As filed with the Securities and Exchange Commission on April 29, 1996
Registration No. 2-17531
Registration No. 811-1018
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
--
Pre-Effective Amendment No. _____ --
Post-Effective Amendment No. 60 X
_____ --
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
--
Amendment No. 31 X
_____ --
FOUNDERS FUNDS, INC.
__________________________________________________
(Exact Name of Registrant as Specified in Charter)
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
__________________________________________________
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (303) 394-4404
Bjorn K. Borgen
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
_______________________________________
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
____ Immediately upon filing pursuant to paragraph (b)
X On May 1, 1996 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ On _______________ pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ On _______________ pursuant to paragraph (a)(2) of rule
485
If appropriate, check the following box:
____ This post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for Registrant's most recent fiscal year was
filed on or about February 14, 1996.
<PAGE>
FOUNDERS FUNDS, INC.
CROSS REFERENCE SHEET
Item No. Caption
- -------- -------
Part A Prospectus
------ ----------
1........................... Cover Page
2........................... Not Applicable
3........................... Financial Highlights
4........................... Investment Objectives of the Funds;
Founders Funds, Inc. and Its
Management
5........................... Investment Objectives of the Funds,
Founders Funds, Inc. and Its
Management; Voting Rights
6........................... Shareholder Services; Taxes; Voting
Rights
7........................... Investing in the Founders Funds;
Adding to Your Founders Account;
Share Price Determination;
Exchanging Shares of Your Founders
Funds; Shareholder Services
8........................... Selling Shares From Your Founders
Funds
9........................... Not Applicable
Part B Statement of Additional
------ Information
-----------------------
10.......................... Cover Page
11.......................... Table of Contents
12.......................... Investment Adviser and Distributor
13.......................... Investment Objectives and Policies;
Investment Restrictions; Brokerage
Allocation and Portfolio Turnover
Rates
<PAGE>
Item No. Caption
- -------- -------
Part B
------
14.......................... Directors and Officers
15.......................... Investment Adviser and Distributor;
Directors and Officers
16.......................... Investment Adviser and Distributor;
Directors and Officers; Additional
Information
17.......................... Brokerage Allocation and Portfolio
Turnover Rates
18.......................... Additional Information
19.......................... Determination of Net Asset Value;
Redemption Payments
20.......................... Dividends, Distributions and Taxes
21.......................... Investment Adviser and Distributor
22.......................... Yield and Performance Information
23.......................... Additional Information
Part C
------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
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 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.
1
<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.
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.
2
<PAGE>
TABLE OF CONTENTS
Annual Fund Expense Information...................................... 4
Financial Highlights................................................. 5
Investment Objectives of the Funds................................... 15
Investment Management of the Funds................................... 18
Risks of Investment Policies Involving
Special Considerations.......................................... 19
Risks of Investments in Small and
Medium-Size Companies........................................ 19
Risks of Investments in Fixed-Income
Securities.................................................... 20
Risks of Investments in
Foreign Securities............................................ 21
Risks Involved in Foreign Currency
Transactions.................................................. 22
Other Investment Policies............................................ 23
Investing in the Founders Funds...................................... 26
Opening Your Account With Founders...............................26
Adding to Your Founders Funds Account........................... 28
Selling Shares From Your Founders
Funds......................................................... 29
Exchanging Shares of Your Founders
Funds......................................................... 31
Overall Policies Regarding Transactions......................... 31
Shareholder Services................................................. 33
Investor Services............................................... 33
24-Hour Account Information .................................... 33
Statements and Reports ......................................... 33
Establishing Additional Services................................ 33
General Information ................................................. 34
Share Price Determination....................................... 34
Dividends and Distributions..................................... 34
Dividend and Capital Gain
Distribution Options.......................................... 34
Taxes........................................................... 35
Founders Funds, Inc. and Its
Management.................................................... 35
Distribution Plans.............................................. 36
Voting Rights................................................... 37
Transfer Agent and Custodian.................................... 37
Fund Performance Information.................................... 37
3
<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.
4
<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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
5
<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
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.
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.
6
<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
<S> <C> <C> <C> <C> <C> <C>
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>
7
<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
++ 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 1.53%.
</TABLE>
8
<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
++ 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 1.76%.
9
<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
++ 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 1.29%.
</TABLE>
10
<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
++ 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 1.56%.
</TABLE>
11
<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
++ 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 1.24%.
</TABLE>
12
<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
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>
13
<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
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
++ 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 1.23%.
</TABLE>
14
<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
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
++ 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 1.30%.
</TABLE>
15
<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
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
++ 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 0.89%.
</TABLE>
16
<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 million -- $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 20 and "Other Investment
Policies" on page 24, and the subsection entitled "Risks of Investments in Small
and Medium-Size Companies" on page 20.
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 entitled, "Risks of
Investment Policies Involving Special Considerations" on page 20 and "Other
Investment Policies" on page 24, and the subsections entitled "Risks of
Investments in Small and Medium-Size Companies" on page 20, "Risks of
Investments in Foreign Securities" on page 22, and "Risks Involved in Foreign
Currency Transactions" on page 23.
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 24, and the subsections entitled "Risks of
Investments in Small and Medium-Size Companies" on page 20, "Risks of
Investments in Foreign Securities" on page 22, and "Risks Involved in Foreign
Currency Transactions" on page 23.
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 20 and "Other Investment Policies" on page 24, and the
subsection entitled "Risks of Investments in Small and Medium-Size Companies" on
page 20.
17
<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 20 and "Other Investment Policies" on page 24, and the
subsections entitled "Risks of Investments in Small and Medium-Sized Companies"
on page 20, "Risks of Investments in Foreign Securities" on page 22, and "Risks
Involved in Foreign Currency Transactions" on page 23.
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 20 and "Other Investment Policies" on
page 24, and the subsections entitled "Risks of Investments in Small and
Medium-Size Companies" on page 20, "Risks of Investments in Foreign Securities"
on page 22, and "Risks Involved in Foreign Currency Transactions" on page 23.
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 20 and "Other Investment Policies" on page 24.
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.
18
<PAGE>
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 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 20 and "Other Investment Policies" on
page 24.
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 20 and "Other
Investment Policies" on page 24.
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 20 and "Other Investment Policies" on page 24.
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,
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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.
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 is 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 committee 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 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.
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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
Thunderbird Graduate School of International Management.
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.
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.
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.
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
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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 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 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 Depository 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,
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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 Depository 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-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 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
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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
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.
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
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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
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 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. 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.
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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.
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
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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.
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 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 Fund, 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 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."
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
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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.
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 8 AM to 5 PM Mountain time, Monday through Friday.
Call us at 1-800-525-2440 for directions.
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.
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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 Avenu
Denver, CO 80206-5002
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.
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SELLING SHARES FROM YOUR FOUNDERS FUNDS
GENERAL REDEMPTION POLICIES
HOLD ON PURCHASES. Purchases by check or ACH (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.
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.
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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
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.
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
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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, 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
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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 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.
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.
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.
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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.
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.
For pricing purposes, investments by telephone are considered received at
the time of your telephone call. However, you will not be able to redeem these
shares until 10 days after Founders receives your payment. See, "General
Redemption Policies" on page 29.
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 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
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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
gains 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 gains
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.
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
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 -
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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 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 have
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
36
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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 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 for International Equity Fund are
anticipated to represent 0.25% of the Fund's average 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.
TRANSFER 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."
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
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<PAGE>
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 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 Funds
Worldwide Growth..............................................Global Funds
Growth........................................................Growth Funds
Blue Chip..........................................Growth and Income Funds
Balanced....................................................Balanced Funds
Government Securities................................U.S. Government Funds
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[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
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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-
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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
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<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.
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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,
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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.
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
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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
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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.
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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)
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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,
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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
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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
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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
11
<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
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<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")
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<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.
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<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:
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<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:
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<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.
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<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
- -----------
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 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.
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<PAGE>
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.
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
- -----------
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 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.
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<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.
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.
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.
BLUE CHIP 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
20
<PAGE>
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 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.
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.
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.
21
<PAGE>
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 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.
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
22
<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.
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.
23
<PAGE>
INTERNATIONAL EQUITY 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 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. 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.
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.
24
<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.
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.
WORLDWIDE 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 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.
25
<PAGE>
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.
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.
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.
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
26
<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>
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.
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.
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.
28
<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.
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, 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.
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.
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
29
<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
30
<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.
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 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.
32
<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
33
<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.
34
<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.
<TABLE>
<CAPTION>
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.
35
<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%
36
<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;
37
<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.
38
<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.
39
<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
40
<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
41
<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.
42
<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
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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%;
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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
45
<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.
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<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.
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<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.
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<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
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<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
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<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
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<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
53
<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.
54
<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
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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.
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"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.
57
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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.
58
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PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A: Per Share Data and Ratios
Part B: None
Part C: None
(b) Exhibits
(1) (A)** Articles of Incorporation of Founders Funds, Inc.
(B)** Articles Supplementary
(C)** Articles Supplementary
(D)** Articles Supplementary
(E)** Articles Supplementary
(F)** Articles Supplementary
(G)** Articles Supplementary
(2)** By-laws of Founders Funds, Inc.
(3) Not applicable
(4) Specimen Stock Certificates (Included in Post-Effective Amendment
No. 43 to the Registration Statement)
(5) (A)** Form of Investment Advisory Agreement between Founders Funds,
Inc. on behalf of Founders Discovery, Frontier, Passport, Special, International
Equity, Worldwide Growth, Growth, Blue Chip, and Balanced Funds and Founders
Asset Management, Inc.
(B)* Form of Investment Advisory Agreement between Founders Funds,
Inc. on behalf of Founders Money Market Fund and Founders Asset Management, Inc.
(formerly Founders Mutual Depositor Corporation) (Included in Post-Effective
Amendment No. 43 to the Registration Statement)
- ---------------------
*Filed previously and incorporated by reference.
**Filed with this amendment.
<PAGE>
(C)* Form of Investment Advisory Agreement between Founders Funds,
Inc. on behalf of Founders Government Securities Fund and Founders Asset
Management, Inc. (formerly Founders Mutual Depositor Corporation) (Included in
Post-Effective Amendment No. 46 to the Registration Statement)
(6)* Form of Underwriting Agreement between Founders Funds, Inc. and
Founders Asset Management, Inc. (formerly Founders Mutual Depositor Corporation)
(Included in Post-Effective Amendment No. 40 to the Registration Statement)
(7) Not applicable
(8) (A)* Custody Agreement with Investors Fiduciary Trust Company
(Included in Post-Effective Amendment No. 38 to the Registration Statement)
(B)* Form of Assignment of Custody Agreement to Founders Funds,
Inc. (Included in Post-Effective Amendment No. 43 to the Registration Statement)
(C)* Revised Fee Schedule
(9) (A)* Shareholder Services Agreement between Founders Funds, Inc.
and Founders Asset Management, Inc. (Included in Post-Effective Amendment No. 58
to the Registration Statement)
(B)* Fund Accounting and Administrative Services Agreement
(Included in Post-Effective Amendment No. 51 to the Registration Statement)
(10) Not Applicable
(11)** Accountant's Consent
(12) (A)** Independent Auditors' Report
(B)** 1995 Annual Report
+ Schedule of Investments
+ Statements of Assets and Liabilities
+ Statements of Operations
+ Statements of Changes in Net Assets
+ Supplemental Information: Per Share
Income and Capital Changes
+ Notes to Financial Statements
(C)* 1995 Semi-Annual Report (Included in Post-Effective Amendment
No. 59 to the Registration Statement)
- ---------------------
* Filed previously and incorporated by reference.
** Filed with this amendment.
<PAGE>
(13) Not applicable
(14) (A)* Prototype Profit Sharing and Money Purchase Pension Plan
(Included in Post-Effective Amendment No. 39 to the Registration Statement)
(B)* Form of Individual Retirement Custodian Account (Included in
Post-Effective Amendment No. 43 to the Registration Statement)
(C)* 403(b) Plan (Included in Post-Effective Amendment No. 36 to
the Registration Statement)
(15) (A)* Distribution Plans of Founders Frontier Fund, Founders Growth
Fund, Founders Blue Chip Fund, and Founders Equity Fund (Included in
Post-Effective Amendment No. 43 to the Registration Statement)
(B)* Distribution Plan of Founders Government Securities Fund
(Included in Post-Effective Amendment No. 45 to the Registration Statement)
(C)* Distribution Plans of Founders Discovery Fund and Founders
Worldwide Growth Fund (Included in Post-Effective Amendment No. 48 to the
Registration Statement)
(D)* Distribution Plan of Founders Special Fund (Included in
Post-Effective Amendment No. 53 to the Registration Statement)
(E)* Distribution Plan of Founders Passport Fund (Included in
Post-Effective Amendment No. 55 to the Registration Statement)
(F)* Distribution Plan of Founders International Equity Fund
(Included in Post-Effective Amendment No. 59 to the Registration Statement)
(16)* Schedule showing computation of performance quotations provided
in response to Item 22 (unaudited). (Included in Post-Effective Amendment No. 50
to the Registration Statement)
(17) (1)** Financial Data Schedule for the year ended December 31, 1995
for Discovery Fund.
(2)** Financial Data Schedule for the year ended December 31, 1995
for Frontier Fund.
(3)** Financial Data Schedule for the year ended December 31, 1995
for Passport Fund.
(4)** Financial Data Schedule for the year ended December 31, 1995
for Special Fund.
- -----------------------
* Filed previously and incorporated by reference.
** Filed with this amendment.
<PAGE>
(5)** Financial Data Schedule for the year ended December 31, 1995
for International Equity Fund.
(6)** Financial Data Schedule for the year ended December 31, 1995
for Worldwide Growth Fund.
(7)** Financial Data Schedule for the year ended December 31, 1995
for Growth Fund.
(8)** Financial Data Schedule for the year ended December 31, 1995
for Blue Chip Fund.
(9)** Financial Data Schedule for the year ended December 31, 1995
for Balanced Fund.
(10)** Financial Data Schedule for the year ended December 31,
1995 for Government Securities Fund.
(11)** Financial Data Schedule for the year ended December 31,
1995 for Money Market Fund.
(12)** Financial Data Schedule for the year ended December 31,
1995 for Opportunity Bond Fund.
(18) Not applicable
(19)* Code of Ethics (Included in Post-Effective Amendment No. 58 to
the Registration Statement)
Item 25. Persons Controlled by or Under Common Control with Registrant
- -------- -------------------------------------------------------------
Registrant knows of no person or group of persons directly controlled
by or under common control with the Registrant within the meaning of this item.
- -----------------------
* Filed previously and incorporated by reference.
** Filed with this amendment.
<PAGE>
Item 26. Number of Holders of Securities
- -------- -------------------------------
As of December 31, 1995
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock - Founders Discovery Fund 14,189
Common Stock - Founders Frontier Fund 19,263
Common Stock - Founders Passport Fund 2,207
Common Stock - Founders Special Fund 24,029
Common Stock - Founders International Equity Fund 25
Common Stock - Founders Worldwide Growth Fund 10,705
Common Stock - Founders Growth Fund 21,407
Common Stock - Founders Blue Chip Fund 20,458
Common Stock - Founders Balanced Fund 6,019
Common Stock - Founders Opportunity Bond Fund 0
Common Stock - Founders Government Securities Fund 2,105
Common Stock - Founders Money Market Fund 9,480
Item 27. Indemnification
- -------- ---------------
Indemnification provisions for officers, directors, employees, and
agents of the Registrant are set forth in Article XII of the bylaws of the
Registrant, which bylaws were filed as Exhibit 2 to the Registrant's
PostEffective Amendment No. 40. Section 12.01 of Article XII of the bylaws
provides that notwithstanding any provisions in Article XII to the contrary, no
officer, director, employee, and/or agent of the Registrant shall be indemnified
by the Registrant in violation of sections 17(h) and (i) of the Investment
Company Act of 1940, as amended.
Item 28. Business and Other Connections of Investment Adviser and its Directors
and Officers
- -------- ----------------------------------------------------------------------
Reference is made to information under "Founders Funds, Inc. and Its
Management" in the Prospectus and "Investment Adviser and Distributor" and
"Directors and Officers" in the Statement of Additional Information
Item 29. Principal Underwriters
- --------------------------------
(a) Not applicable.
<PAGE>
(b) The directors and officers of Founders Asset Management, Inc.,
located at Founders Financial Center, 2930 East Third Avenue, Denver, Colorado
80206, are as follows:
Name & Principal Positions & Offices Positions & Offices
Business Address with Underwriter with Registrant
- ---------------- ------------------ --------------------
B. K. Borgen Chairman, Chief Executive President and Director
Officer, Chief Investment
Officer, and Director
Jonathan F. Zeschin President Director
David L. Ray Vice President, Assistant Vice President, Secretary
Secretary and Treasurer and Treasurer
Michael K. Haines Senior Vice President N/A
Michael W. Gerding Vice President N/A
Charles W. Hooper Vice President N/A
Gregory P. Contillo Vice President N/A
James P. Rankin Vice President N/A
Edward F. Keely Vice President N/A
Roberto Galindo, Jr. Assistant Vice President N/A
Thomas Mauer Assistant Vice President N/A
Linda M. Ripley Assistant Vice President N/A
(c) Not applicable.
Item 30. Location of Accounts and Records
- -------- --------------------------------
Principal executive office of the Registrant, Founders Financial
Center, 2930 East Third Avenue, Denver, Colorado 80206 (David L. Ray,
Treasurer), except records described in Rule 31a-1(b)(2)(iv) under the
Investment Company Act of 1940, which are in the possession of Investors
Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri 64105.
Item 31. Management Services
- -------- -------------------
Not applicable.
<PAGE>
Item 32. Undertakings
- -------- ------------
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulations of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions of the Registrant's bylaws or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that the board of directors will call
such meetings of shareholders for action by shareholder vote, including acting
on the question of removal of a director or directors and to assist in
communications with other shareholders as required by Section 16(c) of the
Investment Company Act of 1940, as may be requested in writing by the holders of
at least 10% of the outstanding shares of the Registrant or any of its
portfolios, or as may be required by applicable law or the Fund's Articles of
Incorporation.
The Registrant shall furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
The Registrant hereby undertakes to file a post-effective amendment
containing reasonably current financial statements for International Equity
Fund, which need not be certified, within four to six months from the later of
the effective date of post-effective amendment No. 59 or the commencement of
operations of the International Equity Fund.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement (File No. 2-17531) to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
and County of Denver, State of Colorado, on the 22nd day of April, 1996.
FOUNDERS FUNDS, INC.
ATTEST: /s/
By:_______________________________
/s/ Bjorn K. Borgen, President
_____________________________
David L. Ray, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/
- --------------------- President (Principal April 22, 1996
Bjorn K. Borgen Executive Officer)
/s/
- --------------------- Vice President, April 22, 1996
David L. Ray Secretary & Treasurer
(Principal Financial
and Accounting Officer)
/s/ * Chairman April 22, 1996
- ---------------------
John K. Langum
/s/ * Director April 22, 1996
- ---------------------
William H. Baughn
/s/
- --------------------- Director April 22, 1996
Bjorn K. Borgen
/s/ * Director April 22, 1996
- ---------------------
Ranald H. Macdonald III
/s/ * Director April 22, 1996
- ----------------------
Jay A. Precourt
<PAGE>
/s/ * Director April 22, 1996
- ----------------------
Alan S. Danson
/s/ * Director April 22, 1996
- ----------------------
Eugene H. Vaughan
/s/
- ---------------------- Director April 22, 1996
Jonathan F. Zeschin
April 22, 1996
/s/
- ----------------------
By Bjorn K. Borgen
Attorney-in-Fact
*Original Powers of Attorney authorizing Bjorn K. Borgen, Edward F. O'Keefe and
David L. Ray, and each of them, to execute this Post-Effective Amendment to the
Registration Statement of the Registrant on behalf of the above-named directors
and officers of the Registrant (with the exception of Mr. Zeschin) were filed
with Post-Effective Amendment No. 54.
<PAGE>
Exhibit Index
-------------
Exhibit Number
- --------------
1(a)-(g)
2
5(A)
11
12(A)
12(B)
17(1)-(12)
FOUNDERS FUNDS, INC.
ARTICLES OF INCORPORATION
FIRST: I, the undersigned, Keith W. Vandivort, whose post office
address is 1730 Pennsylvania Avenue, N.W., Washington, D.C. 20006, being at
least twenty-one years of age, do under and by virtue of the General Laws of the
State of Maryland authorizing the formation of corporations, associate myself as
incorporator with the intention of forming a corporation (hereinafter called the
"Corporation").
SECOND: The name of the Corporation is FOUNDERS FUNDS, INC.
THIRD: The purpose for which the Corporation is formed is to act as an
open-end management investment company under the federal Investment Company Act
of 1940 as then in effect and the rules and regulations from time to time
promulgated and effective thereunder (referred to herein collectively as the
"Investment Company Act of 1940") and to exercise and enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations by the General
Laws of the State of Maryland now or hereafter in force.
FOURTH: The post office address of the principal office of the
Corporation in this State is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent in this State
is The Corporation Trust Incorporated, a corporation of this state, and the post
office address of the resident agent is 32 South Street, Baltimore, Maryland
21202.
FIFTH: The total number of shares of stock which the Corporation shall
have authority to issue is five hundred million (500,000,000) shares of stock
with a par value of one cent ($0.01) per share to be known and designated as
Common Stock, such shares of Common Stock having an aggregate par value of five
million dollars ($5,000,000).
Pursuant to Section 2-105 of the Maryland General Corporation Law, and
any successor provision, the Board of Directors of the Corporation shall have
the power to designate one or more classes of shares of Common Stock, to fix the
number of shares in any such class and to classify or reclassify any unissued
shares with respect to such class. Any such class (subject to any applicable
rule, regulation or order of the Securities and Exchange Commission or other
applicable law or regulation) shall have such preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption and other characteristics as
the Board may determine in the absence of contrary determination set forth
herein. The aforesaid power shall include the power to create, by classifying or
reclassifying unissued shares in the aforesaid manner, one or
<PAGE>
more classes of shares of Common Stock in addition to the class initially
designated as named below.
Subject to the aforesaid power, the Board of Directors has initially
designated one class of shares of Common Stock of the Corporation. The name of
this class is Founders Special Fund. initially, 50,000,000 shares of the
Corporation's Common Stock are classified as and are allocated to Founders
Special Fund.
At any time when there are no shares outstanding or subscribed for a
particular class previously established or designated herein by the Board of
Directors, the class may be liquidated by similar means. Each share of a class
shall have equal rights with each other share of that class with respect to the
assets of the Corporation pertaining tot hat class. The dividends payable to the
holders of any class (subject to any applicable rule, regulation or order of the
Securities and Exchange Commission or any other applicable law or regulation)
shall be determined by the Board and need not be individually declared, but may
be declared and paid in accordance with a formula adopted by the Board. Except
as otherwise provided herein, all references in these Articles of Incorporation
to Common Stock or class of stock shall apply without discrimination to the
shares of each class of stock.
The holder of each share of stock of the Corporation shall be entitled
to one vote for each full share, and a fractional vote for each fractional share
of stock, irrespective of the class, then standing in his, her or its name in
the records of the Corporation. On any matter submitted to a vote of
stockholders, all shares of the Corporation then issued and outstanding and
entitled to vote, irrespective of the class, shall be voted in the aggregate and
not by class except (1) when otherwise expressly provided by the Maryland
General Corporation Law, or (2) when required by the Investment Company Act of
1940, shares shall be voted by individual class; and (3) when the matter does
not affect any interest of a particular class, then only stockholders of such
other class or classes whose interests may be affected shall be entitled to vote
thereon. Holders of shares of stock of the Corporation shall not be entitled to
cumulative voting in the election of Directors or on any other matter.
Each class of stock of the Corporation shall have the following powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
1. All consideration received by the Corporation for the issue
or sale of stock of each class, together with all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably
<PAGE>
belong to the class of shares of stock with respect to which such assets,
payments or funds were received by the Corporation for all purposes, subject
only to the rights of creditors, and shall be so handled in the records of the
Corporation. Such assets, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof
and any assets derived from any reinvestment of such proceeds, in whatever form
the same may be, are herein referred to as "assets belonging to" such class.
2. The Board of Directors may from time to time declare and
pay dividends or distributions, in stock or in cash, on all issued and
outstanding shares of any or all classes of stock, the amount of such dividends
or distributions on shares of any class of stock and the payment of them being
wholly in the discretion of the Board of Directors and payable only out of
earnings, surplus or other lawfully available assets belonging to such class.
3. The Board of Directors shall have the power in its
discretion to distribute in any fiscal year as dividends, including dividends
designated in whole or in part as capital gain distributions, amounts
sufficient, in the opinion of the Board of Directors, to enable the Corporation
to qualify as a "regulated investment company" under the federal Internal
Revenue Code, or any successor or comparable statute thereto, and regulations
promulgated thereunder (collectively, the "IRC"), and to avoid liability for the
Corporation for federal income tax in respect of that year and to make other
appropriate adjustments in connection therewith. To the extent permitted by the
IRC, each class of stock shall be treated as a separate corporation for purposes
of the preceding sentence.
4. In the event of the liquidation or dissolution of the
Corporation, stockholders of each class shall be entitled to receive, as a
class, out of the assets of the Corporation available for distribution to
stockholders, but other than general assets, the assets belonging to such class,
and the assets so distributable to the stockholders of any class shall be
distributed among such stockholders in proportion to the number of shares of
such class held by them and recorded in the records of the Corporation. In the
event that there are any general assets not belonging to any particular class of
stock and available for distribution, such distribution shall be made to the
holders of stock of all classes in proportion to the net asset value of the
respective class determined as hereinafter provided.
5. The assets belonging to any class of stock shall be charged
with the liabilities, including the redemption of shares, in respect to such
class, and shall also be charged with its share of the general liabilities of
the Corporation, in proportion to the net asset value of the respective class
determined as hereinafter provided. The determination of the
<PAGE>
Board of Directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the same as to
a given class, and as to whether the same or general assets of the Corporation
are allocable to one or more classes.
The Board of Directors may provide for a holder of any class
of stock of the Corporation, who surrenders his certificate in good form for
transfer to the Corporation or, if the shares in question are not represented by
certificates, who delivers to the Corporation a written request in good order
signed by the shareholder, or by such other form of request as the Board of
Directors may determine, to exchange the shares in question on such basis as the
Board may provide, into shares of stock of any other class of the Corporation.
Each holder of any share of any class of Common Stock of the
Corporation, who shall surrender his certificate in good delivery form to the
Corporation or who, if the shares in question are not represented by
certificates, shall deliver to the Corporation a written request in good order
signed by the shareholder, or by such other form of request as the Board of
Directors may determine, shall be entitled to require the Corporation, to the
extent that that class of Common Stock has assets, but not otherwise, to redeem
all or any part of the shares of such stock standing in the name of such holder
in the records of the Corporation, at the net asset value of such shares,
determined in the manner and as of the time and payable as provided in the
Investment Company Act of 1940. Shares of any class of Common Stock so redeemed
shall be purchased by the Corporation out of the assets belonging to such class.
The Corporation shall make payment for any such shares to be redeemed as
aforesaid, in cash, or the Corporation may provide for payments to be made in
full or in part in securities or other assets of that class of Common Stock, to
be selected in the discretion of the Corporation and without regard for any
proportional interest which the holder may claim in any particular security or
securities owned by that class of Common Stock. The value of securities owned by
that class of Common Stock for the purpose of making payment in kind in the
event of redemption shall be determined in the same manner that is provided
below for the determination of the value of the assets of any class of stock,
using values which would be applicable for the purpose of determining redemption
price at the time of the redemption in kind. The Corporation may, to the extent
necessary, sell or cause to be sold, any securities belonging to the class of
Common Stock sought to be redeemed, to provide cash for such redemption by it of
such shares. In connection with such redemptions, the Board of Directors of the
Corporation may from time to time determine to charge shareholders a fee in an
amount not to exceed 1% of the net asset value of the shares to redeemed.
<PAGE>
The right of any holder of shares of any class of Common Stock
of the Corporation to receive dividends thereon and all other rights of such
stockholder with respect to the shares so redeemed by the Corporation shall
cease and determine from and after the time as of which the purchase price of
such shares shall be fixed, as provided above, except the right of such
stockholder to receive payment for such shares as provided for herein.
The Board of Directors of the Corporation may, in accordance
with the Investment Company Act of 1940, suspend the right of the holders of any
shares of stock of the Corporation to require the Corporation to redeem such
shares.
The net asset value pe share of a class of the Corporation's
Common Stock shall be determined in accordance with the Investment Company Act
of 1940, and with generally accepted accounting principles, by adding the market
or appraised value of all securities, cash and other assets of the Corporation
pertaining to that class, subtracting the liabilities determined by the Board of
Directors to be applicable to that class, allocating any general assets and
general liabilities to that class, and dividing the net result by the number of
shares of Common Stock of that class outstanding. Securities and other
investments and assets will be valued at the current market value, and in the
absence of a readily available market value, will be valued at fair value as
determined in good faith by the Board of Directors.
Notwithstanding any of the foregoing provisions of this
Article FIFTH, the Board of Directors is empowered to establish other methods
and times for determining the net asset value of shares of stock of the
Corporation as it deems necessary or desirable to enable the Corporation to
comply with any provision of the Investment Company Act of 1940, or any rule,
regulation or order thereunder.
The holder of shares of any class of Common Stock or other
securities of the Corporation shall have no preemptive rights to subscribe to
new or additional shares of any class of its Common Stock or other securities,
and the Corporation shall have the right to issue and sell to any person or
persons any shares of its stock or any option rights exercisable for, or
securities convertible into, shares of its stock without first offering such
shares, rights or securities to the holders of any shares.
SIXTH: The number of directors of the Corporation and their terms of
office shall be determined from time to time by the Board of Directors pursuant
to the By-Laws of the Corporation. Such number initially shall be eight (8) but
shall never be less than three (3). The names of the directors who shall act
until the first annual meeting of stockholders or until their successors are
duly chosen and qualify are:
<PAGE>
William H. Baughn
B.K. Borgen
G. Andrew Cox
John K. Langum
Ranald H. Macdonald, III
Jay A. Precourt
Donald R. Storey
Eugene H. Vaughan, Jr.
SEVENTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of
the Corporation:
1. The Board of Directors shall have power to issue shares of
any class of Common Stock of the Corporation from time to time, to such persons
and at such prices not less than the net asset value or par value thereof,
whichever is greater, for such consideration as may be fixed from time to time
pursuant to the direction of the Board of Directors. All stock shall be issued
on a non-assessable basis.
2. The Board of Directors may from time to time, without the
vote or consent of stockholders, establish uniform standards within any class of
stock, which may be different from class to class, with respect to the minimum
net asset value of a stockholder account or minimum investment which may be made
by a stockholder. The Board of Directors may authorize the closing of those
stockholder accounts not meeting the specified minimum standards of net asset
value by redeeming all of the shares in such accounts, provided there is mailed
to each affected stockholder account, at least sixty (60) days prior to the
planned redemption date, a notice setting forth the minimum account size
requirement and the date on which the account will be closed if the minimum size
requirement is not met prior to said closing date.
EIGHTH: The Corporation is expressly empowered as follows:
1. The Corporation may enter into a written contract or
contracts with any person, including any firm, corporation, trust or association
in which any officer, other employee, director or stockholder of the Corporation
may be interested, providing for a delegation of the management of all of the
Corporation's securities portfolio and also for the delegation of the
performance of administrative corporate functions subject always to the
direction of the Board of Directors. The compensation payable by the Corporation
under such contracts shall be such as is deemed fair and equitable to both
parties by the Board of Directors.
2. The Corporation may appoint one or more distributors or
agents or both for the sale of the shares of the Corporation, may directly or
indirectly compensate such person or persons for the sale of such shares and may
enter into such
<PAGE>
contract or contracts with such person or persons as the Board of Directors of
the Corporation in its discretion may deem reasonable and proper.
3. The Corporation may employ such custodian or custodians for
the safekeeping of the property of the Corporation and its shares, such dividend
disbursing agent or agents, and such transfer agent or agents and registrar or
registrars for its shares, and may make and perform such contracts for the
aforesaid purposes as in the opinion of the Board of Directors of the
Corporation may be reasonable, necessary or proper for the conduct of the
affairs of the Corporation, and may pay the fees and disbursements of such
custodians, dividend disbursing agents, transfer agents and registrars out of
the income or any other property of the Corporation.
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, the Board of Directors may
cause any or all of the property of the Corporation to be transferred to or to
be acquired and held in the name of a custodian so appointed or any nominee of
the Corporation or nominees of such custodian satisfactory to the Board of
Directors.
4. All contracts entered into pursuant to subsections 1, 2 and
3 of this Article EIGHTH shall in all respects be consistent with and subject to
the requirements of the Investment Company Act of 1940 as then in effect and
regulations of the Securities and Exchange Commission or any succeeding
governmental authority promulgated thereunder.
5. The same person, partnership (general or limited),
association, trust or corporation may be employed in any multiple capacity under
subsections 1, 2 and 3 of this Article EIGHTH and may receive compensation from
the Corporation in as many capacities as such person, partnership (general or
limited), association, trust or corporation shall serve the Corporation. The
same person may be financially interested in or otherwise affiliated with
persons who are parties to any or all of the contracts entered into by the
Corporation pursuant to this Article EIGHTH. Any contract entered into pursuant
to this Article EIGHTH may be made with any person even though an officer, other
employee, director or stockholder of the Corporation may be such other person or
may have an interest in such other person. No contract entered into by the
Corporation with any other party pursuant to this Article EIGHTH shall be
invalidated or rendered voidable because any officer, other employee, director
or stockholder of the Corporation is such other party or has an interest in such
other party. No person having an interest in such other party shall be liable
merely by reason of such interest for any loss or expense to the Corporation
under or by reason of said contract or accountable for any profit realized
directly or indirectly therefrom,
<PAGE>
provided that all provisions of applicable laws were complied with when the
Corporation entered into the contract.
NINTH: In furtherance, and not in limitation, of the powers
conferred by the laws of the State of Maryland, the Board of
Directors is expressly authorized:
1. To make, alter or repeal the By-Laws of the Corporation,
except where such power is reserved by the By-Laws to the stockholders, and
except as otherwise required by the Investment Company Act of 1940.
2. From time to time to determine whether and to what extent
and at what times and places and under what conditions and regulations, the
books, records and accounts of the Corporation, or any of them other than the
stock ledger, shall be open to the inspection of the stockholders, and no
stockholders shall have any right to inspect any account, record or book or
document of the Corporation, except as conferred by law or authorized by
resolution of the Board of Directors or of the stockholders.
3. Without the assent or vote of the stockholders, to
authorize and issue obligations of the Corporation, secured and unsecured, as
the Board of Directors may determine, and to authorize and cause to be executed
mortgages and liens upon the property of the corporation, real or personal, but
only to the extent permitted by the fundamental policies of the Corporation
stated in its registration statement filed pursuant to the Investment Company
Act of 1940.
4. In addition to the powers and authorities granted herein
and by statute expressly conferred upon it, the Board of Directors is authorized
to exercise all such powers and do all acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of Maryland
law, or these Articles of Incorporation and of the By-Laws of the Corporation.
TENTH: The books and records of the Corporation may be kept (subject to
any provisions contained in applicable statutes) outside the State of Maryland
at such place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation. Election of directors need not
be by ballot unless the By-Laws of the Corporation shall so provide.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TWELFTH: Notwithstanding any provision of Maryland law
requiring more than a majority vote of the Common Stock, or any
class thereof, in connection with any corporate action
<PAGE>
(including, but not limited to, the amendment of these Articles of
Incorporation), unless otherwise provided in these Articles of Incorporation,
the Corporation may take or authorize such action upon the favorable vote of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
thereon.
THIRTEENTH: The duration of the Corporation shall be
perpetual.
IN WITNESS WHEREOF, the undersigned incorporator of FOUNDERS FUNDS,
INC., who executed the foregoing Articles of Incorporation, hereby acknowledges
the same to be his act and further acknowledges that, to the best of his
knowledge, the matters and facts set forth therein are true in all material
respects under penalties of perjury.
/s/ Keith W. Vandivort
DISTRICT OF COLUMBIA
This is to certify that on this 19th day of June, 1987, before me, the
subscriber, a Notary Public of the District of Columbia, personally appeared
Keith W. Vandivort and acknowledged the foregoing Articles of Incorporation to
be his free act and deed and that the facts therein stated are truly set forth.
WITNESS my hand and Notarial Seal the day and year last above
written.
/s/ Cathy M. Hayden
Notary Public
My commission expires: 5/31/90
FOUNDERS FUNDS, INC.
ARTICLES SUPPLEMENTARY
FOUNDERS FUNDS, INC., a Maryland corporation having its principal
office in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Articles of Incorporation initially classified and allocated
50,000,000 shares of the Corporation's common stock, par value $0.01 per share,
to a class of shares designated Founders Special Fund.
SECOND: The Board of Directors of the Corporation, by unanimous written
consent dated September 23, 1987, created five additional series of shares of
the Corporation's common stock designated Founders Money Market Fund, Founders
Frontier Fund, Founders Equity Income Fund, Founders Growth Fund and Founders
Blue Chip Fund and classified and allocated 150,000,000 shares of the
Corporation's common stock, par value $.01 per share, to Founders Money Market
Fund and 40,000,000 shares of the Corporation's common stock, par value $0.01
per share, to each of Founders Frontier Fund, Founders Equity Income Fund,
Founders Growth Fund and Founders Blue Chip Fund.
THIRD: A description of the shares so classified with the powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
(a) Founders Money Market Fund, Founders Frontier Fund,
Founders Equity Income Fund, Founders Growth Fund and Founders Blue Chip Fund
shares shall have the following powers, preferences and participating, voting or
other special rights and the qualifications, restrictions and limitations
thereof shall be as follows:
(1) All consideration received by the Corporation for the
issue of Founders Money Market Fund, Founders Frontier Fund, Founders Equity
Income Fund, Founders Growth Fund and Founders Blue Chip Fund shares, together
with all income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to the classes of Founders Money Market
Fund, Founders Frontier Fund, Founders Equity Income Fund, Founders Growth Fund
and Founders Blue Chip Fund shares with respect to which such assets, payments
or funds were received by the Corporation for all purposes, subject only to the
rights of creditors, and shall be so handled in the records of the Corporation.
Such assets, income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and any
<PAGE>
assets derived from any reinvestment of such proceeds, in whatever form the same
may be, are herein referred to as "assets belonging to" the classes of Founders
Money Market Fund, Founders Frontier Fund, Founders Equity Income Fund, Founders
Growth Fund and Founders Blue Chip Fund shares.
(2) The assets belonging to the classes of Founders Money
Market Fund, Founders Frontier Fund, Founders Equity Income Fund, Founders
Growth Fund and Founders Blue Chip Fund shares shall be charged with the
liabilities, including the redemption of shares, in respect of such class and
shall also be charged with its share of the general liabilities of the
Corporation, in proportion to the net asset value of the respective class
determined as hereinafter provided. The determination of the Board of Directors
shall be conclusive as to the amount of liabilities, including accrued expenses
and reserves, as to the allocation of the same as to a given class, and as to
whether the same or general assets of the Corporation are allocable to one or
more classes.
(3) The net asset value per share of the classes of
Founder Money Market Fund, Founders Frontier Fund, Founders Equity Income Fund,
Founders Growth Fund and Founders Blue Chip Fund shall be determined in
accordance with Article FIFTH, Paragraph (5) of the Corporation's Articles of
Incorporation, as amended, by separately computing the assets belonging to each
class less the liabilities applicable to that class, allocating any general
assets and general liabilities to the class, and dividing the net result by the
number of shares of common stock of that class outstanding.
(4) Dividends or distributions on the classes of Founders
Money Market Fund, Founders Frontier Fund, Founders Equity Income Fund, Founders
Growth Fund and Founders Blue Chip Fund shares, whether payable in stock or
cash, shall be paid only out of earnings, surplus or other lawfully available
assets belonging to such class.
(5) In the event of the liquidation or dissolution of the
Corporation, stockholders of Founders Money Market Fund, Founders Frontier Fund,
Founders Equity Income Fund, Founders Growth Fund and Founders Blue Chip Fund
shares shall be entitled to receive, as a class, out of the assets of the
Corporation available for distribution to stockholders, but other than general
assets, the assets belonging to such class. The assets so distributable to the
stockholders of any class shall be distributed among such stockholders in
proportion to the number of shares of such class held by them and recorded in
the records of the Corporation.
(6) The provisions of Article FIFTH, Paragraphs (1)
through (5) of the Corporation's Articles of Incorporation, as amended, shall
apply to the holders of Founders Money Market Fund, Founders Frontier Fund,
Founders Equity Income Fund,
<PAGE>
Founders Growth Fund and Founders Blue Chip Fund shares with respect to the
shares of such class as may be issued from time to time and the assets belonging
to such class.
(b) Except as provided in Paragraph (a) of this Article
SECOND, the holders of Founders Money Market Fund, Founders Frontier Fund,
Founders Equity Income Fund, Founders Growth Fund and Founders Blue Ship Fund
shares hall have the same powers, preferences and participating, voting or other
special rights and the qualifications, restrictions and limitations thereof as
the holders of the Corporation's Common Shares, as that term is used in the
Corporation's Articles of Incorporation, as amended.
FOURTH: Founders Money Market Fund, Founders Frontier Fund, Founders
Equity Income Fund, Founders Growth Fund and Founders Blue Chip Fund shares have
been duly classified by the Board of Directors pursuant to authority and power
contained in the Articles of Incorporation of the Corporation, as heretofore
amended.
IN WITNESS WHEREOF, FOUNDERS FUNDS, INC. has caused these presents to
be signed in its name and on its behalf by its duly authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation and
that, to the best of their knowledge, all matters and facts set forth therein
are true in all material respects under penalties of perjury.
FOUNDERS FUNDS, INC.
/s/ G. Andrew Cox, Vice President
ATTEST: /s/ Jack Manahan, Secretary
FOUNDERS FUNDS, INC.
ARTICLES SUPPLEMENTARY
FOUNDERS FUNDS, INC., a Maryland corporation having its principal
office in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Articles of Incorporation initially classified and allocated
50,000,000 shares of the Corporation's common stock, par value $0.01 per share,
to a class of shares designated Founders Special Fund.
SECOND: The Board of Directors of the Corporation, by unanimous written
consent dated September 23, 1987, created five additional series of shares of
the Corporation's common stock designated Founders Money Market Fund, Founders
Frontier Fund, Founders Equity Income Fund, Founders Growth Fund and Founders
Blue Chip Fund and classified and allocated 150,000,000 shares of the
Corporation's common stock, par value $0.01 per share, to Founders Money Market
Fund and 50,000,000 shares of the Corporation's common stock, par value $0.01
per share, to each of Founders Frontier Fund, Founders Equity Income Fund,
Founders Growth Fund and Founders Blue Chip Funds.
THIRD: The Board of Directors of the Corporation, at a meeting duly
convened and held on February 19, 1988, created one additional series of shares
of the Corporation's common stock designated Founders Government Securities Fund
and allocated 50,000,000 shares of the Corporation's common stock, par value
$0.01 per share, to Founders Government Securities Fund.
FOURTH: A description of the shares so classified with the powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
(a) Founders Government Securities Fund shares shall have the
following powers, preferences and participating, voting or other special rights
and the qualifications, restrictions and limitations thereof shall be as
follows:
(1) All consideration received by the Corporation for the
issue of Founders Government Securities Fund shares, together with all income,
earnings, profits and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the class of Founders Government Securities Fund shares
with respect to which such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of creditors, and shall
<PAGE>
be so handled in the records of the Corporation. Such assets, income, earnings,
profits and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets derived from any reinvestment of
such proceeds, in whatever form the same may be, are herein referred to as
"assets belonging to" the class of Founders Government Securities Fund shares.
(2) The assets belonging to the class of Founders
Government Securities Fund shares shall be charged with the liabilities,
including the redemption of shares, in respect of such class and shall also be
charged with its share of the general liabilities of the Corporation, in
proportion to the net asset value of the respective class determined as
hereinafter provided. The determination of the Board of Directors shall be
conclusive as to the amount of liabilities, including accrued expenses and
reserves, as to the allocation of the same as to a given class, and as to
whether the same or general assets of the Corporation are allocable to one or
more classes.
(3) The net asset value per share of the class of
Founders Government Securities Fund shall be determined in accordance with
Article FIFTH, Paragraph (5) of the Corporation's Articles of Incorporation, as
amended, by separately computing the assets belonging to such class less the
liabilities applicable to such class, allocating any general assets and general
liabilities to such class, and dividing the net result by the number of shares
of common stock of such class outstanding.
(4) Dividends or distributions on the classes of Founders
Government Securities Fund shares, whether payable in stock or cash, shall be
paid only out of earnings, surplus or other lawfully available assets belonging
to such class.
(5) In the event of the liquidation or dissolution of the
Corporation, stockholders of Founders Government Securities Fund shares shall be
entitled to receive, as a class, out of the assets of the Corporation available
for distribution to stockholders, but other than general assets, the assets
belonging to such class. The assets so distributable to the stockholders of such
class shall be distributed among such stockholders in proportion to the number
of shares of such class held by them and recorded in the records of the
Corporation.
(6) The provisions of Article FIFTH, Paragraphs (1)
through (5) of the Corporation's Articles of Incorporation, as amended, shall
apply to the holders of Founders Government Securities Fund shares with respect
to the shares of such class as may be issued from time to time and the assets
belonging to such class.
(b) Except as provided in Paragraph (a) of this Article
FOURTH, the holders of Founders Government Securities Fund shares shall have the
same powers, preferences and
<PAGE>
participating, voting or other special rights and the qualifications,
restrictions and limitations thereof as the holders of the Corporation's Common
Shares, as that term is used in the Corporation's Articles of Incorporation, as
amended.
FIFTH: Founders Government Securities Fund shares have been duly
classified by the Board of Directors pursuant to authority and power contained
in the Articles of Incorporation of the Corporation, as heretofore amended.
IN WITNESS WHEREOF, FOUNDERS FUNDS, INC. has caused these presents to
be signed in its name and on its behalf by its duly authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation and
that, to the best of their knowledge, all matters and facts set forth therein
are true in all material respects under penalties of perjury.
FOUNDERS FUNDS, INC.
/s/ Bjorn K. Borgen, President
ATTEST:
/s/ Jack Manahan, Secretary
FOUNDERS FUNDS, INC.
ARTICLES SUPPLEMENTARY
FOUNDERS FUNDS, INC., a Maryland corporation having its principal
office in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Articles of Incorporation initially classified and allocated
50,000,000 shares of the Corporation's common stock, par value $0.01 per share,
to a class of shares designated Founders Special Fund.
SECOND: The Board of Directors of the Corporation, by unanimous written
consent dated September 23, 1987, created five additional series of shares of
the Corporation's common stock designated Founders Money Market Fund, Founders
Frontier Fund, Founders Equity Income Fund, Founders Growth Fund and Founders
Blue Chip Fund and classified and allocated 150,000,000 shares of the
Corporation's common stock, par value $0.01 per share, to each of Founders
Frontier Fund, Founders Equity Income Fund, Founders Growth Fund and Founders
Blue Chip Fund.
THIRD: The Board of Directors of the Corporation, at a meeting duly
convened and held on February 19, 1989, created one additional series of shares
of the Corporation's common stock designated Founders Government Securities Fund
and allocated 50,000,000 shares of the Corporation's common stock, par value
$0.01 per share, to Founders Government Securities Fund.
FOURTH: The Board of Directors of the Corporation, at a meeting duly
convened and held on December 8, 1989, created two additional series of shares
of the Corporation's common stock designated Founders Discovery Fund and
Founders Worldwide Growth Fund and allocated 25,000,000 shares of the
Corporation's common stock, par value $0.01 per share, to each of Founders
Discovery Fund and Founders Worldwide Growth Fund.
FIFTH: A description of the shares so classified with the powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
(a) Founders Discovery Fund and Founders Worldwide Growth Fund
shares shall have the following powers, preferences and participating, voting or
other special rights and the qualifications, restrictions and limitations
thereof shall be as follows:
(1) All consideration received by the Corporation for the
issue of Founders Discovery Fund and Founders Worldwide Growth Fund shares,
together with all income, earnings, profits and proceeds thereof, including any
proceeds derived from the
<PAGE>
sale, exchange or liquidation thereof, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the classes of Founders Discovery Fund and Founders
Worldwide Growth Fund shares with respect to which such assets, payments or
funds were received by the Corporation for all purposes, subject only to the
rights of creditors, and shall be so handled in the records of the Corporation.
Such assets, income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and any assets
derived from any reinvestment of such proceeds, in whatever form the same may
be, are herein referred to as "assets belonging to" the classes of Founders
Discovery Fund and Founders Worldwide Growth Fund shares.
(2) The assets belonging to the classes of Founders
Discovery Fund and Founders Worldwide Growth Fund shares shall be charged with
the liabilities, including the redemption of shares, in respect of such class
and shall also be charged with its share of the general liabilities of the
Corporation, in proportion to the net asset value of the respective class
determined as hereinafter provided. The determination of the Board of Directors
shall be conclusive as to the amount of liabilities, including accrued expenses
and reserves, as to the allocation of the same as to a given class, and as to
whether the same or general assets of the Corporation are allocable to one or
more classes.
(3) The net asset value per share of the classes of
Founders Discovery Fund and Founders Worldwide Growth Fund shall be determined
in accordance with Article FIFTH, Paragraph (5) of the Corporation's Articles of
Incorporation, as amended, by separately computing the assets belonging to each
class less the liabilities applicable to that class, allocating any general
assets and general liabilities to that class, and dividing the net result by the
number of shares of common stock of that class outstanding.
(4) Dividends or distributions on the classes of Founders
Discovery Fund and Founders Worldwide Growth Fund shares, whether payable in
stock or cash, shall be paid only out of earnings, surplus or other lawfully
available assets belonging to such class.
(5) In the event of the liquidation or dissolution of the
Corporation, stockholders of Founders Discovery Fund and Founders Worldwide
Growth Fund shares shall be entitled to receive, as a class, out of the assets
of the Corporation available for distribution to stockholders, but other than
general assets, the assets belonging to such class. The assets so distributable
to the stockholders of such class shall be distributed among such stockholders
in proportion to the number of shares of such class held by them and recorded in
the records of the Corporation.
<PAGE>
(6) The provisions of Article FIFTH, Paragraphs (1)
through (5) of the Corporation's Articles of Incorporation, as amended, shall
apply to the holders of Founders Discovery Fund and Founders Worldwide Growth
Fund shares with respect to the shares of such class as may be issued from time
to time and the assets belonging to such class.
(b) Except as provided in Paragraph (a) of this Article
SECOND, the holders of Founders Discovery Fund and Founders Worldwide Growth
Fund shares shall have the same powers, preferences and participating, voting or
other special rights and the qualifications, restrictions and limitations
thereof as the holders of the Corporation's Common Shares, as that term is used
in the Corporation's Articles of Incorporation, as amended.
SIXTH: Founders Discovery Fund and Founders Worldwide Growth Fund
shares have been duly classified by the Board of Directors pursuant to authority
and power contained in the Articles of Incorporation of the Corporation, as
heretofore amended.
IN WITNESS WHEREOF, FOUNDERS FUNDS, INC. has caused these presents to
be signed in its name and on its behalf by its duly authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation and
that, to the best of their knowledge, all matters and facts set forth therein
are true in all material respects under penalties of perjury.
FOUNDERS FUNDS, INC.
/s/ Bjorn K. Borgen, President
ATTEST:
/s/ Jack Manahan, Secretary
FOUNDERS FUNDS, INC.
ARTICLES SUPPLEMENTARY
FOUNDERS FUNDS, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Articles of Incorporation initially classified and allocated
50,000,000 shares of the Corporation's common stock, par value $0.01 per share,
to a class of shares designated Founders Special Fund.
SECOND: The Board of Directors of the Corporation, by unanimous written
consent dated September 23, 1987, created five additional series of shares of
the Corporation's common stock designated Founders Money Market Fund, Founders
Frontier Fund, Founders Equity Income Fund, Founders Growth Fund and Founders
Blue Chip Fund (formerly Founders Mutual Fund) and classified and allocated
150,000,000 shares of the Corporation's common stock, par value $0.01 per share,
to Founders Money Market Fund and 50,000,000 shares of the Corporation's common
stock, par value $0.01 per share, to each of Founders Frontier Fund, Founders
Equity Income Fund, Founders Growth Fund and Founders Blue Chip Fund.
THIRD: The Board of Directors of the Corporation, at a meeting duly
convened and held on February 19, 1988, created one additional series of shares
of the Corporation's common stock designated Founders Government Securities Fund
and allocated 50,000,000 shares of the Corporation's common stock, par value
$0.01 per share, to Founders Government Securities Fund.
FOURTH: The Board of Directors of the Corporation, at a meeting duly
convened and held on December 8, 1989, created two additional series of shares
of the Corporation's common stock designated Founders Worldwide Growth Fund and
Founders Discovery Fund and allocated 25,000,000 shares of the Corporation's
common stock, par value $0.01 per share, to each of Founders Worldwide Growth
Fund and Founders Discovery Fund.
FIFTH: The Board of Directors of the Corporation, at a meeting duly
convened and held on March 2, 1990, allocated 25 million shares designated
Founders Government Securities Fund, par value $0.01 per share, and 25 million
shares designated Founders Equity Income Fund, par value $0.01 per share to
Founders Money Market Fund.
SIXTH: A description of the shares so classified with the
powers, preferences and participating, voting or other special
<PAGE>
rights and the qualifications, restrictions and limitations
thereof shall be as follows:
(a) Founders Money Market Fund shares shall have the following
powers, preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
(1) All consideration received by the Corporation for the
issue of Founders Money Market Fund shares, together with all income, earnings,
profits and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the class of Founders Money Market Fund shares with
respect to which such assets, payments or funds were received by the Corporation
for all purposes, subject only to the rights of creditors, and shall be so
handled in the records of the Corporation. Such assets, income, earnings,
profits and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets derived from any reinvestment of
such proceeds, in whatever form the same may be, are herein referred to as
"assets belonging to" the class of Founders Money Market Fund shares.
(2) The assets belonging to the class of Founders Money
Market Fund shares shall be charged with the liabilities, including the
redemption of shares, in respect of such class and shall also be charged with
its share of the general liabilities of the Corporation, in proportion to the
net asset value of the class determined as hereinafter provided. The
determination of the Board of Directors shall be conclusive as to the amount of
liabilities, including accrued expenses and reserves, as to the allocation of
the same as to a given class, and as to whether the same or general assets of
the Corporation are allocable to one or more classes.
(3) The net asset value per share of the class of
Founders Money Market Fund shall be determined in accordance with Article FIFTH,
Paragraph (5) of the Corporation's Articles of Incorporation, as amended, by
separately computing the assets belonging to such class less the liabilities
applicable to that class, allocating any general assets and general liabilities
to that class, and dividing the net result by the number of shares of common
stock of that class outstanding.
(4) Dividends or distributions on the class of Founders
Money Market Fund shares, whether payable in stock or cash, shall be paid only
out of earnings, surplus or other lawfully available assets belonging to such
class.
(5) In the event of the liquidation or dissolution of the
Corporation, stockholders of Founders Money Market Fund shares shall be entitled
to receive, as a class, out
<PAGE>
of the assets of the Corporation available for distribution to stockholders, but
other than general assets, the assets belonging to such class. The assets so
distributable to the stockholders of any class shall be distributed among such
stockholders in proportion to the number of shares of such class held by them
and recorded in the records of the Corporation.
(6) The provisions of Article FIFTH, Paragraphs (1)
through (5) of the Corporation's Articles of Incorporation, as amended, shall
apply to the holders of Founders Money Market Fund shares with respect to the
shares of such class as may be issued from time to time and the assets belonging
to such class.
(b) Except as provided in Paragraph (a) of this Article
SECOND, the holders of Founders Money Market Fund shares shall have the same
powers, preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof as the holders of the
Corporation's Common Shares, as that term is used in the Corporation's Articles
of Incorporation, as amended.
SIXTH: Founders Money Market Fund shares have been duly classified by
the Board of Directors pursuant to authority and power contained in the Articles
of Incorporation of the Corporation, as heretofore amended.
IN WITNESS WHEREOF, FOUNDERS FUNDS, INC. has caused these presents to
be signed in its name and on its behalf by its duly authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation and
that, to the best of their knowledge, all matters and facts set forth therein
are true in all material respects under penalties of perjury.
FOUNDERS FUNDS, INC.
/s/ Bjorn K. Borgen, President
ATTEST:
/s/ David L. Ray, Secretary
FOUNDERS FUNDS, INC.
ARTICLES SUPPLEMENTARY
FOUNDERS FUNDS, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
registered office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The aggregate number of shares of stock of all classes which the
Corporation shall have authority to issue is hereby increased to one billion
(1,000,000,000) shares of the Corporation's common stock ("Common Stock"). Prior
to this increase in the Corporation's authorized aggregate number of shares of
Common Stock, the Corporation was authorized to issue 500,000,000 shares of
Common Stock of all classes. Before and after this increase in the Corporation's
authorized aggregate number of shares of Common Stock, the Corporation's shares
of Common Stock had and will have a par value of $0.01 per share. The aggregate
par value of the Corporation's one billion authorized shares of Common Stock is
ten million dollars ($10,000,000).
SECOND: The board of directors of the Corporation, by action taken at a
regularly scheduled board meeting held on August 27, 1993, created two
additional series of shares of the Corporation's Common Stock designated
Founders Passport Fund and Founders Opportunity Bond Fund, and classified and
allocated shares of the Corporation's Common Stock among each of its series,
including the two new series, as follows:
Discovery Fund 40,000,000
Frontier Fund 40,000,000
Passport Fund 20,000,000
Special Fund 150,000,000
Worldwide Growth Fund 20,000,000
Growth Fund 100,000,000
Blue Chip Fund 110,000,000
Balanced Fund 30,000,000
Opportunity Bond Fund 20,000,000
Government Securities Fund 30,000,000
Money Market Fund 440,000,000
THIRD: A description of the shares so classified, including the shares
of Common Stock of Founders Passport Fund and Founders Opportunity Bond Fund,
with the powers, preferences, and participating, voting or other special rights
and the qualifications, restrictions and limitations thereof, are as follows:
(a) All shares of Common Stock shall have the following
powers, preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
<PAGE>
(1) All consideration received by the Corporation for the
issue of the shares of Common Stock, together with all income, earnings, profits
and proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to the
class of shares of that series with respect to which such assets, payments or
funds were received by the Corporation for all purposes, subject only to the
rights of creditors, and shall be so handled in the records of the Corporation.
Such assets, income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and any assets
derived from any reinvestment of such proceeds, in whatever form the same may
be, are herein referred to as "assets belonging to" the class of each series of
shares.
(2) The assets belonging to the class of each series of
shares shall be charged with the liabilities, including the redemption of
shares, in respect of such class and shall also be charged with its share of the
general liabilities of the Corporation, in proportion to the net asset value of
the class of such series determined as hereinafter provided. The determination
of the board of directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the same to a
given class, and as to whether the same or general assets of the Corporation are
allocable to one or more classes.
(3) The net asset value per share of the class of each
series shall be determined in accordance with Article FIFTH, Paragraph (5) of
the Corporation's Articles of Incorporation, as amended, by separately computing
the assets belonging to such class less the liabilities applicable to that
class, allocating any general assets and general liabilities to that class, and
dividing the net result of the number of shares of common stock of that class
outstanding.
(4) Dividends or distributions on the class of each
series of shares, whether payable in stock or cash, shall be paid only out of
earnings, surplus or other lawfully available assets belonging to such class.
(5) In the event of the liquidation or dissolution of the
Corporation, stockholders of shares of each series shall be entitled to receive,
as a class, out of the assets of the Corporation available for distribution to
stockholders, but other than general assets, the assets belonging to such class.
The assets so distributable to the stockholders of any class shall be
distributed among such stockholders in
<PAGE>
proportion to the number of shares of such class held by them and recorded in
the records of the Corporation.
(6) The provisions of Article FIFTH, Paragraphs (1)
through (5) of the Corporation's Articles of Incorporation, as amended, shall
apply to the holders of shares of each class as may be issued from time to time
and the assets belonging to such class.
(b) Except as otherwise may be provided in the Corporation's
Articles of Incorporation, the holders of shares of each series shall have the
same powers, preferences and participating, voting or other special rights and
the qualifications, restrictions and limitations thereof as the holders of any
other series of the Corporation's Common Shares, as that term is used in the
Corporation's Articles of Incorporation, as amended.
FOURTH: Shares of each series have been duly classified by the board of
directors pursuant to authority and power contained in the Articles of
Incorporation of the Corporation, as heretofore amended.
FIFTH: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940.
SIXTH: The total number of shares of Common Stock that the Corporation
has authority to issue has been increased by the board of directors in
accordance with Section 2-105(c) of the Maryland General Corporation Law.
IN WITNESS WHEREOF, FOUNDERS FUNDS, INC. has caused these presents to
be signed in its name and on its behalf by its duly authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation and
that, to the best of their knowledge, all matters and facts set forth therein
are true in all material respects under penalties of perjury.
FOUNDERS FUNDS, INC.
/s/ Bjorn K. Borgen, President
ATTEST:
/s/ David L. Ray, Secretary
FOUNDERS FUNDS, INC.
ARTICLES SUPPLEMENTARY
FOUNDERS FUNDS, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
registered office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The aggregate number of shares of stock of all classes which the
Corporation has authority to issue is one billion (1,000,000,000) shares of the
Corporation's common stock ("Common Stock"). The Corporation's shares of Common
Stock have a par value of $0.01 per share. The aggregate par value of the
Corporation's one billion authorized shares of Common Stock is ten million
dollars ($10,000,000).
SECOND: The board of directors of the Corporation, by action taken at a
regularly scheduled board meeting held on August 25, 1995, created an additional
series of shares of the Corporation's Common Stock designated Founders
International Equity Fund, adopted a plan of liquidation pursuant to which the
offering and sale of shares of Opportunity Bond Fund and the liquidation of the
Fund will occur on or before December 31, 1995, and reclassified and reallocated
shares of the Corporation's Common Stock among each of its series, including the
new series, effective December 29, 1995, as follows:
Discovery Fund 40,000,000
Frontier Fund 40,000,000
Passport Fund 20,000,000
International Equity Fund 20,000,000
Special Fund 150,000,000
Worldwide Growth Fund 20,000,000
Growth Fund 100,000,000
Blue Chip Fund 110,000,000
Balanced Fund 30,000,000
Government Securities Fund 30,000,000
Money Market Fund 440,000,000
THIRD: A description of the shares so reclassified, including the
shares of Common Stock of Founders International Equity Fund, with the powers,
preferences, and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof, are as follows:
(a) All shares of Common Stock shall have the following
powers, preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
<PAGE>
(1) All consideration received by the Corporation for the
issue of the shares of Common Stock, together with all income, earnings, profits
and proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to the
class of shares of that series with respect to which such assets, payments or
funds were received by the Corporation for all purposes, subject only to the
rights of creditors, and shall be so handled in the records of the Corporation.
Such assets, income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and any assets
derived from any reinvestment of such proceeds, in whatever form the same may
be, are herein referred to as "assets belonging to" the class of each series of
shares.
(2) The assets belonging to the class of each series of
shares shall be charged with the liabilities, including the redemption of
shares, in respect of such class and shall also be charged with its share of the
general liabilities of the Corporation, in proportion to the net asset value of
the class of such series determined as hereinafter provided. The determination
of the board of directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the same to a
given class, and as to whether the same or general assets of the Corporation are
allocable to one or more classes.
(3) The net asset value per share of the class of each
series shall be determined in accordance with Article FIFTH, Paragraph (5) of
the Corporation's Articles of Incorporation, as amended, by separately computing
the assets belonging to such class less the liabilities applicable to that
class, allocating any general assets and general liabilities to that class, and
dividing the net result of the number of shares of common stock of that class
outstanding.
(4) Dividends or distributions on the class of each
series of shares, whether payable in stock or cash, shall be paid only out of
earnings, surplus or other lawfully available assets belonging to such class.
(5) In the event of the liquidation or dissolution of the
Corporation, stockholders of shares of each series shall be entitled to receive,
as a class, out of the assets of the Corporation available for distribution to
stockholders, but other than general assets, the assets belonging to such class.
The assets so distributable to the stockholders of any class shall be
distributed among such stockholders in proportion to the number of shares of
such class held by them and recorded in the records of the Corporation.
<PAGE>
(6) The provisions of Article FIFTH, Paragraphs (1)
through (5) of the Corporation's Articles of Incorporation, as amended, shall
apply to the holders of shares of each class as may be issued from time to time
and the assets belonging to such class.
(b) Except as otherwise may be provided in the Corporation's
Articles of Incorporation, the holders of shares of each series shall have the
same powers, preferences and participating, voting or other special rights and
the qualifications, restrictions and limitations thereof as the holders of any
other series of the Corporation's Common Shares, as that term is used in the
Corporation's Articles of Incorporation, as amended.
FOURTH: Shares of each series have been duly reclassified by the board
of directors pursuant to authority and power contained in the Articles of
Incorporation of the Corporation, as heretofore amended.
FIFTH: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940.
SIXTH: The total number of shares of Common Stock that the Corporation
has authority to issue has been reclassified and reallocated as indicated herein
by the board of directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
IN WITNESS WHEREOF, FOUNDERS FUNDS, INC. has caused these presents to
be signed in its name and on its behalf by its duly authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation and
that, to the best of their knowledge, all matters and facts set forth therein
are true in all material respects under penalties of perjury.
FOUNDERS FUNDS, INC.
/s/ Bjorn K. Borgen, President
ATTEST:
/s/ David L. Ray, Secretary
FOUNDERS FUNDS, INC.
A Maryland Corporation
BY-LAWS
<PAGE>
BY-LAWS
TABLE OF CONTENTS
ARTICLE I. FISCAL YEAR AND OFFICES 1
Section 1.01. FISCAL YEAR 1
Section 1.02. REGISTERED OFFICE 1
Section 1.03. OTHER OFFICES 1
ARTICLE II. STOCKHOLDERS 1
Section 2.01. PLACE OF MEETING 1
Section 2.02. ANNUAL MEETINGS 1
Section 2.03. SPECIAL MEETINGS 2
Section 2.04. NOTICE 2
Section 2.05. QUORUM 2
Section 2.06. VOTING 3
Section 2.07. VOTING - PROXIES 3
Section 2.08. INSPECTORS 4
Section 2.09. STOCK LEDGER AND LIST OF
STOCKHOLDERS 4
Section 2.10. ACTION WITHOUT MEETING 4
ARTICLE III. DIRECTORS 4
Section 3.01. GENERAL POWERS 4
Section 3.02. POWER TO ISSUE AND SELL STOCK 5
Section 3.03. POWER TO DECLARE DIVIDENDS 6
Section 3.04. NUMBER AND TERM OF OFFICE 7
Section 3.05. ELECTION 7
Section 3.06. REMOVAL OF DIRECTORS 7
Section 3.07. PLACE OF MEETING 7
Section 3.08. QUORUM 7
Section 3.09. REGULAR MEETINGS 8
Section 3.10. SPECIAL MEETINGS 8
Section 3.11. INFORMAL ACTIONS 8
Section 3.12. COMMITTEES 8
Section 3.13. ACTION OF COMMITTEES 9
Section 3.14. COMPENSATION 9
Section 3.15. CHAIRMAN OF THE BOARD 9
ARTICLE IV. NOTICES
Section 4.01. FORM 9
Section 4.02. WAIVER 10
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ARTICLE V. OFFICERS 10
Section 5.01. EXECUTIVE OFFICERS 10
Section 5.02. ELECTION 10
Section 5.03. OTHER OFFICERS 10
Section 5.04. COMPENSATION 10
Section 5.05. TENURE 11
Section 5.06. PRESIDENT 11
Section 5.07. VICE-PRESIDENT 11
Section 5.08. SECRETARY 11
Section 5.09. ASSISTANT SECRETARIES 11
Section 5.10. TREASURER 12
Section 5.11. CONTROLLER 12
Section 5.12. ASSISTANT TREASURER 12
Section 5.13. SURETY BONDS 12
ARTICLE VI. FUNDAMENTAL POLICIES AND INVESTMENT
RESTRICTIONS 12
ARTICLE VII. STOCK 13
Section 7.01. CERTIFICATES 13
Section 7.02. SIGNATURE 13
Section 7.03. RECORDING AND TRANSFER WITHOUT
CERTIFICATES 13
Section 7.04. LOST CERTIFICATES 13
Section 7.05. TRANSFER OF CAPITAL STOCK 14
Section 7.06. REGISTERED STOCKHOLDERS 14
Section 7.07. TRANSFER AGENTS AND REGISTRARS 14
Section 7.08. STOCK LEDGER 14
Section 7.09. TRANSFER REGULATIONS 15
Section 7.10. FIXING OF RECORD DATE 15
ARTICLE VIII. GENERAL PROVISIONS 15
Section 8.01. RIGHTS IN SECURITIES 15
Section 8.02. CUSTODIANSHIP 16
Section 8.03. REPORTS 17
Section 8.04. SEAL 17
Section 8.05. EXECUTION OF INSTRUMENTS 17
Section 8.06. CHECKS, NOTES, DRAFTS, ETC. 17
ARTICLE IX. REDEMPTION AND REPURCHASE OF THE
CORPORATION'S SHARES 18
Section 9.01. REDEMPTION OF SHARES 17
Section 9.02. PRICE 18
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Section 9.03. PAYMENT 18
Section 9.04. EFFECT OF SUSPENSION OF DETER-
MINATION OF NET ASSET VALUE 18
Section 9.05. REPURCHASE BY AGREEMENT 19
Section 9.06. REDEMPTION OF STOCKHOLDERS'
INTERESTS 19
ARTICLE X. NET ASSET VALUE OF SHARES 19
Section 10.01. BY WHOM DETERMINED 19
Section 10.02. WHEN DETERMINED 19
Section 10.03. SUSPENSION OF DETERMINATION
OF NET ASSET VALUE 20
Section 10.04. COMPUTATION OF PER SHARE
NET ASSET VALUE 20
Section 10.05. INTERIM DETERMINATIONS 22
Section 10.06. MISCELLANEOUS 23
ARTICLE XI. ACCOUNTANT 23
Section 11.01. ACCOUNTANT 23
ARTICLE XII. INDEMNIFICATION AND INSURANCE 24
Section 12.01. INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND
AGENTS 24
Section 12.02. INSURANCE OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS 24
ARTICLE XIII. AMENDMENTS 25
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BY-LAWS OF
FOUNDERS FUNDS, INC.
Article I
Fiscal Year and Offices
Section 1.01. Fiscal Year. Unless otherwise provided by resolution of
the Board of Directors the fiscal year of the Corporation shall begin January 1
and end on the last day of December.
Section 1.02. Registered Office. The registered office of the
Corporation in Maryland shall be located in the City of Baltimore c/o
The Corporation Trust, Incorporated, 32 South Street, Baltimore, Maryland 21202
and the name and address of its Resident Agent is The Corporation Trust,
Incorporated, 32 South Street, Baltimore, Maryland 21202.
Section 1.03. Other Offices. The Corporation shall have the power to
open additional offices for the conduct of its business, either within or
outside the State of Maryland, at such places as the Board of Directors may from
time to time designate.
Article II
Stockholders
Section 2.01. Place of Meeting. Meetings of the stockholders for the
election of Directors shall be held in such place as the Board of Directors may
by resolution establish. In the absence of any specific resolution, annual
meetings of stockholders shall, if required, be held at the Corporation's
principal office at 810 Cherry Creek National Bank Building, 3033 East First
Avenue, Denver, Colorado 80206. Meetings of stockholders for any other purpose
may be held at such place and time as shall be fixed by resolution of the Board
of Directors and stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
Section 2.02. Annual Meeting. The annual meeting of stockholders, if
required, shall be held on a date and at a time during the month of May as set
by the Board of Directors. At the annual meeting, the stockholders shall elect a
Board of Directors and transact any other business which may properly be brought
before the meeting. Effective July 1, 1987, the Corporation is not required to
and may not hold an annual meeting in any year in which none of the following is
required to be acted on by stockholders under the Investment Company Act of 1940
or the rules and regulations promulgated thereunder (collectively referred to
hereinafter as "the Investment Company Act"): (1) election of directors; (2)
approval of an investment advisory
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agreement; (3) ratification of the selection of independent public accountants;
and (4) approval of a distribution agreement.
Section 2.03. Special Meetings. Special meetings of the stockholders
(including meetings involving only one or more but less than all classes of
stock) may be called at any time by the Chairman of the Board of the President,
or by a majority of the Board of Directors, and shall be called by the Chairman
of the Board, President or Secretary upon written request of the holders of
shares entitled to cast not less than twenty-five percent of all the votes
entitled to be cast at such meeting provided that (a) such request will state
the purpose of such meeting and the matters proposed to be acted upon and (b)
the stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
Secretary shall determine and specify to such stockholders. Unless requested by
the holders of shares entitled to cast a majority of all the votes entitled to
be cast at such meeting, no special meeting need be called to consider any
matter which is substantially the same as a matter voted on at any meeting of
the stockholders held during the preceding twelve months.
Section 2.04. Notice. Not less than ten nor more than ninety days
before the date of every annual or special stockholders' meeting, the Secretary
shall cause to be mailed to each stockholder entitled to vote at such meeting at
his, her or its address (as it appears on the records of the Corporation at the
time of mailing) written notice stating the time and place of the meeting and,
in the case of a special meeting of stockholders, the purpose or purposes for
which the meeting is called. Notice of any stockholders' meeting need not be
given to any stockholder who shall sign a written waiver of such notice whether
before or after the time of such meeting, or to any stockholder who shall attend
such meeting in person or by proxy. Notice of adjournment of a stockholders'
meeting to another time or place need not be given, if such time and place are
announced at the meeting.
Section 2.05. Quorum. At any meeting of stockholders, the presence in
person or by proxy of the holders of a majority of the aggregate number of
shares of common stock at the time outstanding shall constitute a quorum for the
transaction of business at the meeting, except that where any provision of law,
the Articles of Incorporation, or these By-laws require that the holders of any
class of shares shall vote as a class, then a majority of the aggregate number
of shares of that class at the time outstanding shall be necessary to constitute
a quorum for the transaction of such business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, any officer
entitled to preside at, or act as a Secretary of,
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such meeting, shall have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 2.06. Voting. Each stockholder shall have one vote for each
full share and a fractional vote for each fractional share of stock having
voting power held by such stockholder on the record date set pursuant to Section
7.10 on each matter submitted to a vote at a meeting of stockholders. Such vote
may be made in person or by proxy. If no record date has been fixed for the
determination of stockholders, the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be (a) at the close of business (i) on the day ten days before the date on which
notice of the meeting is mailed or (ii) on the day 90 days before the meeting
whichever is the closer date to the meeting; or (b) if notice is waived by all
stockholders entitled to notice of or to vote at the meeting, at the close of
business on the tenth day next preceding the day on which the meeting is held.
At all meetings of the stockholders, a quorum being present, all matters shall
be decided by majority vote of the shares of stock entitled to vote held by
stockholders present in person or by proxy, unless the question is one which by
express provision of the laws of Maryland, the Investment Company Act, or the
Articles of Incorporation, a different vote is required in which case such
express provision shall control the decision of such question. At all meetings
of stockholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of votes and the validity of proxies and the
acceptance or rejection of votes shall be decided by the Chairman of the
meeting.
Section 2.07. Voting - Proxies. The right to vote by proxy shall exist
only if the instrument authorizing such proxy to act shall have been executed in
writing by the stockholder himself or by his attorney thereunto duly authorized
in writing. No proxy shall be voted on after eleven months from its date unless
it provides for a longer period. Each proxy shall be in writing executed by the
stockholder or his duly authorized attorney and shall be dated, but need not be
sealed, witnessed or acknowledged. Proxies shall be delivered to the Secretary
of the Corporation or person acting as Secretary of the meeting before being
voted. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by one of them unless at or prior to exercise of such
proxy the Corporation receives a specific written notice to the contrary from
any one of them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior to its exercise.
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Section 2.08. Inspectors. At any election of directors, the Board of
Directors prior thereto may, or, if they have not so acted, the Chairman of the
meeting may, appoint one or more inspectors of election who shall first
subscribe an oath of affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of director shall be appointed such
inspector.
Section 2.09. Stock Ledger and List of Stockholders. It shall be the
duty of the Secretary or Assistant Secretary of the Corporation to cause an
original or duplicate stock ledger to be maintained at the office of the
Corporation's transfer agent. Such stock ledger may be in writing form or any
other form capable of being converted into written form within a reasonable time
for visual inspection. Any one or more persons, each of whom has been a
stockholder of record of the Corporation for more than six months next preceding
such request, who owns or own in the aggregate 5% or more of the outstanding
capital stock of the Corporation, may submit a written request to any officer of
the Corporation or its resident agent in Maryland for a list of the stockholders
of the Corporation. Within 20 days after such a request, there shall be prepared
and filed at the Corporation's principal office a list containing the names and
addresses of all stockholders of the Corporation and the number of shares of
each class held by each stockholders, certified as correct by an officer of the
Corporation, by its stock transfer agent, or by its registrar.
Section 2.10. Action Without Meeting. Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing, and the written consents are
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
Article III
Directors
Section 3.01. General Powers. The business of the Corporation shall be
under the direction of its Board of Directors, which may exercise all powers of
the Corporation, except such as are by statute, or by the Articles of
Incorporation, or by these By-laws conferred upon or reserved to the
stockholders. All acts done by any meeting of the directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person
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acting as a aforesaid or that they or any of them were disqualified, be as valid
as if the directors or such other person, as the case may be, had been duly
elected and were or was qualified to be directors or a director of the
corporation.
Section 3.02. Power to Issue and Sell Stock
(a) General. The Board of Directors may from time to time issue,
reissue, sell or cause to be issued and sold any of the Corporation's authorized
shares of any class of common stock, including any additional shares hereafter
authorized of any class and any shares redeemed or repurchased by the
Corporation, to such persons and for such consideration as the Board of
Directors shall deem advisable, except that only shares previously contracted to
be sold may be issued during any period when the determination of net asset
value is suspended pursuant to the provisions of Article X hereof. All shares of
any classes of such authorized common stock, when issued in accordance with the
terms of this Section 3.02 shall be fully paid and nonassessable.
(b) Price. No shares of common stock shall be issued or sold by the
Corporation, except as a stock dividend distributed to shareholders, for less
than an amount which would result in proceeds to the Corporation, before taxes
payable by the Corporation in connection with such transaction, of at least the
net asset value per share determined as set forth in Article X hereof as of such
time as the Board of Directors shall have by resolution prescribed. In the
absence of a resolution of the Board of Directors applicable to the transaction,
such net asset value shall be that next determined after an unconditional order
for shares has been received by the Corporation (either directly or through one
of its agents) and the sales price in currency has been determined.
(c) On Merger or Consolidation. In connection with the acquisition of
all or substantially all the assets or stock of another investment company or
investment trust, the Board of Directors may issue or cause to be issued shares
of common stock of the Corporation and accept in payment thereof, in lieu of
cash, such assets at their market value, or such stock at the market value of
the assets held by such investment company or investment trust, either with or
without adjustment for contingent costs or liabilities, provided such assets are
of the character in which the Board of Directors is permitted to invest the
funds of the Corporation.
(d) Fractional Shares. The Corporation may issue and sell or cause to
be issued and sold fractions of shares having pro rata all the rights of full
shares, including, without limitation, the right to vote and to receive
dividends.
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Section 3.03 Power to Declare Dividends
(a) The Board of Directors may from time to time declare and pay
dividends or distributions, in stock or in cash at the election of the
stockholders, on all issued and outstanding shares of any or all classes of
common stock, the amount of such dividends and distributions and the payment of
them being wholly in the discretion of the Board of Directors and payable only
out of earnings, surplus, or other lawfully available assets belonging to the
Corporation; provided, however, that the sum of the cash dividend actually paid
to any stockholder and the asset value of the shares received (determined as of
such time as the Board of Directors shall have prescribed pursuant to Section
3.02 hereof with respect to shares sold on the date of such stockholder
election) shall not exceed the full amount of cash to which the stockholder
would be entitled if he elected to receive only cash.
The Board of Directors is expressly authorized to determine in
accordance with generally accepted accounting principles and practices what
constitutes net profits, earnings, surplus or net assets in excess of capital,
and to determine what accounting periods shall be used by the Corporation for
any purpose, whether annual or any other period, including daily; to set apart
out of any funds of the Corporation such reserves for such purposes as it shall
determine and to abolish the same; to declare and pay dividends and
distributions in cash, securities or other property from surplus or any funds
legally available therefor, at such intervals (which may be as frequently as
daily) or on such other periodic basis, as it shall determine; to declare such
dividends or distributions, including daily dividends, by means of a formula or
other method of determination at meetings held less frequently than the
frequency of the effectiveness of such declarations; to establish payment dates
for dividends or any other distributions on any basis including dates occurring
less frequently than the effectiveness of the declarations thereof; and to
provide for the payment of declared dividends on a date other than the specified
payment date in the case of the stockholders of the Corporation redeeming their
entire ownership of the Corporation.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
(i) the Corporation's accumulated undistributed net income
(determined in accordance with good accounting practice and the rules and
regulations of the Securities and Exchange Commission then in effect and not
including profits or losses realized upon the sale of securities or other
properties); or
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(ii) the Corporation's net income so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such
payment and the basis of calculation, and shall be in such form as the
Securities and Exchange Commission may prescribe.
Section 3.04. Number and Term of Office. The number of directors which
shall constitute the whole Board shall be determined from time to time by the
Board of Directors, but shall not be fewer than three, nor more than fifteen.
Each director elected shall hold office until his or her successor is elected
and qualified or until his or her earlier death, resignation, or removal.
Directors need not be stockholders.
Section 3.05. Election. Initially the directors shall be those persons
named as such in the Articles of Incorporation. Except as provided in the next
sentence, the directors shall be elected by the vote of a majority of the shares
present in person or by proxy at the annual meeting of the stockholders. If any
vacancies shall occur in the Board of Directors for any reason, the directors
then in office shall continue to act, and such vacancies (if not previously
filled by the stockholders) may be filled by a majority vote of the remaining
directors, although less than a quorum, and except that a newly created
Directorship may be filled only by a majority vote of the entire Board of
Directors, provided that in either case immediately after filling any such
vacancy at least two-thirds of the directors then holding office shall have been
elected to such office by the stockholders, a stockholders' meeting shall be
called as soon as possible, and in any event within sixty days, for the purpose
of electing an entire new Board of Directors.
Section 3.06. Removal of Directors. At any stockholders meeting,
provided a quorum is present, any director may be removed (either with or
without cause) by the vote of the holders of a majority of the shares present or
represented at the meeting, and at the same meeting a duly qualified person may
be elected in his or her stead by a majority of the votes validly cast.
Section 3.07. Place of Meeting. Meetings of the Board of Directors,
regular or special, may be held at any place in or out of the State of Maryland
as the Board may from time to time determine.
Section 3.08. Quorum. At all meetings of the Board of Directors a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the action of a majority of the directors present at
any meeting at
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which a quorum is present shall be the action of the Board of Directors unless
the concurrence of a greater proportion is required for such action by the laws
of Maryland, the Investment Company Act, the Articles of Incorporation, or these
By-laws. If a quorum shall not be present at any meeting of directors, the
directors present there at may by a majority vote adjourn the meeting from time
to time without notice other than announcement at the meeting, until a quorum
shall be present.
Section 3.09. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board of Directors provided that notice of any
change in the time or place of such meetings shall be sent promptly to each
director not present at the meeting at which such change was made in the manner
provided for notice of special meetings. Members of the Board of Directors or
any committee designated thereby may participate in a meeting of such Board or
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time, and participation by such means shall constitute presence in
person at a meeting.
Section 3.10. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on one
day's notice to each director; special meetings shall be called by the Chairman
of the Board, President or Secretary in like manner and on like notice on the
written request of two directors.
Section 3.11. Informal Actions. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if a written consent to such action is signed in one
or more counterparts by all members of the Board or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board or committee.
Section 3.12. Committees. The Board of Directors may by resolution
passed by a majority of the entire Board appoint from among its members an
Executive Committee and other committees composed of two or more directors, and
may delegate to such committees, in the intervals between meetings of the Board
of Directors, any or all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, except the powers (a)
to declare dividends or distributions on stock, (b) to issue stock (although a
committee may participate in fixing the terms and conditions of stock issued, in
accordance with the laws of Maryland), (c) to recommend to stockholders any
action requiring stockholder approval, (d) to amend the By-laws,
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or (e) to approve any merger or share exchange which does not require
stockholder approval.
Section 3.13. Action of Committees. In the absence of an appropriate
resolution of the Board of Directors each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that the quorum shall not be less than two
directors. The committees shall keep minutes of their proceedings and shall
report the same to the Board of Directors at the meeting next succeeding, and
any action by the committee shall be subject to revision and alteration by the
Board of Directors, provided that no rights of third persons shall be affected
by any such revision or alteration. In the absence of any member of such
committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 3.14. Compensation. Any director, whether or not he is a
salaried officer or employee of the Corporation, may be compensated for his
services as a director or as a member of a committee of directors, or as
Chairman of the Board or chairman of a committee by fixed periodic payments, by
fees for attendance at meetings, or otherwise or by a combination thereof, and
in addition may be reimbursed for transportation and other expenses, all in such
manner and amounts as the Board of Directors may from time to time determine.
Section 3.15. Chairman of the Board. The Chairman of the Board, if one
shall be chosen from and by the directors, shall preside at all meetings of the
Board of Directors and stockholders, and shall perform and execute such
executive duties and administrative powers as the Board of Directors shall from
time to time prescribe.
Article IV
Notices
Section 4.01. Form. Notice to stockholders shall be in writing and
delivered personally or mailed to the stockholders at their addresses appearing
on the books of the Corporation. Notices to directors shall be oral or by
telephone or telegram or in writing delivered personally or mailed to the
directors at their addresses appearing on the books of the Corporation. Notice
by mail shall be deemed to be given at the time when the same shall be mailed.
Notice to directors need not state the purpose of a regular or special meeting.
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Section 4.02. Waiver. Whenever any notice of the time, place or purpose
of any meeting of stockholders, directors or a committee is required to be given
under the provisions of the laws of Maryland, the Articles of Incorporation or
these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
stockholders in person or by proxy, or at the meeting of directors or committee
in person, shall be deemed equivalent to the giving of such notice to such
persons.
Article V
Officers
Section 5.01. Executive Officers. The officers of the Corporation shall
be chosen by the Board of Directors and shall include a President, who shall be
a director, a Secretary and a Treasurer. The Board of Directors may, from time
to time, elect or appoint a Controller, one or more Vice Presidents, Assistant
Secretaries, and Assistant Treasurers. The same person may hold two or more
offices, except that no person shall be both President and Vice President and no
officer shall execute, acknowledge or verify any instrument in more than one
capacity, if such instrument is required by law, the Articles of Incorporation
or these By-laws to be executed, acknowledged or verified by two or more
officers.
Section 5.02. Election. The Board of Directors shall choose a
President, a Secretary and a Treasurer at its first meeting and thereafter at
the next meeting following a stockholders' meeting at which directors were
elected.
Section 5.03. Other Officers. The Board of Directors from time to time
may appoint such officers and agents as it shall deem advisable, who shall hold
their offices for such terms and shall exercise powers and perform such duties
as shall be determined from time to time by the Board. The Board of Directors
from time to time may delegate to one or more officers or agents the power to
appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 5.04. Compensation. The salaries or other compensation of all
officers and agents of the Corporation shall be fixed by the Board of Directors,
except that the Board of Directors may delegate to any person or group of
persons the power to fix the salary or other compensation of any subordinate
officers or agents appointed pursuant to Section 5.03.
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Section 5.05. Tenure. The officers of the Corporation shall serve until
their successors are chosen and qualify. Any officer or agent may be removed by
the affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interest of the Corporation will be served thereby. In
addition, any officer or agent appointed pursuant to Section 5.03 may be
removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Board of Directors. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise shall be filled by the Board of Directors, unless pursuant to Section
5.03 the power of appointment has been conferred by the Board of Directors on
any other officer.
Section 5.06. President. The President, unless the Chairman has been so
designated, shall be the Chief Executive Officer of the Corporation; he or she
shall preside at all meetings of the stockholders and directors, and shall see
that all orders and resolutions of the Board are carried into effect. The
President, unless the Chairman has been so designated, shall also be the chief
administrative officer of the Corporation and shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe.
Section 5.07. Vice-President. The Vice-Presidents, in the order of
their seniority, shall, in the absence or disability of the President, perform
the duties and exercise the powers of the President and shall perform such other
duties as the Board of Directors or the Chief Executive Officer may from time to
time prescribe.
Section 5.08. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings thereof and shall perform like duties for any Committee when
required. He or she shall give, or cause to be given, notice of meetings of the
stockholders and of the Board of Directors, shall have charge of the records of
the Corporation, including the stock books, and shall perform such other duties
as may be prescribed by the Board of Directors or Chief Executive Officer, under
whose supervision the Secretary shall be. The Secretary shall keep in safe
custody the seal of the Corporation and, when authorized by the Board of
Directors, shall affix and attest the same to any instrument requiring it. The
Board of Directors may give general authority to any other officer to affix the
seal of the Corporation and to attest the affixing by his or her signature.
Section 5.09. Assistant Secretaries. The Assistant Secretaries in order
of their seniority, shall, in the absence or disability of the Secretary,
perform the duties and exercise the
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powers of the Secretary and shall perform such other duties as the Board of
Directors shall prescribe.
Section 5.10. Treasurer. The Treasurer, unless another officer has been
so designated, shall be the Chief Financial Officer of the Corporation. He or
she shall have general charge of the finances and books of account of the
Corporation. Except as otherwise provided by the Board of Directors the
Treasurer shall have general supervision of the funds and property of the
Corporation and of the performance by the custodian of its duties with respect
thereto. The Treasurer shall render to the Board of Directors, whenever directed
by the Board, an account of the financial condition of the Corporation and of
all his or her transactions as Treasurer. The Treasurer shall cause to be
prepared annually a full and correct statement of the affairs of the Corporation
including a balance sheet and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
stockholders, if such a meeting be held, and filed within twenty days
thereafter, or after the date set herein for such meeting, at the principal
office of the Corporation in the State of Maryland. The Treasurer shall perform
all the acts incidental to the office of Treasurer, subject to the control of
the Board of Directors.
Section 5.11. Controller. The Controller shall be under the direct
supervision of the Chief Financial Officer of the Corporation. The Controller
shall have such further powers and duties as may be conferred upon him or her
from time to time by the President or the Board of Directors.
Section 5.12. Assistant Treasurer. The Assistant Treasurers, in the
order of their seniority, shall, in the absence or disability of the Treasurer,
perform such other duties as the Board of Directors may from time to time
prescribe.
Section 5.13. Surety Bonds. The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act) to the Corporation
in such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his or her duties to the
Corporation, including responsibility for negligence and for the accounting of
any Corporation's property, funds or securities that may come into his or her
hands.
Article VI
Fundamental Policies and Investment Restrictions
Each class of the Corporation's common stock shall be subject to two
different types of limitations on the investments
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which may be made with the assets of that class. The first type of limitation,
referred to hereinafter as "Fundamental Policies," may not be changed without
approval of the lesser of (a) 67% or more of the shares of that class present at
a meeting if the holders of more than 50% of the outstanding shares of that
class are present or represented by proxy, or (b) more than 50% of the
outstanding shares of that class of stock. The second type of limitation,
referred to hereinafter as "Investment Restrictions," may be changed by the
Board of Directors without shareholder approval or prior notification. The
Fundamental Policies and Investment Restrictions which apply to each class of
the Corporation's common stock shall be set forth in the Prospectus or the
Statement of Additional Information for such class of common stock.
Article VII
Stock
Section 7.01. Certificates. Each stockholder shall be entitled to a
certificate or certificates in the form approved by the Board of Directors which
shall certify the class and the number of shares owned by such stockholder in
the Corporation. Each certificate shall be signed by the President or a Vice
President and countersigned by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer.
Section 7.02. Signature. Where a certificate is signed (1) by a
transfer agent or an assistant transfer agent, or (2) by a transfer clerk acting
on behalf of the Corporation and a registrar, the signature of any such
President, Vice President, Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary may be a facsimile. In case any officer who has signed any
certificate ceases to be an officer of the Corporation before the certificate is
issued, the certificate may nevertheless be issued by the Corporation with the
same effect as if the officer had not ceased to be such officer as of the date
of its issue.
Section 7.03. Recording and Transfer Without Certificates.
Notwithstanding the foregoing provisions of this Article VII, the Corporation
shall have full power to participate in any program approved by the Board of
Directors providing for the recording and transfer of ownership of shares of the
Corporation's stock by electronic or other means without the issuance of
certificates.
Section 7.04. Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been stolen,
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to have been stolen, lost or
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destroyed, or upon other satisfactory evidence of such theft, loss or
destruction. When authorizing such issuance of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such stolen, lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and to give the Corporation a bond
with sufficient surety to the Corporation to indemnify it against any loss or
claim that may be made by reason of the issuance of a new certificate.
Section 7.05. Transfer of Capital Stock. Transfers of shares of the
stock of the Corporation shall be made on the books of the Corporation by the
holder of record thereof (in person or by his attorney thereunto duly authorized
by a power of attorney duly executed in writing and filed with the Secretary of
the Corporation) (a) if a certificate or certificates have been issued, upon the
surrender of the certificate or certificates, properly endorsed or accompanied
by proper instruments of transfer, representing such shares, or (b) as otherwise
prescribed by the Board of Directors. Every certificate exchanged, surrendered
for redemption or otherwise returned to the Corporation shall be marked
"cancelled" with the date of cancellation.
Section 7.06. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by the
laws of Maryland.
Section 7.07. Transfer Agents and Registrars. The Board of Directors
may, from time to time, appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made, all certificates representing shares of stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one countersignature by
such person shall be required.
Section 7.08. Stock Ledger. The Corporation shall maintain an original
stock ledger containing the names and addresses of all stockholders and the
number and class of shares held by each
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stockholder. Such stock ledger may be in written form or any other form capable
of being converted into written form within a reasonable time for visual
inspection.
Section 7.09. Transfer Regulations. The shares of stock of the
Corporation may be freely transferred, and the Board of Directors may, from time
to time, adopt rules and regulations with reference to the method of transfer of
the shares of stock of the Corporation.
Section 7.10. Fixing of Record Date. The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, provided that
such record date shall not be a date more than ninety nor less than ten days
prior to the date on which the particular action requiring such determination of
stockholders of record on the record date so fixed shall be entitled to such
notice of, and to vote at, such meeting or adjournment, or to give such consent,
or to receive payment of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights or to take such other action, as
the case may be, notwithstanding any transfer of any shares on the books of the
Corporation after any such record date.
Article VIII
General Provisions
Section 8.01. Rights in Securities. The Board of Directors, on behalf
of the Corporation, shall have the authority to exercise all of the rights of
the Corporation as owner of any securities which might be exercised by any
individual owning such securities in his own right; including, but not limited
to, the rights to vote by proxy for any and all purposes, to consent to the
reorganization, merger or consolidation of any issuer or to consent to the sale,
lease or mortgage of all or substantially all of the property and assets of any
issuer; and to exchange any of the shares of stock of the issuer for the shares
of stock issued therefor upon any such reorganization, merger, consolidation,
sale, lease or mortgage. The Board of Directors shall have the right to
authorize any officer of the investment adviser to execute proxies and the right
to delegate the authority granted by this Section 8.01 to any officer of the
Corporation.
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Section 8.02. Custodianship.
(a) The Corporation shall place and at all times maintain in the
custody of a custodian (including any sub-custodian) all funds, securities and
similar investments owned by the Corporation. Subject to the approval of the
Board of Directors, the custodian may enter into arrangements with securities
depositories, as long as such arrangements comply with the provisions of the
Investment Company Act. The custodian (and any sub-custodian) shall be a bank
having not less than $2,000,000 aggregate capital, surplus and undivided profits
and shall be appointed from time to time by the Board of Directors, which shall
fix its remuneration.
(b) Upon termination of a custodian agreement or inability of the
custodian to continue to serve, the Board of Directors shall promptly appoint a
successor custodian. But in the event that no successor custodian can be found
who has the required qualifications and is willing to serve, the Board of
Directors shall call as promptly as possible a special meeting of the
stockholders to determine whether the Corporation shall function without a
custodian or shall be liquidated. If so directed by vote of the holders of a
majority of the outstanding shares of stock of the Corporation, the custodian
shall deliver and pay over all property of the Corporation held by it as
specified in such vote.
(c) The following provisions shall apply to the employment of a
custodian and to any contract entered into with the custodian so employed:
The Board of Directors shall cause to be delivered to the
custodian all securities owned by the Corporation or to which it may
become entitled, and shall order the same to be delivered by the
custodian only in completion of a sale, exchange, transfer, pledge or
other disposition thereof, all as the Board of Directors may generally
or from time to time require or approve or to a successor custodian;
and the Board of Directors shall cause all funds owned by the
Corporation or to which it may become entitled to be paid to the
custodian, and shall order the same disbursed only for investment
against delivery of the securities acquired, or in payment of expenses,
including management compensation, and liabilities of the Corporation,
including distributions to shareholders or proper payments to borrowers
of securities representing partial return of collateral, or to a
successor custodian.
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Section 8.03. Reports. Not less often than semi-annually, the
Corporation shall transmit to the stockholders a report of the operations of the
Corporation, based at least annually upon an audit by independent public
accountants, which report shall clearly set forth, in addition to the
information customarily furnished in a balance sheet and profit and loss
statement, a statement of all amounts paid to security dealers, legal counsel,
transfer agent, disbursing agent, registrar or custodian or trustee, where such
payments are made to a firm, Corporation, bank or trust company, having a
partner, officer or director who is also an officer or director of the
Corporation. A copy, or copies, of all reports submitted to the stockholders or
the Corporation shall also be sent, as required, to the regulatory agencies of
the United States and of the states in which the securities of the Corporation
are registered and sold.
Section 8.04. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Maryland." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. Any officer or director of the
Corporation shall have authority to affix the corporate seal of the Corporation
to any document requiring the same.
Section 8.05. Execution of Instruments. All deeds, documents,
transfers, contracts, agreements and other instruments requiring execution by
the Corporation shall be signed by the Chairman or the President or a Vice
President and by the Treasurer or Secretary or an Assistant Treasurer or an
Assistant Secretary, or as the Board of Directors may otherwise, from time to
time, authorize. Any such authorization may be general or confined to specific
instances. Except as otherwise authorized by the Board of Directors, all
requisitions or orders for the assignment of securities standing in the name of
the custodian or its nominee, or for the execution of powers to transfer the
same, shall be signed in the name of the Corporation by the Chairman or the
President or a Vice President and by the Secretary, Treasurer or an Assistant
Secretary.
Section 8.06. Checks, Notes, Drafts, Etc. So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the Board of Directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Corporation by the President or a Vice President and by the
Treasurer or an Assistant Treasurer. Promissory notes, checks or drafts payable
to the Corporation may be endorsed only to the order of the custodian or
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its nominee and only by the Treasurer or President or a Vice President or by
such other person or persons as shall be authorized by the Board of Directors.
Article IX
Redemption and Repurchase of
the Corporation's Shares
Section 9.01. Redemption of Shares. All shares of all classes of the
common stock of the Corporation now or hereafter authorized shall be "subject to
redemption" and "redeemable" in the sense used in the laws of Maryland
authorizing the formation of Corporations, at the redemption or purchase price
for any such shares, determined in the manner provided in the Articles of
Incorporation or in any amendment thereto; provided, however, that the
Corporation shall have the right, at its option, to refuse to redeem the shares
of stock at less than the par value thereof. Redeemed shares may be resold by
the Corporation.
The Corporation shall redeem shares of any class of its common stock,
subject to the conditions, and at the price determined as hereinafter set forth,
upon the appropriately verified written application of the record holder thereof
(or upon such other form of request as the Board of Directors may determine) at
such office or agency as may be designated from time to time for that purpose by
the Board of Directors. Any such application must be accompanied by any
certificate or certificates which may have been issued for such shares, duly
endorsed or accompanied by a proper instrument of transfer.
Section 9.02. Price. Such shares shall be redeemed at their net asset
value determined as provided in Article X hereof as of such time as the Board of
Directors shall have prescribed by resolution. In the absence of such
resolution, the redemption price of shares shall be the net asset value of such
shares next determined as provided in Article X hereof after receipt of such
application (including any certificate or certificates which may have been
issued therefor, if any, duly endorsed or accompanied by a proper instrument of
transfer).
Section 9.03. Payment. Payment for such shares shall be made in cash to
the stockholder of record within seven (7) days after the date upon which the
application (including any certificate or certificates which may have been
issued therefor, duly endorsed or accompanied by a proper instrument of
transfer) is received, subject to the provisions of Section 9.04 hereof and the
provisions of Articles of Incorporation.
Section 9.04. Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 10.03 hereof, the Board of
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directors shall declare a suspension of the determination of net asset value,
the rights of stockholders (including those who shall have applied for
redemption pursuant to Section 9.01 hereof but who shall not yet have received
payment) to have shares redeemed and paid for by the Corporation shall be
suspended until the termination of such suspension is declared. Any stockholder
who shall have his redemption right so suspended may during the period of such
suspension, by appropriate written notice of revocation at the office or agency
where application was made, revoke any application for redemption not honored
and withdraw any certificates on deposit. The redemption price of shares for
which redemption applications have not been revoked shall be the net asset value
of such shares next determined as provided in Article X after the termination of
such suspension, and payment shall be made within seven (7) days after the date
upon which the application was made plus the period after such application
during which the determination of net asset value was suspended.
Section 9.05. Repurchase by Agreement. The Corporation may repurchase
shares of any class of common stock of the Corporation directly, or through its
distributor or another agent designated for the purpose, by agreement with the
owner thereof at a price not exceeding the net asset value per share determined
pursuant to Article X hereof.
Section 9.06. Redemption of Stockholders' Interests. The Corporation
shall have the right to redeem shares of any stockholder for their then current
net asset value per share as provided in the Articles of Incorporation.
Article X
Net Asset Value of Shares
Section 10.01. By Whom Determined. The Board of Directors shall have
the power and duty to determine from time to time the net asset value per share
of the outstanding shares of each class of common stock of the Corporation It
may delegate such power and duty to any one or more of the directors and
officers of the Corporation, to the investment adviser, custodian or depository
of the Corporation's assets, or to another agent of the Corporation appointed
for such purpose. Any determination made pursuant to this Section by the Board
of Directors or its delegate shall be binding on all parties concerned.
Section 10.02. When Determined. The net asset value shall be determined
at such time as the Board of Directors shall prescribe by resolution, provided
that such net asset value shall be determined at least once each week. In the
absence of a resolution of the Board of Directors, the net asset value shall
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be determined at the close of the New York Stock Exchange on each business day
that the Exchange is open for trading.
Section 10.03. Suspension of Determination of Net Asset Value. The
Board of Directors may declare a suspension of the determination of net asset
value for the whole or any part of any period (a) during which the New York
Stock Exchange is closed other than customary week-end and holiday closings, (b)
during which trading on the New York Stock Exchange is restricted, (c) during
which an emergency exists as a result of which disposal by the Corporation of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value of its net assets
or (d) during which a governmental body having jurisdiction over the Corporation
may by order permit for the protection of the stockholders of Corporation. Such
suspension shall take effect at such time as the Board of Directors shall
specify and thereafter there shall be no determination of net asset value until
the Board of Directors shall declare the suspension at an end, except that the
suspension shall terminate in any event on the first day on which (a) the
condition giving rise to the suspension shall have ceased to exist, and (b) no
other conditions exists under which suspension is authorized under this Section
10.03. Each declaration by the Board of Directors pursuant to this Section 10.03
shall be consistent with such official rules and regulations, if any, relating
to the subject matter thereof as shall have been promulgated by the Securities
and Exchange Commission or any other governmental body having jurisdiction over
the Corporation and as shall be in effect at the time. To the extent not
inconsistent with such official rules and regulations, the determination of the
Board of Directors shall be conclusive.
Section 10.04. Computation of Per Share Net Asset Value.
(a) Net Asset Value Per Share. The net asset value of each share of a
class of common stock as of any particular time shall be the quotient obtained
by dividing the value of the net assets of such class by the total number of
shares of such class outstanding.
(b) Value of the Net Assets of a Class. The value of the net assets of
a class of common stock as of any particular time shall be the value of the
assets belonging to such class less the liabilities belonging to such class,
determined and computed as follows:
(i) Assets Belonging to a Class. The assets belonging to a class
of common stock shall be deemed to include the following items to the
extent they belong to or are attributed to, in whole or in part, such
class: (A)
all
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cash on hand or on deposit, including any interest accrued thereon, (B)
all bills and demand notes and accounts receivable, (C) all securities
owned or contracted for by the Corporation, (D) all stock and cash
dividends and cash distributions payable to but not yet received by
that class (or by the Corporation on behalf of that class) (when the
valuation of the underlying security is being determined ex-dividend),
(E) all interest accrued on any interest-bearing securities owned by
that class (or by the Corporation on behalf of that class) (except
accrued interest included in the valuation of the underlying security),
(F) all repurchase agreements and (G) all other property of every kind
and nature, including prepaid expenses.
(ii) Valuation of Assets. The value of such assets is to be
determined as follows:
(A) Cash and Prepaid Expenses. The value of any cash on hand
and of any prepaid expenses shall be deemed to be their face
amount.
(B) Other Current Assets. The value of any cash on deposit,
bills, demand notes, accounts receivable, and cash dividends
and interest declared or accrued as aforesaid and not yet
received shall be deemed to be the face amount thereof, unless
the Board of Directors or its delegate shall determine that
any such item is not worth its face amount. In such case, the
value of the item shall be deemed to be its reasonable value,
as determined by the Board of Directors or its delegate.
(C) Securities Listed or Dealt in on New York Stock Exchange.
The value of any security listed or dealt in upon the New York
Stock Exchange and not subject to restrictions against sale by
the Corporation on such Exchange shall be determined by taking
the latest sale price at the time as of which net asset value
is being determined, all as reported by means in common use.
Lacking any sales, the value shall be deemed to be such value,
not higher than the closing asked price and not lower than the
closing bid price therefor at such time, as the Board of
Directors or its delegate may from time to time determine.
When an appraisal is made as part of a determination other
than as of the close of trading, the latest available
quotations (i.e., last sale on that date or latest bid price
if no sale on that day) shall be used. The Board of Directors
may be resolution permit quotations on an exchange other than
the New York Stock Exchange or
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over-the-counter rather than stock exchange quotations to be
used when they appear to the Board of Directors or its
delegate to reflect more closely the fair value of any
particular security in the portfolio.
(D) Securities Listed on Other Exchanges. The value of any
security listed or dealt in on one or more securities
exchanges, but not on the New York Stock Exchange and not
subject to restrictions against the sale by the Corporation on
such exchanges, shall be determined as nearly as possible in
the manner described in the preceding subparagraph, with
reference to the quotations on the exchange that, in the
opinion of the Board of Directors or its delegate, best
reflects the fair value of the security.
(E) Unlisted Securities and Other Property. All other
securities for which over-the-counter market quotations are
readily available shall be valued at the last current bid
price. The value of any other property, the valuation of which
is not provided for above, shall be its fair market value as
determined in such manner as the Board of Directors shall from
time to time prescribe by resolution.
(iii) Liabilities Belonging to a Class. The liabilities
belonging to a class of common stock shall not be deemed to include
outstanding shares and surplus. They shall be deemed to include the
following items to the extent they belong to or are attributed to, in
whole or in part, that class: (A) all bills and accounts payable, (B)
all expenses accrued, (C) all contractual obligations for the payment
of money or property, including the amount of any unpaid dividends upon
the shares of that class declared to shareholders of record at or
before the time as of which the net asset value is being determined,
(D) all reserves authorized or approved by the Board of Directors for
taxes or contingencies and (E) all other liabilities of whatsoever kind
and nature.
(c) Other Methods of Valuation. The Board of Directors is empowered to
establish other methods for determining such asset value whenever, because of
extraordinary or emergency conditions, such other methods are deemed by it to be
necessary, or at any time in order to enable the Corporation to comply with any
provision of the Investment Company Act, including Section 22 thereof.
Section 10.05. Interim Determinations. Any determination of net asset
value other than as of the close of trading on the New York Stock Exchange may
be made either by appraisal or by
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calculation or estimate. Any such calculation or estimate shall be based on
changes in the market value of representative or selected securities or on
recognized market averages since the last closing appraisal and made in a manner
which, in the opinion of the Board of Directors or its delegate, will fairly
reflect the changes in the net asset value.
Section 10.06. Miscellaneous. For the purposes of this Article X:
(a) Shares of any class of common stock of the Corporation sold shall
be deemed to be outstanding as of the time at or after an unconditional order
therefor has been received by the Corporation (directly or through one of its
agents) and the sale price in currency has been determined. The net sale price
of shares of a class of stock sold by the Corporation (less commission, if any,
and less any stamp or other tax payable by the Corporation in connection with
the issue and sale thereof) shall be thereupon deemed to be an asset of that
class of stock of the Corporation.
(b) Shares of any class of stock of the Corporation for which an
application for redemption has been made or which are subject to repurchase by
the Corporation shall be deemed to be outstanding up to and including the time
as of which the redemption or repurchase price is determined. After such time,
they shall be deemed to be no longer outstanding and the price until paid shall
be deemed to be a liability of that class of stock.
(c) Funds on deposit and contractual obligations payable to the
Corporation or a class of stock of the Corporation in foreign currency ad
liabilities and contractual obligations payable by the Corporation or a class of
stock of the Corporation in foreign currency shall be taken at the current cable
rate of exchange as nearly as practicable at the time of which the net asset
value is computed.
Article XI
Accountant
Section 11.01. Accountant.
(a) The Corporation shall employ an independent public accountant or
firm of independent public accountants as its accountant to examine the accounts
of the Corporation and to sign and certify financial statements filed by the
Corporation. The accountant's certificates and reports shall be addressed both
to the Board of Directors and to the stockholders.
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(b) A majority of the members of the Board of Directors who are not
interested person (as such term is defined in the Investment Company Act) of the
Corporation shall select the accountant at any meeting held within 30 days
before or after the beginning of the fiscal year of the Corporation or before
the annual stockholders' meeting in that year. Such selection shall be submitted
for ratification or rejection at the next succeeding annual stockholder's
meeting if such meeting be held. If such meeting shall reject such selection,
the accountant shall be selected by majority vote of the Corporation's
outstanding voting securities, either at the meeting at which the rejection
occurred or at a subsequent meeting of stockholders called for the purpose.
(c) Any vacancy occurring between annual meetings, due to the death or
resignation of the accountant, may be filled by a majority of the members of the
Board of Directors who are not such interested persons.
Article XII
Indemnification and Insurance
Section 12.01. Indemnification of Officers, Directors, Employees and
Agents. The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or has been a director, officer, employee or agent
of the Corporation, or is or has been a director, officer, employee or agent of
another Corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, to the full extent provided and allowed by Section
2-418 of the General Corporation Law of Maryland, as amended from time to time,
or any other applicable provisions of law. Notwithstanding any provision herein
to the contrary, no such person shall be indemnified in violation of Section
17(h) and (i) of the Investment Company Act.
Section 12.02. Insurance of Officers, Directors, Employees and Agents.
The Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another Corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity or arising out of his
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status as such, whether or not the Corporation would have the power to indemnify
him against such liability.
Article XIII
Amendments
The By-laws of the Corporation may be altered, amended or repealed
either by the affirmative vote of a majority of the stock issued and outstanding
and entitled to vote in respect thereof and represented in person or by proxy at
any annual or special meeting of the stockholders, or by the Board of Directors
at any regular or special meeting of the Board of Directors; provided, that the
Board of Directors may not alter, amend or repeal this Article XIII and may
amend Article VI only in accordance with the terms contained therein, and that
the vote of stockholders required for alteration, amendment or repeal of any of
such provisions shall be subject to all applicable requirements of federal or
state laws or of the Articles of Incorporation.
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FOUNDERS FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement is executed as of this 27th day of
August, 1993, between FOUNDERS FUNDS, INC., a Maryland corporation (the
"Company") on behalf of each of its series Funds listed on Appendix 1 to this
Agreement, which Appendix 1 is incorporated into this Agreement by this
reference (as to each series, the "Fund"), and FOUNDERS ASSET MANAGEMENT, INC.,
a Delaware corporation (the "Adviser").
WHEREAS, the Company has been organized and operates as an investment
company registered under the Investment Company Act of 1940 for the purpose of
investing and reinvesting its assets in securities, as set forth in its Articles
of Incorporation, its By-laws and its Registration Statements under the
Investment Company Act of 1940 and the Securities Act of 1933, all as heretofore
amended and from time to time further amended and supplemented; and the Company
on behalf of the Fund desires to avail itself of the services, information,
advice, assistance and facilities of an investment adviser and to have an
investment adviser perform for it various management, statistical, research,
investment advisory and other services; and,
WHEREAS, the Adviser is engaged in the business of rendering
management, investment advisory, counseling and supervisory services to
investment companies and desires to provide these services to the Company.
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Adviser. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Fund and to
administer its affairs, consistent with the Fund's objectives, policies and
restrictions, and subject to the overall supervision of the Board of Directors
of the Company, for the period and on the terms hereinafter set forth. The
Adviser hereby accepts such employment and agrees during such period to render
the services and to assume the obligations herein set forth for the compensation
herein provided. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Company or the Fund in any way or otherwise be deemed an agent of the Company or
the Fund.
2. Obligations of and Services to be Provided by the Adviser. In return
for the compensation described in paragraph 4 hereof, the Adviser undertakes to
provide the following services and to assume the following obligations:
- 1 -
<PAGE>
A. Office Space, Furnishings, Facilities, Equipment and
Personnel. The Adviser shall furnish to the Company adequate office space, which
may be space within the office of the Adviser or in such other place as may be
agreed upon from time to time. The Adviser also shall furnish to the Company
office furnishings, facilities and equipment, except computer equipment and
programs, as may be reasonably required for managing the corporate affairs and
conducting the business of the Company, including ordinary clerical, bookkeeping
and administrative services. The Adviser shall employ or provide and compensate
the executive, secretarial and clerical personnel necessary to provide such
services. The Adviser shall also compensate all officers and employees of the
Company and, in addition to the services described in subparagraph D of this
paragraph, shall permit officers and employees of the Adviser to serve as
directors or officers of the Company, without compensation from the Company, if
elected to such positions.
B. Investment Advisory Services and Brokerage Allocation.
(1) The Adviser shall recommend from time to time to the
officers and directors of the Company a course of investment for the Fund's
assets and portfolio, subject to and in accordance with the investment
objectives and policies of the Fund and any directions which the Company's Board
of Directors may issue from time to time. The Adviser's recommendations also
shall include the manner in which the voting rights, rights to consent to
corporate action and any other rights pertaining to the Fund's portfolio
securities shall be exercised. Subject to such objectives, policies and
directions and subject to the overall supervision of the Board of Directors of
the Company, the Adviser shall manage the investment and reinvestment of the
assets of the Fund. The Adviser shall render such reports to the Company
concerning the investment of the Fund's assets and portfolio as may be required
by the Board of Directors of the Company.
(2) Decisions with respect to placement of the Fund's
portfolio transactions shall be made by the Adviser. The primary consideration
in making these decisions shall be to seek the best execution of orders at the
most favorable net prices for the Fund, taking into account such factors as the
size of the order, difficulty of execution, and the reliability, financial
condition and capabilities of the broker or dealer. Subject to these objectives,
business may be placed with brokers and dealers who furnish investment research
services to the Adviser or to affiliates of the Adviser. Such research services
include advice, both directly and in writing, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities, or purchasers or sellers of securities, as well as
the furnishing of analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the
- 2 -
<PAGE>
performance of accounts. Such services allow the Adviser and its affiliates to
supplement their own investment research activities and provide them with
information from individuals and research staffs of many securities firms. The
Company acknowledges on behalf of the Fund that to the extent portfolio
transactions are effected with brokers or dealers who furnish research services
to the Adviser or its affiliates, they receive a benefit, which generally is not
capable of evaluation in dollar amounts, which is not passed on to the Fund in
the form of a direct monetary benefit.
(3) The Adviser shall render such reports regarding
allocation of brokerage business as may be required by the Board of Directors of
the Company.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other Materials. The Adviser
shall make available and provide accounting and statistical information required
by the Company and its principal underwriter in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and such information as the principal underwriter of the Company may
reasonably request, for use in the preparation of such documents or of other
materials necessary or helpful for the underwriting and distribution of the
Fund's shares.
D. Other Obligations and Services. The Adviser shall keep its
qualifications, facilities and staff fully adequate for performance of its
duties hereunder, and will perform such duties in good faith and in the best
interests of the Fund. The Adviser shall comply in all respects with applicable
statutory and regulatory provisions, including the Investment Company Act of
1940 and the Investment Advisers Act of 1940. The Adviser shall make available
its officers and employees to the Board of Directors and officers of the Company
for consultation and discussions regarding the administrative management of the
Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will pay all of
its expenses other than those expressly assumed by the Adviser herein, which
expenses payable by the Fund shall include:
A. Fees to the Adviser as provided herein;
B. Expenses of all audits by independent public accountants;
C. The allocated portion of fees and expenses of legal counsel in
connection with legal services rendered to the Company, including the Board of
Directors of the Company, committees of the Board of Directors and those
directors who are
- 3 -
<PAGE>
not "interested persons" of the Company or the Adviser, as defined in the
Investment Company Act of 1940, and litigation;
D. Brokerage fees and commissions and other transaction costs in
connection with the purchase and sale of portfolio securities for the Fund;
E. Costs, including the interest expense, of borrowing money;
F. All federal, state and local taxes levied against the Fund;
G. The allocated portion of fees of directors of the Company not
affiliated with the Adviser;
H. The allocated portion of costs and expenses of meetings of the
Board of Directors, committees of the Board of Directors and shareholders of the
Company;
I. Fees and expenses of the Company's transfer agent, registrar,
custodian, dividend disbursing agent, shareholder accounting agent, and other
agents approved by the Board of Directors of the Company;
J. Cost of printing stock certificates representing shares of the
Fund;
K. Fees and expenses of registering and qualifying and maintaining
registration and qualification of the Company, the Fund and its shares under
federal, state and foreign securities laws;
L. Computer equipment charges, computer program charges and related
computer expenses incurred in connection with maintaining the Fund's books and
records;
M. The allocated portion of fees and expenses incident to filing of
reports with regulatory bodies and maintenance of the Company's existence;
N. The allocated portion of premiums for insurance carried by the
Company pursuant to the requirements of Section 17(g) of the Investment Company
Act of 1940;
O. The allocated portion of fees and expenses incurred in
connection with any investment company organization or trade association of
which the Company may be a member;
P. The allocated portion of expenses of preparation, printing
(including typesetting) and distribution of reports, notices and prospectuses to
existing shareholders of the Company;
- 4 -
<PAGE>
Q. Expenses of computing the Fund's daily per share net asset
value; and
R. The allocated portion of expenses incurred by the Company in
connection with litigation proceedings or claims, including any obligation the
Company may have to indemnify its officers and directors with respect thereto.
4. Compensation of the Adviser. As compensation for its services to the
Fund, the Adviser will be paid a monthly management fee by the Fund at an annual
rate equal to the percentages of the average daily value of the Fund's net
assets described as to each Fund on Appendix 1 to this Agreement, with each
Fund's net assets determined in accordance with provisions of the then current
prospectus of the Fund. All fees and expenses are accrued daily and deducted
before payment of dividends to shareholders. The fee is payable monthly and
shall be prorated for any portion of a month beginning on the date of this
Agreement or ending on termination of this Agreement.
5. Expense Limitation. In the event the total expenses of the Fund for
any fiscal year, including the advisory fee but excluding interest, taxes,
brokerage commissions and extraordinary expenses, should exceed the lowest
applicable annual expense limitation established pursuant to the statutes or
regulations of any jurisdiction in which shares of the Fund are then qualified
for offer or sale, the Adviser shall reimburse the Fund for the full amount of
such excess. Such reimbursement shall be made by the Adviser monthly, subject to
annual reconciliation.
6. Activities of the Adviser. Nothing in this Agreement shall limit or
restrict the right of any director, officer or employee of the Adviser
who may also be a director, officer or employee of the Company to engage in any
other business or to devote his time and attention in part to the management or
other aspects of any business, whether of a similar or a dissimilar nature, nor
to limit or restrict the right of the Adviser to engage in any other business or
to render services of any kind to any other corporation, firm, individual or
association. Subject to and in accordance with the Articles of Incorporation and
By-laws of the Company and to Section 10(a) of the Investment Company Act of
1940, it is understood that directors, officers, agents and shareholders of the
Company are or may be interested in the Adviser or its affiliates as directors,
officers, agents or shareholders of the Adviser or its affiliates and that
directors, officers, agents or shareholders of the Adviser or its affiliates are
or may be interested in the Company as directors, officers, shareholders or
otherwise, and that the effect of any such interests shall be governed by said
Articles of Incorporation, said By-Laws and the Act.
- 5 -
<PAGE>
7. Liabilities. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Company or
to the Fund hereunder for any act or omission in the course of, or connected
with, rendering services hereunder. No liability to the Adviser hereunder shall
attach individually to the shareholders, directors or officers of the Company.
8. Renewal, Termination and Amendment. This Agreement shall become
effective upon the date first above written and shall continue in effect until
December 15, 1994, unless earlier amended or terminated. This Agreement is
renewable thereafter for successive periods not to exceed one year if such
continuance is approved at least annually by votes of the Company's Board of
Directors, cast in person at a meeting called for the purpose of voting on such
approval, or by a majority of the outstanding voting securities of the Fund and
in either event by the vote of a majority of the directors who are not parties
to the Agreement or interested persons of any such party other than as directors
of the Company. In addition, (i) this Agreement may at any time be terminated
without the payment of any penalty either by vote of the Board of Directors of
the Company or by vote of a majority of the outstanding voting securities of the
Fund, on sixty days' written notice to the Adviser; (ii) this Agreement shall
immediately terminate in the event of its assignment (within the meaning of the
Investment Company Act of 1940); and (iii) this Agreement may be terminated by
the Adviser on sixty days' written notice to the Company. Any notice under this
Agreement shall be given in writing addressed and delivered, or mailed postpaid,
to the other party at any office of such party. This Agreement may be amended at
any time by mutual consent of the parties, provided that such consent on the
part of the Company shall have been approved by vote of a majority of the
outstanding voting securities of the Fund. As used in this paragraph, the term
"vote of a majority of the outstanding voting securities" shall have the meaning
set forth for such term in Section 2(a)(42) of the Investment Company Act of
1940.
9. Name. The Company and the Fund may use the word "Founders" in their
names and businesses only so long as the Adviser acts as investment adviser to
the Fund.
10. Severability. If any provision of this Agreement is held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
11. Miscellaneous. This Agreement shall be subject to the laws of the
State of Colorado, and shall be interpreted and construed to further and promote
the operation of the Company as an open-end investment company.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the 27th day of August, 1993.
FOUNDERS FUNDS, INC.
on behalf of each of the series
Funds listed on Appendix 1 to this
Agreement
/s/
ATTEST: By:______________________________
Bjorn K. Borgen, President
- -------------------------
David L. Ray, Secretary
FOUNDERS ASSET MANAGEMENT, INC.
/s/
ATTEST: By:_____________________________
Bjorn K. Borgen, President
- -------------------------
David L. Ray, Assistant
Secretary
- 7 -
<PAGE>
APPENDIX 1
TO
FOUNDERS FUNDS, INC. INVESTMENT ADVISORY AGREEMENT
This Appendix 1 to the Investment Advisory Agreement ("Agreement")
executed as of the 25th day of August, 1995, between Founders Funds, Inc. and
Founders Asset Management, Inc. is effective as of the 25th day of August, 1995.
The following series Funds of Founders Funds, Inc. are parties to the
Agreement and, pursuant to paragraph 4 of the Agreement, shall pay to Founders
Asset Management, Inc., as compensation for its services to each series Fund,
the management fees disclosed in the following table:
Fund Advisory Fee Schedule
- ---- ---------------------
Discovery Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Frontier Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Passport Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Special Fund 1.000% to $30 million
0.750% next $270 million
0.700% next $200 million
0.650% thereafter
International Equity Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Worldwide Growth Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Growth Fund 1.000% to $30 million
0.750% next $270 million
0.700% next $200 million
0.650% thereafter
<PAGE>
Blue Chip Fund 0.650% to $250 million
0.600% next $250 million
0.550% next $250 million
0.500% thereafter
Balanced Fund 0.650% to $250 million
0.600% next $250 million
0.550% next $250 million
0.500% thereafter
Opportunity Bond Fund 0.650% to $250 million
0.600% next $250 million
0.550% next $250 million
0.500% thereafter
FOUNDERS FUNDS, INC. on behalf of
each of the series Funds listed on
this Appendix 1
ATTEST:
/s/
By:______________________________
_______________________ Bjorn K. Borgen, President
David L. Ray, Secretary
FOUNDERS ASSET MANAGEMENT, INC.
ATTEST:
/s/
By:______________________________
_______________________ Jonathan F. Zeschin, President
David L. Ray, Assistant
Secretary
\FOUNDERS\ADVISORY.AG2
April 26, 1996
- 2 -
SMITH, BROCK & GWINN
Certified Public Accountants
650 South Cherry Street - Suite 425
Denver, CO 80222
(303) 399-8722
Fax (303) 399-8302
ACCOUNTANT'S CONSENT
Founders Fund, Inc.
We hereby consent to the inclusion in Post-Effective Amendment No. 60
to your Registration Statement, (File No. 2-17531) of our opinion
dated January 26, 1996, covering the financial statements to be
incorporated by reference as follows:
Period Covered
--------------
Founders Discovery Fund Year Ended December 31, 1995
Founders Frontier Fund Year Ended December 31, 1995
Founders Passport Fund Year Ended December 31, 1995
Founders Special Fund Year Ended December 31, 1995
Founders International Equity Fund Period Ended December 31, 1995
Founders Worldwide Growth Fund Year Ended December 31, 1995
Founders Growth Fund Year Ended December 31, 1995
Founders Blue Chip Fund Year Ended December 31, 1995
Founders Balanced Fund Year Ended December 31, 1995
Founders Opportunity Bond Fund Period Ended December 15, 1995
Founders Government Securities Fund Year Ended December 31, 1995
Founders Money Market Fund Year Ended December 31, 1995
/s/
Denver, Colorado
April 24, 1996
SMITH, BROCK & GWINN
Certified Public Accountants
650 South Cherry Street - Suite 425
Denver, Colorado 80222
(303) 399-8722
Fax (303) 399 8302
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
of Founders Funds, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Founders Funds, Inc. (comprising, respectively,
the Discovery, Frontier Passport, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced, Opportunity Bond, Government Securities and
Money Market Funds) as of December 31, 1995 (December 16, 1995 for Opportunity
Bond Fund), and the related statements of operations for the periods then ended,
the statements of changes in net assets, and the selected per share data and
ratios in the "Financial Highlights" table for each of the periods indicated.
These financial statements and selected per share data and ratios are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and per share data and ratios based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected per share data and ratios
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Founders Funds, Inc.
as of December 31, 1995 (December 16, 1995 for Opportunity Bond Fund), and the
results of their operations for the periods then ended, the changes in their net
assets and the selected per share data and ratios for each of the periods
indicated, in conformity with generally accepted accounting principles.
SMITH, BROCK & GWINN
/s/
Denver, Colorado
January 26, 1996
FOUNDERS FUNDS 1995 ANNUAL REPORT
- --------------------------------------------------------------------------------
CHAIRMAN'S LETTER
Dear Fellow Investor:
The events of the past year will be well remembered by investors. The
Standard & Poor's 500 Index returned 37.54%, its highest one-year mark since
1958. And that most venerable of all stock indices, the Dow Jones Industrial
Average, broke above 5,000 points for the first time.
The Founders Funds benefited well from this climate. As the summaries on the
following pages detail, each of Founders' equity funds posted double-digit
returns for the year, many far outpacing their benchmark indices.
FEDERAL RESERVE EASED CREDIT
The Federal Reserve's 1994 interest-rate increases manifested themselves in
slower economic growth for 1995. While many observers thought that the hoped-for
"soft landing" had arrived, others were troubled by signs of weakness including
a slowing rate of job creation and soft retail sales.
Therefore, the Fed took steps to stimulate the flagging U.S. economy by
making two quarter-point reductions in the Federal funds rate.
INFLATION REMAINED BENIGN
With a decline in the economy's growth rate also came a slow year for
inflation. In fact, the 2.54% rise in the Labor Department's Consumer Price
Index was the lowest since 1986.
Low inflation is beneficial to investors because it makes growth companies,
and their future earnings, more attractive.
EXAMINING THE ROAD AHEAD
However, gauging by past history and given the market's mercurial nature, it
may be prudent for investors to temper their expectations of the coming year. In
fact, the average return for large-company stocks over the past seventy years is
much lower than 1995's return: just over 12% annually.*
Other factors seem to suggest that 1996 will be a positive, if slower, market
year. For example, the economy is trending toward low and stable inflation and
economic growth, and short-term interest rates have been on the decline.
<PAGE>
THE PRESIDENTIAL RACE IS HEATING UP
Although election years are generally positive for the market, they also tend
to be accompanied by a higher level of uncertainty. In 1996, the possibility
exists that much of the year will pass without a budget agreement. If this is
the case, the experience of recent stopgap spending efforts suggests that
federal, state, and local agencies may encounter planning difficulties, adding
to the climate of uncertainty.
However, Founders is optimistic that an agreement will be reached eventually,
and that related market volatility will be muted.
REACHING FOR THE NEXT LEVEL OF CUSTOMER SERVICE
Another facet of 1995 of which we're especially proud is the number of
service enhancements made by Founders. For example, this year marked the
introduction of Insight, where Founders' investors can hear the latest market
and fund news, delivered by the fund portfolio managers themselves.
Founders upgraded its FastLine automated account access service to handle
transactions. Now, investors can take advantage of FastLine's 24-hour
availability to process many types of purchases, exchanges, and redemptions.
Last year also saw Founders take to the road with the first of a series of
investment seminars for Founders shareholders. Held so far in Denver and New
York City, the seminars have given Founders' shareholders the opportunity to
hear and interact with the faces behind the funds. Founders will keep you up to
date on the status of events in your area.
Another significant event for Founders in 1995 was the arrival of Jon Zeschin
as President of the firm. Among other goals, Jon will use his 20 years of
financial services to help continue improving Founders' communication efforts
and make Founders even more responsive to shareholder needs.
And on a somber note, Founders' family marks the passing of Walter Kirch. A
member of the funds' board of directors for several years, Walter's unwavering
dedication to Founders' shareholders was an invaluable asset. His friendship and
counsel will be sorely missed.
We look forward to a 1996 that brings an improving level of commitment to
you, our shareholders. Thank you again for your continued investment and
support.
Sincerely,
/s/
Bjorn K. Borgen
Chairman and CEO
<PAGE>
THE INFORMATION ON THIS PAGE WILL BE HELPFUL TO YOU AS YOU READ THROUGH
FOUNDERS' 1995 ANNUAL REPORT.
HISTORICAL RETURNS
All total returns mentioned in this report account for both the change in a
fund's per-share price and reinvestment of any dividends or capital gain
distributions made by that fund. If your account is set up to pay out fund
distributions rather than reinvest them, your return may differ from the figures
listed here.
The comparative indexes included with each fund's performance chart are meant
to provide a basis for judging a fund's performance against its peer group
(represented by Lipper Analytical Services' indexes) or a specific market area.
Each index presented accounts for both change in security price and reinvestment
of any dividends or coupon payments. These indexes are unmanaged groups of
securities; they do not reflect the costs of managing a mutual fund. An investor
may not invest in any of these indexes.
Past performance is no guarantee of future results. Actual total return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS OF THE FOUNDERS FUNDS
The abbreviations below are used throughout the following Schedules of
Investments to indicate the country of origin of non-U.S. holdings.
AR Argentina
AU Australia
BA Bahamas
BM Bermuda
BR Brazil
CA Canada
CH Chile
CO Colombia
DE Denmark
FI Finland
FR France
GE Germany
HK Hong Kong
HU Hungary
IN India
ID Indonesia
IS Israel
IT Italy
JA Japan
KO Korea
MA Malaysia
MX Mexico
NE Netherlands
NW Norway
PA Panama
PH Philippines
PO Portugal
PR Peru
SI Singapore
SP Spain
SW Sweden
SZ Switzerland
TW Taiwan
UK United Kingdom
<PAGE>
FOUNDERS DISCOVERY FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Discovery Fund to a $10,000 investment in each of Lipper Small
Company Growth Fund Index, Russell 2000 Index and Consumer Price Index
for the period beginning December 31, 1989 (inception) through December
31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
1 Year 5 Year Since Inception (12/31/89)
------ ------ --------------------------
31.30% 20.22% 19.02%
REVIEW OF 1995
The beginning of 1995 offered equity investors remarkable opportunity.
Because of interest rate increases during 1994, many investors entered 1995 with
high cash positions and bearish attitudes, even though corporate earnings
remained fairly strong. The Federal Reserve raised rates once again in February
then lowered in July. The Fed's easing, combined with strong earnings,
especially in tech-nology and healthcare, drove many stocks to new highs during
the year.
As 1995 progressed, it became apparent that the economy was slowing. By the
fourth quarter, credit card delinquencies and dramatically softer retail sales
became concerns. With economic slowdowns come earnings disappointments, and some
high-profile companies reported earnings below expectations in the fourth
quarter.
MAJOR TACTICAL CHANGES
Amid these conditions, Founders Discovery Fund gained a respectable 31.30% in
the 12 months ended December 31,1995, and outperformed the Russell 2000 Index by
2.85%.
At the beginning of the year, the Fund held a cash position of more than 30%.
We quickly moved to bring cash to a more manageable long-term range of 10-15% of
assets.
As cash was invested, we significantly increased our semiconductor weighting,
which represented more than 15% of the Fund at one point in the summer. As
semiconductor stocks significantly outperformed during the first half, this
proved to be timely. However, our research indicated that the fundamentals of
many semiconductor stocks were changing for the worse, so starting in the
summer, we began to sell many of our semiconductor holdings. In retrospect, this
was also timely as these stocks gave up much, if not all, of their first-half
gains in the second half.
At year-end, the Fund's two largest investment areas were computer software
and healthcare services. Within computer software, we favor Geoworks, which
makes software to increase functionality of cellular phones, and INSO
Corporation, whose software products produce better spelling and grammar
checkers in word processors and provide more accurate searching capability on
the Internet.
Within healthcare, we are excited about Parexel's prospects as major drug
companies outsource more of their clinical work, and Imnet, whose imaging
technology is helping major healthcare providers access patient history
information quicker and more efficiently.
Overall, our research effort guided our investments well throughout the year.
We may have increased our consumer weighting somewhat early at the end of the
third quarter, as we thought slowing business fundamentals had been more than
reflected in valuations. However, the magnitude of the continued consumer
slowdown surprised us, and we reduced our consumer position significantly during
the fourth quarter.
OPPORTUNITIES IN 1996
We expect earnings across nearly all industries will be more difficult to
produce in the weakening economy. However, smaller companies offering products
and services to meet ever-changing customer needs, like the ones Founders
Discovery Fund owns, may have an easier time growing their businesses and
showing good earnings growth regardless of economic trends.
The Fund will continue to use a bottom-up approach to invest in 80 to 90
small companies with strong managements, competitive market positions, and
innovative products. In addition, we think micro-cap companies owned in the Fund
are exhibiting the potential to become much larger organizations and more
recognized by the investment community.
/s/
David Kern, CFA
Portfolio Manager
<PAGE>
FOUNDERS DISCOVERY FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Shares Market Value
- -------------------------------------------------------------------
Common Stocks (Domestic) - 83.8%
Agriculture - 1.9%
115,000 Delta & Pine Land Co. $4,199,975
----------
Airlines - 0.5%
58,725 Western Pacific Airlines, Inc.* 983,644
----------
Apparel - 2.8%
85,000 Quiksilver, Inc.* 2,900,625
100,000 Wolverine World Wide, Inc. 3,150,000
----------
6,050,625
----------
Biotechnology - 1.3%
60,000 IDEXX Laboratories, Inc.* 2,790,000
----------
Business Services - 4.0%
175,000 BT Office Products International, Inc.* 2,800,000
45,000 Corestaff, Inc.* 1,642,500
57,300 Meta Group, Inc.* 1,733,325
110,000 Rural Metro Corp.* 2,475,000
----------
8,650,825
----------
Computer Equipment - 2.3%
75,000 Printronix, Inc.* 1,050,000
108,200 Stormedia, Inc.* 3,950,550
----------
5,000,550
----------
Computer Software - 17.7%
80,700 Avant Corporation* 1,492,950
184,350 Broadway & Seymour, Inc.* 2,903,512
142,000 Caere Corp.* 1,011,750
11,000 Citrix Systems, Inc.* 357,500
349,725 Geoworks, Inc.* 6,388,106
153,500 Imnet Systems, Inc.* 3,645,625
155,000 Inso Corporation* 6,587,500
150,875 Intertel, Inc.* 2,319,703
37,100 Manugistics Group, Inc.* 528,675
156,400 Parcplace Systems, Inc.* 1,290,300
52,000 Project Software & Development, Inc.* 1,813,500
44,850 Scopus Technology, Inc.* 1,110,038
120,000 Softdesk, Inc.* 2,370,000
24,550 Sync Research, Inc.* 1,110,888
97,500 Verity, Inc.* 4,216,875
86,750 Wonderware Corp.* 1,453,062
----------
38,599,984
----------
Consumer Products - 0.4%
194,075 Catalina Lighting,Inc.* 946,116
-----------
Electronic Equipment - 3.4%
160,000 Checkpoint Systems, Inc.* 5,980,000
73,000 Smartflex Systems, Inc.* 1,277,500
-----------
7,257,500
-----------
Electronics - 0.9%
50,665 Harman International Industries, Inc. 2,032,933
-----------
Energy - 1.3%
50,000 Input Output, Inc.* 2,887,500
-----------
Environmental Services - 1.7%
100,000 United Waste Systems, Inc.* 3,675,000
-----------
Financial Services - 1.2%
45,000 Jayhawk Acceptance Corp.* 410,625
163,000 Union Acceptance Corp. Class A* 2,282,000
-----------
2,692,625
-----------
Food - 3.1%
213,500 J.P. Food Service, Inc.* 3,949,750
100,000 Richfood Holdings, Inc. 2,675,000
-----------
6,624,750
-----------
Healthcare Services - 5.9%
40,000 Curative Technologies, Inc.* 570,000
85,500 Henry Schein, Inc.* 2,500,875
119,000 Multicare Companies, Inc.* 2,856,000
54,000 Orthodontic Centers of America* 2,592,000
65,000 Pediatrx Medical Group* 1,787,500
75,000 Sierra Health Services, Inc.* 2,381,250
-----------
12,687,625
-----------
Insurance - 0.9%
50,000 HCC Insurance Holdings, Inc.* 1,850,000
-----------
Leisure & Entertainment - 3.6%
148,500 Doubletree Corp.* 3,786,750
174,000 Golf Enterprises, Inc.* 1,261,500
130,000 Trump Hotels and Casino Resorts, Inc.* 2,795,000
----------
7,843,250
----------
Manufacturing - 2.1%
60,800 Ag-Chem Equipment, Inc.* 1,596,000
96,000 Peak Technologies Group, Inc.* 2,952,000
----------
4,548,000
----------
Medical Supplies & Equipment - 3.5%
78,000 Gulf South Medical Supply, Inc.* 2,320,500
120,000 Perclose, Inc.* 2,190,000
115,000 Resmed, Inc.* 1,380,000
145,000 UroMed Corp.* 1,794,375
----------
7,684,875
----------
Oil & Gas - 2.2%
107,500 Cairn Energy USA, Inc.* 1,478,125
65,000 Devon Energy Corp. 1,657,500
57,000 Newfield Exploration, Inc.* 1,539,000
----------
4,674,625
----------
Pharmaceuticals - 4.1%
95,000 Parexel International Corp.* 3,182,500
415,000 Pharmaceutical Resources, Inc.* 3,110,862
53,050 Watson Pharmaceuticals, Inc.* 2,592,819
----------
8,886,181
----------
Publishing & Broadcasting - 3.5%
195,000 International Family Entertainment, Inc.
Class B* 3,193,125
78,150 SFX Broadcasting, Inc. Class A* 2,324,962
162,500 Thomas Nelson, Inc. 2,112,500
----------
7,630,587
----------
Restaurants - 1.3%
224,000 Dave and Busters, Inc.* 2,716,937
----------
Retail - 4.4%
60,000 Men's Wearhouse, Inc.* 1,545,000
74,000 Neostar Retail Group, Inc.* 536,500
145,000 Proffitt's, Inc.* 3,770,000
212,500 Trend-Lines, Inc.* 2,070,625
95,000 Zale Corp.* 1,520,000
----------
9,442,125
----------
Semiconductor & Equipment - 5.6%
150,300 Asyst Technologies, Inc.* 5,260,500
170,925 DSP Group, Inc.* 1,897,989
256,225 Orbit Semiconductor, Inc.* 2,436,013
231,550 Speedfam International, Inc.* 2,552,675
----------
12,147,177
----------
Shipping - 0.4%
30,000 Eagle USA Airfreight, Inc.* 780,000
Telecommunications & Equipment - 1.8%
184,000 General DataComm Industries, Inc.* 3,151,000
49,750 Summa Four, Inc.* 665,406
----------
3,816,406
----------
Transportation - 2.0%
152,450 Celadon Group., Inc.* 1,372,050
100,000 Interpool, Inc. 1,787,500
80,000 Mark VII, Inc.* 1,240,000
------------
4,399,550
------------
Total Common Stocks
(Domestic) - 83.8% 181,499,365
------------
Common Stocks (Foreign) - 4.5%
Computer Equipment - 2.0%
256,300 Gandalf Technologies, Inc. (CA)* 4,357,100
------------
Computer Software - 0.3%
100,000 JBA Holdings PLC (UK)* 607,060
------------
Pharmaceuticals - 1.3%
327,500 Ethical Holdings PLC ADR (UK)* 2,906,563
------------
Publishing & Broadcasting - 0.9%
129,500 Cinar Films, Inc. Class B (CA)* 1,926,938
------------
Total Common Stocks
(Foreign) - 4.5% 9,797,661
------------
Principal Amount Market Value
- --------------------------------------------------------------------
Convertible Bonds (Domestic) - 0.0%
Technology - 0.0%
$ 1,783 Surgical Laser Technologies $ 0
-----------
Total Convertible Bonds
(Domestic) - 0.0% 0
-----------
Principal Amount Amortized Cost
- --------------------------------------------------------------------
Corporate Short-Term Notes - 12.3%
$9,100,000 Ford Motor Credit 5.85%
01/05/96 $ 9,094,085
7,700,000 Ciesco LP 5.70%
01/03/96 7,697,562
3,200,000 Texaco Inc. 5.92%
01/04/96 3,198,421
6,700,000 Pacific Bell 5.80%
01/02/96 6,698,921
------------
Total Corporate Short-Term Notes - 12.3% 26,688,989
------------
Total Investments - 100.6% 217,986,015
Other Assets & Liabilities - (0.6) (1,363,035)
------------
Total Net Assets - 100.0% $216,622,980
============
* Non-income producing. See notes to financial statements.
<PAGE>
FOUNDERS FRONTIER FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Frontier Fund to a $10,000 investment in each of Lipper Small
Company Growth Fund Index, Russell 2000 Index and Consumer Price Index
for the period beginning January 22, 1987 (inception) through December
31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
1 Year 5 Year Since Inception (1/22/87)
------ ------ -------------------------
37.03% 20.35% 19.88%
INVESTMENT REVIEW
In 1995, Founders Frontier Fund produced a gratifying 37.03% total return in
the 12 months ended December 31. By comparison, the Russell 2000 Index, which
represents the small-company stock universe, gained 28.45% for the year.
FAVORABLE SECTORS
In our global economy, more companies are restructuring to remain
competitive. They often make investments in technology to increase productivity,
lower costs and improve service. Founders Frontier took advantage of this trend
by carrying a heavy concentration in technology stocks throughout the year.
The technology sector experienced volatility in 1995, weakening in July,
rebounding, then suffering again late in the year as investors worried about
overcapacity, thinner margins and decelerating rates of unit growth. Even so, we
stood firm in our conviction that over the long term, selected issues represent
outstanding growth potential. When prudent, we took advantage of price declines
to add to our positions, especially in selected technology and
telecommunications equipment companies.
A saturated specialty retail market made it difficult to find positive
earnings surprises, but increasing total sales in apparel helped our holdings in
that sector. Stocks such as Jones Apparel Group, a designer of better-priced
women's clothing, and Tommy Hilfiger Corp., a leading men's sportswear
manufacturer, delivered strong growth during the period.
The Fund's healthcare sector produced steady earnings during the period. HBO
& Company, a firm that fits our broad theme of productivity, designs
computerized information systems for the healthcare industry. Some
pharmaceutical companies in the portfolio generated increasing revenue, and we
were particularly pleased with our stake in Watson Pharmaceutical.
UNCOVERING OPPORTUNITIES
In pursuit of the goals of the Fund, we follow a rigorous stock selection
process that includes in-depth research. We focus on building a portfolio of
companies that exhibit the best earnings growth available in the small-cap
sector.
Technology will continue to have a place in the Fund. Fierce competition has
forced technology companies to make their products more powerful and less
expensive. Most U.S. companies are striving to be low-cost manufacturing or
service providers, which means spending on software and hardware will continue.
As the cost of technology has dropped, more consumers have also gained access to
products that were once affordable by relatively few.
LOOKING FOR EARNINGS IN 1996
The last year demonstrated that growth stocks perform well in environments
with slow economic growth, low inflation and low interest rates. If the economy
continues its slow pace, it will remain a stock picker's market where the
challenge is to find those companies with increasing earnings.
The Frontier Fund will continue to emphasize its strategy of searching
company by company for well-managed, small-capitalization growth stocks that
offer the best earnings growth potential.
/s/
Michael K. Haines
Portfolio Manager
<PAGE>
FOUNDERS FRONTIER FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Shares Market Value
- -------------------------------------------------------------------------------
Common Stocks (Domestic) - 73.9%
Apparel - 4.5%
150,000 Jones Apparel Group, Inc.* $ 5,906,250
100,000 Kellwood Company 2,037,500
150,000 Warnaco Group, Inc. Class A 3,750,000
80,000 Tommy Hilfiger Corp.* 3,390,000
-----------
15,083,750
-----------
Automotive Equipment - 0.5%
50,000 OEA, Inc. 1,493,750
-----------
Banking - 2.1%
89,200 Dime Bank Corporation, Inc.* 1,033,575
90,000 Midlantic Corp. 5,906,250
-----------
6,939,825
-----------
Basic Industry - 1.0%
176,000 Arcadian Corp. 3,410,000
-----------
Biotechnology - 1.3%
65,000 IDEXX Laboratories, Inc.* 3,022,500
30,000 Cephalon, Inc.* 1,222,500
-----------
4,245,000
Business Services - 2.2%
48,000 Gartner Group, Inc. Class A* 2,292,000
110,000 Viking Office Products, Inc.* 5,115,000
----------
7,407,000
----------
Computer Equipment - 1.4%
30,050 Altera Corp.* 1,491,231
200,000 Computervision Corp.* 3,075,000
----------
4,566,231
----------
Computer Software - 6.9%
50,725 GT Interactive Software Corporation* 703,809
100,000 Informix Corp.* 3,000,000
62,500 Landmark Graphics Corp.* 1,453,125
175,000 Mentor Graphics, Inc.* 3,150,000
140,000 Network General Corp.* 4,602,500
100,000 Platinum Technology* 1,837,500
50,000 Sierra On Line Inc.* 1,425,000
125,000 Symantec, Inc.* 2,890,625
90,000 Synopsys, Inc.* 3,420,000
----------
22,482,559
----------
Construction - 1.5%
130,000 Oakwood Homes Corp. 4,988,750
----------
Diversified - 0.9%
50,000 Harsco Corp. 2,906,250
----------
Educational - 0.9%
107,500 Sylvan Learning System* 3,117,500
---------
Electronics - 1.8%
81,800 Sanmina Corp.* 4,233,150
74,775 Tencor Instruments* 1,813,294
---------
6,046,444
---------
Energy - 1.7%
100,000 Input Output, Inc.* 5,775,000
---------
Environmental Services - 1.6%
80,000 Sanifill, Inc.* 2,670,000
70,000 United Waste Systems, Inc.* 2,572,500
---------
5,242,500
---------
Financial Services - 2.0%
95,450 Credit Acceptance Corp.* 1,932,862
128,850 Medaphis Corp.* 4,767,450
---------
6,700,312
---------
Food - 1.0%
112,500 Vons Companies, Inc.* 3,178,125
---------
Healthcare Services - 9.9%
95,000 Apria Healthcare* $2,683,750
26,150 Cerner Corp.* 529,538
31,000 Community Health Sys.* 1,104,375
80,000 HBO & Company 6,100,000
50,000 Health Management Association Class A* 1,306,250
115,000 Health Care & Retirement Corp.* 4,025,000
120,000 Healthcare Compare Corp.* 5,220,000
120,000 Healthsource, Inc.* 4,320,000
130,075 Horizon/CMS Healthcare Corp.* 3,284,394
96,950 Omnicare, Inc. 4,338,512
----------
32,911,819
----------
Insurance - 4.9%
80,000 Equitable of Iowa Companies 2,570,000
141,425 Frontier Insurance
Group, Inc. 4,525,600
133,050 Reinsurance Group of
America, Inc. 4,872,956
100,000 Reliastar Financial Corp. 4,437,500
----------
16,406,056
----------
Leisure & Entertainment - 1.6%
175,000 Sports Authority, Inc.* 3,565,625
110,000 Station Casinos, Inc.* 1,608,750
----------
5,174,375
----------
Medical Supplies & Equipment - 0.4%
100,000 Pyxis Corporation* 1,467,000
----------
1,467,000
----------
Oil & Gas - 1.2%
180,000 Parker & Parsley
Petroleum Corp. 3,960,000
----------
Pharmaceuticals - 2.4%
80,000 R.P. Scherer Corp.* 3,930,000
80,075 Watson Pharmaceuticals, Inc.* 3,913,666
----------
7,843,666
----------
Publishing & Broadcasting - 1.8%
90,000 Infinity Broadcasting Corp. Class A* 3,352,500
50,000 International Family Entertainment, Inc. Class B 818,750
105,000 Sinclair Broadcast Group, Inc. Class A* 1,758,750
----------
5,930,000
----------
Retail - 4.0%
116,700 Borders Group, Inc.* 2,158,950
28,000 CDW Computer Center, Inc.* 1,113,000
100,000 Consolidated Stores Corp.* 2,175,000
50,000 General Nutrition Companies, Inc. 1,150,000
60,000 MSC Industrial Direct Co. Inc. Class A* 1,650,000
36,750 Micro Warehouse, Inc.* 1,589,438
83,375 Officemax, Inc.* 1,865,516
33,600 Tiffany Co. 1,692,600
----------
13,394,504
----------
Semiconductor & Equipment - 7.1%
260,000 International Rectifier Corp.* 6,500,000
80,000 LSI Logic Corp.* 2,620,000
35,200 Lam Research Corp.* 1,601,600
171,750 Maxim Integrated Products, Inc.* 6,569,438
113,575 Microchip Technology, Inc.* 4,145,488
80,000 Teradyne, Inc.* 2,000,000
-----------
23,436,526
-----------
Telecommunications & Equipment - 7.9%
80,000 Arch Communications* 1,920,000
100,000 Aspect Telecommunications, Inc.* 3,325,000
55,000 Cascade Communications* 4,675,000
169,750 Frontier Corp. 5,092,500
16,475 Glenayre Technologies, Inc.* 1,021,450
220,250 LCI International, Inc.* 4,515,125
65,450 Vencor, Inc.* 2,127,125
100,000 WorldCom, Inc.* 3,525,000
-----------
26,201,200
-----------
Transportation - 1.4%
73,350 Wisconsin Central Transportation Corp.* $ 4,795,256
-----------
Total Common Stocks (Domestic) - 73.9% 245,103,398
-----------
Common Stocks (Foreign) - 8.4%
Basic Industry - 0.6%
70,000 Madeco SA ADS (CH) 1,890,000
-----------
Computer Networking - 1.4%
100,000 Madge Network NV (CA)* 4,437,500
-----------
Financial Services - 0.7%
51,000 Banco Latinoamericano de Exportaciones, SA
Class E (PA) 2,371,500
-----------
Insurance - 1.6%
400,000 Guoco Group Ltd. (HK) 1,929,640
130,000 Partner Re Holdings Ltd. (BA) 3,526,250
-----------
5,455,890
------------
Manufacturing - 1.0%
95,000 Hoya, Inc. (JA) 3,269,454
------------
Oil & Gas - 0.8%
110,000 Petroleum Geological Services ADR (NW)* 2,736,250
------------
65,000 Teva Pharmaceutical Industries Ltd. Sponsored ADR
Representing Class D Shares (IS) 3,006,250
------------
Publishing & Broadcasting - 1.4%
300,000 Flextech Ordinary (UK)* 2,198,460
75,000 Scandinavian Broadcasting Systems SA (SW)* 1,640,625
200,000 Television Broadcasts Ordinary (HK) 712,620
------------
4,551,705
------------
Total Common Stocks (Foreign) - 8.4% $ 27,718,549
------------
Warrants (Domestic) - 0.0%
458 Jan Bell Marketing Inc. $ 0
Expires 12/16/98 0
85 Windmere Corp.
Expires 1/19/98 0
------------
Total Warrants (Domestic) - 0.0% 0
------------
Principal Amount Amortized Cost
- ------------------------------------------------------------------------
Corporate Short-Term Notes -- 18.0%
$ 300,000 Massachusetts Elec. 5.90%
01/12/96 $ 299,459
6,400,000 Ford Motor Credit 5.65%
01/02/96 6,398,996
5,700,000 Prudential Funding 5.50%
01/09/96 5,693,033
6,400,000 Prudential Funding 5.92%
01/05/96 6,395,790
7,500,000 American General Finance
5.63% 01/02/96 7,498,827
7,900,000 Ciesco LP 5.75% 01/03/96 7,897,476
12,300,000 Ford Credit Receivable
5.80% 01/08/96 12,286,128
13,300,000 Pacific Bell 5.80%
01/04/96 13,293,572
------------
Total Corporate Short-Term Notes - 18.0% 59,763,281
------------
Total Investments - 100.3% 332,585,228
Other Assets & Liabilities - (0.3)% (865,162)
------------
Total Net Assets - 100.0% $331,720,066
============
* Non-income producing. See Notes to financial statements.
+ Securities are registered pursuant to Rule 144A and may be deemed to be
restricted for resale.
<PAGE>
FOUNDERS PASSPORT FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Passport Fund to a $10,000 investment in each of Morgan
Stanley Capital International World ex U.S. Index and Consumer Price
Index for the period beginning November 16, 1993 (inception) through
December 31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
1 Year Since Inception (11/16/93)
------ --------------------------
24.39% 7.85%
INVESTMENT REVIEW
In a year when international markets lagged the U.S. equity market, Founders
Passport Fund, in just its second year of operation, gained a notable 24.39% for
the one-year period ended December 31, 1995. This performance more than doubled
the 11.41% annual return of the unmanaged Morgan Stanley Capital International
World ex U.S. Index, an average of the performance of more than 1,100 securities
listed on foreign stock exchanges.
Founders Passport Fund had the distinction of being ranked first in its
category of 12 international small-company funds for the one-year period ended
December 31, 1995, according to Lipper Analytical Services.
INVESTING IN NAMES YOU KNOW
Founders Passport invests in many brand-name international companies that you
may be familiar with. During the year, we owned:
- - Salomon and Rossignol, two of the world's leading ski equipment manufacturers
- - Hunter Douglas, manufacturer of mini-blinds and other window coverings
- - Italy's Industrie Natuzzi, the world's largest leather furniture maker
Small-company retail stocks demonstrated promising earnings during the
period. Although Founders Passport had a relatively minor weighting in Japan, we
were pleased with the performance of Japanese eyeglass retailer Paris Miki.
Also, we purchased several initial public offerings such as Santa Isabel, a
Chilean grocery chain, and Bulgari, an upscale jewelry retailer based in Italy,
and were gratified to watch their price appreciation during the year.
TECHNOLOGY HOLDINGS
As in the United States, foreign technology companies were stock market
leaders in 1995, and also caused the most market jitters. More and more
companies outside the United States are realizing they must re-engineer their
businesses to remain competitive on the global scene. To cut costs and improve
productivity, many firms are making an investment in technology.
Founders Passport took advantage of this trend in 1995. Computer software
holdings such as Baan Company from the Netherlands, which manufactures server
and application software, delivered exceptional earnings. The Fund's performance
was also driven by its largest position, a software developer from the United
Kingdom, JBA Holdings.
Semiconductor stocks caused some setbacks, especially in the fourth quarter
when many reported lower-than-expected earnings. Because of this volatility, we
sold some from the Fund, but kept our position in an exciting new Dutch equity
offering, ASM Lithography, which develops low-cost semiconductor equipment.
CONCENTRATING ON FUNDAMENTALS
Small companies, those with less than $1 billion in market capitalization,
frequently represent the fastest-growing segment of an economy. More
international investors began to take note of this potential in 1995.
We manage Founders Passport on a stock-by-stock basis, without regard to the
country in which a company resides. Our research places emphasis on whether a
company can grow its earnings over a long period of time.
In 1995's international climate, this philosophy held us in good stead. We
will continue to pick investments for the Fund one by one, going wherever in the
world we need to in order to find well-managed small companies that meet our
growth criteria.
/s/
Mike W. Gerding, CFA
Portfolio Manager
<PAGE>
FOUNDERS PASSPORT FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Shares Market Value
- -------------------------------------------------------------------------------
Common Stocks (Foreign) - 75.4%
Banking - 2.0%
50,000 Banco de A. Edwards Sponsored ADR (CH)* $ 981,250
----------
Basic Industry - 2.2%
40,000 Madeco SA ADS (CH)* 1,080,000
----------
Beverages - 1.5%
22,000 Grolsch (DE) 765,862
----------
Building Materials - 2.9%
15,000 Hunter Douglas NV (NE) 696,238
300,000 TLG PLC (UK) 754,658
----------
1,450,896
----------
Business Services - 1.9%
12,000 Axime Ex Segin FRF 10 144A (FR)*+ 925,097
----------
Computer Software - 5.7%
22,000 Baan Company NV (NE)* 992,750
40,500 Insignia Solutions PLC Sponsored ADR (UK)* 475,875
200,000 JBA Holdings PLC (UK) 1,214,286
16,275 Triple P NV (NE)* 162,750
----------
2,845,661
----------
Construction - 2.3%
30,000 IHC Caland (NE) 1,010,668
75,000 PT Bakrie Brother (IN)* 136,129
----------
1,146,797
----------
Consumer Products - 4.1%
45,000 De Rigo Spa Sponsored ADR (IT)* $ 1,023,750
22,000 Industrie Natuzzi SPA ADR (IT) 998,250
-----------
2,022,000
-----------
Diversified - 1.2%
4,000 FLS Industries Class B Shares (DE) 310,368
11,000 PEC Israel Economic Corporation (IS)* 265,375
---------
575,743
---------
Engineering - 1.4%
157,142 Babcock International Group PLC (UK) 346,493
150,000 Time Engineering BHD (MA) 348,576
---------
695,069
---------
Financial Services - 2.3%
20,000 Banco Latinoamericano de Exportaciones, SA
Class E (PA) 930,000
500,000 Manhattan Card Company (HK) 213,402
---------
1,143,402
---------
Insurance - 1.0%
100,000 Guoco Group Ltd. (HK) 482,417
---------
Leisure & Recreation - 5.8%
200,000 Eurodisney SCA (FR) 456,005
1,500 Salomon SA FRF 25 (FR) 874,179
2,400 Skis Rossignol (FR) 658,610
240,000 Village Roadshow (AU) 928,364
---------
2,917,158
---------
Machinery - 0.6%
25,000 IRO AB (SW)* $ 282,925
---------
Manufacturing - 2.7%
4,500 Essilor International (FR) 861,297
20,000 Valmet Corporation Ordinary A (FI) 502,073
---------
1,363,370
---------
Oil & Gas - 3.3%
80,000 Mol Magyar Olaj GDS 144A (HU)*+ 661,656
40,000 Petroleum Geological Services ADR 995,000
---------
1,656,656
---------
Packaging - 1.0%
250 Schweiz Industrie Group (SIG) Bearer 523,640
---------
Paper & Forest Products - 1.2%
19,500 Metsa Serla B Shares (FI) 601,796
---------
Pharmaceuticals - 4.1%
55,000 Medeva PLC ADR (UK) 935,000
18,000 Schwarz Pharma (GE)* 890,442
5,000 Teva Pharmaceutical Industries Ltd. Sponsored
ADR Representing Class D Shares (IS) 231,250
---------
2,056,692
---------
Publishing & Broadcasting - 5.3%
13,000 Cinar Films, Inc. Class B (CA)*193,375
60,000 Comcast U.K. Cable Partners Ltd.
Series A Shares 742,500
125,000 Flextech Ordinary (UK)* 916,149
225,000 Sistem Televisyen Malaysia Berhad (MA)* 810,883
---------
2,662,907
---------
Restaurants - 1.8%
90,000 J D Wetherspoon (UK) $ 897,205
---------
Retail - 11.1%
70,000 Bulgari (Ordinary) (IT)* 597,674
30,000 Bulgari GDR 144A (IT)*+ 256,146
150,000 D.F.S. Furniture Company Ordinary (UK) 924,689
7,165 Guilbert SA (FR) 842,459
100,000 Next PLC Ordinary (UK) 708,075
175,000 PT Matahari Putra Prima Ordinary (ID)* 308,068
25,000 Paris Miki Inc. (JA) 899,162
41,000 Santa Isabel SA ADS (CH)* 984,000
---------
5,520,273
---------
Semiconductors - 4.3%
15,000 ASM Lithography (NE)* 498,750
6,000 Austria Mykrosysteme International (AU) 974,161
50,000 BE Semiconductor (NE)* 650,000
----------
2,122,911
----------
Toys - 1.8%
500,000 Vtech Holdings Ltd. (HK) 918,274
----------
Transportation - 3.1%
30,000 ASG B Shares (SW)* 565,850
8,000 Copenhagen Airport (DE)* 612,075
70,000 Iino Kaiun Kaisha Ltd. (JA)* 399,024
----------
1,576,949
----------
Utilities - 0.8%
21,650 Consolidated Electric Power
Asia Ltd. 144A Sponsored ADS Representing
Ten Shares of HK $10 Each (HK) 393,406
----------
Total Common Stocks (Foreign) - 75.4% 37,608,356
----------
Convertible Bonds (Foreign) - 0.1%
Principal Amount Market Value
- -----------------------------------------------------------------------
Transportation - 0.1%
$562,500 Stena Lines Class B. Cvt.
7.0% Due 4/30/01 (SW) $ 73,419
----------
Total Convertible Bonds
(Foreign) - 0.1% 73,419
----------
Shares Market Value
- ----------------------------------------------------------------------
Preferred Stock (Foreign) - 2.8%
Apparel - 1.0%
600 Hugo Boss Non-Voting Preferred (GE) $ 499,301
----------
Financial Services - 1.8%
1,300 Marschollek, Lautenschlager
und Partner AG (GE) 899,345
----------
Total Preferred Stock (Foreign) - 2.8% 1,398,546
----------
Principal Amount Amortized Cost
- ----------------------------------------------------------------------
Corporate Short-Term Notes - 20.0%
$2,000,000 Narragansett Elec. 6.00%
01/05/96 $ 1,988,667
1,400,000 Ford Motor Credit 5.65%
01/03/96 1,399,561
1,200,000 Prudential Funding 5.92%
01/04/96 1,199,408
2,100,000 Ciesco LP 5.80%
01/02/96 2,099,661
1,400,000 Texaco, Inc. 5.72%
01/03/96 1,399,555
1,900,000 GTE Northwest 5.75%
01/08/96 1,897,876
-----------
Total Corporate Short-Term Notes - 20.0% 9,994,728
-----------
Total Investments - 98.3% 49,075,049
Other Assets & Liabilities - 1.7% 846,737
-----------
Total Net Assets - 100.0% $49,921,786
===========
* Non-income producing. See notes to financial statements.
+ Securities are registered pursuant to Rule 144A and may be deemed to be
restricted for resale.
<PAGE>
FOUNDERS SPECIAL FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Special Fund to a $10,000 investment in each of Standard & Poor's
500 Index, Lipper Capital Appreciation Fund Index, Russell 2000 Index and
Consumer Price Index for the period beginning December 31, 1980 through
December 31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
1 Year 5 Year 10 Year 15 Year
------ ------ ------- -------
25.69% 19.71% 15.81% 12.89%
INVESTMENT REVIEW
In pursuit of capital appreciation, Founders Special Fund invests in mostly
medium-sized companies that are positioned to benefit from significant
demographic and economic trends. This strategy helped the Fund achieve a
one-year total return of 25.69% as of December 31, 1995.
A THEMATIC APPROACH
In selecting stocks for the portfolio, Founders Special Fund capitalizes on
several investment themes. One theme supports our view that to stay competitive,
most major corporations must cut costs and enhance productivity. To accomplish
this, companies are increasing their investment in technology.
Even though the sector suffered volatility during the course of the year, our
research identified high-quality, mid-cap technology companies with strong
fundamentals that continued to meet or exceed their earnings estimates,
especially in computer software and networking. At year-end, the sector
represented 30% of the Fund. We believe that the productivity enhancement trend
will continue over the long term. Some of our favorite holdings are Cisco
Systems, Bay Networks and 3Com Corporation.
Another secular trend we have been following is the aging of baby boomers in
America. Demographi-cally, more Americans are nearing retirement age. As they
enter this stage in life, their spending habits and activities turn to
recreation, travel and do-it-yourself home projects.
We believe many companies that provide services and products for this
demographic segment have a bright future. For instance, one of Founders Special
Fund's largest holdings as of December 31, 1995, was Hospitality Franchise
Systems (HFS), the world's largest franchiser of hotels and residential real
estate offices. HFS operates moderately priced lodging chains including
Travelodge, Ramada Inns, Howard Johnson, Super 8, and Days Inn, favorites of
travel-oriented retirees. It was one of the best performing stocks listed on the
NYSE in 1995.
ADDITIONAL INDUSTRY HOLDINGS
In the fourth quarter, we started buying some consumer cyclical stocks,
especially in the retail area. Although the 1995 Christmas season was weak for
retailers, we believe that consumer spending will improve in 1996 and that there
is fundamental strength in selected retail stocks. We have placed this
confidence in retail securities such as Home Depot, Nordstrom, Intimate Brands
and Lowes.
For much of the year, the Fund carried a significant position in the paper
industry. During the fourth quarter, we reduced that weighting, as inventories
grew and prices declined.
EARNINGS GROWTH IN 1996
As we apply Founders' growth style management philosophy to Founders Special
Fund, we look for companies that are growing at rates of 20% or more a year on
average. Given that we expect companies to have a tougher time meeting earnings
estimates in 1996, our strategy of using in-depth research to identify
fast-growing companies becomes even more important.
/s/
Charles W. Hooper, Jr.
Portfolio Manager
<PAGE>
FOUNDERS SPECIAL FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Shares Market Value
- --------------------------------------------------------------------------------
Common Stocks (Domestic) - 74.3%
Airlines - 1.2%
65,000 AMR Corp* $4,826,250
----------
Apparel - 2.0%
300,000 Intimate Brands Inc. Class A 4,500,000
85,000 Nine West Group, Inc.* 3,181,050
----------
7,681,050
----------
Basic Industry - 1.2%
80,000 Nucor Corp. 4,570,000
----------
Computer Equipment - 3.8%
90,000 Altera Corp.* 4,467,500
100,000 Applied Magnetics Corp.* 1,862,500
100,000 Compaq Computer Corp.* 4,800,000
100,000 Stratus Computer, Inc.* 3,462,500
----------
14,592,500
----------
Computer Networking - 4.6%
150,000 Bay Networks, Inc.* 6,157,500
80,000 Cisco Systems, Inc.* 5,970,000
120,000 3Com Corp.* 5,595,000
----------
17,722,500
----------
Computer Software - 9.1%
90,000 Broderbund Software, Inc.* 5,467,500
150,000 Informix Corp.* 4,500,000
150,000 Netmanage, Inc.* 3,450,000
275,000 Novell, Inc.* 3,884,375
100,000 Oracle Systems Corp.* 4,225,000
75,000 Parametric Technology Corp.* 4,968,750
125,000 Sierra On Line* 3,562,500
120,000 Symantec, Corp.* 2,775,000
150,000 Wonderware Corp.* 2,512,500
----------
35,345,625
----------
Consumer Services - 0.8%
100,000 CUC International, Inc.* $ 3,412,500
----------
Data Communications - 0.8%
225,000 Data General Corp.* 3,095,250
----------
Electronics - 0.8
125,000 Tencor Instruments* 3,081,688
----------
Energy Development - 1.3%
150,000 Analog Devices, Inc.* 5,306,250
----------
Financial Services - 0.6%
50,000 Merrill Lynch & Co., Inc. 2,545,220
----------
Hotel/Motel - 0.9%
150,000 MGM Grand, Inc.* 3,450,000
----------
Leisure & Entertainment - 7.2%
150,000 Carnival Cruise Lines, Inc. Class A 3,656,250
150,000 Hospitality Franchise Systems, Inc.* 12,262,500
125,000 Harley Davidson, Inc. 3,593,750
200,000 La Quinta Inns Inc. 5,475,000
180,000 WMS Industries, Inc.* 2,947,500
----------
27,935,000
----------
Medical Supplies & Equipment - 0.8%
200,000 Pyxis Corp.* 2,926,125
----------
Mining - 4.1%
200,000 Freeport McMoran Copper & Gold, Inc. 5,600,000
175,000 Newmont Mining Corp. 7,918,750
200,000 Santa Fe Pacific Gold Corp. 2,425,000
----------
15,943,750
----------
----------
Oil & Gas - 6.3%
100,000 Anadarko Petroleum Corp. $ 5,412,500
150,000 Noble Affiliates, Inc. 4,481,250
180,000 Parker & Parsley Petroleum Corp. 3,960,000
150,000 Seitel, Inc.* 5,306,250
300,000 United Meridian Corp.* 5,212,500
----------
24,372,500
----------
Paper & Forest Products - 1.4%
100,000 Boise Cascade Corp.* 3,462,500
200,000 Jefferson Smurfit Corp.* 1,875,000
----------
5,337,500
----------
Pharmaceuticals - 0.4%
130,000 Pharmacyclics, Inc.* 1,722,500
----------
Publishing & Broadcasting - 1.1%
115,000 Infinity Broadcasting Corp.
Class A* 4,283,750
----------
Restaurants - 0.9%
350,000 Shoney's, Inc.* 3,587,500
----------
Retail - 8.8%
100,000 Department 56, Inc.* 3,837,500
400,000 Donn Kenny, Inc. 7,200,000
125,000 Heilig-Meyers Company 2,296,875
125,000 The Home Depot, Inc. 5,984,375
325,000 Home Shopping Network, Inc.* 2,929,625
70,000 Kohl's Corp.* 3,675,000
120,000 Lowes Companies, Inc. 4,020,000
105,000 Nordstrom, Inc. 4,226,250
----------
34,169,625
----------
----------
Semiconductor & Equipment - 9.7%
140,000 Applied Materials, Inc.*$ 5,495,000
100,000 Cirrus Logic, Corp.* 1,975,000
100,000 Intel Corp. 5,675,000
195,000 LSI Logic Corp.* 6,386,250
240,000 Maxim Integrated Products, Inc.* 9,180,000
200,000 Teradyne, Inc.* 5,000,000
220,000 VLSI Technology, Inc.* 3,960,000
----------
37,671,250
----------
Telecommunications & Equipment - 4.6%
140,000 DSC Communications Corp.* 5,162,500
225,000 Mobile Telecommunications Technology Corp.* 4,781,562
75,000 Tellabs, Inc.* 2,775,000
150,000 WorldCom, Inc.* 5,287,500
----------
18,006,562
----------
Transportation - 1.9%
170,000 Consolidated Freightways, Inc. 4,505,000
135,000 TNT Freightways Corp. 2,700,000
----------
7,205,000
----------
Total Common Stocks (Domestic) - 74.3% 288,789,895
-----------
Common Stocks (Foreign) - 2.7%
Beverages - 0.8%
200,000 Quilmes Industrial SA Registered (AR) $ 3,120,000
-----------
Energy Development - 0.9%
96,000 ENI SPA (IT) 3,288,000
-----------
Mining - 0.5%
30,000 Potash Corp. of Saskatchewan, Inc. (CA) 2,126,250
-----------
Paper & Forest Products - 0.5%
750,000 Jefferson Smurfit Ordinary (UK)* 1,781,550
-----------
Total Common Stocks(Foreign) - 2.7% 10,315,800
-----------
Warrants (Domestic) - 0.0%
6,458 Jan Bell Marketing
Expires 12/16/98 $ 0
558 Windmere Corp.
Expires 1/19/98 0
-----------
Total Warrants (Domestic) - 0.0% 0
-----------
Preferred Stock (Foreign) - 0.9%
Computer Software - 0.9%
22,500 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG Preferred (GE) $ 3,423,866
-------------
Total Preferred Stock (Foreign) - 0.9% 3,423,866
-------------
Principal Amount Amortized Cost
- ---------------------------------------------------------------------------
Corporate Short-Term Notes - 23.6%
$11,800,000 General Electric Capital
5.83% 01/09/96 $ 11,784,712
9,700,000 Household Finance Corp.
5.63% 01/03/96 9,969,966
10,500,000 Prudential Funding
5.74% 01/11/96 10,483,258
9,000,000 Amer. General Finance
5.63% 01/02/96 8,998,592
10,300,000 Ciesco LP
5.70% 01/04/96 10,295,107
9,600,000 Ford Credit Receivable
5.70% 01/12/96 9,583,280
13,400,000 Texaco Inc.
5.72% 01/05/96 13,391,484
11,000,000 Weyerhauser Company
5.80% 01/10/96 10,984,050
6,700,000 Pacific Bell
5.80% 01/08/96 6,692,444
-------------
Total Corporate Short-Term Notes - 23.6% 91,909,893
Total Investments - 101.5% 394,439,454
Other Assets & Liabilities - (1.5)% (5,685,704)
-------------
Total Net Assets - 100.0% $ 388,753,750
=============
* Non-income producing. See notes to financial statements.
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND
Founders was proud to introduce a new international offering, Founders
International Equity Fund, on the last business day of 1995.
PORTFOLIO CHARACTERISTICS
Designed for long-term growth of capital, the Fund invests primarily in
growth stocks of companies in both emerging and established economies throughout
the world, excluding the United States. Stock investments can be in small,
medium and large overseas companies.
Founders International Equity Fund applies the same research techniques and
disciplined stock selection strategies used in Founders' other global and
inter-national portfolios. Using Founders' bottom-up stockpicking style, we
select stocks on a company-by-company basis, regardless of where the company is
located. Individual securities are evaluated based on their potential to grow
faster than their industry, their local competitors and their own historical
growth rates.
MANAGEMENT EXPERTISE
Michael Gerding, CFA, a veteran international investment specialist, is lead
portfolio manager of Founders International Equity Fund. He is supported by Doug
Loeffler, CFA, who joined Founders in 1995. He brings with him nearly eight
years of international equity experience. In researching securities for the
portfolio, management travels abroad extensively to meet directly with company
managements, tour manufacturing facilities, and visit with locals to evaluate
the economic and business environment.
Through our intense research process, we seek companies that are doing their
business well, developing new products or launching new industries in their
countries. As we invest the Fund's assets in these companies, we emphasize
diversification across companies, industries and countries.
ECONOMIC OUTLOOK
Favorable conditions in several foreign markets, such as company
restructurings and declining interest rates, lead us to believe that economic
growth and improving corporate earnings will continue in early 1996. This should
prove to be a healthy environment for a growth-oriented international fund such
as the Founders International Equity Fund.
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Worldwide Growth Fund to a $10,000 investment in each of
Lipper Global Fund Index, Morgan Stanley Capital International World
Index and and Consumer Price Index for the period beginning December
31, 1989 (inception) through December 31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
1 Year 5 Year Since Inception (12/31/89)
------ ------ --------------------------
20.63% 15.97% 14.37%
INVESTMENT REVIEW
Founders Worldwide Growth Fund finished 1995 with a gratifying one-year total
return of 20.63% for the period ended December 31, 1995. Much of this success is
due to our concentration on fast-growing companies throughout the world and our
willingness to seek these companies, regardless of borders.
TOUGH YEAR OUTSIDE THE U.S.
While earnings of U.S. growth stocks improved amid falling interest rates,
global markets suffered from weaker-than-expected economic conditions and
currency volatility in 1995. Decreasing interest rates in the United States
helped contribute to the bottoming of the dollar, which made it more expensive
for foreign companies to export goods to the United States and undermined their
earnings.
Mexico was rocked by a severe devaluation of the peso, a crisis that affected
other markets in Latin America. The Mexican government has instituted strict
policies to stabilize the economy, but we are still not confident of its
condition.
The Japanese banking system continued to weaken from failed real estate loans
and a prolonged stock market decline that has eroded the solvency of many
banking institutions. Momentum began building at year-end, and GDP growth is
expected in 1996.
Central banks in Germany, Italy, and the United Kingdom cut interest rates
during the period to stimulate their local economies, but Europe overall was
weak. Nevertheless, through our research, we identified individual European
companies with improving growth rates.
COMPANY-BY-COMPANY RESEARCH
Despite slowing economic growth around the world, we are still able to find
companies that are flourishing in virtually every country. Since we pay primary
attention to company fundamentals, we minimize emphasis on country borders and
focus on our earnings criteria.
Founders Worldwide Growth Fund uses a global strategy, allowing us to pick
stocks based in any country, including the United States, where many of the
strongest earnings of 1995 were produced. At year-end, 20% of the Fund's assets
were invested in U.S. stocks. One of our most successful American holdings was
IDEXX Laboratories, a manufacturer of lab tests for veterinarians.
GLOBAL INVESTMENT IN TECHNOLOGY
Many overseas companies are following the example of their American
counterparts and are starting to restructure to improve their competitiveness.
These companies realize that to compete globally, they must downsize, increase
productivity, automate manufacturing processes and improve service. Philips, a
Dutch electronics conglomerate, has seen remarkable improvements in earnings
from its cost-cutting measures.
Often, this re-engineering process involves significant investment in
technology, especially in rapidly developing countries. Manufacturers that can
keep up with international orders will be rewarded. Founders Worldwide Growth
Fund has benefited from this trend. We are finding many companies in technology,
telecommunications and data processing that are meeting global demand.
ECONOMIES IMPROVING
We anticipate overseas economies will be better in 1996 than in 1995 as
interest rates come down and earnings improve. Emerging markets, whose economies
are growing at nearly twice the rate of the U.S., will be beneficiaries of this
environment.
Under these conditions, our investment philosophy becomes even more critical.
We will continue to focus on our strategy of picking the best growth stocks,
sometimes little-known but stable companies, wherever in the world they may be.
/s/
Mike W. Gerding, CFA
Portfolio Manager
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Shares Market Value
- --------------------------------------------------------------------------------
Common Stocks (Domestic) - 19.9%
Aerospace - 1.0%
30,000 Boeing Company $2,351,250
----------
Airlines - 1.1%
50,000 Northwest Airlines Corp. Class A* 2,543,750
----------
Apparel - 2.1%
100,000 Warnaco Group, Inc. 2,500,000
75,000 Wolverine World Wide, Inc. 2,362,500
----------
4,862,500
----------
Biotechnology - 2.3%
40,000 Genzyme Corp.* 2,480,000
60,000 IDEXX Laboratories, Inc.* 2,790,000
----------
5,270,000
----------
Business Services - 0.6%
60,500 Rural Metro Corp.* 1,361,250
----------
Computer Software - 1.0%
120,000 Geoworks* 2,190,000
----------
Healthcare Services - 2.0%
45,200 Columbia Healthcare Corp. 2,293,900
100,000 Quorum Health Group* 2,175,000
----------
4,468,900
----------
Leisure & Recreation - 1.9%
100,000 Gaylord Entertainment Co. Class A 2,775,000
75,000 Sports Authority, Inc.* 1,528,125
----------
4,303,125
----------
Oil & Gas - 2.6%
86,000 Apache Corp. 2,537,000
102,000 Diamond Offshore Drilling, Inc.* 3,442,500
----------
5,979,500
----------
Publishing & Broadcasting - 0.5%
82,500 Thomas Nelson, Inc. $ 1,072,500
-----------
Semiconductors - 1.7%
80,000 Maxim Integrated Products, Inc.* 3,060,000
73,000 Vitesse Semiconductor Corp.* 912,500
-----------
3,972,500
-----------
Telecommunications & Equipment - 2.9%
75,000 MCI Communication Corp. 1,959,375
60,000 WorldCom, Inc.* 2,115,000
76,100 Vencor Inc.* 2,473,250
-----------
6,547,625
-----------
Transportation - 0.2%
63,000 Celadon Group, Inc.* 567,000
-----------
Total Common Stocks (Domestic) - 19.9% 45,489,900
-----------
Common Stocks (Foreign) - 55.7%
Airlines - 3.7%
45,000 British Airways ADS (UK) $ 3,273,750
91,463 KLM R.D. Airlines (NE) 3,224,071
113,000 Qantas Airlines Ltd 144A ADS (AU)*+ 1,882,863
-----------
8,380,684
-----------
Apparel - 2.5%
56,500 Adidas Ords 144A (DE)*+ 2,988,436
69,275 Gucci (NE)* 2,693,066
-----------
5,681,502
-----------
Automobile Manufacturers - 1.5%
96,000 Tata Engineering and Loco Co. GDR (IN) 1,259,520
50,000 Toyota Motors ADR (JA) 2,112,500
----------
3,372,020
----------
Automotive Parts - 0.6%
30,000 Valeo (FR) $1,391,332
----------
Banking - 0.6%
70,000 Banco de A. Edwards (CH)* 1,373,750
----------
Basic Industry - 1.5%
25,000 DSM, Inc. NV (NE) 2,058,768
54,500 Madeco SA ADS (CH) 1,471,500
----------
3,530,268
----------
Beverages - 0.8%
122,020 Quilmes Industrial SA Registered (AR) 1,903,512
----------
Chemicals - 0.4%
60,000 Reliance Industries
GDR (IN) 840,000
----------
Computer Software - 2.7%
25,000 Baan Company NV (NE)* 1,128,125
150 NTT Data
Communications (JA)* 5,045,971
----------
6,174,096
----------
Consumer Products - 2.5%
73,000 Industrie Natuzzi SPA ADR (IT) 3,312,375
60,000 LVHM Moet Hennessy Louis
Vuitton Sponsored ADR 2,490,000
----------
5,802,375
----------
Data Communications - 1.0%
42,000 Reuters Holdings PLC ADR (UK) 2,320,500
----------
Diversified - 0.6%
100,000 ITC Ltd. 144A GDR (IN)*+ 713,790
25,000 PEC Israel Economic Corporation (IS)* 603,125
----------
1,316,915
----------
Electronic Equipment - 2.0%
40,000 Rohm Co. (JA) $2,260,750
40,000 Sony Corporation (KO) 2,400,351
----------
4,661,101
----------
Electronics - 1.4%
92,000 Phillips Electronics Holding Co. NV (NE)* 3,300,500
----------
Energy Development - 0.7%
48,000 ENI SPA Sponsored ADR (IT)* 1,644,000
----------
Financial Services - 2.3%
47,500 Banco Latinoamericano de Exportaciones, SA
Class E (PA) 2,208,750
50,000 National Westminster Bank ADR (UK) 3,037,500
----------
5,246,250
----------
Food - 0.4%
832 Nestle SA Registered (SZ) 922,677
----------
Leisure & Recreation - 0.4%
100,000 Eurodisney SCA (FR) 228,002
312,500 Magnum Corporation Berhad (MA) 590,807
----------
818,809
----------
Manufacturing - 2.0%
100,000 Hoya Corp. (JA) 3,441,537
45,000 Valmet Corporation Ordinary A (FI) 1,129,664
----------
4,571,201
----------
Mining - 2.1%
40,000 Potash Corp. of Saskatchewan, Inc. (CA) 2,835,000
240,000 Sumitomo Metal Mining Company (JA) 2,159,152
----------
4,994,152
----------
Oil & Gas - 2.1%
80,000 Petroleum Geological Services
Sponsored ADR (NW)* $1,990,000
81,155 Total SA Sponsored
ADR (FR) 2,759,270
----------
4,749,270
----------
Packaging - 0.7%
715 Schweiz Industrie Group (SIG) Bearer (SZ)* 1,497,610
----------
Paper & Forest Products - 1.1%
500,000 Jefferson Smurfit Ordinary (UK) 1,187,707
115,000 Stora Koppaberg A Shares (SW)* 1,353,513
----------
2,541,220
----------
Pharmaceuticals - 3.1%
75,000 Astra AB Series B (SW) 2,976,370
50,000 Schwarz Pharma (GE)* 2,473,449
33,000 Teva Pharmaceutical Industries Ltd. ADR (IS) 1,526,250
----------
6,976,069
----------
Publishing & Broadcasting - 5.5%
27,000 British Sky Broadcasting Group PLC ADR (UK) 1,015,875
120,000 Carlton Communication PLC (UK) 1,800,000
40,000 The News Corporation Ltd. ADR (AU) 855,000
90,000 Nynex Cablecomm ADS (UK)* 1,552,500
50,000 Scandinavian Broadcasting Systems SA (SW)* 1,093,750
150,000 Television Broadcast Ordinary (HK) 534,474
20,000 Ver Ned Uitgeversbedr Ver Bezit NV (NE) 2,748,768
30,000 Wolters Kluwer (NE)* 2,841,101
----------
12,441,468
----------
Retail - 4.6%
400,000 Dixons Group PLC (UK) $ 2,770,186
30,000 Guilbert SA (FR) 3,522,307
450,000 Next PLC Ordinary (UK) 3,186,215
40,000 Santa Isabel SA ADS (CH)* 960,000
----------
10,438,708
----------
Semiconductor Equipment - 2.1%
60,000 Advanced Semiconductor Engineering 144A
GDR (TW)*+ 777,000
101,000 SGS Thomson Microelectronics (NE)* 4,065,250
----------
4,842,250
----------
Telecommunications & Equipment - 4.1%
40,000 Benefon (FI)* 994,933
400 DDI Corp. (JA)* 3,102,230
16,000 ECI Telecom Ltd. Ordinary (IS)* 364,000
75,000 Tele Danmark Sponsored ADR Representing Class
B Shares (DE) 2,071,875
60,000 Telecomunicacoes Brasileiras
SA Sponsored ADR (BR) 2,889,132
----------
9,422,170
----------
Transportation - 1.1%
270,000 Singapore Airlines (SI) 2,519,796
----------
Utilities - 1.6%
58,550 Consolidated Electric Power Asia Ltd.
Sponsored (HK)* 1,063,924
60,000 Veba AG (GE) 2,574,064
----------
3,637,988
----------
Total Common Stocks (Foreign) - 55.7% 127,312,193
-----------
Principal Amount Market Value
- ---------------------------------------------------------------------------
Convertible Bonds (Foreign) - 0.1%
Transportation - 0.1%
$1,518,750 Stena Lines Class B Cvt. 7.00%
Due 4/30/01 (SW) $ 198,231
-------------
Total Convertible Bonds (Foreign) - 0.1% 198,231
-------------
Shares Market Value
- ---------------------------------------------------------------------------
Preferred Stocks (Foreign) - 3.7%
Computer Software - 1.0%
15,000 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG Preferred (GE) $ 2,282,700
------------
Financial Services - 1.2%
4,000 Marschollek, Lautenschlager und Partner AG (GE) 2,766,909
------------
Publishing and Broadcasting - 1.0%
125,000 The News Corporation ADR Representing
Preferred Shares (AU) 2,406,250
------------
Telecommunications - 0.5%
26,000 Nokia Ordinary Class A (FI) 1,023,952
------------
Total Preferred Stocks
(Foreign) - 3.7% 8,479,811
------------
Principal Amount Amortized Cost
- ---------------------------------------------------------------------------
Corporate Short-Term Notes - 21.2%
$10,900,000 General Electric Capital Corp.
5.80% 01/02/96 $ 10,898,244
6,800,000 Household Finance Corp.
5.63% 01/03/96 6,797,873
6,900,000 American General Corp.
5.75% 01/10/96 6,890,081
6,100,000 Ciesco LP
5.80% 01/09/96 6,092,138
6,800,000 Ford Credit Receivable
5.72% 01/04/96 6,796,759
4,200,000 Texaco Inc.
5.83% 01/08/96 4,195,239
6,900,000 Pacific Bell
5.80% 01/05/96 6,895,553
------------
Total Corporate Short-Term Notes - 21.2% 48,565,887
------------
Total Investments - 100.6% 230,046,022
Other Assets & Liabilities - (0.6%) (1,451,178)
------------
Total Net Assets - 100.0% $228,594,844
============
<PAGE>
FOUNDERS GROWTH FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Growth Fund to a $10,000 investment in each of Lipper Growth
Fund Index, Standard & Poor's 500 Index and Consumer Price Index for
the period beginning December 31, 1980 through December 31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
1 Year 5 Year 10 Year 15 Year
------ ------ ------- -------
45.59% 22.12% 16.87% 15.04%
INVESTMENT REVIEW
In an economic environment ideal for growth stocks, Founders Growth Fund
achieved an above-average total return of 45.59%, topping the Standard & Poor's
500 Index by more than eight percentage points.
STRENGTH IN TECHNOLOGY
The technology sector, the Fund's largest, went through a series of ups and
downs during the year. Rather than focus on jitters regarding the sector, we
concentrated on specific technology companies that were meeting or beating
earnings expectations. Earnings disappointments led us to sell some positions in
the second half of the year, but we took advantage of price declines to add to
computer software manufacturers, computer networking and telecommunications
services holdings.
Strong business momentum and excellent earnings growth have made computer
networking stocks very attractive on a fundamental basis. One of our favorite
securities is Cisco Systems, a company that designs systems to traffic data
quickly and smoothly through computer networks. Cisco, which went public just
five years ago, now has one of the highest market capitalizations of the NASDAQ
stock market.
We believe that growth in the technology industry is showing strong
consistency rather than diminishing and that over the long term, these issues
represent outstanding potential.
PERFORMANCE IN OTHER SECTORS
Although 1995's holiday shopping season was said to be one of the worst in
decades, we believe it was due more to a saturated store market than to consumer
malaise. Sales were up, but they were spread out over a larger base of stores.
Apparel holdings had spotty performance, but we are confident of the earnings
prospects for retail holdings such as Home Depot and Sears Roebuck.
Economically sensitive cyclical stocks, such as paper, chemical and auto
companies, had trouble meeting earnings estimates through much of the year, and
we avoided them. Large-cap drug companies obtained rapid FDA approval for newly
developed products and showed encouraging results during the period.
In the fourth quarter, the Fund increased its holdings in financial
companies. Insurance, brokerage, mortgage and consumer credit companies tend to
outperform when interest rates are falling.
A COMMITMENT TO RESEARCH
As we research individual com-panies, we pay special attention to business
fundamentals: innovative management, increased productiv-ity and high recurring
revenue.
In 1996, we anticipate that fewer stocks will be capable of meeting or
beating earnings expectations. Our emphasis will be on tried and true stocks of
medium- and large-sized companies that can sustain earnings estimates quarter
after quarter.
/s/
Edward F. Keely, CFA
Portfolio Manager
<PAGE>
FOUNDERS GROWTH FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Shares Market Value
- --------------------------------------------------------------------------------
Common Stocks (Domestic) - 75.5%
Aerospace - 3.8%
125,000 Boeing Company $ 9,796,875
70,000 Lockheed Martin Technologies Corp. 5,530,000
105,000 McDonnell Douglas Co. 9,660,000
-----------
24,986,875
-----------
Airlines - 0.5%
45,000 Delta Air Lines, Inc. 3,324,375
-----------
Banking - 1.5%
60,000 Bank of New York, Inc. 2,925,000
55,000 Bankers Trust NY Co. 3,657,500
110,000 PNC Bank Corporation 3,547,500
-----------
10,130,000
-----------
Biotechnology - 2.0%
160,000 Amgen, Inc.* 9,480,000
60,000 Genzyme Corp.* 3,720,000
-----------
13,200,000
-----------
Chemicals - 0.8%
120,000 IMC Global, Inc. 4,905,000
------------
Communications Equipment - 1.5%
180,000 Premisys Communication, Inc.* 10,080,000
-----------
Computer Equipment - 4.3%
70,000 Altera Corp.* 3,473,750
100,000 Applied Magnetics Corp.* 1,862,500
95,000 Digital Equipment Corp* 6,091,875
50,000 International Business Machines 4,587,500
135,000 Stratus Computer, Inc.* 4,674,375
86,000 U.S. Robotics Corp. 7,525,000
-----------
28,215,000
-----------
Computer Networking - 9.5%
55,000 Alantec Corp.* $ 3,190,000
140,000 Ascend Communication, Inc.* 11,357,500
270,000 Bay Networks, Inc.* 11,070,000
95,000 Cabletron Systems, Inc.* 7,695,000
155,000 Cisco Systems, Inc.* 11,566,875
105,000 Fore Systems, Inc.* 6,234,375
155,000 Stratacom, Inc.* 11,315,000
-----------
62,428,750
-----------
Computer Software - 10.7%
210,000 Cadence Design System, Inc.* 8,815,712
175,000 Computer Associates International, Inc.* 9,953,125
90,000 Computer Sciences Co.* 6,322,500
95,000 Electronics Imaging, Inc.* 4,085,000
145,000 Informix Corp.* 4,350,000
40,000 Microsoft Corp.* 3,510,000
550,000 Novell, Inc.* 7,768,750
140,000 Oracle Systems Corp.* 5,915,000
150,000 Parametric Technology Corp.* 9,937,500
110,000 PeopleSoft, Inc.* 4,675,000
195,000 Symantec Corp.* 4,509,375
-----------
69,841,962
-----------
Electronic Equipment - 0.7%
35,000 Xerox Corp. 4,795,000
-----------
Electronics - 0.5%
70,000 Tektronix, Inc. 3,438,750
-----------
Financial Services - 3.1%
80,000 Federal Home Loan Mortgage Corp. 6,680,000
65,000 Federal National Mortgage Association 8,068,125
35,000 J.P. Morgan & Co., Inc. 2,808,750
70,000 Salomon Brothers, Inc. 2,485,000
-----------
20,041,875
-----------
Healthcare Services - 3.5%
83,000 Biogen, Inc.* $ 5,063,000
210,000 Columbia Healthcare Corp. 10,657,500
120,000 Healthsource, Inc.* 4,320,000
80,225 Manor Care, Inc. 2,807,875
-----------
22,848,375
-----------
Hospital Supply - 1.2%
190,000 Guidant Corp. 8,027,500
-----------
Insurance - 1.1%
32,500 Chubb Corp. 3,144,375
158,000 Prudential Reinsurance
Holding Co. 3,693,250
-----------
6,837,625
-----------
Leisure & Entertainment - 3.9%
145,000 Hospitality Franchise Systems, Inc.* 11,853,750
190,000 Marriot International, Inc. 7,267,500
190,000 Mirage Resorts, Inc.* 6,555,000
-----------
25,676,250
-----------
Machinery - 0.3%
50,000 Crown Cork & Seal Co., Inc.* 2,087,500
-----------
Manufacturing - 0.9%
111,000 Stanley Works* 5,716,500
-----------
Medical Supplies & Equipment - 2.9%
35,000 Baxter International, Inc. 1,465,625
128,925 Boston Scientific Corp.* 6,317,325
80,000 Johnson & Johnson 6,850,000
80,000 Medtronic, Inc. 4,470,000
-----------
19,102,950
-----------
Oil & Gas - 2.2%
95,000 Apache Corp. 2,802,500
80,000 Baker Hughes, Inc. 1,950,000
41,000 Mobil Corp. 4,592,000
20,000 Schlumberger Ltd. 1,385,000
50,000 Sonat Offshore Drilling, Inc. 2,237,500
30,000 Western Atlas, Inc.* 1,515,000
-----------
14,482,000
-----------
Pharmaceuticals - 2.2%
130,800 Merck & Co. $ 8,600,100
90,000 Pfizer, Inc. 5,670,000
-----------
14,270,100
-----------
Photography - 0.4%
42,500 Eastman Kodak Co. 2,847,500
-----------
Publishing & Broadcasting - 0.8%
127,500 Infinity Broadcasting Corp. Class A* 4,749,375
-----------
Restaurants - 1.1%
165,000 McDonalds Corp. 7,445,625
-----------
Retail - 5.0%
135,000 Federated Department Stores, Inc.* 3,712,500
90,000 The Gap, Inc. 3,780,000
90,000 Gaylord Entertainment Class A 2,497,500
131,666 The Home Depot, Inc. 6,303,510
80,000 Kohl's Corp.* 4,200,000
150,000 Limited, Inc. 2,606,250
180,000 Sears Roebuck & Co. 7,020,000
90,000 The Talbots, Inc. 2,587,500
-----------
32,707,260
-----------
Semiconductor & Equipment - 4.0%
140,000 LSI Logic Corp.* 4,585,000
420,000 Maxim Integrated Products, Inc.* 16,065,000
187,175 Xilinx, Inc.* 5,662,044
-----------
26,312,044
-----------
Telecommunications & Equipment - 7.1%
215,000 AT&T Corp. 13,921,250
49,000 Glenayre Technologies, Inc.* 3,038,000
33,325 Mobile Media Corp.* 733,150
320,000 Paging Network, Inc.* 7,600,000
245,000 Picturetel Corp.* 10,504,375
305,000 WorldCom, Inc.* 10,751,250
-----------
46,548,025
-----------
Total Common Stocks (Domestic) - 75.5% 495,046,216
-----------
Common Stocks (Foreign) - 8.3%
Apparel - 1.8%
95,900 Adidas Ords 144A (DE)*+ $ 5,072,132
173,175 Gucci (NE)* 6,732,178
-----------
11,804,310
-----------
Building Materials - 0.4%
55,000 Hunter Douglas NV (NE) 2,552,732
-----------
Computer Networking - 2.2%
175,000 Madge Network NV (CA)* 7,765,625
165,000 Newbridge Networks (CA)* 6,826,875
-----------
14,592,500
-----------
Energy Development - 0.8%
144,000 ENI SPA Sponsored ADR (IT)* 4,932,000
-----------
Manufacturing - 0.2%
65,000 Valmet Corp. Ordinary A (FI) 1,631,728
-----------
Mining - 0.5%
45,000 Potash Corp. of Saskatchewan, Inc. (CA) 3,189,375
-----------
Pharmaceuticals - 1.2%
160,000 Astra AB Series B Shares (SW) 6,349,568
40,000 Astra AB Series A Shares (SW) 1,599,464
-----------
7,949,032
-----------
Telecommunications & Equipment - 0.5%
70,000 Telecomunicacoes Brasileiras SA
Sponsored ADR (BR) 3,370,654
-----------
Transportation - 0.7%
500,000 Singapore Airlines (SI) 4,666,050
-----------
Total Common Stocks (Foreign) - 8.3% 54,688,381
-----------
Preferred Stocks (Foreign) - 1.3%
Computer Software - 0.7%
33,000 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG Preferred (GE) $ 5,021,669
-----------
Telecommunications & Equipment - 0.6%
96,000 Nokia Ordinary Preferred Class A (FI) 3,780,739
-----------
Total Preferred Stocks (Foreign) - 1.3% 8,802,408
-----------
Principal Amount Amortized Cost
- ----------------------------------------------------------------------------
Corporate Short-Term Notes - 13.4%
$12,100,000 Ford Motor Credit 5.65%
01/04/96 $ 12,094,303
8,400,000 Ford Motor Credit 5.80%
01/11/96 8,386,467
10,000,000 General Elec. Capital 5.80%
01/02/96 9,998,389
12,900,000 Household Finance Corp.
5.63% 01/03/96 12,895,965
12,100,000 McDonalds Corp. 5.60%
01/08/96 12,086,824
9,000,000 Ciesco LP 5.80% 01/10/96 8,986,950
3,700,000 Ford Credit Receivable
5.70% 01/12/96 3,693,556
6,500,000 Texaco Inc. 5.83%
01/09/96 6,491,579
13,200,000 Pacific Bell 5.80%
01/05/96 13,191,493
------------
Total Corporate Short-Term Notes - 13.4% 87,825,526
------------
Total Investments - 98.5% 646,362,531
Other Assets & Liabilities - 1.5% 9,564,459
------------
Total Net Assets - 100.0% $655,926,990
============
* Non-income producing. See notes to financial statements.
+ Securities are registered pursuant to Rule 144A and may be deemed to be
restricted for resale.
<PAGE>
FOUNDERS BLUE CHIP FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Blue Chip Fund to a $10,000 investment in each of Lipper
Growth and Income Fund Index, Standard & Poor's 500 Index and Consumer
Price Index for the period beginning December 31, 1985 through December
31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
1 Year 5 Year 10 Year
------ ------ -------
29.06% 13.71% 13.04%
INVESTMENT REVIEW
Founders Blue Chip Fund was a beneficiary of the stock market's outstanding
performance in 1995, producing a total return of 29.06% for the 12 months ended
December 31, 1995.
PUTTING CASH TO WORK
Founders Blue Chip seeks to invest in large, nationally known companies that
have long records of growing profits and financial stability. These brand-name
companies are regarded for their strong corporate fundamentals, the kind that
can produce exceptional earnings and deliver dividends to stockholders.
We started the year with relatively high cash levels, a result of our
cautious investing in 1994's difficult market. But as our research and analysis
identified companies with improved earnings and renewed strength, we invested
more of those assets.
RETAIL STOCKS A FAVORITE
Although the 1995 Christmas season was tough for retailers, we believe in the
fundamental strength of retail stocks.
Our favorite holding is home improvement retailer Home Depot, which uses a
warehouse concept to bring commercial building equipment and prices to the
do-it-yourselfer. We also hold positions in popular Gap Stores and Intimate
Brands, which owns Victoria's Secret and Bath & Body Works.
OPPORTUNITIES IN TECHNOLOGY
More companies are realizing that to compete in the global economy, they must
become "lean and mean." Founders Blue Chip capitalized on the well-publicized
corporate restructuring of AT&T Corporation, which we purchased mid-year. We
expect the company's aggressive reorganization into three distinct business
units will have a very positive impact on earnings.
As companies commit to restructuring their businesses to cut costs and
improve productivity, they often invest heavily in technological advances.
Technology stocks had volatile performance during the period, but we were able
to find individual high-quality tech companies that met or exceeded their
earnings estimates. One example is Intel, a semiconductor manufacturer whose
earnings doubled in 1995.
PERFORMANCE IN OTHER SECTORS
Much of the federal budget debate has concentrated on Medicare spending,
which has undermined health services stocks. Late in the year, we sold some
healthcare and pharmaceutical holdings and directed those assets into other
areas of the consumer growth sector.
We took advantage of interest-rate cuts to purchase stocks of the insurance,
consumer credit and brokerage industries. Earnings of these types of financial
services companies usually get a boost in falling interest rate environments.
Solid consumer names such as Coca-Cola, General Electric, Colgate and Heinz
continue to have their place in Founders Blue Chip Fund's portfolio, due to
their very predictable and consistent earnings growth.
LOOKING FORWARD
We are not expecting the pace of earnings growth for the broad market to be
as steady in 1996 as it was in 1995. Our emphasis on diversification, intense
research and picking stocks one-by-one becomes even more important in this
environment. To pursue holdings that can outperform expected growth rates, we'll
focus on consumer cyclicals, consumer growth, technology and financial services.
/s/
Patrick Adams, CFA
Portfolio Manager
<PAGE>
FOUNDERS BLUE CHIP FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Shares Market Value
- -------------------------------------------------------------------------------
Common Stocks (Domestic) - 62.6%
Airlines - 0.7%
50,000 Northwest Airlines Corp. Class A* $ 2,543,750
-----------
Apparel - 3.9%
140,800 Fruit of the Loom, Inc. Class A* 3,432,000
718,500 Intimate Brands, Inc. Class A 10,777,500
-----------
14,209,500
-----------
Beverages - 1.4%
72,000 The Coca-Cola Company 5,346,000
-----------
Biotechnology - 1.3%
80,000 Amgen, Inc.* 4,740,000
-----------
Business Services - 1.9%
115,000 Ceridian Corp.* 4,743,750
90,000 Manpower, Inc. 2,531,250
-----------
7,275,000
-----------
Capital Goods - 1.1%
99,675 Foster Wheeler Corp. 4,236,188
-----------
Computer Equipment - 1.6%
67,000 International Business Machines 6,147,250
-----------
Computer Networking - 1.2%
25,000 Stratacom, Inc.* 1,825,000
60,000 3Com Corp.* 2,797,500
-----------
4,622,500
-----------
Computer Software - 1.6%
40,000 Adobe Systems, Inc. 2,480,000
50,000 Cadence Design System, Inc.* 2,100,000
24,000 Computer Associates International, Inc. 1,365,000
-----------
5,945,000
-----------
Consumer Products - 1.0%
55,000 Colgate Palmolive Co. $ 3,863,750
---------
Cosmetics - 0.7%
80,000 Estee Lauder Co., Inc. Class A* 2,790,000
---------
Electronic Equipment - 1.2%
60,000 General Electric Company 4,320,000
---------
Financial Services - 5.7%
89,275 Advanta Corp. Class A 3,370,131
25,000 Advanta Corp. Class B 906,250
215,000 Countrywide Credit Industries, Inc. 4,676,250
90,000 Credit Acceptance Corp.* 1,822,500
19,600 Federal National Mortgage Association 2,432,850
78,725 First USA, Inc. 3,493,422
38,000 Household International, Inc. 2,246,750
50,000 Merrill Lynch & Co., Inc. 2,550,000
---------
21,498,153
----------
Food - 3.3%
150,000 H.J. Heinz Co. 4,968,750
38,800 IBP, Inc. 1,959,400
22,500 Safeway, Inc.* 1,158,750
150,000 Vons Companies, Inc.* 4,237,500
---------
12,324,400
----------
Healthcare Services - 2.7%
66,500 Cardinal Health, Inc. 3,640,875
87,125 Columbia Healthcare Corp.4,421,594
68,800 Humana, Inc.* 1,883,400
---------
9,945,869
---------
Leisure & Entertainment - 5.2%
195,000 Carnival Cruise Lines, Inc. Class A 4,753,125
77,000 Circus Circus Enterprises, Inc.* 2,146,375
175,000 La Quinta Inns, Inc. 4,790,625
165,000 Viacom, Inc. Class B* 7,816,875
---------
19,507,000
---------
Medical Supplies & Equipment - 1.1%
100,000 Baxter International, Inc. $ 4,187,500
----------
Oil & Gas - 4.6%
140,000 Baker Hughes, Inc. 3,412,500
130,000 Halliburton Co. 6,581,250
33,000 Mobil Corp. 3,696,000
50,000 Schlumberger Ltd. 3,462,500
----------
17,152,250
----------
Pharmaceuticals - 0.4%
25,000 Pfizer, Inc. 1,575,000
----------
REITs - 4.7%
150,000 Avalon Properties, Inc. 3,225,000
143,000 Reckson Associates Realty Corp. 4,200,625
258,800 Storage Trust, Inc. 5,887,700
200,000 Walden Residential Properties, Inc. 4,175,000
----------
17,488,325
----------
Restaurants - 1.2%
115,000 Lone Star Steakhouse Saloon* 4,398,750
----------
Retail - 9.8%
155,400 The Gap, Inc. 6,526,800
382,350 The Home Depot, Inc. 18,305,006
160,000 Limited, Inc. 2,780,000
135,000 Staples, Inc. 3,290,625
25,000 Sunglass Hut International, Inc.* 587,500
240,000 Wal-Mart Stores, Inc. 5,370,000
----------
36,859,931
----------
Semiconductor & Equipment - 2.8%
60,000 Applied Materials, Inc.*2,355,000
55,625 Cirrus Logic, Corp.* 1,098,594
58,000 Intel Corp. 3,291,500
155,000 Teradyne, Inc.* 3,875,000
----------
10,620,094
----------
Telecommunications & Equipment - 3.5%
137,800 AT&T Corp. $ 8,922,550
215,000 Tele-Communications, Inc. Class A* 4,273,125
------------
13,195,675
------------
Total Common Stocks (Domestic) - 62.6% 234,791,885
Common Stocks (Foreign) - 9.1%
Energy Development - 0.9%
96,000 ENI SPA (IT)* $ 3,288,000
------------
Food - 0.8%
2,700 Nestle SA Registered (SZ) 2,994,132
------------
Funeral Homes - 0.9%
127,375 The Loewen Group, Inc. (CA) 3,216,219
------------
Oil & Gas - 1.1%
41,000 British Petroleum (UK) 4,187,125
------------
Pharmaceuticals - 3.0%
60,000 Astra AB Sponsored ADR Representing Series A
Shares (SW) 2,399,196
77,800 Elan Corp. Ltd. ADR (UK)* 3,783,025
107,000 Teva Pharmaceutical Industries Ltd. Sponsored
ADR Representing Class D Shares (IS) 4,948,750
------------
11,130,971
------------
Telecommunications & Equipment - 1.6%
400 DDI Corp. (JA) 3,102,228
60,000 Telecomunicacoes Brasileiras SA Sponsored
ADR (BR) 2,889,132
------------
5,991,360
------------
Transportation - 0.8%
215,000 Canadian National Railway Co. (CA)* $ 3,225,000
-----------
Total Common Stocks (Foreign) - 9.1% 34,032,807
-----------
Preferred Stocks (Domestic) - 5.7%
Business Services - 0.7%
26,900 Ceridian Corporation 5.5% Convertible Preferred $ 2,488,250
-----------
Cable Television - 2.0%
285,000 Cablevision System Corp. Preferred 7,766,250
-----------
Leisure & Entertainment - 2.0%
560,000 Bally Entertainment 8.00% Convertible Preferred 7,630,000
-----------
Telecommunications & Equipment - 1.0%
75,000 MFS Communications Company, Inc.* 3,646,875
-----------
Total Preferred Stocks (Domestic) - 5.7% 21,531,375
-----------
Preferred Stocks (Foreign) - 1.8%
Computer Software - 0.9%
22,500 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG Preferred (GE) $ 3,423,866
-----------
Telecommunications & Equipment - 0.9%
81,800 Nokia Ordinary Class A (FI) 3,221,505
-----------
Total Preferred Stocks (Foreign) - 1.8% 6,645,371
-----------
Principal Amount Market Value
- ----------------------------------------------------------------------------
Convertible Bonds (Domestic) - 0.5%
Healthcare Services - 0.5%
$2,000,000 Integrated Health 6.00%
Due 01/01/03 $ 1,970,000
-----------
Total Convertible Bonds (Domestic) - 0.5% 1,970,000
-----------
Principal Amount Amotized Cost
- ----------------------------------------------------------------------------
Corporate Short-Term Notes - 19.6%
$10,200,000 Ford Motor Credit 5.80%
01/11/96 $ 10,183,567
8,000,000 General Electric Capital
5.80% 01/02/96 7,998,711
11,000,000 Household Finance Corp.
5.63% 01/03/96 10,996,559
7,600,000 McDonalds Corp. 5.60%
01/08/96 7,591,724
11,000,000 Ciesco LP 5.80% 01/10/96 10,984,050
2,000,000 Ciesco LP 5.80% 01/02/96 1,999,678
1,400,000 Ford Credit Receivable 5.70% 01/12/96 1,397,562
4,800,000 Texaco Inc. 5.83% 01/09/96 4,793,781
10,000,000 Sandoz Corporation 5.65% 01/04/96 9,995,292
7,700,000 Pacific Bell 5.80% 01/05/96 7,695,038
------------
Total Corporate Short-Term Notes - 19.6% 73,635,962
------------
Total Investments - 99.3% 372,607,400
Other Assets & Liabilities - 0.7% 2,593,029
------------
Total Net Assets - 100.0% $375,200,429
============
* Non-producing. See notes to financial statements.
<PAGE>
FOUNDERS BALANCED FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Balanced Fund to a $10,000 investment in each of Standard &
Poor's 500 Index, Lehman Brothers Intermediate Government/Corporate
Bond Index, Lipper Balanced Fund Index and Consumer Price Index for the
period beginning December 31, 1980 through December 31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
1 Year 5 Year 10 Year 15 Year
------ ------ ------- -------
29.41% 15.03% 12.02 12.47%
INVESTMENT REVIEW
Founders Balanced Fund uses a combination of stock and fixed-income
investments to seek its objective of current income and capital appreciation.
This investment strategy guided the Fund to a 29.41% gain in the 12 months ended
December 31, 1995, comfortably outpacing the Lipper Balanced Index return of
24.61%.
CHOOSING THE RIGHT STOCKS
Toward the end of the period, Founders Balanced took a less aggressive
position and cut its exposure to equity securities to about 55% from 65%. When
we choose stocks for the equity portion of the portfolio, we look for companies
that demonstrate strong potential for price appreciation and pay dividends.
Selections include companies with strong managements, superior products and
dominant market positions. We also look for stocks that are undervalued relative
to the market.
These criteria were not difficult to meet in 1995. Two undervalued areas,
consumer growth and consumer cyclical, provided the most attractive returns.
The Fund held a weighting in AT&T, which announced a major restructuring in
the third quarter. AT&T is slashing its workforce and splitting its operations
into three business units, all designed to increase its productivity and global
competitiveness. This type of re-engineering should advance the company's
earnings significantly.
<PAGE>
We invested in a number of
energy and energy services stocks, which were boosted by the cost-cutting of
large oil companies. Our positions in this area included British Petroleum and
Halliburton, a petroleum engineering services company. We've seen these types of
defensive stocks perform well in late stages of a bull market.
RETAIL STOCKS: A CAREFUL SELECTION
The 1995 Christmas season was reportedly weak for selected retailers, but we
held a significant weighting in retail stocks in the last six months of the
year, as many of the high-quality companies began improving in a difficult
environment.
Our favorite holding is home improvement retailer Home Depot, which uses a
warehouse concept to bring commercial building equipment and reasonable prices
to the do-it-yourselfer. We also hold positions in popular Gap Stores and
Intimate Brands, which owns Victoria's Secret and Bath & Body Works.
STRIVING FOR YIELD
Conditions throughout the year were favorable for investment in real estate
investment trusts (REITs), public companies that manage portfolios of real
estate. REITs have not been followed too closely by the market, and we were able
to find a selection of companies selling at relatively inexpensive prices, with
very attractive dividend yields.
We placed more of an emphasis on convertible bonds than on government bonds
during the year due to their attractive yield to maturity versus government
bonds. Convertibles are corporate securities that are exchangeable for a set
number of common shares at a prestated price. These holdings benefit from the
price appreciation of their underlying equity securities.
EMPHASIZING DIVERSIFICATION
We manage Founders Balanced Fund on a stock-by-stock selection basis. Our
research places emphasis on diversifying the portfolio with companies that can
meet or exceed projected earnings quarter after quarter. We will continue to
pick investments for the Fund one-by-one, identifying well-managed companies and
bond issues that meet our investment criteria.
/s/
Patrick Adams, CFA
Portfolio Manager
<PAGE>
FOUNDERS BALANCED FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Shares Market Value
- --------------------------------------------------------------------------------
Common Stocks (Domestic) - 44.9%
Apparel - 2.0%
170,000 Intimate Brands Inc. Class A $2,550,000
----------
Business Services - 0.5%
25,000 Manpower, Inc. 703,125
----------
Capital Goods - 1.5%
44,550 Foster Wheeler Corp. 1,893,375
----------
Computer Equipment - 1.8%
25,000 International Business Machines 2,293,750
----------
Computer Software - 0.3%
7,000 Computer Associates International, Inc. 398,125
----------
Consumer Products - 1.1%
8,000 Colgate Palmolive Co. 562,000
10,000 Kimberly Clark Corp. 827,500
----------
1,389,500
----------
Electronics - 0.4%
9,600 Tektronix, Inc. 471,600
Financial Services - 3.9%
65,000 Countrywide Credit Industries 1,413,750
6,400 Federal National Mortgage Association 794,400
18,875 First USA, Inc. 837,578
22,000 Household International, Inc. 1,300,750
15,200 Merrill Lynch & Co., Inc. 775,200
----------
5,121,678
----------
Food - 1.6%
45,000 H.J. Heinz Co. 1,490,625
13,000 IBP, Inc. 656,500
----------
2,147,125
----------
Healthcare Services - 1.8%
13,000 Cardinal Health, Inc. $ 711,750
23,475 Columbia Healthcare Corp. 1,191,356
16,400 Omega Health Care Investors, Inc. 436,650
----------
2,339,756
----------
Insurance - 4.8%
8,000 Aetna Life & Casualty Co. 554,000
120,000 GCR Holdings Ltd. Ordinary 2,670,000
133,000 Prudential Reinsurance 3,108,875
----------
6,332,875
Leisure & Entertainment - 2.3%
29,000 Carnival Cruise Lines, Inc. Class A 706,875
23,700 Harley Davidson, Inc. 681,375
60,000 La Quinta Inns, Inc. 1,642,500
----------
3,030,750
----------
Medical Supplies & Equipment - 1.0%
30,000 Baxter International, Inc. 1,256,250
----------
Oil & Gas - 3.9%
46,000 Baker Hughes, Inc. 1,121,250
30,000 Halliburton Co. 1,518,750
9,000 Mobil Corp. 1,008,000
20,000 Schlumberger Ltd. 1,385,000
----------
5,033,000
----------
Pharmaceuticals - 0.4%
8,000 Pfizer, Inc. 504,000
-----------
REITs - 9.5%
40,000 Avalon Properties, Inc. 860,000
162,800 Camden Properties Trust Shares of Beneficial
Interest 3,886,850
60,000 LTC Properties, Inc. 900,000
62,000 Oasis Residential, Inc. 1,410,500
27,650 Reckson Associates Realty Corp. 812,219
39,600 Redwood Trust, Inc. 722,700
95,000 Storage Trust, Inc. 2,161,250
77,000 Walden Residential Properties, Inc. 1,607,375
-----------
12,360,894
-----------
Retail - 6.0%
40,200 The Gap, Inc. $ 1,688,400
98,825 The Home Depot, Inc. 4,731,247
65,000 Wal-Mart Stores, Inc. 1,454,375
-----------
7,874,022
-----------
Semiconductor & Equipment - 0.7%
16,000 Intel Corp. 908,000
-----------
Telecommunications & Equipment - 1.4%
29,000 AT&T Corp. 1,877,750
-----------
Tobacco Products - 0.0%
1,000 Schweitzer-Manduit International Inc.* 23,125
-----------
Total Common Stoc(Domestic) - 44.9% 58,508,700
-----------
Common Stocks (Foreign) - 5.3%
Banking - 1.3%
100,000 Nordbanken 144A Ordinary (SW)*+ $1,735,270
----------
Energy Development - 0.4%
16,000 ENI SPA Sponsored ADR (IT)* 548,000
---------
Funeral Homes - 0.5%
27,300 The Loewen Group, Inc. (CA) 689,325
---------
Oil & Gas - 1.8%
23,000 British Petroleum (UK) 2,348,875
---------
Pharmaceuticals - 1.3%
33,000 Teva Pharmaceutical Industries Ltd. Sponsored
ADR Representing Class D Shares (IS) 1,526,250
---------
Total Common Stocks (Foreign) - 5.3% 6,847,720
---------
Preferred Stocks (Domestic) - 4.8%
Services - 2.4%
80,000 Advanta (Sails) 6.75% Convertible Preferred* $ 3,070,000
-----------
Leisure & Entertainment - 1.5%
140,000 Bally Entertainment 8.00% Convertible
Preferred 1,907,500
-----------
Publishing & Broadcasting - 0.9%
45,000 Cablevision System Corp. Preferred 1,226,250
---------
Total Preferred Stocks
(Domestic) - 4.8% 6,700,050
---------
Preferred Stocks (Foreign) - 0.4%
Electronics - 0.4%
10,000 Elsag Bailey 144A Convertible Preferred*+ $ 496,300
---------
Total Preferred Stocks
(Foreign) 0.4% 496,300
----------
Principal Amount Market Value
- -----------------------------------------------------------------------------
Convertible Bonds (Domestic) - 5.5%
Computer Equipment - 1.6%
$ 2,000,000 Telxon Cvt Bond 144A
5.75% Due 01/01/03+ $2,109,200
----------
Energy Development - 1.7%
2,000,000 Analog Devices Convertible
3.50% Due 12/01/00 2,137,500
----------
Pharmaceuticals - 0.7%
1,000,000 Sandoz 144A 2.00% Sr. Convertible
Due 10/06/02+ 943,300
----------
Retail - 1.5%
$1,000,000 Federated Department Stores 5.00% 10/01/03 $ 1,006,250
1,000,000 Staples Convertible Bond 144A 4.50% Due 10/01/00+ 997,500
----------
2,003,750
----------
Total Convertible Bonds (Domestic) - 5.5% 7,193,750
----------
Convertible Bonds (Foreign) - 3.6%
Banking - 3.6%
$4,000,000 Mitsubishi Bank Ltd. Convertible 3.00% 11/30/02 $ 4,700,000
-----------
Total Convertible Bonds (Foreign) - 3.6% 4,700,000
-----------
Corporate Bonds (Domestic) - 10.5%
Banking - 1.7%
$ 200,000 Mellon Corp. Non-Call 6.30% Due 6/1/00 $ 203,455
2,000,000 Norwest Corp. 6.125% Due 10/15/00 2,029,138
----------
2,232,593
----------
Financial Services - 6.4%
4,000,000 Chrysler Fin. MTNs 8.26% Due 11/23/98 4,253,956
4,000,000 Ford Motor Credit Company 6.375% Due 09/15/99 4,074,436
----------
8,328,392
----------
Household Products - 2.4%
3,200,000 Black & Decker MTNs 7.20% Due 10/07/96 3,227,965
----------
Total Corporate Bonds (Domestic) - 10.5% 13,788,950
----------
U.S. Government Securities - 4.1%
U.S. Treasury Notes - 4.1%
$5,000,000 U.S. Treasury Note 6.50% Due 05/15/05 $ 5,328,125
-----------
Total U.S. Government Securities - 4.1% 5,328,125
-----------
U.S. Agencies - 1.5%
FHLB Notes - 1.5%
$2,000,000 FHLB Discount Notes 5.30% Due 06/11/97 $ 1,999,154
-----------
Total U.S. Agencies - 1.5% 1,999,154
-----------
Principal Amount Amortized Cost
- -----------------------------------------------------------------------------
Corporate Short-Term Notes - 17.9%
$3,600,000 Duke Power 5.80% 01/02/96 $ 3,599,420
4,100,000 Amoco Credit 5.60% 01/02/96 4,099,362
2,600,000 American General Finance 5.68% 01/04/96 2,598,769
5,000,000 Ciesco LP 5.75% 01/03/96 4,998,403
4,300,000 Ford Credit Receivable 5.80% 01/08/96 4,295,151
400,000 Texaco Inc. 5.92% 01/04/96 399,803
3,300,000 Pacific Bell 5.80% 01/05/96 3,297,873
-----------
Total Corporate Short-Term Notes - 17.9% 23,288,781
-----------
Total Investments - 98.5% 128,355,230
Other Assets & Liabilities - 1.5% 1,991,124
------------
Total Net Assets - 100.0% $130,346,354
============
* Non-income producing. See notes to financial statements.
+ Securities are registered pursuant to Rule 144A and may be deemed to be
restricted for resale.
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Government Securities Fund to a $10,000 investment in each of
Lehman Brothers U.S. Treasury Composite Index, Lipper U.S. Government
Fund Index and Consumer Price Index for the period beginning March 1,
1988 (inception) through December 31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
1 Year 5 Year Since Inception (3/1/88)
------ ------ ------------------------
11.12% 6.33% 6.69%
INVESTMENT REVIEW
In the 12 months ended December 31, 1995, Founders Government Securities Fund
generated a total return of 11.12%.
JUMP-STARTING THE ECONOMY
Founders Government Securities Fund was well-positioned to take advantage of
the Federal Reserve's easing. The short end of the yield curve benefited much
less from the Fed action than longer maturity securities, and the Fund advanced
accordingly.
In 1995's low-interest-rate environment, we believed we could best meet the
Fund's objectives by extending the average maturity of the Fund from three to
five years. At year-end, the Fund's average maturity was approximately 4.0
years.
CONSISTENT MANAGEMENT
We don't attempt to forecast the direction of interest rates. Rather, we use
diligent research to pick spots along the yield curve representing the most
value and price appreciation potential. As of December 31, 1995, 73.5% of the
Fund was invested in U.S. Treasury and agency bonds, 17.7% in domestic mortgage
securities and the remainder in cash and equivalents.
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Principal Amount Market Value
- --------------------------------------------------------------------------------
U.S. Government Securities - 86.2%
U.S. Treasury Notes - 68.5%
$1,000,000 U.S. Treasury Note 7.625% Due 02/15/07 $ 1,100,311
1,000,000 U.S. Treasury Note 6.50% Due 05/15/05 1,065,625
1,000,000 U.S. Treasury Note 8.375% Due 08/15/08 1,169,375
1,000,000 U.S. Treasury Note 6.375 Due 08/15/02 1,050,625
1,500,000 U.S. Treasury Note 5.875% Due 07/31/97 1,515,466
1,500,000 U.S. Treasury Note 5.875% Due 08/15/98 1,523,437
1,000,000 U.S. Treasury Note 6.25% Due 05/31/00 1,034,061
1,000,000 U.S. Treasury Note 6.25% Due 02/15/03 1,043,750
1,000,000 U.S. Treasury Note 6.75% Due 04/30/00 1,052,500
1,200,000 U.S. Treasury Note 6.75% Due 05/31/99 1,253,250
1,000,000 U.S. Treasury Note 6.875% Due 08/31/99 1,050,625
1,000,000 U.S. Treasury Note 6.75% Due 05/31/97 1,020,625
-----------
13,879,650
-----------
GNMA Pools - 17.7%
$ 6,902 Government National Mortgage
Association 30-Year Pass-Through
Certificates 9.50% Due 07/15/16 Pool
#162128 $ 7,441
709,495 Government National Mortgage
Association 30-Year Pass-
Through Certificates 9.50%
Due 07/15/17 Pool #219162 764,290
473,422 Government National Mortgage
Association 30-Year Pass-
Through Certificates 9.50%
Due 08/15/16 Pool #174654 510,373
784,200 Government National Mortgage
Association 30-Year Pass-
Through Certificates 9.50%
Due 08/15/17 Pool #208545 844,764
748,942 Government National Mortgage
Association 30-Year Pass-
Through Certificates 9.50%
Due 11/15/17 Pool #234649 806,783
597,026 Government National Mortgage
Association 30-Year Pass-
Through Certificates 9.50%
Due 11/15/17 Pool #229625 643,134
----------
Total GNMA Pools - 17.7% 3,576,785
----------
Total U.S. Government Securities - 86.2% 17,456,435
U.S. Agencies - 5.0%
Holding Companies - 5.0%
$1,000,000 Federal Farm Credit Bureau Medium-Term Notes
6.19% Due 09/23/1998 $ 1,009,609
-----------
Total U.S. Agencies - 5.0% 1,009,609
-----------
Principal Amount Amortized Cost
- ---------------------------------------------------------------------------
Corporate Short-Term Notes - 5.9%
$800,000 Ford Motor Credit 5.77% 01/02/96 $ 799,872
400,000 Toyota Motor Credit 5.75% 01/03/96 399,872
---------
Total Corporate Short-Term Notes - 5.9% 1,199,744
---------
Total Investments - 97.1% 19,665,788
Other Assets & Liabilities - 2.9% 597,539
----------
Total Net Assets - 100.0% $20,263,327
===========
<PAGE>
FOUNDERS OPPORTUNITY BOND FUND
Graph:
This line graph compares the change in value of a $10,000 investment in
Founders Opportunity Bond Fund to a $10,000 investment in each of Lehman
Brothers Intermediate Government/Corporate Bond Index and Consumer Price
Index for the period beginning November 16, 1993 (inception) through
December 31, 1995.
AVERAGE ANNUAL TOTAL RETURN
as of December 31, 1995
Year to 12/15/95 Since Inception (11/16/93)
---------------- --------------------------
9.31% -0.52%
FUND DISSOLVES OPERATIONS
Since the inception of Founders Opportunity Bond Fund on Novem-ber 16, 1993,
investor interest had been limited. At its size, the Fund's operating expenses
were high and its investment opportunities were limited.
Late in the third quarter, the Founders Board of Directors decided that it
was in the best interests of the shareholders of Founders Opportunity Bond Fund
to discontinue the Fund's activities.
Effective September 15, 1995, Opportunity Bond Fund ceased the public
offering and sale of its shares and no longer accepted new accounts. The Fund's
portfolio manager began selling its securities in a manner most advantageous to
the Fund's shareholders. Most shareholders exchanged or redeemed their shares
prior to October 15, and the Fund ceased all operations on December 15, 1995.
<PAGE>
FOUNDERS MONEY MARKET FUND SCHEDULE OF INVESTMENTS
December 31, 1995
Principal Amount Amortized Cost
- --------------------------------------------------------------------------------
Corporate Short-Term Notes - 104.9%
$4,000,000 Akzo Nobel
5.75% 02/01/96 $3,980,195
3,300,000 American Family Financial
5.55% 02/27/96 3,271,001
2,425,000 AON Corporation
5.80% 01/09/96 2,421,874
4,300,000 Archer Daniels Midland
6.05% 01/03/ 4,298,555
6,400,000 Brown-Forman %
5.73% 02/08/96 6,361,291
2,000,000 B.A.T. Capital
5.82% 01/16/96 1,995,150
4,530,000 Cafco 5.70% 01/19/96 4,517,090
4,769,000 California Almond Growers
5.71% 01/25/96 4,750,846
5,500,000 Ciesco LP 5.68% 01/16/96 5,486,983
1,000,000 Ciesco LP 5.70% 01/18/96 997,308
4,900,000 Dupont EI De Nemours 5.71% 01/10/ 4,893,005
5,200,000 Ford Credit Receivable 5.75% 01/12/96 5,190,864
3,400,000 Ford Motor Credit 5.74% 01/12/96 3,394,037
5,000,000 Golden Peanuts Co. 5.65% 02/22/96 4,959,194
5,000,000 GTE North 5.78% 01/31/96 4,975,917
4,300,000 GTE South Inc. 5.80% 01/29/96 4,280,602
3,600,000 Heinz (H.J.) Company 5.70% 01/26/96 3,585,750
3,600,000 Met Life Funding 5.74% 01/11/96 3,594,260
5,000,000 Michigan Consolidated 5.66% 02/23/96 4,958,336
4,900,000 Pacific Bell 5.80% 01/02/96 4,899,211
3,000,000 Pacific Gas & Electric 5.78% 01/10/96 2,995,665
6,000,000 Pepsico Inc. 5.70% 01/24/96 5,978,150
2,600,000 PHH Corp. 5.68% 01/22/96 2,591,385
2,575,000 PHH Corp. 5.82% 01/05/96 2,573,335
4,900,000 Progress Capital 5.76% 01/11/96 4,892,160
300,000 Prudential Funding 5.77% 01/05/96 299,808
1,235,000 Sandoz Corporation 5.70% 01/30/96 1,229,329
4,000,000 Sandoz Corporation 5.78% 01/23/96 3,985,871
5,400,000 TDK USA 5.70% 01/22/96 5,382,045
6,100,000 Toshiba America 5.63% 03/18/96 6,026,373
4,000,000 Toyota Motor Credit 5.72% 01/17/96 3,989,831
3,400,000 Transamerica Finance 5.76% 01/10/96 3,395,104
5,700,000 United Parcel Service 5.72% 01/18/96 5,684,604
Total Corporate Short-Term Notes - 104.9% 131,835,129
-----------
Total Investments - 104.9% 131,835,129
Other Assets & Liabilities - (4.9)% (6,189,032)
-----------
Total Net Assets - 100.0% $125,646,097
===========
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of Founders Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Founders Funds, Inc. (comprising,
respectively, the Discovery, Frontier, Passport, Special, International Equity,
Worldwide Growth, Growth, Blue Chip, Balanced, Opportunity Bond, Government
Securities and Money Market Funds) as of December 31, 1995 (December 15, 1995
for Opportunity Bond Fund), and the related statements of operations for the
periods then ended, the statements of changes in net assets, and the selected
per share data and ratios in the "Financial Highlights" table for each of the
periods indicated. These financial statements and selected per share data and
ratios are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and per share data and ratios
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standard require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected per share data and
ratios referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Founders Funds, Inc.
as of December 31, 1995 (December 15, 1995 for Opportunity Bond Fund), and the
results of their operations for the periods then ended, the changes in their net
assets and the selected per share data and ratios for each of the periods
indicated, in conformity with generally accepted accounting principles.
Smith, Brock & Gwinn
/S/
Denver, Colorado
January 26, 1996
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
(In Thousands)
Inter-
national Worldwide Government Money
Discovery Frontier Passport Special Equity Growth Growth Blue 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>
ASSETS
Investment securities,
at market (Identified
cost of $154,180,
$196,172, $34,521,
$281,475, $0, $151,479,
$443,912, $253,888,
$95,103, $17,946,
respectively) .......... $191,297 $272,822 $ 39,081 $302,530 $181,480 $558,537 $298,971 $105,066 $ 18,466
Corporate short-term
notes, at cost
(approximates
market) ................ 26,689 59,763 9,995 91,910 48,566 87,826 73,636 23,289 1,200 $131,835
Cash on deposit with
custodian .............. 1,083 1,674 459 1,978 $ 1 1,164 3,306 1,935 660 168 633
Receivables:
Investment securities
sold ................... 465 4,503
Subscriptions and other
receivables ............ 2,625 929 1,170 2,145 766 2,169 11,665 2,573 1,030 322 2,192
Dividends and interest .. 13 34 46 33 98 425 955 772 283
Deferred charges ........ 7
------- ------- ------ ------- --- ------- ------- ------- ------- ------ -------
Total Assets ............ 221,707 335,687 50,758 403,099 767 233,477 661,759 378,070 130,817 20,439 134,660
------- ------- ------ ------- --- ------- ------- ------- ------- ------ -------
LIABILITIES
Accounts payable:
Investment securities
purchased .............. 4,212 2,784 649 13,371 0 4,296 3,853 2,197 117
Redemptions and other
payables ............... 532 691 115 400 0 249 1,168 140 205 60 8,364
Accrued expenses ........ 340 492 72 574 0 337 811 533 149 23 99
Dividends ............... 93 551
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities .... 5,084 3,967 836 14,345 0 4,882 5,832 2,870 471 176 9,014
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Assets Applicable
to Outstanding Shares .. $216,623 $331,720 $ 49,922 $388,754 $ 767 $228,595 $655,927 $375,200 $130,346 $ 20,263 $125,646
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Capital shares:
Authorized (Par value
$0.01) ................. 40,000 40,000 20,000 150,000 20,000 20,000 100,000 110,000 30,000 30,000 440,000
====== ====== ====== ======= ====== ====== ======= ======= ====== ====== =======
Outstanding ............. 9,980 10,674 4,273 55,172 77 11,503 44,397 56,048 13,609 2,181 125,640
===== ====== ===== ====== == ====== ====== ====== ====== ===== =======
Net Asset Value,
Offering a Redemp-
tion Price Per
Share .................. $ 21.70 $ 31.08 $ 11.68 $ 7.05 $ 10.00 $ 19.87 $ 14.77 $ 6.69 $ 9 .58 $ 9.29 $ 1.00
======== ======== ======== ======= ======== ======== ======= ======== ==== === ======== ========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Oppor- Govern-
For the Year Ended Worldwide tunity ment Money
December 31, 1995 Discovery Frontier Passport Special Growth Growth Blue Chip Balanced Bond Securities Market
(In Thousands) Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
--------- -------- -------- ------- --------- ------- --------- -------- ----- ---------- ------
(1/1/95-
12/15/95)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends ............ $ 152 $ 848 $ 272 $ 2,161 $ 1,382 $ 2,411 $ 4,516 $ 1,790 $ 4
Interest ............. 1,819 3,405 330 2,747 1,997 4,111 3,657 2,680 227 $ 1,332 $8,461
----- ----- --- ----- ----- ----- ----- ----- --- ------- ------
Income ............... 1,971 4,253 602 4,908 3,379 6,522 8,173 4,470 231 1,332 8,461
----- ----- --- ----- ----- ----- ----- ----- --- ----- -----
Expenses:
Advisory fees ........ 2,005 2,833 256 2,870 1,553 3,565 2,195 708 22 139 705
Shareholder
servicing fees ...... 381 496 53 637 248 512 539 159 5 58 275
Accounting fees ...... 59 86 7 111 45 140 101 32 1 6 42
Distribution fees* ... 501 729 64 945 388 1,199 863 272 1 22
Transfer Agency
expenses ............ 66 90 10 98 43 117 104 32 3 14 56
Registration fees .... 21 22 14 23 35 62 20 16 7 10 32
Postage & mailing
expenses ............ 52 72 6 93 37 110 80 26 1 6 40
Custodian fees and
expenses ............ 34 54 39 61 106 111 77 23 5 7 17
Printing expenses .... 44 64 5 83 33 103 75 23 1 5 30
Communication
expenses ............ 23 33 3 43 17 53 39 12 2 16
Legal and Audit
Fees ................ 26 36 5 45 21 56 45 15 2 4 20
Other expenses ....... 32 37 3 47 21 63 44 14 3 2 11
Directors' fees &
expenses ............ 16 23 2 30 11 35 28 9 1 3
Insurance and
Membership dues ..... 5 8 1 10 5 15 9 3 1 3
Organizational costs . 2 2
Custody balances
credits ............. (98) (134) (20) (206) (138) (181) (166) (48) (3) (4)
--- ---- --- ---- ---- ---- ---- --- -- ----- --
Expenses ............. 3,167 4,449 450 4,890 2,425 5,960 4,053 1,296 50 278 1,257
----- ----- --- ----- ----- ----- ----- ----- -- --- -----
Net Investment
Income (Loss) ....... (1,196) (196) 152 18 954 562 4,120 3,174 181 1,054 7,204
------ ---- --- -- --- --- ----- ----- --- ----- -----
REALIZED AND
UNREALIZED GAIN
(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Gain
(Loss) from
Security
Transactions:
Proceeds from
securities sold . 195,988 211,919 7,481 914,477 64,979 529,760 700,722 247,574 3,809
Proceeds from
long-term U.S.
Government
Obligations...... 13,469 3,324 27,665
Less Cost
of securities
sold ............ 155,779 164,696 7,517 836,951 57,612 447,928 645,364 246,008 7,459 27,678
------- ------- ----- ------- ------ ------- ------- ------- ----- ------ ------
Net Gain (Loss)
from Security
Transactions ..... 40,209 47,223 (36) 77,526 7,367 81,832 55,358 15,035 (326) (13) 0
Net Gain (Loss)
from Foreign
Currency
Transactions ..... 0 (31) (74) (25) (166) (177) (207) (61)
Net Change in
Unrealized
Appreciation
(Depreciation) ... 13,488 44,192 4,598 4,867 18,535 91,435 28,160 10,061 463 1,230
------ ------ ----- ----- ------ ------ ------ ------ --- ----- -------
Net Realized
and Unrealized
Gain (Loss) on
Investments
and Foreign
Currency
Transactions .. 53,697 91,384 4,488 82,368 25,736 173,090 83,311 25,035 137 1,217 0
------ ------ ----- ------ ------ ------- ------ ------ --- ----- ------
Net Increase in Net
Assets Resulting
from Operations ..... $ 52,501 $ 91,188 $ 4,640 $ 82,386 $ 26,690 $ 73,652 $ 87,431 $ 28,209 $ 318 $ 2,271 $7,204
======== ======== ======== ======== ======== ======== ======== ======== ====== ======= ======
Purchases of
securities ........... $203,397 $220,534 $ 27,867 $849,159 $140,897 $652,394 $669,332 $242,222 $ 149 $ 0 $ 0
======== ======== ======== ======== ======== ======== ======== ======== ====== ======= ======
Purchases of long-term
U.S. Government
Obligations........... $ 21,242 $4,154 $34,148
======== ====== =======
*Percent of average
net assets ........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.02% 0.10% 0.00%
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
December 31, 1995 Discovery Frontier Passport Special International Worldwide
(In Thousands) Fund Fund Fund Fund Equity Fund Growth Fund
------------------ ----------------- ------------------- ------------------ --------- ----------------
Year Year Year Year Year Year Year Year Year Year
ended ended ended ended ended ended ended ended 12/29/95- ended ended
12/31/95 12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 12/31/95 12/31/95 12/31/94
------------------ ------------------ ------------------ ------------------ --------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment
income (loss)......... ($1,196) ($1,149) ($196) ($628) $ 152 $ 29 $ 18 ($958) $ 954 ($138)
Net realized gain
(loss) from security..
transactions 40,209 (2,610) 47,223 5,834 (36) (1,797) 77,526 11,560 7,367 2,957
Net Gain (Loss) from
Foreign Currency
Transactions.......... 0 0 (31) (45) (74) (21) (25) (2) (166) (133)
Net Change in
unrealized appre-
ciation
(depreciation)
on investments........ 13,488 (12,840) 44,192 (13,790) 4,598 (842) 4,867 (32,050) 18,535 (5,473)
------- ------- ------- ------- ------- ------- -------- --------- ---- ------ ---------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations......... 52,501 (16,599) 91,188 (8,629) 4,640 (2,631) 82,386 (21,450) 26,690 (2,787)
------- ------- ------- -------- ------ ------- -------- --------- ---- ------ ---------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income.. 0 0 0 0 (154) (33) 0 0 (959) 0
Net realized gains
from security
Transactions.......... (36,838) 0 (47,059) (5,959) 0 0 (77,376) (11,639) (7,208) (2,724)
------- ------- ------- ------- ------ ------- -------- --------- ---- ------ ---------
Net Decrease from
Distributions......... (36,838) 0 (47,059) (5,959) (154) (33) (77,376) (11,639) (8,167) (2,724)
------- ------- ------- ------- ------ ------- -------- --------- ---- ------ --------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold............ 111,895 113,783 128,859 131,778 46,686 14,031 195,291 177,250 $767 190,341 127,206
Reinvested distri-
butions............... 32,276 0 45,631 5,787 148 32 72,687 10,978 7,509 2,572
------- ------- ------- ------- ------ ------ ------- -------- --- ------- --------
144,171 113,783 174,490 137,565 46,834 14,063 267,978 188,228 767 197,850 129,778
Cost of shares
redeemed.............. (128,521) (137,943) (134,012) (130,112) (17,841) (13,523) (183,424) (288,659) (91,822) (105,437)
-------- -------- -------- -------- ------- ------- -------- -------- --- ------- --------
Net increase (decrease
from capital
share transactions.... 15,650 (24,160) 40,478 7,453 28,993 540 84,554 (100,431) 767 106,028 24,341
-------- -------- -------- -------- ------- ------- ------- -------- --- ------- ---------
Net Increase (Decrease)
in Net Assets......... 31,313 (40,759) 84,607 (7,135) 33,479 (2,124) 89,564 (133,520) 767 124,551 18,830
NET ASSETS
Beginning of period.... 185,310 226,069 247,113 254,248 16,443 18,567 299,190 432,710 0 104,044 85,214
------- ------- ------- ------- ------ ------ ------- ------- --- ------- ------
End of period.......... $216,623 $185,310 $331,720 $247,113 $49,922 $16,443 $388,754 $299,190 $767 $228,595 $104,044
======== ======== ======== ======== ======= ======= ======== ======== ==== ======== ========
Net Assets consist of:
Capital (par value
and paid in surplus).. $179,930 $164,291 $255,234 $214,754 $47,310 $18,319 $368,445 $283,892 $767 $198,594 $ 92,461
Undistributed net
investment income
(loss)............... 0 0 20 0 0 0 1 0 0 0 0
Undistributed net
realized gain (loss)
from security
transactions.......... (424) (2,610) (184) (99) (1,947) (1,837) (747) (890) 0 0 117
Unrealized appreciation
(depreciation)
on investments........ 37,117 23,629 76,650 32,458 4,559 (39) 21,055 16,188 0 30,001 11,466
-------- -------- -------- -------- ------- ------- -------- -------- ---- -------- --------
Total.................. $216,623 $185,310 $331,720 $247,113 $49,922 $16,443 $388,754 $299,190 $767 $228,595 $104,044
======== ======== ======== ======== ======= ======= ======== ======== ==== ======== ========
DISTRIBUTIONS PER SHARE
From net realized
security gains........ $ 4.349 $ 5.156 $ 0.647 $ 1.751 $ 0.281 $ 0.654 $ 0.458
======== ======== ======== ======== ======= ======= ======== ======== ==== ======== ========
From net investment
income................ $ 0.037 $ 0.019 $ 0.087
======== ======== ======== ======== ======= ======= ======== ======== ==== ======= ========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
December 31, 1995 Growth Blue Chip Balanced Opportunity Bond Government Money Market
(In Thousands) Fund Fund Fund Fund Securities Fund Fund
----------------- ----------------- ----------------- ----------------- ----------------- ------------------
Year Year Year Year Year Year Period Year Year Year Year Year
ended ended ended ended ended ended ended ended ended ended ended ended
12/31/95 12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 12/15/95 12/31/94 12/31/95 12/31/94 12/31/95 12/31/94
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment
income (loss).........$ 562 ($609) $ 4,120 $ 2,740 $ 3,174 $ 2,272 $ 181 $ 313 $ 1,054 $ 1,564 $ 7,204 $ 6,818
Net realized gain
(loss) from security
transactions.......... 81,832 8,271 55,358 14,700 5,035 (734) (326) (401) (13) (3,252) 0 0
Net Gain (Loss) from
Foreign Currency
Transactions........... (177 (18) (207) (34) (61) (11) 0 0 0
Net Change in
unrealized
appreciation
(depreciation)
on investments........ 91,435 (26,821) 28,160 (16,868) 10,061 (4,077) 463 (475) 1,230 (785) 0 0
--------- -------- -------- -------- ------ ------- ------ ------ ------ ------- ------- -------
Net Increase
(Decrease)
in Net Assets
Resulting from
Operations.......... 173,652 (19,177) 87,431 538 28,209 (2,550) 318 (563) 2,271 (2,473) 7,204 6,818
-------- -------- -------- -------- ------ ------- ------- ----- ------ ------- ------- ------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income.. (571) 0 (4,097) (2,801) (3,203) (2,243) (180) (314) (1,062) (1,521) (7,197) (6,838)
Net realized gains from
security
transactions.......... (81,093) (8,743) (55,828) (14,751) (14,330) 0 0 0 0 0 0 0
-------- -------- -------- -------- ------- ------ ------ ------ ------- ------ ------- ------
Net Decrease from
Distributions....... (81,664) (8,743) (59,925) (17,552) (17,533) (2,243) (180) (314) (1,062) (1,521) (7,197) (6,838)
-------- -------- -------- -------- ------- ------ ------ ------ ------- ------ ------- ------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold.................. 356,140 350,137 40,173 64,343 49,371 75,209 703 1,746 22,097 29,852 293,433 412,798
Reinvested
distributions......... 77,099 8,229 53,767 15,726 16,094 2,037 159 306 994 1,399 6,666 6,291
-------- ------- -------- ------- ------- ------- ------- ----- ------- ------ ------- -------
433,239 358,366 93,940 80,069 65,465 77,246 862 2,052 23,091 31,251 300,099 419,089
Cost of shares
redeemed..............(177,288) (365,881) (57,297) (58,596)(41,021) (50,086) (4,868) (2,016) (25,360) (36,399) (375,802)(360,126)
-------- -------- ------- ------- ------- ------- ------ ------ ------- ------- -------- --------
Net increase (decrease)
from capital share
transactions.......... 255,951 (7,515) 36,643 21,473 24,444 27,160 (4,006) 36 (2,269) (5,148) (75,703) 58,963
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Net Increase
(Decrease) in
Net Assets........... 347,939 (35,435) 64,149 4,459 35,120 22,367 (3,868) (841) (1,060) (9,142) (75,696) 58,943
NET ASSETS
Beginning of period.... 307,988 343,423 311,051 306,592 95,226 72,859 3,868 4,709 21,323 30,465 201,342 142,399
------- ------- ------- ------- ------ ------ ------ ----- ------ ------ ------- -------
End of period..........$655,927 $307,988 $375,200 $311,051 $130,346 $95,226 $ 0 $3,868 $20,263 $21,323 $125,646 $201,342
======== ======== ======== ======== ======== ======= ====== ====== ======= ======= ======== ========
Net Assets consist of:
Capital (par value
and paid in surplus)..$541,397 $285,447 $330,953 $294,314 $120,470 $96,051 $ 0 $4,729 $22,968 $25,242 $125,646 $201,342
Undistributed net
investment income
(loss................. 86 0 0 0 0 29 0 2 0 8 0 0
Undistributed net
realized gain (loss)
from security
transactions.......... (181) (649) (836) (186) (88) (757) 0 (401) (3,225) (3,217) 0 0
Unrealized appreciation
(depreciation)
on investments........ 114,625 23,190 45,083 16,923 9,964 (97) 0 (462) 520 (710) 0 0
------- ------ -------- -------- -------- -------- ----- ------- ------- ------- -------- --------
Total..................$655,927 $307,988 $375,200 $311,051 $130,346 $95,226 $ 0 $3,868 $20,263 $21,323 $125,646 $201,342
======== ======== ======== ======== ======== ======= ===== ====== ======= ======= ======== ========
DISTRIBUTIONS
PER SHARE
From net realized
security gains........$ 2.131 $ 0.335 $ 1.172 $ 0.305 $ 1.192
======== ======== ======== ======== ======== ======= ====== ====== ======== ======= ======== ========
From net investment
income................$ 0.015 $ 0.086 $ 0.058 $ 0.278 $ 0.198 $0.418 $0.550 $ 0.446 $ 0.501 $ 0.051 $ 0.034
======== ======== ======== ======== ======== ======= ====== ====== ======== ======= ======== ========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Per Share Income and Capital Changes
Selected data for each share of capital stock
outstanding throughout each period.
INCOME AND EXPENSES CAPITAL CHANGES
Income From Investment Operations Less Distributions NET ASSET VALUE Ratios
------------------------------------ ------------------------- ------------------------ ----------------------
Net
Real-
Net ized &
Invest- Unreal- From Total Expenses Income Port-
ment ized Total Net From Net Assets, to to folio
NAV Income Gain/ From Invest- Net Total NAV End Average Average Turn-
Beginning or (Loss) on Investment ment Realized Distri- End of Total of Period Net Net Over
of Period (Loss) Securities Operations Income Gains butions Period Return (thousands) Assets Assets Rate
-------------------------------------- ----------------------- ------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISCOVERY FUND
Year ended 12/31/95...$19.88 (0.12) 6.29 6.17 0.00 (4.35) (4.35) 21.70 31.3% $216,623 1.63%+ -0.60% 118%
Year ended 12/31/94... 21.55 (0.12) (1.55) (1.67) 0.00 0.00 0.00 19.88 -7.8% 185,310 1.67% -0.62% 72%
Year ended 12/31/93... 19.93 (0.15) 2.29 2.14 0.00 (0.52) (0.52) 21.55 10.8% 226,069 1.65% -0.97% 99%
Year ended 12/31/92... 17.52 (0.03) 2.68 2.65 0.00 (0.24) (0.24) 19.93 15.2% 151,983 1.85% -0.67% 111%
Year ended 12/31/91... 11.22 (0.04) 7.02 6.98 0.00 (0.68) (0.68) 17.52 62.5% 47,678 1.77% -0.55% 165%
FRONTIER FUND
Year ended 12/31/95...$26.50 (0.02) 9.76 9.74 0.00 (5.16) (5.16) 31.08 37.0% $331,720 1.57%+ -0.07% 92%
Year ended 12/31/94... 27.94 (0.07) (0.72) (0.79) 0.00 (0.65) (0.65) 26.50 -2.8% 247,113 1.62% -0.25% 72%
Year ended 12/31/93... 25.03 (0.12) 4.23 4.11 0.00 (1.20) (1.20) 27.94 16.5% 254,248 1.66% -0.75% 109%
Year ended 12/31/92... 24.21 (0.11) 2.24 2.13 0.00 (1.31) (1.31) 25.03 8.9% 146,484 1.83% -0.58% 155%
Year ended 12/31/91... 16.87 0.01 8.27 8.28 (0.01) (0.93) (0.94) 24.21 49.3% 103,209 1.68% 0.05% 158%
PASSPORT FUND
Year ended 12/31/95...$ 9.42 0.04 2.26 2.30 (0.04) 0.00 (0.04) 11.68 24.4% $49,922 1.84%+ 0.60% 37%
Year ended 12/31/94... 10.53 0.02 (1.11) (1.09) (0.02) 0 (0.02) 9.42 -10.4% 16,443 1.88% 0.12% 78%
11/16/93 (incptn)
to 12/31/93......... 10.00 0.00 0.53 0.53 0 0 0.00 10.53 5.3% 18,567 1.70%** 0.18%** 6%
SPECIAL FUND
Year ended 12/31/95...$ 7.01 0.00 1.79 1.79 0.00 (1.75) (1.75) 7.05 25.7% $388,754 1.35%+ 0.00% 263%
Year ended 12/31/94... 7.67 (0.02) (0.36) (0.38) 0.00 (0.28) (0.28) 7.01 -4.9% 299,190 1.36% -0.27% 272%
Year ended 12/31/93... 7.76 (0.01) 1.25 1.24 0.00 (1.33) (1.33) 7.67 16.0% 432,710 1.33% -0.14% 285%
Year ended 12/31/92... 7.59 (0.01) 0.64 0.63 0.00 (0.46) (0.46) 7.76 8.3% 456,793 1.23% -0.05% 223%
Year ended 12/31/91... 5.03 0.08 3.09 3.17 (0.04) (0.57) (0.61) 7.59 63.7% 226,154 1.15% 0.76% 102%
WORLDWIDE GROWTH FUND
Year ended 12/31/95...$17.09 0.09 3.43 3.52 (0.09) (0.65) (0.74) 19.87 20.6% $228,595 1.65%+ 0.61% 54%
Year ended 12/31/94... 17.94 (0.02) (0.37) (0.39) 0.00 (0.46) (0.46) 17.09 -2.2% 104,044 1.66% -0.14% 87%
Year ended 12/31/93... 14.13 (0.02) 4.24 4.22 0.00 (0.41) (0.41) 17.94 29.9% 85,214 1.80% -0.19% 117%
Year ended 12/31/92... 13.92 0.00 0.21 0.21 0.00 0.00 0.00 14.13 1.5% 36,622 2.06% 0.01% 152%
Year ended 12/31/91... 10.38 0.03 3.58 3.61 (0.03) (0.04) (0.07) 13.92 34.8% 20,305 1.90% 0.38% 84%
GROWTH FUND
Year ended 12/31/95...$11.63 0.02 5.27 5.29 (0.02) (2.13) (2.15) 14.77 45.6% $655,927 1.28%+ 0.12% 130%
Year ended 12/31/94... 12.38 (0.02) (0.39) (0.41) 0.00 (0.34) (0.34) 11.63 -3.4% 307,988 1.33% -0.17% 172%
Year ended 12/31/93... 10.54 (0.01) 2.70 2.69 0.00 (0.85) (0.85) 12.38 25.5% 343,423 1.32% -0.15% 131%
Year ended 12/31/92... 11.22 0.01 0.48 0.49 (0.01) (1.16) (1.17) 10.54 4.3% 145,035 1.54% 0.06% 216%
Year ended 12/31/91... 8.27 0.07 3.82 3.89 (0.07) (0.87) (0.94) 11.22 47.4% 140,726 1.45% 0.65% 161%
BLUE CHIP FUND
Year ended 12/31/95... $6.16 0.09 1.70 1.79 (0.09) (1.17) (1.26) 6.69 29.1% $375,200 1.22%+ 1.19% 235%
Year ended 12/31/94... 6.49 0.06 (0.02) 0.04 (0.06) (0.31) (0.37) 6.16 0.5% 311,051 1.21% 0.88% 239%
Year ended 12/31/93... 6.91 0.04 0.96 1.00 (0.04) (1.38) (1.42) 6.49 14.5% 306,592 1.22% 0.57% 212%
Year ended 12/31/92... 7.67 0.08 (0.10) (0.02) (0.08) (0.66) (0.74) 6.91 -0.3% 290,309 1.23% 1.13% 103%
Year ended 12/31/91... 6.67 0.11 1.74 1.85 (0.11) (0.74) (0.85) 7.67 28.3% 290,155 1.10% 1.52% 95%
BALANCED FUND
Year ended 12/31/95... $8.56 0.28 2.21 2.49 (0.28) (1.19) (1.47) 9.58 29.4% $130,346 1.23%+ 2.92% 286%
Year ended 12/31/94... 8.93 0.20 (0.37) (0.17) (0.20) 0.00 (0.20) 8.56 -1.9% 95,226 1.26% 2.37% 258%
Year ended 12/31/93... 8.30 0.22 1.58 1.80 (0.21) (0.96) (1.17) 8.93 21.9% 72,859 1.34% 2.30% 251%
Year ended 12/31/92... 8.19 0.27 0.21 0.48 (0.28) (0.09) (0.37) 8.30 6.0% 31,538 1.88% 3.57% 96%
Year ended 12/31/91... 7.22 0.31 1.30 1.61 (0.31) (0.33) (0.64) 8.19 22.9% 18,790 1.73% 4.01% 133%
OPPORTUNITY BOND FUND
Period ended
12/15/95............ $8.49 0.40 0.36 0.76 (0.41) (8.84)++(9.25) 0.00 9.3% $ 0 1.52%+ 5.14% 136%
Year ended 12/31/94... 10.03 0.55 (1.54) (0.99) (0.55) (0.55) 8.49 -10.0% 3,868 1.22%* 6.01% 502%
11/16/93 (incptn) to
12/31/93............ 10.00 0.04 0.02 0.06 (0.03) (0.03) 10.03 0.6% 4,709 0.90%** 2.58%** 136%
GOVERNMENT SECURITIES FUND
Year ended 12/31/95... $8.78 0.45 0.51 0.96 (0.45) 0.00 (0.45) 9.29 11.1%$ 20,263 1.30%+ 4.92% 141%
Year ended 12/31/94... 10.02 0.52 (1.26) (0.74) (0.50) 0.00 (0.50) 8.78 -7.5% 21,323 1.34%* 5.52% 379%
Year ended 12/31/93... 10.19 0.46 0.47 0.93 (0.46) (0.64) (1.10) 10.02 9.3% 30,465 1.18% 4.33% 429%
Year ended 12/31/92... 10.48 0.51 0.03 0.54 (0.51) (0.32) (0.83) 10.19 5.3% 25,047 1.18% 4.83% 204%
Year ended 12/31/91... 9.85 0.60 0.81 1.41 (0.60) (0.18) (0.78) 10.48 14.9% 18,146 1.12% 5.89% 261%
MONEY MARKET FUND
Year ended 12/31/95... $1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00 5.1% $125,646 0.89%+ 5.11% n/a
Year ended 12/31/94... 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03) 1.00 3.4% 201,342 0.91% 3.49% n/a
Year ended 12/31/93... 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02) 1.00 2.2% 142,399 0.95% 2.26% n/a
Year ended 12/31/92... 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03) 1.00 2.8% 120,295 0.95% 2.78% n/a
Year ended 12/31/91... 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00 5.1% 99,765 0.99% 5.03% n/a
* Certain fees were waived by the management company. Had these fees not
been waived, the expense ratios would have been 1.66% for Opportunity Bond Fund
and 1.51% for Government Securities Fund.
** Annualized rates
+ Expense ratios reflected do not include custodial credits. Expense ratios
including the custodial credits were as follows: 1.58%, 1.53%, 1.76%, 1.29%,
1.56%, 1.24%, 1.17%, 1.23%, 1.44%, 1.30%, and 0.89% respectively.
++This figure is due to the redemption of all shares on December 15, 1995,
and is not a capital gain distribution.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Founders Funds, Inc. ("the Company") is a diversified open-end management
investment company registered under the Investment Company Act of 1940. Eleven
classes of shares are currently issued: Discovery, Frontier, Passport, Special,
International Equity, Worldwide Growth, Growth, Blue Chip, Balanced, Government
Securities and Money Market Funds. On December 15, 1995 Founders Opportunity
Bond Fund was closed and all outstanding shares were redeemed. The Fund has
retained a small amount of cash for payment of miscellaneous outstanding
expenses. On December 29, 1995 Founders opened and issued for sale shares of the
International Equity Fund. The following is a summary of significant accounting
policies consistently followed by the Company in the preparation of its
financial statements.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SECURITIES VALUATION--With the exception of Money Market Fund, market value
of investments is determined from closing quotations on national security
exchanges or at the last current bid price in the case of securities traded
over-the-counter or by quotes from dealers making a market for securities not
listed on an exchange or traded over-the-counter. 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. London closing quotes for exchange rates are
used to convert foreign security values into U.S. dollars. Corporate short-term
notes are valued at amortized cost which approximates market. For Money Market
Fund, the Board of Directors has determined that the best method currently
available for valuing portfolio securities is amortized cost.
FOREIGN SECURITIES--Foreign securities may carry more risk than U.S.
securities, including risks such as currency fluctuations, political stability,
economic stability and regulatory capabilities. All of the Funds may invest at
least a portion of their assets in foreign securities. In the event that a Fund
executes a foreign security transaction, the Fund will enter into a foreign
currency contract to settle the foreign security transaction. The resultant
foreign currency gain or loss from the contract is recorded as foreign currency
gain or loss and is presented as such in the Statements of Operations.
As of December 31, 1995, Worldwide Growth had two outstanding foreign
currency contracts. The contracts, worth $672,481.82 (US), were to purchase
3,313,268.87 French Francs, settling on January 31, 1995. The unrealized loss on
these contracts as of December 31, 1995, was $5,036.71 (US).
Federal Income Taxes--No provision has been made for federal income taxes
since it is the policy of the Company to comply with the special provisions of
the Internal Revenue Code applicable to regulated investment companies, and to
make distributions of income and capital gains sufficient to relieve it from all
income taxes. Each Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recorded on the ex-dividend date. Where
the ex-dividend date has passed on certain foreign securities, the dividends are
recorded as soon as the Fund is informed of the ex-dividend date. Interest
income is accrued daily and includes the accretion of discounts and amortization
of premiums.
DISTRIBUTIONS TO SHAREHOLDERS--Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for mortgage-backed securities, market
discount, foreign currency transactions, nontaxable dividends, net operating
losses, expiring capital loss carryforwards and deferral of wash sales. For
Government Securities and Money Market Funds, distributions are declared daily
and paid monthly from net investment income, and capital gains (if any) are
distributed annually and are recorded on the ex-dividend date. For Balanced
Fund, distributions from income are declared and distributed quarterly and are
recorded on the ex-dividend date. All other Funds declare and distribute
dividends and capital gains (if any) annually, and such distributions are
recorded on the ex-dividend date.
OTHER--Security transactions are recorded on the date the securities are
purchased or sold (trade date).
2. Management Fees and Other Transactions with Affiliates
In accordance with the investment advisory agreements between the Company on
behalf of each Fund and Founders Asset Management, Inc. ("Founders"), the Funds
compensate Founders for its services as investment adviser by the payment of
fees computed daily and paid monthly at the annual rate equal to a percentage of
the average daily value of the Funds' net assets. For Discovery, Frontier,
Passport, International Equity and Worldwide Growth Funds, the fee is 1% of the
first $250 million of net assets, 0.80% of the next $250 million of net assets,
and 0.70% of net assets in excess of $500 million. For Special and Growth Funds,
the fee is 1% of the first $30 million of net assets, 0.75% of the next $270
million of net assets, 0.70% of the next $200 million of net assets and 0.65% of
net assets in excess of $500 million. For Blue Chip, Balanced, and Opportunity
Bond Funds, the fee is 0.65% of the first $250 million of net assets, 0.60% of
the next $250 million of net assets, 0.55% of the next $250 million of net
assets and 0.50% of net assets in excess of $750 million. For Money Market Fund,
the fee is 0.50% of the first $250 million of net assets, 0.45% of the next $250
million of net assets, 0.40% of the next $250 million of net assets, and 0.35%
of the net assets in excess of $750 million. For Government Securities Fund, the
fee is 0.65% of the first $250 million of net assets, and 0.50% of the net
assets in excess of $250 million.
Each 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 the Fund are
qualified for sale, Founders shall reimburse the Fund for such excess. 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.
Investors Fiduciary Trust Company (IFTC) is the designated shareholder
accounting, transfer and dividend disbursing agent for each Fund. With the
exception of "out of pocket" charges, the fees charged by IFTC are paid by
Founders. The out of pocket charges from IFTC are paid by the Funds and these
costs are shown as "Transfer Agency expenses" in the Statements of Operations.
IFTC also serves as custodian for the Funds. These costs are shown as "Custodian
fees and expenses" in the Statements of Operations. The fees for both of these
services are subject to reduction by credits earned on the cash balances of the
funds held by IFTC as custodian. These credits are shown as "Custody balances
credits" in the Statements of Operations.
The Company has agreed to compensate Founders for providing certain
shareholder servicing functions in addition to those currently provided by the
Company's designated shareholder accounting, transfer and dividend disbursing
agent. The Company paid Founders a monthly fee equal on an annual basis to
$26.00 per shareholder account of the Fund considered to be an open account at
any time during a given month. Effective June 1, 1995, the fee for providing
these services was changed to $25.00. These costs are shown as "Shareholder
servicing fees" in the Statements of Operations.
The Company has also agreed to compensate Founders for providing accounting
services, control and compliance monitoring, regulatory and shareholder
reporting, as well as facilities, equipment and clerical help as shall be
necessary to provide these services to the Company. The fee is computed at the
annual rate of 0.06% of the net assets of the Company from $0 to $500 million
and 0.02% of the net assets of the Company in excess of $500 million. The fee so
computed is allocated among the portfolio companies on a pro rata basis based on
relative net assets. This cost is shown as "Accounting fees" in the Statements
of Operations.
Discovery, Frontier, Passport, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced and Government Securities Funds each have
adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940. While Opportunity Bond Fund was in operation, the Fund had also
adopted the distribution plan. Each plan provides that the Fund may pay
distribution expenses of up to one-quarter of one percent each year on its
average daily net assets. During the year, Founders elected not to collect the
full one-quarter of one percent from Opportunity Bond and Government Securities
Funds, which resulted in the Funds paying 0.02% and 0.10%, respectively, under
this plan.
An officer, director and shareholder of the Company is also an officer and
director of Founders.
3. CONTINGENCY
A complaint was filed in the U.S. District Court in Colorado in October
1995 by Plaintiff William O. Foster, designating Founders Funds, Inc. and Bjorn
K. Borgen, President and Director of the Fund, as Defendants. The complaint
principally alleges that the Defendants' breach of an oral compensation
agreement damaged the Plaintiff in an amount exceeding $25 million and other
unspecified damages. The Defendants' believe the suit to be entirely without
merit and has contested and will continue vigorously to defend against the
allegations. Defendants' motion to dismiss the suit entirely or move the matter
to National Association of Securities Dealers, Inc. arbitration is currently
pending. To date, all litigation costs and expenses have been paid by Founders
Asset Management, Inc., the Fund's investment adviser and underwriter.
4. SECURITY TRANSACTIONS
As reported in the Statements of Operations, the purchases and sales of
investment securities do not include the acquisition or disposition of
short-term securities.
For federal income tax purposes, the cost of investments owned at December
31, 1995 was the same as identified cost except for Discovery ($154,603,590),
Frontier ($196,356,205), Special ($282,222,225), Growth ($444,093,264), Blue
Chip ($254,723,959) and Balanced ($95,190,744) Funds.
Net capital loss carryovers may be used to offset future capital gains and
thereby reduce future distributions. Passport and Government Securities Funds
have such carryover in the following amounts:
Expiration
2003 2002 2001
- --------------------------------------------------------------------------------
Passport Fund $(110,304) $(1,818,368) $(18,415)
Government Securities $ (8,444) $(3,216,786)
At December 31, 1995, the composition of unrealized appreciation (the excess
of value over tax cost) and depreciation (the excess of tax cost over value) was
as follows (in thousands):
Appreciation (Depreciation) Net
------------ -------------- ---
Discovery Fund ................ $ 49,442,233 ($12,748,797) $ 36,693,436
Frontier Fund ................. 81,189,212 (4,723,471) 76,465,741
Passport Fund ................. 5,581,944 (1,022,971) 4,558,973
Special Fund .................. 34,116,322 (13,808,987) 20,307,335
Worldwide Growth Fund ......... 34,098,804 (4,092,720) 30,006,084
Growth Fund ................... 121,869,130 (7,425,390) 114,443,740
Blue Chip Fund ................ 48,345,898 (4,098,457) 44,247,441
Balanced Fund ................. 10,539,390 (663,685) 9,875,705
Government Securities Fund .... 524,131 (4,214) 519,917
5. FUND SHARE TRANSACTIONS
Transactions in shares of the Funds for the periods indicated were as follows
(in thousands) :
Reinvested Net
Distri- Increase
Sold butions Redeemed (Decrease)
---- --------- -------- ---------
Discovery Fund: Year ended 12/31/95 4,806 1,505 (5,654) 657
Year ended 12/31/94 5,726 (6,892) (1,166)
Frontier Fund: Year ended 12/31/95 4,248 1,490 (4,390) 1,348
Year ended 12/31/94 4,913 220 (4,906) 227
Passport Fund: Year ended 12/31/95 4,155 13 (1,641) 2,527
Year ended 12/31/94 1,358 3 (1,378) (17)
Special Fund: Year ended 12/31/95 24,417 10,369 (22,286) 12,500
Year ended 12/31/94 23,792 1,582 (39,111) (13,737)
International
Equity Fund: From 12/28/95 to
12/31/95 77 77
Worldwide
Growth Fund: Year ended 12/31/95 9,895 380 (4,861) 5,414
Year ended 12/31/94 7,129 152 (5,941) 1,340
Growth Fund: Year ended 12/31/95 25,006 5,259 (12,349) 17,916
Year ended 12/31/94 28,450 709 (30,423) (1,264)
Blue Chip Fund: Year ended 12/31/95 5,957 8,049 (8,475) 5,531
Year ended 12/31/94 9,819 2,559 (9,042) 3,336
Balanced Fund: Year ended 12/31/95 5,141 1,684 (4,344) 2,481
Year ended 12/31/94 8,435 235 (5,697) 2,973
Opportunity
Bond Fund: Year ended 12/31/95 82 19 (557) (456)
Year ended 12/31/94 185 34 (232) (13)
Government
Securities Fund: Year ended 12/31/95 2,424 108 (2,779) (247)
Year ended 12/31/94 3,192 152 (3,958) (614)
Money Market Fund: Year ended 12/31/95 293,433 6,647 (375,802) (75,722)
Year ended 12/31/94 412,799 6,290 (360,126) 58,963
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> DISCOVERY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 180,869
<INVESTMENTS-AT-VALUE> 217,986
<RECEIVABLES> 2,638
<ASSETS-OTHER> 1,083
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 221,707
<PAYABLE-FOR-SECURITIES> 4,212
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 872
<TOTAL-LIABILITIES> 5,084
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 179,930
<SHARES-COMMON-STOCK> 9,980
<SHARES-COMMON-PRIOR> 9,323
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (424)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,117
<NET-ASSETS> 216,623
<DIVIDEND-INCOME> 152
<INTEREST-INCOME> 1,819
<OTHER-INCOME> 0
<EXPENSES-NET> 3,167
<NET-INVESTMENT-INCOME> (1,196)
<REALIZED-GAINS-CURRENT> 40,209
<APPREC-INCREASE-CURRENT> 13,488
<NET-CHANGE-FROM-OPS> 52,501
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 36,838
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,806
<NUMBER-OF-SHARES-REDEEMED> 5,654
<SHARES-REINVESTED> 1,505
<NET-CHANGE-IN-ASSETS> 31,313
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,610)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,005
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,265
<AVERAGE-NET-ASSETS> 200,911
<PER-SHARE-NAV-BEGIN> 19.88
<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> 6.29
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 4.35
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.70
<EXPENSE-RATIO> 1.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 002
<NAME> FRONTIER FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 255,935
<INVESTMENTS-AT-VALUE> 332,585
<RECEIVABLES> 1,428
<ASSETS-OTHER> 1,674
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 335,687
<PAYABLE-FOR-SECURITIES> 2,784
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,183
<TOTAL-LIABILITIES> 3,967
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 255,234
<SHARES-COMMON-STOCK> 10,674
<SHARES-COMMON-PRIOR> 9,326
<ACCUMULATED-NII-CURRENT> 20
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (184)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 76,650
<NET-ASSETS> 331,720
<DIVIDEND-INCOME> 848
<INTEREST-INCOME> 3,405
<OTHER-INCOME> 0
<EXPENSES-NET> 4,449
<NET-INVESTMENT-INCOME> (196)
<REALIZED-GAINS-CURRENT> 47,192
<APPREC-INCREASE-CURRENT> 44,192
<NET-CHANGE-FROM-OPS> 91,188
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 47,059
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,248
<NUMBER-OF-SHARES-REDEEMED> 4,390
<SHARES-REINVESTED> 1,490
<NET-CHANGE-IN-ASSETS> 84,607
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (99)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,833
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,583
<AVERAGE-NET-ASSETS> 291,666
<PER-SHARE-NAV-BEGIN> 26.50
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 9.76
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 5.16
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 31.08
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 003
<NAME> PASSPORT FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 44,516
<INVESTMENTS-AT-VALUE> 49,076
<RECEIVABLES> 1,216
<ASSETS-OTHER> 466
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,758
<PAYABLE-FOR-SECURITIES> 649
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187
<TOTAL-LIABILITIES> 836
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,310
<SHARES-COMMON-STOCK> 4,273
<SHARES-COMMON-PRIOR> 1,746
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,947)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,559
<NET-ASSETS> 49,922
<DIVIDEND-INCOME> 272
<INTEREST-INCOME> 330
<OTHER-INCOME> 0
<EXPENSES-NET> 450
<NET-INVESTMENT-INCOME> 152
<REALIZED-GAINS-CURRENT> (110)
<APPREC-INCREASE-CURRENT> 4,598
<NET-CHANGE-FROM-OPS> 4,640
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 154
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,155
<NUMBER-OF-SHARES-REDEEMED> 1,641
<SHARES-REINVESTED> 13
<NET-CHANGE-IN-ASSETS> 33,479
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,837)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 256
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 470
<AVERAGE-NET-ASSETS> 25,573
<PER-SHARE-NAV-BEGIN> 9.42
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 2.26
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.68
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 004
<NAME> SPECIAL FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 373,385
<INVESTMENTS-AT-VALUE> 394,440
<RECEIVABLES> 6,681
<ASSETS-OTHER> 1,978
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 403,099
<PAYABLE-FOR-SECURITIES> 13,371
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 974
<TOTAL-LIABILITIES> 14,345
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 368,445
<SHARES-COMMON-STOCK> 55,172
<SHARES-COMMON-PRIOR> 42,672
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (747)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,055
<NET-ASSETS> 388,754
<DIVIDEND-INCOME> 2,161
<INTEREST-INCOME> 2,747
<OTHER-INCOME> 0
<EXPENSES-NET> 4,890
<NET-INVESTMENT-INCOME> 18
<REALIZED-GAINS-CURRENT> 77,501
<APPREC-INCREASE-CURRENT> 4,867
<NET-CHANGE-FROM-OPS> 82,386
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 77,376
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,417
<NUMBER-OF-SHARES-REDEEMED> 22,286
<SHARES-REINVESTED> 10,369
<NET-CHANGE-IN-ASSETS> 89,564
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (890)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,870
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,096
<AVERAGE-NET-ASSETS> 377,805
<PER-SHARE-NAV-BEGIN> 7.01
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.79
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.75
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.05
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 005
<NAME> INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 766
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 767
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 767
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 767
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 77
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 767
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 006
<NAME> WORLDWIDE GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 200,045
<INVESTMENTS-AT-VALUE> 230,046
<RECEIVABLES> 2,267
<ASSETS-OTHER> 1,164
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 233,477
<PAYABLE-FOR-SECURITIES> 4,296
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 586
<TOTAL-LIABILITIES> 4,882
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,594
<SHARES-COMMON-STOCK> 11,503
<SHARES-COMMON-PRIOR> 6,089
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,001
<NET-ASSETS> 228,595
<DIVIDEND-INCOME> 1,382
<INTEREST-INCOME> 1,997
<OTHER-INCOME> 3,379
<EXPENSES-NET> 2,425
<NET-INVESTMENT-INCOME> 954
<REALIZED-GAINS-CURRENT> 7,201
<APPREC-INCREASE-CURRENT> 18,535
<NET-CHANGE-FROM-OPS> 26,690
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 959
<DISTRIBUTIONS-OF-GAINS> 7,208
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,895
<NUMBER-OF-SHARES-REDEEMED> 4,861
<SHARES-REINVESTED> 380
<NET-CHANGE-IN-ASSETS> 124,551
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 117
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,553
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,563
<AVERAGE-NET-ASSETS> 155,290
<PER-SHARE-NAV-BEGIN> 17.09
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 3.43
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> .65
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.87
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 007
<NAME> GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 531,738
<INVESTMENTS-AT-VALUE> 646,363
<RECEIVABLES> 12,090
<ASSETS-OTHER> 3,306
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 661,759
<PAYABLE-FOR-SECURITIES> 3,853
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,979
<TOTAL-LIABILITIES> 5,832
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 541,397
<SHARES-COMMON-STOCK> 44,397
<SHARES-COMMON-PRIOR> 26,481
<ACCUMULATED-NII-CURRENT> 86
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (181)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 114,625
<NET-ASSETS> 655,927
<DIVIDEND-INCOME> 2,411
<INTEREST-INCOME> 4,111
<OTHER-INCOME> 0
<EXPENSES-NET> 5,960
<NET-INVESTMENT-INCOME> 562
<REALIZED-GAINS-CURRENT> 81,655
<APPREC-INCREASE-CURRENT> 91,435
<NET-CHANGE-FROM-OPS> 173,652
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 571
<DISTRIBUTIONS-OF-GAINS> 81,093
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,006
<NUMBER-OF-SHARES-REDEEMED> 12,349
<SHARES-REINVESTED> 5,259
<NET-CHANGE-IN-ASSETS> 347,939
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (649)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,565
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,141
<AVERAGE-NET-ASSETS> 479,642
<PER-SHARE-NAV-BEGIN> 11.63
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 5.27
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 2.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.77
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 008
<NAME> BLUE CHIP FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 327,524
<INVESTMENTS-AT-VALUE> 372,607
<RECEIVABLES> 3,528
<ASSETS-OTHER> 1,935
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 378,070
<PAYABLE-FOR-SECURITIES> 2,197
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 673
<TOTAL-LIABILITIES> 2,870
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 330,953
<SHARES-COMMON-STOCK> 56,048
<SHARES-COMMON-PRIOR> 50,517
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (836)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,083
<NET-ASSETS> 375,200
<DIVIDEND-INCOME> 4,516
<INTEREST-INCOME> 3,657
<OTHER-INCOME> 0
<EXPENSES-NET> 4,053
<NET-INVESTMENT-INCOME> 4,120
<REALIZED-GAINS-CURRENT> 55,151
<APPREC-INCREASE-CURRENT> 28,160
<NET-CHANGE-FROM-OPS> 87,431
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,097
<DISTRIBUTIONS-OF-GAINS> 55,828
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,812
<NUMBER-OF-SHARES-REDEEMED> 8,330
<SHARES-REINVESTED> 8,049
<NET-CHANGE-IN-ASSETS> 64,149
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (186)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,219
<AVERAGE-NET-ASSETS> 345,016
<PER-SHARE-NAV-BEGIN> 6.16
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 1.70
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> 1.17
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.69
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 009
<NAME> BALANCED FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 118,392
<INVESTMENTS-AT-VALUE> 128,355
<RECEIVABLES> 0
<ASSETS-OTHER> 1,802
<OTHER-ITEMS-ASSETS> 660
<TOTAL-ASSETS> 130,817
<PAYABLE-FOR-SECURITIES> 117
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 354
<TOTAL-LIABILITIES> 471
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 120,470
<SHARES-COMMON-STOCK> 13,609
<SHARES-COMMON-PRIOR> 11,128
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (88)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,964
<NET-ASSETS> 130,346
<DIVIDEND-INCOME> 1,790
<INTEREST-INCOME> 2,680
<OTHER-INCOME> 0
<EXPENSES-NET> 1,296
<NET-INVESTMENT-INCOME> 3,174
<REALIZED-GAINS-CURRENT> 14,974
<APPREC-INCREASE-CURRENT> 10,061
<NET-CHANGE-FROM-OPS> 28,209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,203
<DISTRIBUTIONS-OF-GAINS> 14,330
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,141
<NUMBER-OF-SHARES-REDEEMED> 4,344
<SHARES-REINVESTED> 1,684
<NET-CHANGE-IN-ASSETS> 35,120
<ACCUMULATED-NII-PRIOR> 29
<ACCUMULATED-GAINS-PRIOR> (757)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 708
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,344
<AVERAGE-NET-ASSETS> 108,855
<PER-SHARE-NAV-BEGIN> 8.56
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> 2.21
<PER-SHARE-DIVIDEND> .28
<PER-SHARE-DISTRIBUTIONS> 1.19
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.58
<EXPENSE-RATIO> 1.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 010 <NAME> GOVERNMENT SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 19,146
<INVESTMENTS-AT-VALUE> 19,666
<RECEIVABLES> 605
<ASSETS-OTHER> 168
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,439
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 176
<TOTAL-LIABILITIES> 176
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,968
<SHARES-COMMON-STOCK> 2,181
<SHARES-COMMON-PRIOR> 2,428
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,225)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 520
<NET-ASSETS> 20,263
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,332
<OTHER-INCOME> 0
<EXPENSES-NET> 278
<NET-INVESTMENT-INCOME> 1,054
<REALIZED-GAINS-CURRENT> (13)
<APPREC-INCREASE-CURRENT> 1,230
<NET-CHANGE-FROM-OPS> 2,271
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,062
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,424
<NUMBER-OF-SHARES-REDEEMED> 2,779
<SHARES-REINVESTED> 108
<NET-CHANGE-IN-ASSETS> (1,060)
<ACCUMULATED-NII-PRIOR> 8
<ACCUMULATED-GAINS-PRIOR> (3,217)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 139
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 278
<AVERAGE-NET-ASSETS> 21,415
<PER-SHARE-NAV-BEGIN> 8.78
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .51
<PER-SHARE-DIVIDEND> .45
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 131,835
<INVESTMENTS-AT-VALUE> 131,835
<RECEIVABLES> 2,192
<ASSETS-OTHER> 633
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 134,660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,014
<TOTAL-LIABILITIES> 9,014
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,594
<SHARES-COMMON-STOCK> 125,640
<SHARES-COMMON-PRIOR> 201,362
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,001
<NET-ASSETS> 228,595
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,461
<OTHER-INCOME> 0
<EXPENSES-NET> 1,257
<NET-INVESTMENT-INCOME> 7,204
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,197
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 293,433
<NUMBER-OF-SHARES-REDEEMED> 375,802
<SHARES-REINVESTED> 6,647
<NET-CHANGE-IN-ASSETS> (75,696)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 705
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,261
<AVERAGE-NET-ASSETS> 141,044
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FOUNDERS FUNDS 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 1995 ANNUAL REPORT.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> OPPORTUNITY BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 456
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 4
<INTEREST-INCOME> 227
<OTHER-INCOME> 0
<EXPENSES-NET> 50
<NET-INVESTMENT-INCOME> 181
<REALIZED-GAINS-CURRENT> (326)
<APPREC-INCREASE-CURRENT> 463
<NET-CHANGE-FROM-OPS> 318
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 180
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 82
<NUMBER-OF-SHARES-REDEEMED> 557
<SHARES-REINVESTED> 19
<NET-CHANGE-IN-ASSETS> 3,868
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> (401)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 22
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 53
<AVERAGE-NET-ASSETS> 3,512
<PER-SHARE-NAV-BEGIN> 8.49
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> .41
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
