Gallup, New Mexico; Director,
Consolidated Hydro, Inc., Greenwich, Connecticut; and Director,
Children's Hospital Corporation, Denver, Colorado. Born: July 12,
1937

<PAGE>

EUGENE H. VAUGHAN, JR., CFA
6300 Texas Commerce Tower
Houston, Texas
Director
President, Vaughan, Nelson, Scarborough & McConnell, Inc., an
investment counseling firm, Houston, Texas. Past chairman,
Association for Investment Management and Research; past
chairman, Institute of Chartered Financial Analysts; trustee,
Vanderbilt University; Director, Presbyterian Board of Pensions
(USA). Born: October 5, 1933

JONATHAN F. ZESCHIN*
Director
President and Chief Operating Officer of Founders. Formerly,
executive vice president of INVESCO Funds Group, Inc., Denver,
Colorado, from October 1993 to April 15, 1995; prior thereto
(January 1992 to October 1993) senior vice president of INVESCO
Funds Group, Inc.; trust officer of INVESCO Trust Company from
January 1993 to April 15, 1995; senior vice president and
director of marketing of SteinRoe & Farnham, Inc., Chicago,
Illinois, from January 1987 to December 1991. Born: September 4,
1953

DAVID L. RAY
Vice President, Secretary and Treasurer
Vice President, Assistant Secretary, and Treasurer of Founders.
Until January, 1990, President, United Shareholder Services,
Inc., a mutual fund transfer agent, San Antonio, Texas and Vice
President, United Services Advisors, Inc., investment adviser,
San Antonio, Texas. Born: July 10, 1957

*Indicates an interested director as defined in the Investment Company Act of
1940, because of the status as officer and director of the Fund's investment
adviser and principal underwriter.

The address of interested directors and all officers of the Company is
Founders Financial Center, 2930 E. Third Ave., Denver, Colorado 80206.

As of December 31, 1995, the Company's directors and officers owned
less than 1% of the outstanding shares of each Fund, with the exception
of Passport, Money Market, and International Equity Funds. Ownership interests
in Passport, Money Market, and International Equity Funds were approximately
3.94%, 2.42%, and 74.29%, respectively.

The committees of the board of directors are the executive committee,
audit committee, and portfolio transactions committee. The Company also has a
committee on directors, composed of all of the non-interested ("independent")
directors and chaired by Dr. Langum, which serves as a nominating committee. So
long as the plans of distribution under SEC Rule 12b-1 of the 1940 Act of
certain of the Company's Funds remain in effect, the selection and nomination of
the Company's independent directors will be a matter left to the discretion of
such independent directors. Except for certain powers which, under applicable
law, may only be exercised by the full board of directors, the executive
committee may exercise all powers and authority of the board of directors in the
management of the business of the Company.

<PAGE>

DIRECTOR COMPENSATION

The following table sets forth, for the fiscal year ended December 31,
1995, the compensation paid by the Fund to its seven independent directors for
services rendered in their capacities as directors of the Fund (the Fund
currently has six independent directors). The table further sets forth the total
compensation paid by all of the mutual funds distributed by Founders (which are
limited to the Fund) to these directors for services in their capacities as
directors during the year ended December 31, 1995 (directors' compensation has
been increased effective January 1, 1996, by approximately $10,000 per director
per annum). The Fund has no plan or other arrangement pursuant to which any of
the Fund's independent directors receive pension or retirement benefits, with
the exception of an arrangement with director Langum, who will receive an annual
payment of $30,000 from Founders commencing with his retirement. This payment is
not subject either to cancellation or amendment of any kind and is one to which
Dr. Langum is automatically entitled upon retirement at any time. Therefore,
none of the Fund's independent directors have estimated annual benefits to be
paid by the Company upon retirement.

Compensation Table
================================================================================================================================
(5) total
compensa-
(3) Pension tion from
or retirement registrant
benefits (4) and Fund
(2) accrued as Estimated complex
Aggregate part of Fund annual bene- paid to
(1) Name of Person, Position* compensation expenses fits upon directors*
from Fund retirement
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

John K. Langum, Chairman $ 31,250 None None $ 31,250
and Director

- -------------------------------------------------------------------------------------------------------------------------

William H. Baughn, Director $ 20,750 None None $ 20,750

- -------------------------------------------------------------------------------------------------------------------------
Alan S. Danson, Director $ 18,750 None None $ 18,750
- -------------------------------------------------------------------------------------------------------------------------
Walter Kirch, Director $ 18,750 None None $ 18,750
- -------------------------------------------------------------------------------------------------------------------------
Ranald H. Macdonald III, $ 19,750 None None $ 19,750
Director
- -------------------------------------------------------------------------------------------------------------------------
Jay A. Precourt, Director $ 17,750 None None $ 17,750
- -------------------------------------------------------------------------------------------------------------------------
Eugene H. Vaughan, Jr., $ 19,250 None None $ 19,250
Director
- -------------------------------------------------------------------------------------------------------------------------
TOTAL $146,250 None None $146,250
- -------------------------------------------------------------------------------------------------------------------------
PERCENT OF NET .006% 0% 0% .006%**
ASSETS**
=========================================================================================================================

Messrs. Borgen and Zeschin, as "interested persons" of the Fund,
receive compensation as officers and employees of Founders, and do not receive
any director's fees or other compensation from the Fund for their service as
officers and/or directors.

<PAGE>

- --------------------------
<FN>
* The Chairman of the Board, the Chairmen of the Fund's Audit and Portfolio
Transactions Committees, and the members of the Executive and Nominating
Committees each receive and may receive compensation for serving in such
capacities in addition to the compensation paid to all independent directors.
The Fund is the only mutual fund distributed by Founders Asset Management, Inc.

** Totals as a percentage of the Fund's net assets as of December 31, 1995.
</TABLE>

INVESTMENT ADVISER AND DISTRIBUTOR

Under the investment advisory agreements between Founders Funds, Inc.
(the "Company") on behalf of each Fund and Founders, Founders furnishes
investment management and administrative services to the Funds, subject to the
overall supervision of the Board of Directors of the Company. In addition,
Founders provides office space and facilities for the Funds and pays the
salaries, fees and expenses of all officers and other employees connected with
the operation of the Company. The Funds compensate Founders for its services by
the payment of fees computed daily and paid monthly as follows:

SPECIAL AND GROWTH FUNDS

On Assets in But Not
Excess of Exceeding Annual Fee
--------- --------- ----------

$ 0 $ 30,000,000 1.00%
30,000,000 300,000,000 0.75%
300,000,000 500,000,000 0.70%
500,000,000 ---- 0.65%

BLUE CHIP AND BALANCED FUNDS

On Assets in But Not
Excess of Exceeding Annual Fee

$ 0 $250,000,000 0.65%
250,000,000 500,000,000 0.60%
500,000,000 750,000,000 0.55%
750,000,000 ---- 0.50%

<PAGE>

MONEY MARKET FUND

On Assets in But Not
Excess of Exceeding Annual Fee
--------- --------- ----------

$ 0 $250,000,000 0.50%
250,000,000 500,000,000 0.45%
500,000,000 750,000,000 0.40%
750,000,000 ---- 0.35%

GOVERNMENT SECURITIES FUND

On Assets in But Not
Excess of Exceeding Annual Fee
--------- --------- ----------

$ 0 $250,000,000 0.65%
250,000,000 ---- 0.50%

DISCOVERY, FRONTIER, PASSPORT, INTERNATIONAL EQUITY,
AND WORLDWIDE GROWTH FUNDS

On Assets in But Not
Excess of Exceeding Annual Fee
--------- --------- ----------

$ 0 $250,000,000 1.00%
250,000,000 500,000,000 0.80%
500,000,000 ---- 0.70%

The fees of Discovery, Frontier, Passport, Special, International
Equity, Worldwide Growth, Growth, and Government Securities Funds are higher
than the fee schedules of certain investment companies having similar investment
objectives and policies but are, in the opinion of the Company's management,
comparable to those of numerous other similar mutual funds. The net assets of
the Funds at the end of fiscal year 1995 were as follows: Discovery Fund -
$216,622,779; Frontier Fund - $331,720,066; Passport Fund - $49,922,063; Special
Fund - $388,753,751; International Equity Fund - $767,238; Worldwide Growth Fund
- - $228,594,813; Growth Fund - $655,926,989; Blue Chip Fund - $375,200,391;
Balanced Fund - $130,346,354; Government Securities Fund - $20,263,327; and
Money Market Fund - $125,646,123.

The Funds pay all of their expenses not assumed by Founders, including
fees to directors not affiliated with Founders and expenses of all members of
the Board of Directors, of advisory boards or of committees of the Board of
Directors; compensation of the Company's custodian, transfer agent and other
agents; computer equipment charges, computer program charges and related
computer expenses incurred in connection with maintaining the Funds' books and
records; an allocated portion of premiums for insurance required to be
maintained under the Investment Company Act of 1940; expenses of computing the
Funds' daily per share net asset value; legal and accounting expenses; brokerage
commissions and other transaction costs; interest; all Federal, state and local
taxes (including stamp, excise, income and franchise taxes); cost of stock
certificates; fees payable under Federal and state law to register the Funds'
shares for sale; an allocated portion of fees and expenses incurred in
connection with membership in investment company organizations and trade
associations;

<PAGE>

preparation of prospectuses (including typesetting) and printing and
distribution thereof to existing shareholders; expenses of local representation
in Maryland; and expenses of shareholder and directors meetings and of
preparing, printing and distributing reports to shareholders. The Company also
has the obligation for expenses, if any, incurred by it in connection with
litigation, proceedings or claims, and the legal obligation it may have to
indemnify its officers and directors with respect thereto.

Each advisory agreement provides that if the total ordinary business
expenses of a Fund for any fiscal year (including the investment advisory fee,
but excluding interest, taxes, brokerage commissions and extraordinary items)
exceed the most restrictive limitation prescribed by any state in which shares
of that Fund are qualified for sale, Founders shall reimburse the Fund for such
excess. The Company has been advised that as of the date of this prospectus, the
most restrictive of such limitations applicable to the Funds is 2 1/2% of the
average annual net assets up to $30,000,000, 2% of the next $70 million and 1
1/2% of the remaining net assets of the Fund. No payment of the investment
advisory fee will be made that would result in a Fund's expenses exceeding on a
cumulative annualized basis the most restrictive applicable expense limitation
in effect at the time of such payment.

During the fiscal years ended in 1995, 1994, and 1993, the gross
investment advisory fees paid by the Funds were as follows:

DISCOVERY FUND. During the year ended December 31, 1995, 1994, and
1993, the Fund paid advisory fees of $2,004,616, $1,843,813, and $1,879,987,
respectively. For fiscal years 1995, 1994, and 1993, the expenses of the Fund
did not exceed the expense limitation.

FRONTIER FUND. During the years ended December 31, 1995, 1994, and
1993, the Fund paid advisory fees of $2,832,693, $2,454,361, and $2,009,522,
respectively. For those fiscal years, the expenses of the Fund did not exceed
the expense limitation.

PASSPORT FUND. During the years ended December 31, 1995 and 1994 and
from November 16, 1993 (the date upon which the Fund commenced the offering and
sale of its shares to the public) through December 31, 1993, the Fund paid
advisory fees of $255,733, $225,764 and $19,482, respectively. For these
periods, the expenses of the Fund did not exceed the expense limitation.

SPECIAL FUND. During the years ended December 31, 1995, 1994, and 1993,
the gross investment advisory fees paid by the Fund amounted to $2,869,635,
$2,685,886, and $3,383,842, respectively. For those fiscal years, the expenses
of the Fund did not exceed the expense limitation.

INTERNATIONAL EQUITY FUND. Since the Fund did not commence the public
offering of its shares until December 29, 1995, the Fund paid no advisory fees
in 1995.

WORLDWIDE GROWTH FUND. During the years ended December 31, 1995, 1994,
and 1993, respectively, the Fund paid advisory fees of $1,552,897, $996,680, and
$470,741, respectively. For those fiscal years, the expenses of the Fund did not
exceed the expense limitation.

GROWTH FUND. During the fiscal years ended December 31, 1995, 1994, and
1993, the investment advisory fees paid by the Fund amounted to $3,564,924,
$2,759,812, and $1,941,972, respectively. For those fiscal years, the expenses
of the Fund did not exceed the expense limitation.

<PAGE>

BLUE CHIP FUND. During the fiscal years ended December 31, 1995, 1994,
and 1993, the investment advisory fees paid by the Fund amounted to $2,195,095,
$1,996,626, and $1,892,148, respectively. For those fiscal years, the expenses
of the Fund did not exceed the expense limitation.

BALANCED FUND. During the fiscal years ended December 31, 1995, 1994,
and 1993, the investment advisory fees paid by the Fund amounted to $707,570,
$623,403, and $308,535, respectively. For those fiscal years, the expenses of
the Fund did not exceed the expense limitation.

GOVERNMENT SECURITIES FUND. During the years ended December 31, 1995,
1994, and 1993, the Fund paid advisory fees of $139,194, $184,250, and $214,447,
respectively. For those fiscal years, the expenses of the Fund did not exceed
the expense limitation.

MONEY MARKET FUND. For the fiscal years ended December 31, 1995, 1994,
and 1993, the gross investment advisory fees paid by the Fund were $705,221,
$976,835, and $560,628, respectively. For those fiscal years, the expenses of
the Fund did not exceed the expense limitation.

The advisory agreements between Founders and Discovery, Frontier,
Special, Worldwide Growth, Growth, Blue Chip, and Balanced Funds were approved
by the shareholders of each respective Fund at shareholders' meetings of the
Funds held in 1992. The advisory agreements of these Funds were last renewed in
May 1995 and will continue from year to year thereafter either by the vote of a
majority of the entire Board of Directors or by the vote of a majority of the
outstanding voting securities of each Fund, and in either case, after review, by
the vote of a majority of each Fund's directors who are not "interested persons"
(as defined in the Investment Company Act of 1940) (the "Independent Directors")
of the Company or Founders, cast in person at a meeting called for the purpose
of voting on such approval. All agreements were approved by the action of a
majority of the entire Board of Directors of the Company, including a majority
of the Independent Directors, at a meeting held on May 19, 1995. The advisory
agreement between Founders and International Equity Fund was approved on August
25, 1995 by a vote cast in person by a majority of the directors of the Fund,
including a majority of the Independent Directors, at a meeting called for such
purpose. The agreement was approved by Founders on December 28, 1995, as the
then sole shareholder of the Fund. The Fund's agreement is for an initial term
of two years expiring August 25, 1997. Thereafter, the agreement may be
continued from year to year in accordance with the process described above.

With respect to the advisory agreements between Founders and each of
the Funds, each agreement may be terminated without penalty at any time by the
Board of Directors of the Company or by vote of a majority of the outstanding
securities of the Fund on 60 days' written notice to Founders or by Founders on
60 days' written notice to the Company. Each agreement will terminate
automatically if it is assigned, as that term is defined in the Investment
Company Act of 1940. Each agreement provides that the Fund may use the word
"Founders" in its name and business only as long as the agreement remains in
effect. Finally, each agreement provides that Founders shall not be subject to
any liability in connection with matters to which the agreement relates in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.

Founders is the principal underwriter (distributor) for the Company and
acts as agent of the Company in the sale of shares of the Funds, under an
agreement last renewed by the Company's directors on May 19, 1995. The
distribution agreement for International Equity Fund was approved by the
Company's director on August 25, 1995. The provisions for the continuation,
termination and assignment under this agreement are identical to those described
above with regard to the investment advisory agreements, except that termination
other than upon assignment or mutual agreement requires six months notice by
either party.

<PAGE>

Pursuant to Distribution Plans adopted by Discovery Fund, Frontier
Fund, Passport Fund, Special Fund, International Equity Fund, Worldwide Growth
Fund, Growth Fund, Blue Chip Fund, Balanced Fund, and Government Securities
Fund, those Funds pay for distribution and related services expenditures at an
annual rate which may be less than, but which may not exceed, 0.25% of each
Fund's average daily net assets. These fees may be used to pay directly, or to
reimburse Founders for paying expenses in connection with distribution of the
Funds' shares and related activities as are described in the Funds' prospectus.
A report of the amounts expended pursuant to the Distribution Plans, and the
purposes for which such expenditures occurred, must be made to the Board of
Directors at least quarterly. During the fiscal year ended December 31, 1995,
Founders expended the following amounts in marketing the shares of the Funds:
advertising, $2,130,911; printing and mailing of prospectuses to persons other
than current shareholders, $1,032,185; and payment of compensation to third
parties for shareholder support services, $1,870,816.

Each Fund's plan was last approved on May 19, 1995, at a meeting called
for such purpose by a majority of the directors of the Company, including a
majority of the directors who are neither "interested persons" of the Company
nor have any financial interest in the operation of the plan ("12b-1
Directors"). The plan of distribution of International Equity Fund was approved
on August 25, 1995, by a vote cast in person by a majority of the directors of
each Fund, including a majority of the Independent Directors, at a meeting
called for such purpose. The agreement was approved by Founders on December 28,
1995, as the then sole shareholder of the Fund.

Each Fund's plan provides that it shall continue in effect with respect
to each Fund for so long as such continuance is approved at least annually by
the vote of the board of directors of the Company cast in person at a meeting
called for the purpose of voting on such continuance. Each plan can be
terminated at any time with respect to any Fund, without penalty, if a majority
of the 12b-1 Directors or shareholders of such Fund, vote to terminate the plan.
So long as any Fund's plan is in effect, the selection and nomination of persons
to serve as independent directors of the Company shall be committed to the
independent directors then in office at the time of such selection or
nomination. Each Fund's plan may not be amended to increase materially the
amount of any Fund's payments thereunder without approval of the shareholders of
that Fund, and all material amendments to the plan must be approved by the board
of directors of the Company, including a majority of the 12b-1 Directors.

Founders was organized in 1938. In addition to serving as adviser to
the Funds, Founders serves as independent adviser to private accounts. The sole
director of Founders is Bjorn K. Borgen. The officers of Founders include Mr.
Borgen, Jonathan F. Zeschin, David L. Ray, Michael K. Haines, Michael W.
Gerding, Charles W. Hooper, Linda M. Ripley, Gregory P. Contillo, James P.
Rankin, Roberto Galindo, Jr., and Thomas Mauer. The affiliations of Messrs.
Borgen, Zeschin, and Ray with the Company and Founders are shown under
"Directors and Officers." Mr. Borgen owns all of the voting stock of Founders.

SHAREHOLDER SERVICING

FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT

Founders performs administrative, accounting, and recordkeeping
services for the Funds pursuant to a Fund Accounting and Administrative Services
Agreement which was initially approved in May 1991 (August 25, 1995 for
International Equity Fund), by a vote cast in person by all of the directors of
the Funds, including all of the directors who are not "interested persons" of
the Funds or of Founders at a meeting called for such purpose. The Agreement,
which was last renewed by the directors on May 19, 1995, is continued from year
to year as long

<PAGE>

as each such continuance is specifically approved by the board of directors of
the Funds, including a majority of the directors who are not parties to the
Agreement or interested persons (as defined in the Investment Company Act of
1940) of any such party, cast in person at a meeting for the purpose of voting
on such continuance. The Agreement may be terminated at any time without penalty
by the Funds on ninety (90) days' written notice, or by Founders upon ninety
(90) days' written notice, and terminates automatically in the event of its
assignment unless the Funds' board of directors approves such assignment.

Pursuant to the Agreement, Founders maintains the portfolios, general
ledgers, and financial statements of the Funds; accumulates data from the Funds'
shareholder servicing and transfer agent, custodian, and manager and calculates
daily the net asset value of the Funds; monitors the data and transactions of
the custodian, transfer agent, shareholder servicing agent, and manager of the
Funds; monitors compliance with tax and federal securities rules and
regulations; provides reports and analyses of portfolio, transfer agent,
shareholder servicing agent, and custodial operations, performance and costs;
and reports on regulatory and other shareholder matters. The Funds pay a fee for
this service which is computed at an annual rate of 0.06 percent of the daily
net assets of the Funds from $0 to $500 million and at an annual rate of 0.02
percent of the daily net assets of the Funds in excess of $500 million, plus
reasonable out-of-pocket expenses.

SHAREHOLDER SERVICES AGREEMENT

Pursuant to an amended Shareholder Services Agreement, Founders
performs certain telephone, retirement plan, quality control, personnel
training, shareholder inquiry, shareholder account, and other
shareholder-related and transfer agent services for the Funds. The amended
Agreement was initially approved in May 1991 (August 25, 1995 for International
Equity Fund), by a vote cast in person by all of the directors of the Funds,
including all of the directors who are not "interested persons" of the Funds or
Founders at a meeting called for such purpose. The Agreement was for an initial
one-year term and was last renewed for a one-year term on May 19, 1995. The
Agreement may be continued from year to year as long as such continuance is
specifically approved by the board of directors of the Funds, including a
majority of the directors who are not parties to the Agreement or interested
persons (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such continuance. The Agreement may
be terminated at any time without penalty by the Funds upon ninety (90) days'
written notice to Founders or by Founders upon one hundred eighty (180) days'
written notice to the Funds, and terminates automatically in the event of an
assignment unless the Funds' board of directors approves such assignment. The
Funds pay to Founders a prorated monthly fee for such services equal on an
annual basis to $25 for each shareholder account of the Funds considered to be
an open account at any time during the applicable month. The fee provides for
the payment not only of services rendered and facilities furnished by Founders
pursuant to the Agreement, but also for services rendered and facilities
furnished by Investors Fiduciary Trust Company ("IFTC") and DST in performing
transfer agent services and in providing hardware and software system
capabilities on behalf of the Funds. In addition to the per account fee,
Founders, IFTC, and DST are reimbursed for all reasonable out-of-pocket expenses
incurred in the performance of their respective services.

TRANSFER AGENCY AGREEMENT

The Funds have entered into a Transfer Agent Agreement with Investors
Fiduciary Trust Company ("IFTC"), pursuant to which IFTC provides certain
transfer agent services to the Funds which are not provided to the Funds by
Founders. DST provides hardware and software system capabilities to IFTC and to
Founders, to assist IFTC and Founders in providing transfer agency and related
shareholder services to the Funds. The Transfer Agent Agreement between the
Funds and IFTC was initially approved on November 12, 1993, and will continue
until terminated at any time without penalty by either party upon ninety (90)
days' written notice. The

<PAGE>

Agreement terminates automatically in the event of its assignment. Under the
Agreement, the Funds pay to IFTC various transfer agency transaction fees which,
in 1995, were in the amount of $8.05 per shareholder account. The fees to
IFTC are paid on behalf of the Funds by Founders from the fee of $25 per
account per annum received by Founders for providing shareholder services to
the Funds. See "Shareholder Services Agreement," above.

BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER RATES

It is the policy of the Company, in effecting transactions in portfolio
securities, to seek the best execution of orders at the most favorable prices.
The determination of what may constitute best execution in a securities
transaction involves a number of judgmental considerations, including, without
limitation, the overall direct net economic result to a Fund (involving both
price paid or received and any commissions and other costs), the efficiency with
which the transaction is effected, the ability to effect the transaction at all
where a large block is involved, the availability of the broker to stand ready
to execute possibly difficult transactions for the Fund in the future, and the
financial strength and stability of the broker.

A Fund and one or more of the other Funds or clients to which Founders
serves as investment adviser may own the same securities from time to time. If
purchases or sales of securities for a Fund and other Funds or clients arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective Funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more than
one client during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on the price and amount of the security being purchased or sold for the Fund.
However, the ability of the Fund to participate in volume transactions may
possibly produce better executions for the Fund in some cases.

Subject to the policy of seeking best execution of orders at the most
favorable prices, a Fund may execute transactions with brokerage firms which
provide research services and products to Founders. The phrase "research
services and products" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, the availability
of securities or purchasers or sellers of securities, the furnishing of analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts, and the obtainment
of products such as third-party publications, computer and electronic access
equipment, software programs, and other information and accessories that may
assist Founders in furtherance of its investment advisory responsibilities to
the Company. Such services and products permit Founders to supplement its own
research and analysis activities, and provide it with information from
individuals and research staffs of many securities firms. Generally, it is not
possible to place a dollar value on the benefits derived from specific research
services and products. Founders may receive a benefit from these research
services and products which is not passed on to a Fund in the form of a direct
monetary benefit. If Founders determines that any research product or service
has a mixed use, such that it also serves functions that do not assist in the
investment decision-making process, Founders may allocate the cost of such
service or product accordingly. The portion of the product or service that
Founders determines will assist it in the investment decision-making process may
be paid for in brokerage commission dollars. Any such allocation may create a
conflict of interest for Founders. Subject to the standards outlined in this and
the preceding two paragraphs, Founders may arrange to execute a specified dollar
amount of transactions through a broker that has provided research products or
services. Such arrangements do not constitute commitments by Founders or the
Company to allocate portfolio brokerage upon any prescribed basis, other than
upon the basis of seeking best execution of orders at the most favorable prices.

<PAGE>

Research services and products may be useful to Founders in providing
investment advice to any of the Funds or clients it advises. Likewise,
information made available to Founders from brokers effecting securities
transactions for such other Funds and clients may be utilized on behalf of
another Fund. Thus, there may be no correlation between the amount of brokerage
commissions generated by a particular Fund or client and the indirect benefits
received by that Fund or client.

A significant proportion of the total commissions paid by the Funds for
portfolio transactions during the year ended December 31, 1995 was paid to
brokers that provided research services to Founders, and it is expected that, in
the future, a majority of each Fund's brokerage business will be placed with
firms that provide such services.

Subject to the policy of seeking the best execution of orders at the
most favorable prices, sales of shares of the Funds may also be considered as a
factor in the selection of brokerage firms to execute Fund portfolio
transactions.

Because selection of executing brokers is not based solely on net
commissions, a Fund may pay an executing broker a commission higher than that
which might have been charged by another broker for that transaction. Founders
will not knowingly pay higher mark-ups on principal transactions to brokerage
firms as consideration for receipt of research services or products. While it is
not practicable for the Fund to solicit competitive bids for commissions on each
portfolio transaction, consideration is regularly given to available information
concerning the level of commissions charged in comparable transactions by
various brokers. Transactions in over-the-counter securities are normally placed
with principal market makers, except in circumstances where, in the opinion of
Founders, better prices and execution are available elsewhere.

Founders has been authorized by the directors of Discovery, Frontier,
Passport, Special, International Equity, Worldwide Growth, Growth, Blue Chip,
Balanced, and Government Securities Funds (the "Founders 12b- 1 Funds") to apply
dollars generated from each Fund's Rule 12b-1 distribution plan to pay to
brokers and to other entities a fee for distribution, recordkeeping, accounting,
and shareholder-related services provided to investors purchasing shares of a
Founders 12b-1 Fund through various sales and/or shareholder servicing programs.
The fee, which normally is accrued daily and paid periodically, is computed at
an annual rate not in excess of 0.25 of 1% of the average daily account balances
of investments in each Founders 12b-1 Fund made by the entity on behalf of
investors participating in the applicable program. The Directors of the Founders
12b-1 Funds have further authorized Founders to place a portion of the Funds'
brokerage transactions with certain of these entities, if Founders reasonably
believes that in effecting the Funds' transactions in portfolio securities, the
entity is able to provide the best execution of orders at the most favorable
prices. Commissions earned by the entity from executing portfolio transactions
on behalf of a specific Founders 12b-1 Fund may be credited against the fee
charged to that Fund, on a basis which has resulted from negotiations between
Founders and the entity. Any 12b-1 fees which are not expended as a result of
the application of any such credit will not be used either to pay or to
reimburse Founders for other distribution expenses.

Registered broker-dealers, third-party administrators of tax-qualified
retirement plans, and other entities which establish omnibus investor accounts
with the Funds may provide sub-transfer agency, recordkeeping, or similar
services to participants in the omnibus accounts. These services reduce or
eliminate the need for identical services to be provided on behalf of the
participants by Founders, the Funds' shareholder servicing agent, and/or by
Investors Fiduciary Trust Company, the Funds' transfer agent. In such instances,
Founders is authorized to pay the entity a sub-transfer agency or recordkeeping
fee in an annualized amount up to $25 per participant in the entity's omnibus
account, from transfer agency fees applicable to each participant's account
which are paid to Founders by the Funds. If commissions are earned by a
registered broker-dealer from

<PAGE>

executing portfolio transactions on behalf of a specific Founders Fund, the
commissions may be credited by the broker-dealer against the sub-transfer agency
or recordkeeping fee payable with respect to that Fund, on a basis which will
have been negotiated between the broker-dealer and Founders. In such instances,
Founders will apply any such credits to the transfer agency fee which it
receives from the applicable Fund. Thus, the Fund will pay a transfer agency fee
to Founders, and Founders will pay a sub-transfer agency or recordkeeping fee to
the broker-dealer only to the extent that the fee is not off-set by brokerage
credits. In the event that the transfer agency fee paid by a Fund to Founders
with respect to participants in omnibus accounts in that Fund exceeds the
subtransfer agent or recordkeeping fee applicable to that Fund, Founders may
carry forward the excess and apply it to future sub-transfer agent or
recordkeeping fees applicable to that Fund which are charged by the
broker-dealer.

Decisions relating to purchases and sales of securities for a Fund,
selection of broker-dealers to execute transactions, and negotiation of
commission rates are made by Founders, as directed by Bjorn K. Borgen, subject
to the general supervision of the Board of Directors of the Company. Mr. Borgen
is an officer and director of the Company and an officer and director of
Founders. Mr. Borgen also directs these activities for the other clients advised
by Founders.

For the fiscal years ended 1995, 1994, and 1993, respectively, total
brokerage commissions paid by the Funds amounted to the following: Discovery
Fund - $317,246, $199,219, and $270,652; Frontier Fund - $465,748, $301,908, and
$508,521; Special Fund - $2,194,333, $2,157,969, and $2,845,256; Worldwide
Growth Fund - $350,484, $304,175, and $258,200; Growth Fund - $1,187,642,
$1,192,989, and $727,751; Blue Chip Fund - $1,859,470, $1,856,851, and
$1,415,386; Balanced Fund - $535,439, $523,174, and $223,213. For the fiscal
years ended 1995 and 1994, Passport Fund paid total brokerage commissions of
$95,245 and $83,771, respectively. For the period from November 16, 1993 (the
date upon which Passport Fund commenced the offering and sale of its shares to
the public) through December 31, 1993, total brokerage commissions paid by the
Fund amounted to $25,012. For the period from December 29, 1995 (the date upon
which International Equity Fund commenced the offering and sale of its shares to
the public) through December 31, 1995, the Fund paid no brokerage commissions.
During the last three years no officer, director or affiliated person of the
Company or Founders executed any portfolio transactions for a Fund, or received
any commission arising out of such portfolio transactions.

Fund Broker Value
---- ------ -----

Special Merrill Lynch & Co., Inc. $ 2,545,220

Growth JP Morgan & Co., Inc. $ 2,808,750
Salomon Brothers, Inc. $ 2,485,000

Blue Chip Merrill Lynch & Co., Inc. $ 2,550,000

Balanced Merrill Lynch & Co., Inc. $ 775,200

During the fiscal years ended 1995 and 1994^, respectively, the
portfolio turnover rate for each of the Funds was as follows: Discovery Fund -
118% and 72%%; Frontier Fund - 92% and 72%; Special Fund - 263% and 272%;
Worldwide Growth Fund - 54% and 87% ; Growth Fund - 130% and 172%;

<PAGE>

Blue Chip Fund - 235% and 239% ; Balanced Fund - 286% and 258%; Government
Securities Fund - 141% and 379%; and Passport Fund - 37% and 78%. For the period
from December 29, 1995 (the date upon which International Equity Fund commenced
the offering and sale of its shares to the public) through December 31, 1995,
the Fund's portfolio turnover rate was 0%. Portfolio turnover rates for certain
of the Funds are higher than those of other mutual funds. Although each Fund
purchases and holds securities with the goal of meeting its investment
objectives, portfolio changes are made whenever Founders believes they are
advisable, usually without reference to the length of time that a security has
been held. Certain of the Funds may, therefore, engage in a significant number
of short-term transactions. Balanced Fund does not anticipate any significant
differences between the portfolio turnover rates of the common stock portion of
its investment portfolios and the rate of turnover of the remainder of its
securities holdings.

DETERMINATION OF NET ASSET VALUE

Net asset value is determined once daily as of the close of the New
York Stock Exchange (the "Exchange") on each day the Exchange is open for
trading. The Exchange is not open for trading on the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. The Company calculates net asset value
per share, and therefore effects sales, redemptions, and repurchases of its
shares as of the close of business on each day on which the Exchange is open.

FOREIGN SECURITIES. Since regular trading in most foreign securities
markets is completed simultaneously with, or prior to, the close of regular
trading on the Exchange, closing prices for foreign securities usually are
available for purposes of computing each Fund's net asset value. However, in the
event that the closing price of a foreign security is not available in time to
calculate a Fund's net asset value on a particular day, the Company's board of
directors has authorized the use of the market price for the security obtained
from an approved pricing service at an established time during the day which may
be prior to the close of regular trading in the security. If events occur which
^ are known to Founders to have materially affected the value of foreign
securities which are not reflected in the value obtained through regular
procedures, the securities will be valued at fair market value as determined in
good faith by the Board of Directors. All foreign currencies are converted into
U.S. dollars by utilizing exchange rate closing quotations obtained from the
London Stock Exchange.

DISCOVERY, FRONTIER, PASSPORT, SPECIAL, INTERNATIONAL EQUITY, WORLDWIDE
GROWTH, GROWTH, BLUE CHIP, BALANCED, AND GOVERNMENT SECURITIES FUNDS. The net
asset value per share of each Fund is calculated by dividing the value of all
securities held by that Fund and its other assets (including dividends and
interest accrued but not collected), less the Fund's liabilities (including
accrued expenses), by the number of outstanding shares of that Fund. Securities
traded on national securities exchanges, the NASDAQ National Market System, the
NASDAQ Small Cap Market, and foreign markets are valued at their last sale
prices on the exchanges or markets where such securities are primarily traded.
Securities traded in the over-the-counter market for which last sale prices are
not available, and listed securities for which no sales were reported on a
particular date, are valued at their highest closing bid prices (or, for debt
securities, yield equivalents thereof) obtained from one or more dealers making
markets in such securities. If market quotations are not readily available,
securities will be valued at their fair values as determined in good faith by
the Funds' board of directors or pursuant to procedures adopted by the board of
directors. The above procedures may include the use of valuations furnished by
pricing services, including services which employ a matrix to determine
valuations for normal institutional-size trading units of debt securities. Prior
to utilizing a pricing service, the board of directors of the Funds will review
the methods used by such service to assure itself that securities will be valued
at their fair values. The Funds' board of directors also periodically monitors
the methods used by such pricing services. Commercial paper with

<PAGE>

remaining maturities of sixty days or less at the time of purchase will be
valued at amortized cost, absent unusual circumstances.

MONEY MARKET FUND. The Board of Directors has adopted a policy which
requires that the Fund use its best efforts, under normal circumstances, to
maintain a constant net asset value of $1.00 per share using the amortized cost
method. The amortized cost method involves valuing a security at its cost and
thereafter accruing any discount or premium at a constant rate to maturity. By
declaring these accruals to the Fund's shareholders in the daily dividend, the
value of the Fund's assets, and thus its net asset value per share, generally
will remain constant. No assurances can be provided that the Fund will be able
to maintain a stable $1.00 per share net asset value. This method may result in
periods during which the value of the Fund's securities, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the securities. During periods of declining interest rates, the daily yield
on shares of the Fund computed as described above may tend to be higher than a
like computation made by a similar fund with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its portfolio securities. Thus, if the use of amortized cost by the Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher yield than would
result from investment in a similar fund utilizing market values, and existing
investors in the Fund would receive less investment income. The converse would
apply in a period of rising interest rates.

In connection with its use of the amortized cost method, Money Market
Fund must maintain a dollar-weighted average portfolio maturity of 90 days or
less, purchase only portfolio securities having remaining maturities of one year
or less, and invest only in securities, whether rated or unrated, determined by
the Board of Directors to be of high quality with minimal credit risks. The
Board of Directors also has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's net asset value per share, as computed
for the purpose of sales and redemptions, at $1.00. Such procedures include
review of the Fund's portfolio holdings by the Board of Directors at such
intervals as it may deem appropriate to determine whether the Fund's net asset
value calculated by using available market quotations deviates from $1.00 per
share, and, if so, whether such deviation may result in material dilution or may
otherwise be unfair to existing shareholders. In the event the Board of
Directors determines that such a deviation exists, the Board will take such
corrective action as it deems necessary and appropriate, which action might
include selling portfolio securities prior to maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends, or
establishing a net asset value per share by using available market quotations.

BALANCED FUND. When Balanced Fund writes an option, an amount equal to
the premium received is included in the Fund's Statement of Assets and
Liabilities as an asset and an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written.

DISCOVERY, FRONTIER AND SPECIAL FUNDS. When these Funds purchase a put
or call option on a stock index, the premium paid is included in the asset
section of the Fund's Statement of Assets and Liabilities and subsequently
adjusted to the current market value of the option. Thus, if the current market
value of the option exceeds the premium paid, the excess is unrealized
appreciation and, conversely, if the premium exceeds the current market value,
such excess is unrealized depreciation.

YIELD AND PERFORMANCE INFORMATION

Founders Funds, Inc. may, from time to time, include the yield or total
return of the Funds (other than Founders Money Market Fund) in advertisements or
reports to shareholders or prospective investors.

<PAGE>

Quotations of yield for Founders Government Securities Fund will be
based on all investment income per share earned during a particular 30-day
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:

6
YIELD = 2[(1 + a-b) - 1]
---
cd
where a = dividends and interest earned during the period,

b = expenses accrued for the period (net of reimbursements),

c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and

d = the maximum offering price per share on the last day of the
period.

Quotations of average annual total return for each Fund (other than
Founders Money Market Fund) will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of 1, 5, and 10 years (up to the life of the Fund). These are the annual total
rates of return that would equate the initial amount invested to the ending
redeemable value. These rates of return are calculated pursuant to the following
formula: P (1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T
= the average annual total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). All total return figures reflect the deduction of a proportional share
of Fund expenses on an annual basis, and assume that all dividends and
distributions are reinvested when paid.

For the 1, 5, and 10 year periods ended December 31, 1995 the average
annual total returns of the Funds were:

1 year 5 year Life of Fund
------- ------ ------------

Discovery Fund 31.30% 20.22% +
Frontier Fund 37.03% 20.35% 19.88%*
Passport Fund 24.39% 7.85%** +
Special Fund 25.69% 19.71% 15.81%
International Equity Fund ++ ++ ++
Worldwide Growth Fund 20.63% 15.97% +
Growth Fund 45.59% 22.12% 16.87%
Blue Chip Fund 29.06% 13.71% 13.04%
Balanced Fund 29.41% 15.03% 12.02%
Government Securities Fund 11.12% 6.33%*** 6.69%***

+ From inception on 12/31/89 to 12/31/95.

* From inception on 1/22/87 to 12/31/95.

** From inception on 11/16/93 to 12/31/95.

<PAGE>

++ The Fund has not been in existence for this length of time.
International Equity Fund commenced the public offering of its shares on
December 29, 1995.

*** From inception on 3/1/88 to 12/31/95.

Performance information for a Fund may be compared in reports and
promotional literature to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare a Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives, and assets, or tracked by
other services, companies, publications, or persons who rank mutual funds on
overall performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation), to assess the real rate of return from an investment in
the Fund. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.

Performance information for any Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objectives and policies, characteristics and
quality of the portfolios and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.

In conjunction with performance reports, comparative data between the
Funds' performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.

Rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service made by independent sources
may be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Funds. Sources of Fund performance information and articles about the Funds
include, but are not limited to, the following: American Association of
Individual Investors' Journal; Banxquote; Barron's; Business Week; CDA
Investment Technologies; CNBC; CNN; Consumer Digest; Financial Times; Financial
World; Forbes; Fortune; Ibbotson Associates, Inc.; Institutional Investor;
Investment Company Data, Inc.; Investor's Business Daily; Kiplinger's Personal
Finance; Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis;
Money; Morningstar; Mutual Fund Forecaster; No-Load Analyst; No-Load Fund X;
Personal Investor; Smart Money; The New York Times; The No-Load Fund Investor;
U.S. News and World Report; United Mutual Fund Selector; USA Today; Wall Street
Journal; Weisenberger Investment Companies Service; Working Woman; and Worth.

ALL FUNDS. Investors and shareholders may call Investor Services to
request printed information regarding the holdings of a specific fund as of the
most recent month-end or quarter-end period. Also included in this fund
information sheet are recent performance information, the number of outstanding
shares, diversification data, and other facts as of the most recent month-end or
quarter-end period.

<PAGE>

REDEMPTION PAYMENTS

ALL FUNDS. Proceeds of redemptions normally will be forwarded within
three business days after receipt by the Company's transfer agent of the request
for redemption in "proper order." Net asset value determination for purposes of
redemption may be suspended or the date of payment postponed during periods when
(1) trading on the New York Stock Exchange is restricted, as determined by the
Securities and Exchange Commission, or the Exchange is closed (except for
holidays or weekends), (2) the Securities and Exchange Commission permits such
suspension and so orders, or (3) an emergency exists as defined by the
Securities and Exchange Commission so that disposal of securities or
determination of net asset value is not reasonably practicable. In such a case,
a shareholder seeking to redeem shares may withdraw his request or leave it
standing for execution at the per share net asset value next computed after the
suspension has been terminated.

A redemption charge is authorized by the Company's Articles of
Incorporation, but the Company currently has no intent to impose this charge.
Shareholders will be notified in the event of the imposition of any such charge.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Distributions paid from a Fund's investment company taxable income
(which includes, among other items, dividends, interest, and the excess of net
short-term capital gains over net long-term capital losses) are taxable as
ordinary income whether received in cash or additional shares. Distributions of
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) designated by a Fund as capital gain dividends are taxable as
long-term capital gain, regardless of the length of time the shareholder has
held his Fund shares at the time of the distribution, whether received in cash
or additional shares. Shareholders receiving distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in each
share received equal to the net asset value of a share of that Fund on the
reinvestment date.

Any loss realized by a shareholder upon the disposition of shares held
for six months or less from the date of his or her purchase will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period. Further, a loss realized on
a disposition will be disallowed to the extent the shares disposed of are
replaced (whether by reinvestment of distributions or otherwise) within a period
of 61 days beginning 30 days before and ending 30 days after the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.

A portion of a Fund's dividends may qualify for the corporate
dividends-received deduction; however, the revised alternative minimum tax
applicable to corporations may reduce the value of the dividends-received
deduction.

All dividends and distributions are regarded as taxable to the
investor, whether or not such dividends and distributions are reinvested in
additional shares. If the net asset value of Fund shares should be reduced below
a shareholder's cost as a result of a distribution of such realized capital
gains, such distribution would be taxable to the shareholder although a portion
would be, in effect, a return of invested capital. The net asset value of each
Portfolio's shares reflects accrued net investment income and undistributed
realized capital gains; therefore, when a distribution is made, the net asset
value is reduced by the amount of the distribution. Distributions generally are
taxable in the year in which they are received, regardless of whether received
in cash or reinvested in additional shares. However, dividends declared in
October, November, or December of a calendar year to shareholders of record on a
date in such a month and paid by a Fund during January of the following calendar

<PAGE>

year will be taxable as though received by shareholders on December 31 of the
calendar year in which the dividends were declared.

While the Funds intend to make distributions at the times set forth in
the prospectus, those times may be changed at each Fund's discretion. The Funds
intend to distribute substantially all investment company taxable income and net
realized capital gains. Through such distributions, and by meeting certain other
requirements, each Fund intends to qualify for the tax treatment accorded to
regulated investment companies under Subchapter M of the Internal Revenue Code
(the "Code"). In each year in which a Fund so qualifies, it will not be subject
to Federal income tax upon the amounts so distributed to investors.
Qualification as a regulated investment company does not involve supervision by
any governmental authority either of the Company's management or of the Fund's
investment policies and practices.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent application of the excise tax, the Funds intend to make distributions in
accordance with this requirement.

Certain options and forward contracts in which the Funds may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses;
however, foreign currency gains or losses (as discussed below) arising from
certain section 1256 contracts may be treated as ordinary income or loss. Also,
section 1256 contracts held by the Funds at the end of each taxable year (and,
with some exceptions, for purposes of the 4% excise tax, on October 31 of each
year) are "marked-to-market," with the result that unrealized gains or losses
are treated as though they were realized.

Generally, the hedging transactions undertaken by the Funds may result
in "straddles" for Federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Funds. In addition, losses
realized by the Funds on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Funds, which is taxed as ordinary income when
distributed to shareholders.

The Funds may make one or more of the elections available under the
Code which are applicable to straddles. If any of the elections are made, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the character of
gains or losses by deferring losses and/or accelerating the recognition of gains
from the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.

Requirements related to the Funds' status as regulated investment
companies may limit the extent to which any particular Fund will be able to
engage in transactions in options and forward contracts.

The Funds intend to accrue dividend income for Federal income tax
purposes in accordance with Code rules applicable to regulated investment
companies. In some cases, these rules may have the effect of

<PAGE>

accelerating (in comparison to other recipients of the dividend) the time at
which the dividend is taken into account by a Fund as income.

Gains or losses attributable to fluctuations in foreign currency
exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time a Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain options and forward contracts, gains or losses
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the position and the date of disposition also are treated
as ordinary gain or loss. These gains and losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If section 988 losses exceed other investment
company taxable income during a taxable year, a Fund generally would not be able
to make any ordinary income dividend distributions. Such distributions made
before the losses were realized generally would be recharacterized as a return
of capital to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his Fund shares.

A Fund may be required to withhold Federal income tax at the rate of
31% of all taxable distributions and gross proceeds from the disposition of Fund
shares payable to shareholders who fail to provide the Fund with their correct
taxpayer identification numbers or to make required certifications, or where a
Fund or a shareholder has been notified by the Internal Revenue Service that a
shareholder is subject to backup withholding. Corporate shareholders and certain
other shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's Federal income tax liability.

Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the amount of
foreign taxes that will be imposed on a Fund. If more than 50% of the value of a
Fund's total assets at the close of any taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the IRS that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign and U.S.
possessions' income taxes paid by it. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's income
from sources within, and taxes paid to, foreign countries and U.S. possessions
if it makes this election.

Certain Funds may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.

Money Market Fund will declare a dividend of its investment company
taxable income on a daily basis, and shareholders of record begin receiving
dividends on the next day following the day when the purchase is effected. The
dividend declared at 4:00 p.m. Eastern time will be deducted immediately before
the net asset value calculation is made. Shareholders will receive dividends in
additional shares, unless they elect to receive

<PAGE>

cash by notifying the Transfer Agent in writing. Dividends will be reinvested
monthly on the first business day of each month at the per share net asset value
on that date. If cash payment is requested, checks will be mailed as soon as
possible after the end of the month. If a shareholder redeems his entire
account, all dividends declared to the effective date of redemption will be paid
at that time. Shareholders will receive monthly statements of account activity,
including information on dividends paid or reinvested. Shareholders also will
receive statements after the opening of a new account, each transfer of shares,
and each automatic withdrawal plan payment and redemption (except telephone
exchanges). Tax information will be provided annually.

Money Market Fund's net income consists of all interest income accrued
(including accrued discount earned and premium amortized), plus or minus all
short-term realized gains and losses on portfolio assets, less accrued expenses.
The amount of the daily dividend will fluctuate. To the extent necessary to
attempt to maintain a net asset value of $1.00 per share, the Board of Directors
may consider the advisability of temporarily reducing or suspending payment of
daily dividends.

Founders may provide the Funds' shareholders with information
concerning the average cost basis of their shares to assist them in preparing
their tax returns. This information is intended as a convenience to the Funds'
shareholders and will not be reported to the Internal Revenue Service (the
"IRS"). The IRS permits the use of several methods in determining the cost basis
of mutual fund shares. Cost basis information provided by Founders will be
computed using the single-category average cost method, although neither
Founders nor the Funds recommends any particular method of determining cost
basis. Other methods may result in different tax consequences. If a Fund's
shareholder has reported gains or losses from investments in the Fund in past
years, the shareholder must continue to use the method previously used, unless
the shareholder applies to the IRS for permission to change methods.

The treatment of any ordinary dividends and capital gains distributions
to shareholders from a Fund under the various state and local income tax laws
may not parallel that under Federal law. In addition, distributions from a Fund
may be subject to additional state, local, and foreign taxes, depending upon
each shareholder's particular situation. Shareholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in a Fund.

ADDITIONAL INFORMATION

CAPITAL STOCK

The Company has 1,000,000,000 shares of capital stock authorized, with
a par value per share of $0.01. Of these shares, 40,000,000 shares have
been allocated to Discovery Fund, 40,000,000 to Frontier Fund, 30,000,000 to
Passport Fund, 150,000,000 to Special Fund, 20,000,000 to International Equity
Fund, 40,000,000 to Worldwide Growth Fund, 125,000,000 to Growth Fund,
100,000,000 to Blue Chip Fund, 35,000,000 to Balanced Fund, 20,000,000 to
Government Securities Fund, and 400,000,000 to Money Market Fund. The Board of
Directors is authorized to create additional series or classes of shares, each
with its own investment objectives and policies.

As of December 31, 1995, no person owned of record or, to the knowledge
of the Company, beneficially, more than 5% of the capital stock of any Fund then
outstanding except: Charles Schwab and Company holds 35.06%, 38.29%, 52.58%,
22.02%, 43.19%, 35.33%, 7.64%, 36.68%, and 7.71% of Discovery Fund, Frontier
Fund, Passport Fund, Special Fund, Worldwide Growth Fund, Growth Fund, Blue Chip
Fund, Balanced Fund, and Government Securities Fund, respectively; National
Financial Services Corp. holds 12.32%, 14.2%, 7.11%, and 5.63% of Passport,
Worldwide Growth, Growth, and Balanced Funds, respectively;

52
<PAGE>

Cudd & Co. holds 65.17% of International Equity Fund; Michael Gerding holds
13.03% of International Equity Fund; Jon Zeschin holds 9.12% of International
Equity Fund; and Roberto Galindo holds 5.76% of International Equity Fund.

Shares of each Fund are fully paid and nonassessable when issued. All
shares participate equally in dividends and other distributions by each Fund,
and in the residual assets of a Fund in the event of its liquidation. Shares of
each Fund are redeemable as described herein under "Redemption Payments" and
under "Selling Fund Shares" in the prospectus. Fractional shares have the same
rights proportionately as full shares but certificates for fractional shares are
not issued.

Shares of the Company have no conversion, subscription or preemptive
rights. Each full share of the Company has one vote and fractional shares have
proportionate voting rights. Shares of the Company have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of directors can elect 100% of the directors if they choose to do
so, and, in such an event, the holders of the remaining less than 50% of the
shares voting for the election of directors will not be able to elect any person
or persons to the Board of Directors.

CODE OF ETHICS

The Company and Founders have adopted a strict code of ethics which
limits directors, officers, investment personnel and other Founders employees in
investing in securities for their own accounts. The code of ethics requires
pre-clearance of personal securities transactions and imposes restrictions and
reporting requirements upon such transactions. The Company and Founders
carefully monitor compliance with the code of ethics by their respective
personnel. Violations or apparent violations of the code of ethics are reported
to the president of the Company or to the Company's legal counsel, and
thereafter to the Company's board of directors. The Company's board of directors
determines whether a violation of the code of ethics has occurred and, if so,
the sanctions, if any, deemed appropriate. Sanctions may include a letter of
censure, suspension, termination of employment, disgorgement of profits from
improper transactions, or other penalties. The code of ethics requires
maintenance of the highest standards of integrity and conduct. In engaging in
personal business activities, personnel of the Company and of Founders must act
in the best interests of the Company and its shareholders. The Company's
shareholders may obtain a copy of the code of ethics without charge by calling
Founders at 1-800-525-2440.

CUSTODIAN

Investors Fiduciary Trust Company ("IFTC"), 127 West 10th Street,
Kansas City, Missouri, is custodian of the portfolio securities and cash of the
Funds. IFTC has entered into a subcustodian agreement with United Missouri Bank
("United"), through which each Fund (other than Money Market Fund) participates
in the Chase Global Custody Unit. The foreign subcustodians of United which have
been approved by the Company's Board of Directors are as follows: Argentina -
Chase Manhattan Bank, N.A.; Australia - The Chase Manhattan Bank Australia
Limited; Austria -Creditanstalt-Bankverein; Bangladesh - Dhaka branch of
Standard Chartered Bank; Belgium -Generale Bank; Botswana - Barclays Bank of
Botswana; Brazil - Banco Chase Manhattan, S.A.; Canada - Royal Bank of Canada
and Canada Trust Company; Chile - Chase Manhattan Bank, N.A.; China-Shanghai
HongKong Shanghai Banking Corporation, Ltd.; China-Shenzhen - HongKong Shanghai
Banking Corporation, Ltd.; Colombia - Cititrust Colombia S.A. Sociedad
Fiduciaria; Czech Republic - Ceskoslovenska Obchodni Banka, A.S.; Denmark - Den
Danske Bank; Egypt - National Bank of Egypt; Finland - Kansallis-Osake-Pankki;
France Banque Paribas; Germany - Chase Bank, A.G.; Ghana - Barclays Bank of
Ghana Ltd.; Greece - Barclays Bank Plc; Hong Kong - Chase Manhattan Bank, N.A.;
Hungary - Citibank Budapest Rt.; India - HongKong Shanghai

<PAGE>

Banking Corporation, Ltd. and Deutsche Bank; Indonesia - HongKong Shanghai
Banking Corporation, Ltd.; Ireland - Bank of Ireland; Israel - Bank Leumi
Le-Israel B.M.; Italy - Chase Manhattan Bank, N.A.; Japan Chase Manhattan Bank,
N.A.; Jordan - Arab Bank, PLC; Kenya - Barclays Bank of Kenya Ltd.; Malaysia -
Chase Manhattan Bank; Mauritius - HongKong & Shanghai Banking Corporation, Ltd.;
Mexico - Chase Manhattan Bank, N.A.; Morocco - Banque Commerciale du Maroc;
Netherlands - ABN-AMRO Bank N.V.; New Zealand National Nominees Limited; Norway
- - Den norske Bank; Pakistan - Citibank, N.A. and Deutsche Bank; Peru Citibank,
N.A.; Philippines -HongKong & Shanghai Banking Corporation, Ltd.; Poland - Bank
Handlowy W. Warawie S.A.; Portugal - Banco Espirito Santo E Commercial de
Lisboa, S.A.; Singapore - Chase Manhattan Bank, N.A.; Slovakia - Ceskoslovenska
Obchodni Banks, A.S.; South Africa - Standard Bank of South Africa; South Korea
- - HongKong & Shanghai Banking Corporation, Ltd.; Spain - Chase Manhattan Bank,
N.A.; Sri Lanka - HongKong & Shanghai Banking Corporation, Ltd.; Sweden -
Skandinaviska Enskilda Banken; Switzerland - Union Bank of Switzerland; Taiwan -
Chase Manhattan Bank, N.A.; Thailand - Chase Manhattan Bank, N.A.; Turkey -
Chase Manhattan Bank, N.A.; United Kingdom -Chase Manhattan Bank, N.A. and First
National Bank of Chicago; Uruguay - The First National Bank of Boston; Venezuela
- - Citibank, N.A.; Zambia Barclays Bank of Zambia Ltd; and Zimbabwe - Barclays
Bank of Zimbabwe Ltd. As required by Rule 17f-5 under the Investment Company
Act of 1940 (and the notes to the Rule), the Board of Directors of the Company
has approved the above foreign subcustodians, based on the following: the
financial strength of the foreign subcustodian, its general reputation and
standing in the country in which it is located, its ability to provide
efficiently the custodial services required, the relative cost for these
services, the level of safeguards for maintaining the Fund's assets and whether
or not the foreign subcustodian has branch offices in the United States.

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Price Waterhouse LLP, Denver, Colorado, acts as independent certified
public accountants for the Company. The accountants are responsible for auditing
the financial statements of each Fund and meeting with the Audit Committee of
the Board of Directors.

REGISTRATION STATEMENT

A Registration Statement (Form N-1A) under the Securities Act of 1933,
as amended, has been filed with the Securities and Exchange Commission,
Washington, D.C., with respect to the securities to which this Statement of
Additional Information relates. If further information is desired with respect
to the Company or such securities, reference should be made to the Registration
Statement and the exhibits filed as a part thereof.

FINANCIAL STATEMENTS

Financial statements for the Funds as of December 31, 1995 , including
notes thereto, and the report of Smith, Brock & Gwinn thereon, the Funds'
independent certified public accountants through December 31, 1995, are
incorporated by reference to the Funds' ^ 1995 Annual Report into this Statement
of Additional Information. A copy of the appropriate Fund's 1995 Annual Report
will be provided to each person receiving a copy of this Statement of Additional
Information.

<PAGE>

APPENDIX
CORPORATE BOND, COMMERCIAL PAPER, AND PREFERRED STOCK RATINGS

CORPORATE BONDS. Bonds rated Aa by Moody's Investors Service, Inc. are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa (Moody's highest rating) they comprise what are generally known as
high-grade bonds. Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large as those of Aaa bonds, or fluctuations of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than those
applicable to Aaa securities. Bonds which are rated A by Moody's possess many
favorable investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.

Moody's Baa rated bonds are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and may
have speculative characteristics as well. Bonds which are rated Ba are judged to
have speculative elements: their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safe-guarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds which are rated
B by Moody's generally lack characteristics of a desirable investment. Assurance
of interest and principal payments of, or maintenance of other terms of, the
contract over any long period of time may be small.

Bonds rated AA by Standard & Poor's Ratings Group are judged by
Standard & Poor's to be high-grade obligations and in the majority of instances
differ only in small degree from issues rated AAA (Standard & Poor's highest
rating). Bonds rated AAA are considered by Standard & Poor's to be the highest
grade obligations and possess the ultimate degree of protection as to principal
and interest. With AA bonds, as with AAA bonds, prices move with the long-term
money market. Bonds rated A by Standard & Poor's have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.

Standard & Poor's BBB rated bonds, or medium-grade category bonds, are
borderline between definitely sound obligations and those where the speculative
elements begin to predominate. These bonds have adequate asset coverage and
normally are protected by satisfactory earnings. Their susceptibility to
changing conditions, particularly to depressions, necessitates constant
watching. These bonds generally are more responsive to business and trade
conditions than to interest rates. This group is the lowest which qualifies for
commercial bank investment.

Bonds rated BB or B by Standard & Poor's Ratings Group are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and to repay principal in accordance with the terms of the
obligation. BB indicates the lower degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Bonds rated
"BB" have less near-term vulnerability to default than other speculative issues.
However, these face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The "BB" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BBB-" rating. Bonds rated "B" have a greater vulnerability to default but
currently have the capacity to meet interest

55
<PAGE>

payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB-" rating.

An NRSRO is a nationally recognized statistical rating organization.
The Division of Market Regulation of the Securities and Exchange Commission
currently recognizes six NRSROs: Duff & Phelps, Inc. ("D&P"), Fitch Investors
Services, Inc. ("Fitch"), Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's Corp. ("S&P"), Thompson Bankwatch, Inc. ("TBW"), and IBCA Limited and
its affiliate, IBCA Inc. ("IBCA").

Guidelines for Moody's and S&P ratings are described in the first five
paragraphs of this Appendix. For Duff & Phelps, ratings correspond exactly to
S&P's format from AAA through B-. For Fitch, ratings correspond exactly to S&P's
format from AAA through CCC-. For both TBW and IBCA, ratings correspond exactly
to S&P's format in all ratings categories. Because the Funds cannot purchase
securities rated below B-, ratings from D&P, Fitch, TBW, and IBCA can be
compared directly to the S&P ratings scale to determine the suitability of a
particular investment for a given Fund. For corporate bonds, a security must be
rated in the appropriate category by one or more of these six agencies to be
considered a suitable investment.

COMMERCIAL PAPER. The Prime rating is the highest Commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following:

(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations. Issuers within this Prime category may be given
ratings 1, 2 or 3, depending on the relative strengths of these factors.

Commercial paper rated by Standard & Poor's is graded into several
categories ranging from A for the highest quality obligations to D for the
lowest. Commercial Paper rated A has the following characteristics: (i)
liquidity ratios are adequate to meet cash requirements; (ii) long-term senior
debt rating should be A or better although in some cases BBB credits may be
allowed if other factors outweigh the BBB; (iii) the issuer should have access
to at least two additional channels of borrowing; (iv) basic earnings and cash
flow should have an upward trend with allowances made for unusual circumstances;
and (v) typically the issuer's industry should be well established and the
issuer should have a strong position within its industry and the reliability and
quality of management should be unquestioned. Issuers rated A are further
referred to by use of numbers 1, 2 and 3 to denote relative strength within this
classification.

The SEC recognizes the same six nationally recognized statistical
rating organizations (NRSROs) for commercial paper that it does for corporate
bonds: D&P, Fitch, Moody's, S&P, TBW, and IBCA. The ratings which would
constitute the highest short-term rating category are Duff 1 (D&P), F-1 (Fitch),
P-1 (Moody's), A-1 or A-1+ (S&P), TBW-1 (TBW), and A1 (IBCA).

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S PREFERRED STOCK RATINGS.

"aaa" -- An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred stocks.

<PAGE>

"aa" -- An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a reasonable assurance that
earnings and asset protection will remain relatively well maintained in the
foreseeable future.

"a" -- An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.

"baa" -- An issue which is rated "baa" is considered to be a
medium-grade preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be questionable
over any great length of time.

"ba" -- An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.

"b" -- An issue which is rated "b" generally lacks the characteristics
of a desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.

NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.

DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S PREFERRED STOCK RATINGS.

"AAA" -- This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.

"AA" -- A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
"AAA."

"A" -- An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.

"BBB" -- An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments
for a preferred stock in this category than for issues in the "A" category.

"BB," "B" -- Preferred stocks rated "BB" and "B" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. "BB" indicates the lowest degree of speculation
and "B" a higher degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

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PLUS (+) OR MINUS (-): To provide more detailed indications of
preferred stock quality, the ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.