FOUNDERS FUNDS INC, 497, 1997-05-01

FOUNDERS FUNDS INC
497, 1997-05-01

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PROSPECTUS
May 1, 1997

AGGRESSIVE GROWTH FUNDS
Founders Discovery Fund
Founders Passport Fund
Founders Frontier Fund
Founders Special Fund

GROWTH FUNDS
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund

GROWTH-AND-INCOME FUNDS
Founders Blue Chip Fund
Founders Balanced Fund

FIXED-INCOME FUND
Founders Government Securities Fund

MONEY MARKET FUND
Founders Money Market Fund

[LOGO]
Founders Funds
Growth. Plain and Simple.

<PAGE>

FOUNDERS FUNDS, INC.

PROSPECTUS
May 1, 1997

This prospectus briefly tells you information you need to know before investing.
We recommend that you read it carefully and keep it for future reference.
Inside, you'll find information about the 11 funds in the Founders family,
listed by investment objective below:

CAPITAL APPRECIATION LONG-TERM GROWTH OF CAPITAL

Founders Discovery Fund Founders International Equity Fund
Founders Passport Fund Founders Worldwide Growth Fund
Founders Frontier Fund Founders Growth Fund
Founders Special Fund
CURRENT INCOME AND CAPITAL
LONG-TERM GROWTH OF CAPITAL APPRECIATION
AND INCOME
Founders Balanced Fund
Founders Blue Chip Fund
MAXIMUM CURRENT INCOME
CURRENT INCOME CONSISTENT WITH THE PRESERVATION
OF CAPITAL AND LIQUIDITY
Founders Government Securities Fund
Founders Money Market Fund

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 UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

IT'S IMPORTANT TO NOTE THAT FOUNDERS FUNDS:
o ARE NOT BANK DEPOSITS OR OBLIGATIONS
o ARE NOT FEDERALLY INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY
o ARE NOT GUARANTEED OR ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
o ARE NOT GUARANTEED TO MAINTAIN STABLE NET ASSET VALUES
o ARE NOT GUARANTEED TO ACHIEVE THEIR OBJECTIVES

May 1, 1997 3

<PAGE>

CONTENTS
- -------------------------------------------------------------------------------

HOW TO CONTACT US ......................................................... 5

WELCOME TO FOUNDERS ....................................................... 6

Investment Objectives and Risks ....................................... 6

THE FUNDS AND THEIR MANAGEMENT ............................................ 7
Founders' Investment Philosophy ....................................... 7
Founders' Investment Management Team .................................. 8

Founders' Fund Offerings .............................................. 9

Discovery Fund ........................................................ 10
Passport Fund ......................................................... 12
Frontier Fund ......................................................... 14
Special Fund .......................................................... 16
International Equity Fund ............................................. 18
Worldwide Growth Fund ................................................. 20
Growth Fund ........................................................... 22
Blue Chip Fund ........................................................ 24
Balanced Fund ......................................................... 26
Government Securities Fund ............................................ 28
Money Market Fund ..................................................... 30

INVESTMENT POLICIES AND RISKS ............................................. 32

GENERAL INFORMATION ....................................................... 39
Understanding Fund Expenses ........................................... 39
Understanding Financial Highlights .................................... 39
Calculating Share Price ............................................... 41
Dividends and Distributions ........................................... 41
Dividend and Capital Gain Distribution Options ........................ 41
Taxes ................................................................. 42
Founders' Services to the Funds ....................................... 43
Distribution Plans .................................................... 45
Voting Rights ......................................................... 47
Fund Performance Information .......................................... 47

INVESTING IN THE FOUNDERS FUNDS ........................................... 48

GLOSSARY OF TERMS ......................................................... 60

4 Founders Funds Prospectus
<PAGE>

HOW TO CONTACT US
- -------------------------------------------------------------------------------

At Founders, you can do business with us the way that's easiest for you. To
request information, ask questions, or communicate transaction instructions, you
can:

o call us toll-free
o mail us your written instructions
o fax exchange requests
o find us on the Internet
o visit our Denver Investor Center

[Graphic: BY PHONE
Telephone]

Toll-free Investor Services 1-800-525-2440
Monday through Friday, 7 a.m. to 6:30 p.m., Mountain time
Saturday, 9 a.m. to 2 p.m., Mountain time

[Graphic: BY MAIL
Mailbox]
Founders Asset Management, Inc.
P.O. Box 173655
Denver, CO 80217-3655

FOR CERTIFIED, REGISTERED AND OVERNIGHT MAIL
Shareholder Services
Founders Financial Center
2930 East Third Avenue
Denver, CO 80206-5002

[Graphic: BY FAX
Fax machine]
Exchange requests may be sent by fax to (303) 394-4021.

[Graphic: ON THE WORLD WIDE WEB
Person at
computer Founders InvestorSITE at www.founders.com
terminal]
[Graphic: IN PERSON
Two hands
shaking]

Visit Founders' Investor Center in Denver,
Monday-Friday, 8 a.m.-5 p.m., Mountain time.
Founders Financial Center
2930 East Third Avenue (at Milwaukee)
Denver, CO 80206
For directions, call 1-800-525-2440.

For more information, see "Investing in the Founders Funds."

May 1, 1997 5

<PAGE>

WELCOME TO FOUNDERS
- -------------------------------------------------------------------------------

Founders Asset Management, Inc. ("Founders") is a registered investment
adviser and investment manager of the 11 no-load Founders Funds. Established as
an asset manager in 1938, Founders has offered investment tools to help
investors pursue their financial goals.
Today, Founders has grown to include funds spanning many investment
objectives. As a "growth-style" manager of equity portfolios, Founders invests
in stocks based on their potential to provide superior earnings growth over
time, despite short-term volatility.
^ All references in this prospectus to "we," "us," or "our" refer to
Founders.

INVESTMENT OBJECTIVES AND RISKS

^ The descriptions on the following pages may help you choose the Fund that best
fits your investment needs. These descriptions include each Fund's objective,
strategies, annual expenses, and financial highlights.
Depending on your investment goals and time horizon, you may want to pursue
your objectives by investing in more than one Fund. Please keep in mind that no
Fund can guarantee it will meet its investment objective.

Like all investments in securities, you risk losing money by investing in
the Funds. Several of the Funds invest in small- to medium-sized companies,
which involve greater risks than investments in larger companies. All of the
Funds can invest in foreign securities, which involve the risks of investing
overseas. Certain of the Funds may invest in Rule 144A securities, which may be
difficult to dispose of at the time desired or at a reasonable price if
institutional investors become disinterested in purchasing such securities. The
Funds' investments in debt securities are subject to market risk and credit
risk. In addition, the Funds may invest in mortgage-related securities, which
pose the risk that borrowers may prepay the underlying mortgages faster than
expected, which may adversely affect the instruments' average life and yield.
While the Funds seek to limit these risks by diversifying their portfolios among
different companies in a variety of industries, they cannot eliminate these
risks. For more information on the investment techniques the Funds use to pursue
their objectives, and their related risks, read the section entitled
"Investment Policies and Risks."
^^^

6 Founders Funds Prospectus

<PAGE>

THE FUNDS AND THEIR MANAGEMENT
- -------------------------------------------------------------------------------

FOUNDERS' INVESTMENT PHILOSOPHY

Founders has adopted a distinctive approach to portfolio management based on
several elements:

o THE PURSUIT OF GROWTH. We look for companies, both here and abroad, whose
fundamental strengths indicate potential for growth in earnings per
share--a prime indicator of business success. Over the long term, these
growth companies may be among the best investment opportunities the markets
have to offer.

o BOTTOM-UP FOCUS. In our search for promising opportunities, we seek
investments one company at a time, searching for individual companies that
are demonstrating the best potential for significant earnings growth. We
don't concentrate investments in specific sectors or industries or yield to
prevailing economic variables.

o DEDICATION TO RESEARCH. We go beyond Wall Street research and perform
intense in-house research to determine whether companies meet our growth
criteria. We meet company management teams and other key staff face to
face, talk to suppliers, customers and competitors, and tour corporate
facilities and plants to get a complete picture before we invest.

May 1, 1997 7

<PAGE>

FOUNDERS' INVESTMENT MANAGEMENT TEAM

To facilitate day-to-day Fund management, we have established a unique
team-and-lead-manager system for our Funds. The team is composed of several
members of our Investment Department, including Founders' Chief Investment
Officer, lead portfolio managers, portfolio traders and research analysts.

Each of these individuals brings ideas, information, knowledge, and
expertise to the table to help in the management of the Funds. Daily decisions
on portfolio selection for each Fund rest with a lead portfolio manager assigned
to the Fund who, through participation in the team process, uses the input,
research, and advice of the management team in making purchase and sale
decisions. The portfolio managers for each Fund are listed under "The Funds and
Their Management."

Founders' investment management team is led by Bjorn K. Borgen, Founders'
Chairman and Chief Executive Officer, who also has been Founders' Chief
Investment Officer since 1969. He is responsible for establishing investment
policies and overseeing strategies for the Funds and assigning the lead
portfolio manager for each Fund. A graduate of the University of Wisconsin, Mr.
Borgen received an MBA from Harvard Graduate School of Business.

8 Founders Funds Prospectus

<PAGE>

FOUNDERS' FUND OFFERINGS

AGGRESSIVE GROWTH FUNDS
These funds generally invest in faster-growing and more volatile stocks. They
may be suitable for your investment plan if you have a long time horizon (at
least five years).
o Founders Discovery Fund
o Founders Passport Fund
o Founders Frontier Fund
o Founders Special Fund

GROWTH FUNDS
Investors may use growth funds to form the core of their long-term investment
plan, because they may be less volatile than aggressive growth funds while
keeping much of the growth potential of those funds. Growth funds may be
suitable for your investment plan if you have a long time horizon (at least five
years).
o Founders International Equity Fund
o Founders Worldwide Growth Fund
o Founders Growth Fund

GROWTH-AND-INCOME FUNDS
These funds invest in growth sectors of the market, but in companies that may be
larger and more established, and that generally pay dividends. Due to these
factors, growth-and-income funds may present less risk than aggressive growth or
growth funds.
o Founders Blue Chip Fund
o Founders Balanced Fund

INCOME-ORIENTED FUNDS
These funds are the lowest-risk funds offered by Founders.
o Founders Government Securities Fund
o Founders Money Market Fund

You can find more detailed information on each Fund on the following pages.
For an explanation of many of the terms used in this prospectus, please see the
Glossary of Terms.

May 1, 1997 9

<PAGE>

FOUNDERS DISCOVERY FUND
- --------------------------------------------------------------------------------
[Graphic: Spacecraft]
INVESTMENT OBJECTIVE
Capital appreciation

DISCOVERY FUND will normally invest at least 65% of its total assets in common
stocks of small, rapidly growing U.S. companies with market capitalizations or
annual revenues between $10-$500 million. Typically, these companies are not
listed on a national securities exchange, but trade on the over-the-counter
market. Although the Fund normally will invest in common stocks of U.S.
companies, it may invest up to 30% of its total assets in foreign securities.
For more information on the Fund's investment techniques and their related
risks, see "Investment Policies and Risks."

PORTFOLIO MANAGER
Robert T. Ammann, PORTFOLIO MANAGER.
Mr. Ammann is a Chartered Financial Analyst who has been lead portfolio manager
for Founders Discovery Fund since April 1997. Mr. Ammann joined Founders in 1993
as a research analyst, and became a senior research analyst in 1996. Prior to
joining Founders, he was a financial statistician for Standard & Poor's
CompuStat Services, Inc. A graduate of Colorado State University, Mr. Ammann
holds a bachelor's degree in finance.

EXPENSES
The table above right will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions).

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 0.99%
12b-1 Fees (1) 0.25%
Other Expenses 0.35%
----
Total Fund Operating Expenses 1.59%
====

(1) LONG-TERM SHAREHOLDERS MAY, OVER TIME, INDIRECTLY 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.

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming a
5% annual return and redemption at the end of each time period (actual operating
expenses are paid by the Funds, and reduce the amount of income distributed to
shareholders; these expenses are not charged directly to your account):

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$16 $51 $87 $190

SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE 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 BELOW LEFT.

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

The following information for the year ended December 31, 1996 has been audited
by Price Waterhouse LLP, independent accountants. Prior years' information was
audited by another independent accounting firm.
You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants appearing in the
Funds' 1996 Annual Report to Shareholders, which is incorporated in the
Statement of Additional Information by reference. You can receive both without
charge by contacting Founders at the address or telephone number on the back
cover of this prospectus.

<TABLE>
<CAPTION>
Years Ended December 31* 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $21.70 $19.88 $21.55 $19.93 $17.52 $11.22 $10.00
-------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (0.20) (0.12) (0.12) (0.15) (0.03) (0.04) 0.10
Net Gains or Losses on
Securities (Both Realized
and Unrealized) 4.72 6.29 (1.55) 2.29 2.68 7.02 1.22
-------------------------------------------------------------------------
Total From Investment
Operations 4.52 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 0.00 (0.10)
Distributions (From Capital Gains) (2.00) (4.35) 0.00 (0.52) (0.24) (0.68) 0.00
-------------------------------------------------------------------------
Total Distributions (2.00) (4.35) 0.00 (0.52) (0.24) (0.68) (0.10)
-------------------------------------------------------------------------
Net Asset Value --
End of Period $24.22 $21.70 $19.88 $21.55 $19.93 $17.52 $11.22
=========================================================================

TOTAL RETURN 21.2% 31.3% (7.8%) 10.8% 15.2% 62.5% 13.2%

RATIOS/SUPPLEMENTAL DATA
Net Assets--End of Period
(000's Omitted) $247,494 $216,623 $185,310 $226,069 $151,983 $47,678 $7,035
Net Expenses to Average
Net Assets# 1.58% 1.58% 1.67% 1.65% 1.85% 1.77% 2.03%
Gross Expenses to Average
Net Assets# 1.59% 1.63% --- --- --- --- ---
Ratio of Net Investment Income to Average
Net Assets (0.85%) (0.60%) (0.62%) (0.97%) (0.67%) (0.55%) 1.68%
Portfolio Turnover Rate 106% 118% 72% 99% 111% 165% 271%
Average Commission Rate Paid $0.0566 --- --- --- --- --- ---

<FN>
* No activity in inception year of 1989

# Net expenses reflect expenses paid out-of-pocket by the Fund. Gross expenses
reflect total expenses, including fees offset by credits earned on uninvested
cash held at the Fund's custodian.
</FN>
</TABLE>

10 Founders Funds Prospectus
May 1, 1997 11

<PAGE>

FOUNDERS PASSPORT FUND
- --------------------------------------------------------------------------------
[Graphic: Compass]
INVESTMENT OBJECTIVE
Capital appreciation

PASSPORT FUND normally invests primarily in securities issued by foreign
companies, in both established and emerging economies throughout the world,
which have market capitalizations or annual revenues of $1 billion or less. At
least 65% of the Fund's total assets normally will be invested in foreign
securities from a minimum of three countries. The Fund may invest in larger
foreign companies or in U.S.-based companies if, in our opinion, they represent
better prospects for capital appreciation. For more information on the Fund's
investment techniques and their related risks, see "Investment Policies and
Risks."

PORTFOLIO MANAGER
Michael W. Gerding, VICE PRESIDENT OF INVESTMENTS. Mr. Gerding is a Chartered
Financial Analyst who has been part of Founders' investment department since
1990. Mr. Gerding has served as the lead portfolio manager for Founders
Worldwide Growth and Passport Funds since their inceptions in 1990 and 1993,
respectively. He also has served as lead portfolio manager for Founders
International Equity Fund during 1996 and as co-lead portfolio manager for that
Fund since 1997. 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.

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 1.00%
12b-1 Fees (1) 0.25%
Other Expenses 0.34%
----
Total Fund Operating Expenses 1.59%
====

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$16 $51 $87 $190

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for the year ended December 31, 1996 has been audited
by Price Waterhouse LLP, independent accountants. Prior years' information was
audited by another independent accounting firm.
You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants appearing in the
Funds' 1996 Annual Report to Shareholders, which is incorporated in the
Statement of Additional Information by reference. You can receive both without
charge by contacting Founders at the address or telephone number on the back
cover of this prospectus.

<TABLE>
<CAPTION>
Period of
Years Ended December 31 1996 1995 1994 11/16/93
(inception)
- 12/31/93
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $11.68 $9.42 $10.53 $10.00
------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.04 0.02 0.00
Net Gains or Losses on
Securities (Both Realized and Unrealized) 2.30 2.26 (1.11) 0.53
------------------------------------
Total From Investment
Operations 2.34 2.30 (1.09) 0.53
------------------------------------
LESS DISTRIBUTIONS
Dividends (From Net Investment Income) (0.02) (0.04) (0.02) 0.00
Distributions (From Capital Gains) (0.09) 0.00 0.00 0.00
------------------------------------
Total Distributions (0.11) (0.04) (0.02) 0.00
------------------------------------
Net Asset Value --
End of Period $13.91 $11.68 $9.42 $10.53
====================================

TOTAL RETURN 20.1% 24.4% (10.4%) 5.3%
RATIOS/SUPPLEMENTAL DATA
Net Assets--End of Period
(000s Omitted) $177,921 $49,922 $16,443 $18,567
Net Expenses to Average Net Assets# 1.57% 1.76% 1.88% 1.70%*

Gross Expenses to Average Net Assets# 1.59% 1.84% --- ---

Ratio of Net Investment Income
to Average Net Assets 0.40% 0.60% 0.12% 0.18%*
Portfolio Turnover Rate 58% 37% 78% 6.0%
Average Commission Rate Paid $0.0147 --- --- ---

<FN>
* Annualized

12 Founders Funds Prospectus
May 1, 1997 13

<PAGE>

FOUNDERS FRONTIER FUND
- --------------------------------------------------------------------------------
[Graphic: Spyglass]
INVESTMENT OBJECTIVE
Capital appreciation

FRONTIER FUND will normally invest at least 65% of its total assets in common
stocks of small- and medium-sized U.S. and foreign companies with market
capitalizations or annual revenues of $200 million- ^ $1.5 billion. Often, these
companies are not listed on a national securities exchange but trade on the
over-the-counter market.

While the Fund normally will be at least 50% invested in U.S. companies, and
have no more than 25% of its total assets invested in any one foreign country,
it also has the flexibility to be completely invested in U.S. or foreign
securities, depending on investment opportunities. The Fund also may invest in
large companies if, in our opinion, they represent better prospects for capital
appreciation. For more information on the Fund's investment techniques and their
related risks, see "Investment Policies and Risks."

PORTFOLIO MANAGER
Michael K. Haines, SENIOR VICE PRESIDENT OF INVESTMENTS. Mr. Haines has been
with Founders since 1985, serving as an assistant portfolio manager, and as lead
portfolio manager for Founders Frontier Fund since 1990. Mr. Haines served as
the portfolio or co-portfolio manager of Founders Discovery Fund from 1989 until
July 1995. A graduate of The Colorado College, Mr. Haines received an MBA from
the University of Denver.

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 0.94%
12b-1 Fees (1) 0.25%
Other Expenses 0.34%
----
Total Fund Operating Expenses 1.53%
====

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$16 $49 $84 $183

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for the year ended December 31, 1996 has been audited
by Price Waterhouse LLP, independent accountants. Prior years' information was
audited by another independent accounting firm.

You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants appearing in the
Funds' 1996 Annual Report to Shareholders, which is incorporated in the
Statement of Additional Information by reference. You can receive both without
charge by contacting Founders at the address or telephone number on the back
cover of this prospectus.

<TABLE>
<CAPTION>
Period of 1/22/87
(inception) -
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $31.08 $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 (0.15) (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 4.46 9.76 (0.72) 4.23 2.24 8.27 (1.53) 5.81 3.26 1.70
Unrealized)
--------------------------------------------------------------------------------------------
Total From Investment
Operations 4.31 9.74 (0.79) 4.11 2.13 8.28 (1.38) 5.93 3.20 1.61
--------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (From Net 0.00 0.00 0.00 0.00 0.00 (0.01) (0.16) (0.05) 0.00 0.00
Investment Income)

Distributions (From Capital (3.05) (5.16) (0.65) (1.20) (1.31) (0.93) (0.08) (0.84) (0.78) (0.58)
Gains)
--------------------------------------------------------------------------------------------
Total Distributions (3.05) (5.16) (0.65) (1.20) (1.31) (0.94) (0.24) (0.89) (0.78) (0.58)
--------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $32.34 $31.08 $26.50 $27.94 $25.03 $24.21 $16.87 $18.49 $13.45 $11.03
============================================================================================

TOTAL RETURN 14.3% 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 $350,861 $331,720 $247,113 $254,248 $146,484$103,209 $39,269 $50,318 $8,771 $3,318
(000s Omitted)

Net Expenses to Average
Net Assets# 1.52% 1.53% 1.62% 1.66% 1.83% 1.68% 1.71% 1.46% 1.89% 2.25%*

Gross Expenses to Average
Net Assets# 1.53% 1.57% --- --- --- --- --- --- ---- ---

Ratio of Net Investment
Income to Average (0.47%) (0.07%) (0.25%) (0.75%) (0.58%) 0.05% 0.78% 0.38% (0.43%) (0.74%)*
Net Assets

Portfolio Turnover Rate 85% 92% 72% 109% 155% 158% 207% 198% 312% 588%

Average Commission Rate Paid $0.0567 --- --- --- --- --- --- --- --- ---
<FN>
* Annualized

14 Founders Funds Prospectus
May 1, 1997 15

<PAGE>

FOUNDERS SPECIAL FUND
- --------------------------------------------------------------------------------
[Graphic: Compass star]
INVESTMENT OBJECTIVE
Capital appreciation

SPECIAL FUND normally invests its assets in common stocks of three categories
of companies: small- to medium-sized companies, large companies, and foreign
companies. We may vary the amount of the Fund's assets invested in each category
from time to time depending on our evaluation of market, economic, and monetary
conditions. However, no more than 30% of the Fund's total assets will be
invested in foreign securities, with no more than 25% of its total assets
invested in any one foreign country. For more information on the Fund's
investment techniques and their related risks, see "Investment Policies and
Risks."

PORTFOLIO MANAGERS

John B. Jares, PORTFOLIO MANAGER. Mr. Jares is a Chartered Financial
Analyst who has been co-lead portfolio manager for Founders Special Fund since
1997. Mr. Jares joined Founders in 1994 as a research analyst. Prior to joining
Founders, he worked with Lipper Analytical Services, Inc., a provider of mutual
fund information. A graduate of Colorado State University, Mr. Jares re- ceived
a master's degree in finance from the University of Colorado at Denver.

Douglas A. Loeffler, PORTFOLIO MANAGER. Mr. Loeffler is a Chartered
Financial Analyst who has been co-lead portfolio manager for Founders
International Equity and Special Funds since 1997. Mr. Loeffler joined Founders
in 1995 as a senior international equities analyst and previously served as
assistant portfolio manager for Founders International Equity Fund. Prior to
joining Founders, he served for seven years with Scudder, Stevens & Clark as an
international equities analyst and as a quantitative analyst. A graduate of
Washington State University, Mr. Loeffler received an MBA in finance from the
University of Chicago.

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 0.76%
12b-1 Fees (1) 0.25%
Other Expenses 0.35%
----
Total Fund Operating Expenses 1.36%
====

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$16 $43 $75 $164

<TABLE>
<CAPTION>
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $7.05 $7.01 $7.67 $7.76 $7.59 $5.03 $6.64 $5.47 $5.14 $5.60
-----------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment (0.02) 0.00 (0.02) (0.01) (0.01) 0.08 0.09 0.16 0.03 0.04
Income

Net Gains or Losses
on Securities (Both
Realized and
Unrealized) 1.09 1.79 (0.36) 1.25 0.64 3.09 (0.79) 1.97 0.65 0.25
-----------------------------------------------------------------------------------------
Total From
Investment
Operations 1.07 1.79 (0.38) 1.24 0.63 3.17 (0.70) 2.13 0.68 0.29
-----------------------------------------------------------------------------------------
LESS
DISTRIBUTIONS
Dividends (From Net
Investment Income) 0.00 0.00 0.00 0.00 0.00 (0.04) (0.10) (0.15) (0.04) (0.03)

Distributions (From
Capital Gains) (0.46) (1.75) (0.28) (1.33) (0.46) (0.57) (0.81) (0.81) (0.31) (0.72)
-----------------------------------------------------------------------------------------
Total Distributions (0.46) (1.75) (0.28) (1.33) (0.46) (0.61) (0.91) (0.96) (0.35) (0.75)
-----------------------------------------------------------------------------------------
Net Asset Value --
End of Period $7.66 $7.05 $7.01 $7.67 $7.76 $7.59 $5.03 $6.64 $5.47 $5.14
=========================================================================================

TOTAL RETURN 15.3% 25.7% (4.9%) 16.0% 8.3% 63.7% (10.4%) 39.2% 13.2% 5.2%

RATIOS/SUPPLE-
MENTAL DATA
Net Assets--End of $363,835 $388,754 $299,190 $432,710 $456,793 $226,154 $57,951 $94,554 $62,990 $66,797
Period (000s
Omitted)

Net Expenses to
Average Net Assets# 1.34% 1.29% 1.36% 1.33% 1.23% 1.15% 1.20% 1.06% 1.12% 1.14%

Gross Expenses to
Average Net Assets# 1.36% 1.35% --- --- --- --- --- --- ---- ---

Ratio of Net
Investment Income to (0.28%) 0.00% (0.27%) (0.14%) (0.05%) 0.76% 1.54% 1.95% 0.59% 0.45%
Average Net Assets

Portfolio Turnover
Rate 186% 263% 272% 285% 223% 102% 146% 151% 160% 210%

Average Commission $0.0417 --- --- --- --- --- --- --- --- ---
Rate Paid

<FN>
* Restated to reflect 5-for-1 split on August 31, 1987

16 Founders Funds Prospectus
May 1, 1997 17

<PAGE>

FOUNDERS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
[Graphic: Three flags flying on poles]
INVESTMENT OBJECTIVE
Long-term growth of capital

INTERNATIONAL EQUITY FUND normally invests at least 65% of its total assets in
foreign equity securities from 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 from countries around the world, except the United States, including
companies in both established and emerging economies. For more information on
the Fund's investment techniques and their related risks, see "Investment
Policies and Risks."

PORTFOLIO MANAGERS

Michael W. Gerding, VICE PRESIDENT OF INVESTMENTS. Mr. Gerding is a
Chartered Financial Analyst who has been part of Founders' investment department
since 1990. Mr. Gerding has served as the lead portfolio manager for Founders
Worldwide Growth and Passport Funds since their inceptions in 1990 and 1993,
respectively. He also has served as lead portfolio manager for Founders
International Equity Fund during 1996 and as co-lead portfolio manager for that
Fund since 1997. 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.

EXPENSES
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions).

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 1.00%
12b-1 Fees (1) 0.25%
Other Expenses (after expense
reimbursements) (2) 0.75%
----
Total Fund Operating
Expenses (after expense
reimbursements) (2) 2.00%
====

(2) CERTAIN EXPENSES OF THE FUND ARE BEING REIMBURSED VOLUNTARILY BY FOUNDERS.
IN THE ABSENCE OF THIS EXPENSE LIMITATION, "OTHER EXPENSES" AND "TOTAL FUND
OPERATING EXPENSES" IN THE ABOVE TABLE WOULD HAVE BEEN 1.27% AND 2.52%,
RESPECTIVELY, OF THE FUND'S AVERAGE NET ASSETS BASED ON ITS ACTUAL EXPENSES FOR
THE YEAR ENDED DECEMBER 31, 1996.

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$21 $63 $109 $234

<TABLE>
<CAPTION>
Year Ended December 31* 1996
<S> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (0.01)
Net Gains or Losses on
Securities (Both Realized and Unrealized) 1.87
----------
Total From Investment
Operations 1.86
----------
LESS DISTRIBUTIONS
Dividends (From Net Investment Income) 0.00
Distributions (From Capital Gains) 0.00
----------
Total Distributions 0.00
----------
Net Asset Value --
End of Period $11.86
==========

TOTAL RETURN 18.6%

RATIOS/SUPPLEMENTAL DATA
Net Assets--End of Period
(000s Omitted) $10,119

Net Expenses to Average Net Assets# 1.94%+
Gross Expenses to Average
Net Assets# 2.00%+

Ratio of Net Investment Income to Average
Net Assets (0.15%)

Portfolio Turnover Rate 71%

Average Commission Rate Paid $0.0189

<FN>
* No activity in inception year of 1995

# Net expenses reflect expenses paid out-of-pocket by the Fund. Gross expenses
reflect total expenses, including fees offset by credits earned on uninvested
cash held at the Fund's custodian.

+ In the absence of voluntary expense reimbursements and waivers from Founders,
the Net Expenses to Average Net Assets and Gross Expenses to Average Net
Assets would have been 2.46% and 2.52%, respectively.
</FN>
</TABLE>

18 Founders Funds Prospectus
May 1, 1997 19

<PAGE>

FOUNDERS WORLDWIDE GROWTH FUND
- --------------------------------------------------------------------------------
[Graphic: Globe with an arrow]
INVESTMENT OBJECTIVE
Long-term growth of capital

WORLDWIDE GROWTH FUND, a global fund, normally invests at least 65% of its total
assets in equity securities of growth companies in a variety of markets
throughout the world. The Fund may purchase securities in any foreign country
(as well as in the United States), emphasizing common stocks of both emerging
and established growth companies that generally have proven performance records
and strong market positions. The Fund's portfolio will always invest at least
65% of its total assets in three or more countries. The Fund will not invest
more than 50% of its total assets in the securities of any one foreign country.
For more information on the Fund's investment techniques and their related
risks, see "Investment Policies and Risks."

EXPENSES
The table above right will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any
fees to buy, sell, or exchange shares (although a $6 fee will be assessed for
wire redemptions).

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 0.96%
12b-1 Fees (1) 0.25%
Other Expenses 0.34%
----
Total Fund Operating Expenses 1.55%
====

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$16 $49 $85 $186

<TABLE>
<CAPTION>
Years Ended December 31* 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $19.87 $17.09 $17.94 $14.13 $13.92 $10.38 $10.00
-------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.09 (0.02) (0.02) 0.00 0.03 0.29
Net Gains or Losses on
Securities (Both Realized and Unrealized) 2.64 3.43 (0.37) 4.24 0.21 3.58 0.38
-------------------------------------------------------------------
Total From Investment
Operations 2.74 3.52 (0.39) 4.22 0.21 3.61 0.67
-------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (From Net Investment Income) (0.07) (0.09) 0.00 0.00 0.00 (0.03) (0.29)
Distributions (From Capital Gains) (0.75) (0.65) (0.46) (0.41) 0.00 (0.04) 0.00
-------------------------------------------------------------------
Total Distributions (0.82) (0.74) (0.46) (0.41) 0.00 (0.07) (0.29)
-------------------------------------------------------------------
Net Asset Value --
End of Period $21.79 $19.87 $17.09 $17.94 $14.13 $13.92 $10.38
===================================================================

TOTAL RETURN 14.0% 20.6% (2.2%) 29.9% 1.5% 34.8% 6.7%

RATIOS/SUPPLEMENTAL DATA
Net Assets--End of Period
(000s Omitted) $342,079 $228,595 $104,044 $85,214 $36,622 $20,305 $5,493

Net Expenses to Average
Net Assets# 1.53% 1.56% 1.66% 1.80% 2.06% 1.90% 2.10%

Gross Expenses to Average
Net Assets# 1.55% 1.65% --- --- --- --- ---

Ratio of Net Investment Income to Average
Net Assets 0.50% 0.61% (0.14%) (0.19%) 0.01% 0.38% 3.21%

Portfolio Turnover Rate 72% 54% 87% 117% 152% 84% 170%

Average Commission Rate Paid $0.0247 --- --- --- --- --- ---

<FN>
* No activity in inception year of 1989

20 Founders Funds Prospectus
May 1, 1997 21

<PAGE>

FOUNDERS GROWTH FUND
- --------------------------------------------------------------------------------
[Graphic: Up-and-down arrow on a grid]
INVESTMENT OBJECTIVE
Long-term growth of capital

GROWTH FUND normally invests 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 more information on the
Fund's investment techniques and their related risks, see "Investment Policies
and Risks."

PORTFOLIO MANAGER
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. From 1992 to 1993, 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.

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 0.71%
12b-1 Fees (1) 0.25%
Other Expenses 0.24%
----
Total Fund Operating Expenses 1.20%
====

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$12 $38 $66 $146

<TABLE>
<CAPTION>
Period of Year Ended
11/1/87- October 31
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87 1987

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
DATA
Net Asset Value --
Beginning of
Period $14.77 $11.63 $12.38 $10.54 $11.22 $8.27 $9.41 $7.61 $7.41 $8.91 $9.87
--------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income 0.02 0.02 (0.02) (0.01) 0.01 0.07 0.13 0.07 0.13 0.02 0.11
Net Gains or
Losses on
Securities (Both
Realized and
Unrealized) 2.40 5.27 (0.39) 2.70 0.48 3.82 (1.13) 3.07 0.22 0.22 0.38
--------------------------------------------------------------------------------------------------------
Total From
Investment
Operations 2.42 5.29 (0.41) 2.69 0.49 3.89 (1.00) 3.14 0.35 0.24 0.49
--------------------------------------------------------------------------------------------------------
LESS
DISTRIBUTIONS
Dividends (From
Net Investment
Income) (0.02) (0.02) 0.00 0.00 (0.01) (0.07) (0.13) (0.07) (0.15) (0.13) (0.11)
Distributions (From
Capital Gains) (1.30) (2.13) (0.34) (0.85) (1.16) (0.87) (0.01) (1.27) 0.00 (1.61) (1.34)
--------------------------------------------------------------------------------------------------------
Total
Distributions (1.32 ) (2.15) (0.34) (0.85) (1.17) (0.94) (0.14) (1.34) (0.15) (1.74) (1.45)
--------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $15.87 $14.77 $11.63 $12.38 $10.54 $11.22 $8.27 $9.41 $7.61 $7.41 $8.91
========================================================================================================

TOTAL RETURN 16.6% 45.6% (3.4%) 25.5% 4.3% 47.4% (10.6%) 41.7% 4.8% 2.6% 6.0%
RATIOS/SUPPLE-
MENTAL DATA
Net Assets--End of
Period (000s
Omitted) $1,118,323 $655,927 $307,988 $343,423 $145,035 $140,726 $87,669 $111,938 $53,023 $68,920 $58,262

Net Expenses to
Average Net
Assets# 1.19% 1.24% 1.33% 1.32% 1.54% 1.45% 1.45% 1.28% 1.38% 1.54%* 1.25%

Gross Expenses to
Average Net
Assets# 1.20% 1.28% --- --- --- --- --- --- --- --- ---

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

Portfolio Turnover Rate 134% 130% 172% 131% 216% 161% 178% 167% 179% 20% 147%

Average Commission
Rate Paid $0.0649 --- --- --- --- --- --- --- --- --- ---

<FN>
* Annualized

22 Founders Funds Prospectus
May 1, 1997 23

<PAGE>

FOUNDERS BLUE CHIP FUND
- --------------------------------------------------------------------------------
[Graphic: Blue ribbon]
INVESTMENT OBJECTIVE
Long-term growth of capital and income

BLUE CHIP FUND, a large-capitalization fund, normally invests primarily in
common stocks of large, well-established, stable and mature companies of great
financial strength, commonly known as "blue chip" companies. These companies
generally 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:

o Are included in a widely recognized index of stock market performance, such
as the Dow Jones Industrial Average or the Standard & Poor's 500 Index
o Generally pay regular dividends
o Have a market capitalization of at least $1 billion.

The Fund may invest in non-dividend-paying companies if, in our opinion, they
offer better prospects for capital appreciation. The Fund may also invest up to
30% of its total assets in foreign securities. For more information on the
Fund's investment techniques and their related risks, see "Investment Policies
and Risks."

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 0.63%
12b-1 Fees (1) 0.25%
Other Expenses 0.28%
----
Total Fund Operating Expenses 1.16%
====

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$12 $37 $64 $142

<TABLE>
<CAPTION>
Period of
Years Ended 10/1/87- Year Ended
December 31 1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87 9/30/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
DATA
Net Asset Value --
Beginning of Period $6.69 $6.16 $6.49 $6.91 $7.67 $6.67 $7.32 $6.31 $6.14 $9.98 $10.68
----------------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income 0.09 0.09 0.06 0.04 0.08 0.11 0.17 0.16 0.18 0.06 0.20

Net Gains or
Losses on
Securities (Both
Realized and
Unrealized) 1.52 1.70 (0.02) 0.96 (0.10) 1.74 (0.14) 2.05 0.43 (2.14) 2.58
----------------------------------------------------------------------------------------------------------------
Total From
Investment
Operations 1.61 1.79 0.04 1.00 (0.02) 1.85 0.03 2.21 0.61 (2.08) 2.78
----------------------------------------------------------------------------------------------------------------
LESS DISTRIBU-
TIONS
Dividends (From
Net Investment
Income) (0.09) (0.09) (0.06) (0.04) (0.08) (0.11) (0.17) (0.16) (0.19) (0.05) (0.26)

Distributions
(From Capital
Gains) (0.98) (1.17) (0.31) (1.38) (0.66) (0.74) (0.51) (1.04) (0.25) (1.71) (3.22)
----------------------------------------------------------------------------------------------------------------
Total
Distributions (1.07) (1.26) (0.37) (1.42) (0.74) (0.85) (0.68) (1.20) (0.44) (1.76) (3.48)
----------------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $7.23 $6.69 $6.16 $6.49 $6.91 $7.67 $6.67 $7.32 $6.31 $6.14 $9.98
================================================================================================================

TOTAL RETURN 24.4% 29.1% 0.5% 14.5% (0.3%) 28.3% 0.4% 35.6% 10.1% (21.2%) 35.8%

RATIOS
Net Assets--End
of Period (000s
Omitted) $535,866 $375,200 $311,051 $306,592 $290,309 $290,155 $233,630 $232,468 $173,342 $174,554 $239,824

Net Expenses
to Average
Net Assets# 1.15% 1.17% 1.21% 1.22% 1.23% 1.10% 1.07% 0.98% 1.00% 0.98%+ 0.87%

Gross Expenses
to Average
Net Assets# 1.16% 1.22% --- --- --- --- --- --- --- --- ---

Ratio of Net
Investment Income
to Average Net 1.40% 1.19% 0.88% 0.57% 1.13% 1.52% 2.35% 2.03% 2.81% 2.41%* 2.11%
Assets

Portfolio Turnover
Rate 195% 235% 239% 212% 103% 95% 82% 64% 58% 31% 56%

Average
Commission Rate
Paid $0.0613 --- --- --- --- --- --- --- --- --- ---

<FN>
* Annualized

24 Founders Funds Prospectus
May 1, 1997 25

<PAGE>

FOUNDERS BALANCED FUND
- --------------------------------------------------------------------------------
[Graphic: Scale]
INVESTMENT OBJECTIVE
Current income and capital appreciation
BALANCED FUND normally invests in a balanced portfolio of common stocks, U.S.
and foreign government securities, and a variety of corporate fixed-income
obligations.
For the equity portion of its portfolio, the Fund emphasizes investments in
common stocks with the potential for capital appreciation. These stocks
generally pay regular dividends, although the Fund also may invest in
non-dividend-paying companies if, in our opinion, they offer better prospects
for capital appreciation. Normally, the Fund will invest a significant
percentage (up to 75%) of its total assets in equity securities.

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 ("S&P"). There is no
maximum limit on the amount of straight debt securities in which the Fund may
invest, and the Fund may invest up to 100% of its assets in such securities for
temporary defensive purposes. Securities rated Baa or BBB are considered by
these services to be of low investment grade. 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 where we determine that such securities
present attractive opportunities. The Fund will not invest in securities rated
lower than B.
The Fund also may invest up to 30% of its total assets in foreign
securities, with no more than 25% of its total assets invested in the securities
of any one foreign country. For more information on the Fund's investment
techniques and their related risks, see "Investment Policies and Risks."

PORTFOLIO MANAGER
Brian F. Kelly, VICE PRESIDENT OF INVESTMENTS. Mr. Kelly joined Founders in 1996
as the lead portfolio manager of the Founders Blue Chip and Balanced Funds.
Prior to joining Founders, Mr. Kelly served as a portfolio manager for INVESCO
Trust Company (1993-1996), and as a senior equity investment analyst for Sears
Investment Management Company (1986-1993). A graduate of the University of
Notre Dame, Mr. Kelly received an MBA and JD from the University of Iowa. He is
also a Certified Public Accountant.
EXPENSES
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions).

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 0.64%
12b-1 Fees (1) 0.25%
Other Expenses 0.23%
----
Total Fund Operating Expenses 1.12%
====

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$11 $36 $62 $137

<TABLE>
<CAPTION>
Period of
Years Ended 10/1/87- Year Ended
December 31 1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87 9/30/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $9.58 $8.56 $8.93 $8.30 $8.19 $7.22 $7.97 $6.89 $6.55 $8.72 $7.89
---------------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income 0.28 0.28 0.20 0.22 0.27 0.31 0.35 0.32 0.38 0.07 0.32

Net Gains or Losses
on Securities (Both
Realized and
Unrealized) 1.50 2.21 (0.37) 1.58 0.21 1.30 (0.75) 1.39 0.34 (1.29) 1.37
---------------------------------------------------------------------------------------------------------------
Total From
Investment
Operations 1.78 2.49 (0.17) 1.80 0.48 1.61 (0.40) 1.71 0.72 (1.22) 1.69
---------------------------------------------------------------------------------------------------------------
LESS
DISTRIBUTIONS
Dividends (From Net
Investment Income) (0.27) (0.28) (0.20) (0.21) (0.28) (0.31) (0.35) (0.32) (0.38) (0.08) (0.42)

Distributions (From
Capital Gains) (0.48) (1.19) 0.00 (0.96) (0.09) (0.33) 0.00 (0.31) 0.00 (0.87) (0.44)
---------------------------------------------------------------------------------------------------------------
Total Distributions (0.75) (1.47) (0.20) (1.17 ) (0.37) (0.64) (0.35) (0.63) (0.38) (0.95) (0.86)
---------------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $10.61 $9.58 $8.56 $8.93 $8.30 $8.19 $7.22 $7.97 $6.89 $6.55 $8.72
===============================================================================================================

TOTAL RETURN 18.8% 29.4% (1.9%) 21.9% 6.0% 22.9% (5.0%) 25.3% 11.1% (13.9%) 22.9%

RATIOS
Net Assets--End of
Period (000s
Omitted) $394,896 $130,346 $95,226 $72,859 $31,538 $18,790 $13,650 $15,082 $12,636 $13,159 $16,885

Net Expenses to
Average Net Assets# 1.10% 1.19% 1.26% 1.34% 1.88% 1.73% 1.65% 1.52% 1.64% 1.84%** 1.66%

Gross Expenses to
Average Net Assets# 1.12% 1.23% --- --- --- --- --- --- --- --- ---

Ratio of Net Investment
Income to Average Net 3.09% 2.92% 2.37% 2.30% 3.57% 4.01% 4.63% 4.19% 5.39% 4.16%** 4.03%
Assets

Portfolio Turnover
Rate 146% 286% 258% 251% 96% 133% 103% 85% 182% 141% 133%

Average Commission
Rate Paid $0.0588 --- --- --- --- --- --- --- --- --- ---

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

** Annualized

26 Founders Funds Prospectus
May 1, 1997 27

<PAGE>

FOUNDERS GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
[Graphic: Building with pillars]
INVESTMENT OBJECTIVE
Current income

GOVERNMENT SECURITIES

FUND normally invests at least 65% of its total assets in obligations of the
U.S. 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 U.S. Treasury.
Additionally, the Fund may invest in obligations of other agencies and
instrumentalities of the U.S. government and may invest in securities issued by
foreign governments and/or their agencies. However, 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 (10 or more years),
intermediate (three to 10 years), or short (three years or less). The proportion
invested by the Fund in each category can be expected to vary depending upon our
evaluation of market patterns and trends. For more information on the Fund's
investment techniques and their related risks, see "Investment Policies and
Risks."

PORTFOLIO MANAGER
Margaret Danuser, FIXED-INCOME MANAGER. Ms. Danuser has been the lead portfolio
manager for Founders Government Securities and Money Market Funds since 1996,
and has served as Founders' fixed-income specialist since 1995. Previously, she
was an investment officer with LaSalle Street Capital Management from 1989 to
1994. Ms. Danuser received a bachelor of arts degree from the University of
Colorado.

Management Fees 0.65%
12b-1 Fees (after fee
waivers)(1)(2) 0.05%
Other Expenses 0.59%
----
Total Fund Operating Expenses
(after fee waivers)(2) 1.29%
====

(2) CERTAIN 12B-1 FEES OF THE FUND ARE BEING WAIVED VOLUNTARILY BY FOUNDERS. HAD
THESE FEES NOT BEEN WAIVED, "12B-1 FEES" AND "TOTAL FUND OPERATING EXPENSES"
IN THE ABOVE TABLE WOULD HAVE BEEN 0.25% AND 1.49%, RESPECTIVELY, OF THE FUND'S
AVERAGE NET ASSETS BASED ON ITS ACTUAL EXPENSES FOR THE YEAR ENDED DECEMBER 31,
1996.

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$13 $41 $71 $156

<TABLE>
<CAPTION>
Period of 3/1/88
(inception) -
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 12/31/88
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $9.29 $8.78 $10.02 $10.19 $10.48 $9.85 $10.13 $9.68 $10.00
-------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 3.20 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) (2.99) 0.51 (1.26) 0.47 0.03 0.81 (0.28) 0.46 (0.32)
-------------------------------------------------------------------------------
Total From Investment
Operations 0.21 0.96 (0.74) 0.93 0.54 1.41 0.41 1.24 0.32
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (From Net
Investment Income) (0.46) (0.45) (0.50) (0.46) (0.51) (0.60) (0.69) (0.79) (0.64)

Distributions (From
Capital Gainms) 0.00 0.00 0.00 (0.64) (0.32) (0.18) 0.00 0.00 0.00
-------------------------------------------------------------------------------
Total Distributions (0.46) (0.45) (0.50) (1.10) (0.83) (0.78) (0.69) (0.79) (0.64)
-------------------------------------------------------------------------------
Net Asset Value --
End of Period $9.04 $9.29 $8.78 $10.02 $10.19 $10.48 $9.85 $10.13 $9.68
===============================================================================

TOTAL RETURN 2.3% 11.1% (7.5%) 9.3% 5.3% 14.9% 4.4% 13.3% 3.2%

RATIOS
Net Assets--End of Period
(000s Omitted) $15,190 $20,263 $21,323 $30,465 $25,047 $18,146 $7,424 $6,460 $4,392

Net Expenses to Average
Net Assets*# 1.26% 1.30% 1.34% 1.18% 1.18% 1.12% 1.03% 0.65% 0.26%+

Gross Expenses to
Average Net Assets*# 1.29% 1.30% --- --- --- --- --- --- ---

Ratio of Net Investment
Income to Average
Net Assets* 5.06% 4.92% 5.52% 4.33% 4.83% 5.89% 7.15% 7.90% 7.67%+

Portfolio Turnover Rate 166% 141% 379% 429% 204% 261% 103% 195% 194%

<FN>
+ Annualized

# Net expenses reflect expenses paid out-of-pocket by the Fund. Gross expenses
reflect total expenses, including fees offset by credits earned on uninvested
cash held at the Fund's custodian.

* In the absence of voluntary expense reimbursements and waivers from Founders,
the Net Expenses to Average Net Assets would have been 1.46% (1996), 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), the Gross Expenses to Average Net Assets would
have been 1.49% (1996), and the Net Investment Income Ratios would have
been 5.26% (1996), 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).
</FN>
</TABLE>

28 Founders Funds Prospectus
May 1, 1997 29

<PAGE>

FOUNDERS MONEY MARKET FUND
- --------------------------------------------------------------------------------
[Graphic: Bag with dollar sign]
INVESTMENT OBJECTIVE
Maximum current income consistent with the preservation of capital and liquidity

MONEY MARKET FUND invests in high-quality money market instruments with minimal
credit risks which mature in 12 months or less. The Fund also may 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 more
information on the Fund's investment techniques and their related risks, see
"Investment Policies and Risks."

Management Fees 0.50%
12b-1 Fees N/A
Other Expenses 0.38%
----
Total Fund Operating Expenses 0.88%
====

IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
$9 $28 $49 $109

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
Period of
6/1/87 - Year Ended
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87 5/31/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 0.05 0.03 0.02 0.03 0.05 0.07 0.08 0.07 0.04 0.05

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

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) (0.05) (0.03) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (0.04) (0.05)
-------------------------------------------------------------------------------------------------------------
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 4.5% 5.1% 3.4% 2.2% 2.8% 5.1% 7.3% 8.1% 6.9% 4.0% 5.6%

RATIOS
Net Assets--End of
Period (000s $109,866 $125,646 $201,342 $142,399 $120,295 $99,765 $125,440 $84,281 $54,168 $46,444 $41,471
Omitted)

Net Expenses
to Average Net 0.86% 0.89% 0.91% 0.95% 0.95% 0.99% 0.94% 0.77% 0.80% 0.90%+ 0.90%
Assets#*

Gross Expenses 0.88% 0.89% --- --- --- --- --- --- --- --- ---
Average Net Assets#

Ratio of Net
Investment Income
to Average Net 4.58% 5.11% 3.49% 2.26% 2.78% 5.03% 7.26% 8.22% 6.75% 6.16%+ 5.39%
Assets*

<FN>
+ Annualized

* In the absence of voluntary expense reimbursements and waivers from Founders,
the Net Expenses to Average Net Assets 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).

30 Founders Funds Prospectus
May 1, 1997 31

<PAGE>

INVESTMENT POLICIES AND RISKS
- -------------------------------------------------------------------------------

SECURITIES OF SMALLER COMPANIES. Discovery, Passport, Frontier, and Special
Funds normally invest a significant proportion of their assets in the securities
of small companies. The International Equity and Worldwide Growth Funds also may
invest in these securities. We generally define small companies as those with
market capitalizations or annual revenues of $1 billion or less. Small companies
(particularly those trading "over-the-counter") may be in the early stages of
development; have limited product lines, markets, or financial resources; and/or
lack management depth. These companies may be more impacted by intense
competition from larger companies, and the trading market for their securities
may be less liquid and more volatile. As a result, investments in small
companies involve greater risk than larger, more established companies, and the
net asset values of Funds that invest in them may fluctuate more widely than
other Funds or popular market averages. Investments in medium-sized companies
(those with market capitalizations or annual revenues between $1 billion and $5
billion) also may involve many of these risks. However, sales and earnings
growth rates of small- and medium-sized companies often exceed those of large
companies, which may be reflected in a greater potential for share price
appreciation.

FOREIGN SECURITIES. All of the Funds may invest in foreign securities, subject
to the limitations described under "The Funds and Their Management." In
addition, Discovery, Passport, Frontier, Special, International Equity,
Worldwide Growth, Growth, Blue Chip, and Balanced Funds (the "Equity Funds") may
invest without limit in American Depositary Receipts and American Depositary
Shares (collectively, "ADRs"). ADRs are receipts representing shares of a
foreign corporation held by a U.S. bank that entitle the holder to all dividends
and capital gains on the underlying foreign shares. ADRs are denominated in U.S.
dollars and trade in the U.S. securities markets.

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. The Government Securities
Fund's foreign investments 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.

Investments in foreign securities involve different risks than U.S.
investments. These risks include:

o CURRENCY RISK. Fluctuations in exchange rates of foreign currencies affect
the value of a Fund's assets as measured in U.S. dollars and the costs of
converting between various currencies.

32 Founders Funds Prospectus

<PAGE>

o REGULATORY RISK. There may be less governmental supervision of foreign
stock exchanges, security brokers, and issuers of securities, and less
public information about foreign companies. Also, accounting, auditing and
financial reporting standards are less uniform than in the United States.
Exchange control regulations or currency restrictions could prevent cash
from being brought back to the United States. The Funds may be subject to
withholding taxes and could experience difficulties in pursuing legal
remedies and collecting judgments.

o MARKET RISK. 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, and settlement
periods are longer.

o POLITICAL RISK. Foreign investments may be subject to the possibility of
expropriation or confiscatory taxation; limitations on the removal of funds
or other assets of the Fund; and political, economic or social instability.

ADRs are subject to some of the same risks as direct investments in foreign
securities, including the risk that material information about the issuer may
not be disclosed in the United States and the risk that currency fluctuations
may adversely affect the value of the ADR.

In addition, Passport, Worldwide Growth, and International Equity Funds may
invest in 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 issued by companies located there are expected to be more volatile,
less liquid and more uncertain as to payments of dividends, interest and
principal. Passport, Worldwide Growth, and International Equity Funds also 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 to a greater
extent than the other Funds. 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.

For more information, see the Statement of Additional Information.

May 1, 1997 33

<PAGE>

FOREIGN CURRENCY TRANSACTIONS. All of the Funds except the Money Market Fund may
use forward foreign currency contracts ("forward contracts") in connection
with the purchase or sale of a specific security. A forward contract is an
agreement between contracting parties to exchange an amount of currency at some
future time at an agreed upon rate. 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
U.S. dollar amount, of the amount of foreign currency involved in the underlying
transactions, we attempt to protect the Funds against losses due to adverse
exchange rate fluctuations during the period between the trade date and the date
on which such payments are made or received.

In addition, Discovery, Passport, Frontier, International Equity, and
Worldwide Growth Funds are each permitted to enter into forward contracts as a
hedge against fluctuations in foreign exchange rates during the time the Funds
hold foreign securities. When we believe 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 may enter into forward
contracts to sell, for a fixed-dollar or other currency amount, foreign currency
approximating the value of some or all of the Funds' portfolio securities
denominated in that currency. Under normal circumstances, we will consider the
possibility of changes in currency exchange rates as part of the Funds'
long-term investment strategies.

While we may trade forward contracts to reduce certain risks, trading in
these instruments itself entails other risks. If we are incorrect in our
forecast of currency prices, the Funds may experience poorer overall performance
by using the contracts than by not using them. In addition, some forward
contracts may not have a broad and liquid market, in which case we may not be
able to close them at a favorable price. For more information, see the Statement
of Additional Information.

FIXED-INCOME SECURITIES. The Equity Funds may invest in convertible securities,
preferred stocks, bonds, debentures, and other corporate obligations when we
believe that these investments offer opportunities for capital appreciation. For
Balanced Fund, we also consider current income in the selection of these
securities.

The Equity Funds may purchase convertible securities and preferred stocks
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 none rated lower than B. Securities rated B
generally are less desirable investments and are deemed speculative as far as
the issuer's capacity to pay interest and repay principal over a long period of
time. The Equity Funds also may invest in unrated convertible securities and
preferred stocks if we believe they are equivalent in quality to the rated
securities that the Funds may buy.

34 Founders Funds Prospectus

<PAGE>

The Equity Funds will invest in bonds, debentures, and corporate
obligations--other than convertible securities and preferred stock--only if they
are rated investment grade (BBB or higher) at the time of purchase, although the
Balanced Fund may invest up to 5% of its total assets in lower-grade debt
securities. We will not invest more than 5% of a Fund's total assets in ^ bonds,
debentures, convertible securities, and corporate obligations ^ rated below
investment grade, either at the time we purchase them or as a result of a rating
reduction after purchase, or in unrated securities that we believe are
equivalent in quality to securities rated below investment grade. This 5%
limitation does not apply to preferred stocks.

Debt securities in which the Equity Funds and the Government Securities Fund
may invest generally are subject to both 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. MARKET RISK means that the market values of
the debt securities may be affected by interest rate changes. An increase in
interest rates tends to reduce the market values of debt securities, whereas a
decline in interest rates tends to increase their values. Although we limit the
Funds' investments in debt securities to those we believe are not highly
speculative, investments in debt securities rated BBB, Baa or lower, or which
are unrated, may increase credit and market risk.

The Statement of Additional Information includes more discussion of the
Funds' policies regarding investments in fixed-income securities and the
corporate bond rating categories.

RULE 144A AND ILLIQUID SECURITIES. Each of the Funds, except Blue Chip,
Frontier, and Money Market Funds, 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, meaning that they cannot be resold
to the public without registration under the Securities Act of 1933. However,
Rule 144A securities may have a liquid market among qualified institutional
investors such as the Funds.

The Funds' board of directors has adopted guidelines and procedures to be
followed in determining whether a Rule 144A security may be deemed to be readily
marketable, based on factors such as trading activity and dealer interest. The
liquidity of each Fund's investments in Rule 144A securities could be impaired
if institutional investors become disinterested in purchasing such securities.

Each of the Funds except the Money Market Fund may invest up to 15% of the
market value of its net assets, measured at the time of purchase, in securities
that 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.
Securities that are not readily

May 1, 1997 35

<PAGE>

marketable are those that, 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.

Investments in illiquid securities, which may include 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.

For more information, see the Statement of Additional Information.

DERIVATIVES: FUTURES CONTRACTS AND OPTIONS. In order to hedge their portfolios,
all Funds except the Money Market Fund may enter into futures contracts. In
addition, certain Funds (other than the Government Securities and Money Market
Funds) may purchase and/or write options on securities, stock indices, futures
contracts and foreign currencies for hedging purposes. The successful use of
these instruments draws upon skills and experience that are different from those
needed to select the other securities in which the Funds invest. All of these
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 these instruments or
may realize losses and thus be in a worse position. In addition, the markets for
these instruments may not be liquid. These instruments and their risks are
discussed in greater detail the Statement of Additional Information.

OTHER INVESTMENTS.

MONEY MARKET AND GOVERNMENT SECURITIES FUNDS. Money Market Fund invests in
U.S. government obligations, commercial paper, bank obligations, repurchase
agreements, 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.

TEMPORARY INVESTMENTS. Up to 100% of the assets of the Equity Funds may be
invested temporarily in the above securities, in cash, or in other cash
equivalents, if we determine it is appropriate for purposes of enhancing
liquidity or preserving capital in light of ^ adverse market or economic
conditions. While a Fund is in a defensive position, its 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.

GOVERNMENT SECURITIES. U.S. government obligations include Treasury bills,
notes and bonds; Government National Mortgage

36 Founders Funds Prospectus

<PAGE>

Association (GNMA) pass-through securities; and issues of U.S. 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), 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. The Fund also may invest in obligations issued by the
International Bank for Reconstruction and Development (IBRD or "World Bank").
Mortgage-related securities, which are interests in pools of mortgage loans made
to home buyers, pose the risk that borrowers may prepay their mortgages faster
than expected, which may adversely affect the instruments' average life and
yield. For more information on the mortgage-related securities in which the
Funds may invest, including GNMA, FNMA, FHLMC and other mortgage pass-through
securities and collateralized mortgage obligations, see the Statement of
Additional Information.

COMMERCIAL PAPER AND OTHER CASH SECURITIES. Commercial paper purchased by
Money Market Fund must be 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
Statement of Additional Information.

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.

WHEN-ISSUED SECURITIES. The Funds (except the Money Market Fund) may
purchase securities with settlement taking place in the future, and in
securities for which additional installments of the original issue price are
payable in the future. For more information concerning these types of
securities, see the Statement of Additional Information.

REPURCHASE AGREEMENTS. A repurchase agreement is a transaction under which a
Fund acquires a security and simultaneously promises to sell that same security
back to the seller at a higher price, usually within a seven-day period. Such
agreements may be considered "loans" under the

May 1, 1997 37

<PAGE>

Investment Company Act of 1940 (the 1940 Act). The Funds may enter into
repurchase agreements with banks or well-established securities dealers meeting
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 has 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 "Investment Policies and Risks--Rule 144A and Illiquid
Securities" for each Fund's limit on investments in illiquid securities and in
repurchase agreements which mature in more than seven days.

PORTFOLIO TURNOVER. None of the Funds has any limitations regarding portfolio
turnover. At our discretion, securities may be sold regardless of how long they
have been held when investment considerations warrant such action. In addition,
Discovery, Passport, Frontier, ^Special, International Equity, Worldwide Growth,
and Growth Funds may engage in short-term trading. The portfolio turnover rates
of the Funds therefore may be higher than some other mutual funds with the same
investment objectives. (A portfolio turnover rate in excess of 100% is
considered to be high.) This policy also may result in greater brokerage
commissions and the acceleration of capital gains which are taxable when
distributed to shareholders. The portfolio turnover rates of all of the Funds
except the Money Market Fund are found under "Financial Highlights." For more
information concerning the Funds' portfolio turnover rates, brokerage practices
and certain federal income tax matters, see the Statement of Additional
Information.

INVESTMENT RESTRICTIONS. The investment objective of each Fund is fundamental
and may not be changed without a vote of the Fund's shareholders. In addition,
certain restrictions set forth in the Statement of Additional Information may
not be changed without the approval of the Fund's shareholders. For example, a
Fund may not borrow money except from banks for extraordinary or emergency
purposes in an amount up to 10% of its net assets (Special and International
Equity Funds may effect borrowings in amounts up to 33 1/3% of their respective
net assets). Except for those fundamental restrictions, the strategies and
policies used by the Funds in pursuing their objectives may be changed by the
Funds' board of directors without shareholder approval. A list of additional
fundamental and nonfundamental investment policies and restrictions is contained
in the Statement of Additional Information.

38 Founders Funds Prospectus

<PAGE>

GENERAL INFORMATION
- -------------------------------------------------------------------------------

UNDERSTANDING FUND EXPENSES
You will incur, directly or indirectly, various costs and expenses as an
investor in the Funds. You can find a more complete description of each Fund's
costs and expenses in the section entitled "The Funds and Their Management."
Lower expenses benefit Fund shareholders by increasing a Fund's total return.
All of the Founders Funds are "no-load," which means we don't charge you
any fees to buy, sell, or exchange shares (although a $6 fee will be assessed
for wire redemptions). In a "load" fund, you would incur some or all of these
expenses.

ANNUAL FUND OPERATING EXPENSES
These tables, appearing in "The Funds and Their Management," summarize the
annual fees and expenses paid by each Fund, expressed as a percentage of the
Funds' average net assets. We calculate these fees and expenses as a part of the
Funds' daily net asset values.

o MANAGEMENT FEES: These fees compensate the Funds' investment manager,
Founders Asset Management, Inc., for administering the Funds and selecting
the Funds' securities portfolios.

o 12B-1 FEES: These fees pay for a variety of promotional, marketing, sales,
and servicing activities associated with the distribution of Fund shares.
These activities include, but are not limited to:

o Preparing, printing, and mailing prospectuses, sales literature, and
other promotional materials to prospective investors
o Direct-mail solicitations
o Advertising
o Public relations
o Compensation of sales personnel, brokers, financial planners, or others
for their assistance in selling and distributing the Funds' shares
o Payments to financial intermediaries for shareholder support services

o OTHER EXPENSES: These include, but are not limited to, fees and expenses of
the Funds':

o Board of directors
o Custodian bank
o Legal counsel
o Independent accountants
o Fund accounting agent
o Transfer and shareholder servicing agents

o Registration of ^ shares under applicable laws

o Reports to shareholders

UNDERSTANDING FINANCIAL HIGHLIGHTS
The Financial Highlights tables included for each Fund under "The Funds and
Their Management" list financial information for the Fund for the past 10 years
(or for each year since the Fund's inception, if it has existed for less than 10
years). Below are definitions of the items in the tables.

1. NET ASSET VALUE (NAV). The net asset value reflects the daily price of one
share of a Fund. We calculate this by dividing the net assets of the Fund
(assets minus

May 1, 1997 39

<PAGE>

liabilities) by the number of outstanding Fund shares.

2. NET INVESTMENT INCOME. The total per-share income received by the Fund from
dividends and interest on securities, taking into account the undistributed
net investment income from the prior year, minus Fund expenses.

o DIVIDENDS (FROM NET INVESTMENT INCOME). The net income per share paid by
the Fund.

3. NET GAINS (OR LOSSES) ON SECURITIES, BOTH REALIZED AND UNREALIZED. The
per-share increase (or decrease) in the value of the securities held by a
Fund. A Fund REALIZES a gain (or loss) when it sells securities that have
appreciated (or depreciated). A gain (or loss) is UNREALIZED when the value
of the securities increases (or decreases) but the security is not sold.

o DISTRIBUTIONS (FROM CAPITAL GAINS). The per-share amount the Fund paid
to shareholders from REALIZED gains.

4. NET ASSET VALUE - END OF PERIOD. The value of one share of the Fund at the
end of the year.

5. TOTAL RETURN. The increase or decrease in the value of an investment in the
Fund over the course of the year, expressed as a percentage. This figure
includes changes in the NAV plus dividends and capital gain distributions.
When calculating the total return, we assume that dividends and
distributions are reinvested when distributed.

6. NET ASSETS - END OF PERIOD. The value of the Fund's assets, minus
liabilities, at the end of the year.

7. NET EXPENSES TO AVERAGE NET ASSETS. Expressed as a percentage, this figure
reflects the Fund's total out-of-pocket operating expenses divided by its
average net assets for the year.

8. GROSS EXPENSES TO AVERAGE NET ASSETS. Expressed as a percentage, this
figure reflects the Fund's total operating expenses (including fees offset
by credits earned on uninvested cash held at the Fund's custodian), divided
by its average net assets for the year.

9. RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS. This figure,
expressed as a percentage, reflects the Fund's net investment income
divided by its average net assets for the year.

10. PORTFOLIO TURNOVER RATE. This figure is a measure of the Fund's buying and
selling activity. It is computed by dividing the Fund's total security
purchases or sales (excluding short-term securities), whichever is less, by
the average monthly market value of the Fund's securities portfolio.

11. AVERAGE COMMISSION RATE PAID. The average per-share agency commissions paid
to brokers on equity securities trades during the year.

40 Founders Funds Prospectus

<PAGE>

CALCULATING SHARE PRICE
We determine each Fund's net asset value per share as of the close of regular
trading on the New York Stock Exchange (normally 4 p.m. Eastern time) on each
day that the Exchange is open. We calculate net asset value per share by
dividing the current market value of a Fund's total assets, less all
liabilities, by the total number of shares outstanding. If market quotations are
not readily available, we value the Funds' securities or other assets at fair
value as determined in good faith by the Funds' board of directors. The net
asset value of your shares when you redeem them may be more or less than the
price you originally paid, depending primarily upon the Fund's investment
performance. Money Market Fund will use its best efforts, under normal
circumstances, to maintain its net asset value at $1.00 per share.

We will price your purchase, exchange, or redemption of Fund shares at the
net asset value per share next determined after your ^ transaction request is
received in good order by us or our agents ^.

For more information concerning the computation of net asset value, see the
Statement of Additional Information.

DIVIDENDS AND DISTRIBUTIONS
Discovery, Passport, Frontier, ^Special, International Equity, Worldwide Growth,
Growth, and Blue Chip Funds intend to distribute net realized investment income
each December. Balanced Fund intends to distribute net realized investment
income on a quarterly basis every March, June, September, and December.
Government Securities Fund intends to declare dividends daily and distribute net
realized investment income monthly. Money Market Fund declares dividends daily,
which are paid on the first business day of every month. All Funds intend to
distribute any net realized capital gains, after utilization of capital loss
carryforwards, each December. 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 us. From time to time, the Funds may make
distributions in addition to those described above.

DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
You may elect to have your income dividends and capital gain distributions
reinvested in additional shares. We will assign you this option automatically if
you make no choice on the application. Otherwise, you may elect to have either
or both paid to you in cash.
Income dividends and capital gain distributions will be reinvested without a
sales charge at the net asset value on the ex-dividend date. If you have elected
to receive your dividends or capital gains in cash and the Postal Service cannot
deliver your checks, or if your checks remain uncashed for six months, we
reserve 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

May 1, 1997 41

<PAGE>

and capital gain 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 net investment income and net capital gains that they earn and distribute to
their shareholders. As described below, unless your account is not subject to
income taxes, you must include all dividends and capital gain distributions in
taxable income for federal, state and local income tax purposes. Dividends and
other distributions are taxable whether they are received in cash or reinvested
in the same or another Fund.

All dividends of net investment income from the Funds, such as dividends and
interest on their investments, 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.

In addition, the Funds realize capital gains and losses when they sell
securities for more or less than they paid. If total gains on sales exceed total
losses (including losses carried forward from prior years), the Fund has a net
realized capital gain. Net realized capital gains are divided into short-term
and long-term capital gains depending on how long the Fund held the security
that gave rise to the gains. The Funds' capital gain distributions consist of
long-term capital gains that are taxable at the capital gains rate. All distri-
butions of short-term capital gains will be taxable to you as ordinary income
and included in your dividends.

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.

At the end of each calendar year, we send 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 us.

You also may realize capital gains or losses when you sell Fund shares at
more or less than the price you originally paid. 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.
Foreign shareholders may be subject to federal income tax rules that differ from
those described above.

If you do not provide your Social Security or tax identification number when
you open your account, federal

42 Founders Funds Prospectus

<PAGE>

tax law requires the Fund to withhold 31% of all dividends, capital gain
distributions, redemptions and exchange proceeds. We also may refuse to sell
shares to anyone not furnishing these numbers, or may take such other action as
may be deemed necessary, including redeeming some or all of the shareholder's
shares. In addition, a shareholder's account may be reduced by $50 to reimburse
the Fund for the penalty imposed by the Internal Revenue Service for failure to
report the investor's taxpayer identification number on information reports.

We advise you to consult your own tax adviser regarding the particular tax
consequences of an investment in a Fund.

FOUNDERS' SERVICES TO THE FUNDS

Founders Funds, Inc. is a no-load mutual fund, registered with the SEC as a
diversified, open-end management investment company. It was incorporated on June
19, 1987, under the laws of Maryland.

Founders serves as investment adviser to each of the Funds. Founders is
owned by Mr. Bjorn K. Borgen, its Chairman, Chief Executive Officer, and Chief
Investment Officer. The affairs of the Funds, including the services provided by
Founders, are subject to the supervision and general oversight of the Funds'
board of directors.

CODE OF ETHICS. The Funds 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 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. We carefully monitor compliance with the code of ethics by all
personnel.

INVESTMENT ADVISORY SERVICES. Founders, which has acted as an investment
adviser since 1938, manages the investment of each Fund's assets and provides
certain related 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 0.99%
Passport Fund 1.00%
Frontier Fund 0.94%
Special Fund 0.76%
International Equity Fund 1.00%
Worldwide Growth Fund 0.96%
Growth Fund 0.71%
Blue Chip Fund 0.63%
Balanced Fund 0.64%
Government Securities Fund 0.65%
Money Market Fund 0.50%

FUND EXPENSES. Each investment advisory agreement between a Fund and
Founders provides that expenses relating to the Fund's operations which

May 1, 1997 43

<PAGE>

are not expressly assumed by Founders shall be paid by the Fund, including the ^
fees 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 1996
(excluding brokerage commissions) represented the following percentages of
average daily net assets:

Discovery Fund 1.59%
Passport Fund 1.59%
Frontier Fund 1.53%
Special Fund 1.36%
International Equity Fund 2.00%*
Worldwide Growth Fund 1.55%
Growth Fund 1.20%
Blue Chip Fund 1.16%
Balanced Fund 1.12%
Government Securities Fund 1.29%**
Money Market Fund 0.88%

* Founders is voluntarily reimbursing certain expenses of the International
Equity Fund pursuant to a commitment to the Fund. In the absence of this
expense limitation, the total expenses of the International Equity Fund for
the fiscal year ended December 31, 1996 would have been 2.52% of the Fund's
average daily net assets.
** Founders is voluntarily waiving certain 12b-1 fees of the Government
Securities Fund pursuant to a commitment to the Fund. Had these fees not been
waived, the total expenses of the Government Securities Fund for the fiscal
year ended December 31, 1996 would have been 1.49% of the Fund's average
daily net assets.

SHAREHOLDER AND TRANSFER AGENT SERVICES. In addition, the Funds have 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, the Funds pay Founders a monthly fee. Out of this fee,
Founders pays the fees charged the Funds by Investors Fiduciary Trust Company
("IFTC"), the Funds' transfer agent. Out-of-pocket reimbursements are also
paid by the Funds. In 1996, Founders received aggregate shareholder services and
transfer agent fees of $24.42 for each shareholder account. Of this amount,
$10.41 per shareholder account was paid to IFTC. ^ Shareholder services and
transfer agent fees charged by Founders and IFTC are not charged to each
shareholder's account, but are expenses of the Fund paid from the Fund's assets.
IFTC, located at 127 West 10th Street, Kansas City, Missouri 64105, also serves
as the Funds' dividend disbursing agent, redemption agent, and custodian.

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 IFTC and/or
Founders. In such cases, Founders is authorized to pay the entity a sub-transfer
agency or recordkeeping fee, and to be reimbursed for such payments by the Fund
based

44 Founders Funds Prospectus

<PAGE>

on the number of participants in the entity's omnibus account. Entities
receiving such fees may also receive 12b-1 fees. See "Distribution Plans."

OTHER ACCOUNTING AND ADMINISTRATIVE SERVICES. Founders also performs
portfolio accounting for the Funds which includes, among other duties,
calculating net asset value, monitoring compliance with regulatory requirements,
and reporting. The Funds pay Founders a fee equal to 0.06% of the first $500
million of the net assets of all Funds as a group, and 0.02% of the net assets
of all Funds as a group in excess of $500 million, allocated on a pro rata basis
among the Funds based on relative net assets, plus out-of-pocket reimbursement.
In 1996, Founders received aggregate portfolio accounting fees of $823,632.

SELECTION OF BROKERS. 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 further explains
the selection of brokerage firms.

DISTRIBUTION PLANS
Discovery, Passport, Frontier, Special, International Equity, Worldwide Growth,
Growth, Blue Chip, Balanced, and Government Securities Funds (the "12b-1
Funds") have adopted Distribution Plans pursuant to Rule 12b-1 under the 1940
Act. These Plans permit each of the 12b-1 Funds to use its assets to finance
certain activities relating to the distribution of its shares. Each Plan
provides that the Fund may pay distribution and related expenses of up to 0.25%
each year of its average daily net assets. Expenses permitted to be paid by a
12b-1 Fund under its Plan include: preparation, printing and mailing of
prospectuses, reports to shareholders (such as semiannual and annual reports,
performance reports, and newsletters), sales literature and other promotional
material to prospective investors; direct mail solicitation; advertising; public
relations; compensation of sales

May 1, 1997 45

<PAGE>

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 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.

46 Founders Funds Prospectus

<PAGE>

VOTING RIGHTS
Each full share of the Funds has one vote and fractional shares have
proportionate fractional votes. Shares of the Funds are generally voted in the
aggregate except where separate voting by each Fund is required by law. The
Funds are not required to hold regular annual meetings of shareholders and do
not intend to do so; however, the board of directors will call special meetings
of shareholders if 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. Each Fund will assist shareholders in
communicating with other shareholders as required by the 1940 Act. Directors may
be removed by action of the holders of a majority or more of the outstanding
shares of all of the Funds.

FUND PERFORMANCE INFORMATION
We may, from time to time, include the yield or total return of the Funds (other
than Money Market Fund) in advertisements or reports to share-
holders or prospective investors, and may use performance comparisons from a
variety of financial and trade publications. For more information, see the
Statement of Additional Information.

May 1, 1997 47

<PAGE>

INVESTING IN THE FOUNDERS FUNDS
- -------------------------------------------------------------------------------

OPENING YOUR ACCOUNT WITH US

You may establish the following types of accounts by completing a Founders New
Account Application:

o INDIVIDUAL OR JOINT TENANT. Individual accounts have a single owner. Joint
accounts have two or more owners. Unless specified otherwise, we set up
joint accounts with rights of survivorship, which means that upon the death
of one account holder, ownership passes to the remaining account holders.

o TRANSFER ON DEATH. A way to designate beneficiaries on an Individual or
Joint Tenant account. We will provide the rules governing this type of
account when the account is established.

o 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
invest on his/her own. Depending on state laws, we will set the account up
as an UGMA or UTMA.

o TRUST. The trust needs to be effective before we can establish this kind of
account.

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

RETIREMENT ACCOUNTS
You may set up the following retirement accounts by completing a Founders IRA
Application:

o IRA. Any adult under age 70 1/2 who has earned income may contribute up to
$2,000 (or 100% of compensation, whichever is less) to an IRA per tax year.
If your spouse is not employed, you can contribute up to $4,000 annually to
two IRAs, as long as no more than $2,000 is contributed to a single
account.

o ROLLOVER IRA. 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 of receipt. You also need to complete
a Founders Direct Rollover / Transfer Form.

o SEP-IRA. Allows employers to make direct contributions to employees' IRAs
with minimal reporting and disclosure requirements. Call 1-800-934-GOLD
(4653) for instructions.

48 Founders Funds Prospectus

<PAGE>

o PROFIT-SHARING AND MONEY PURCHASE PENSION PLAN. A retirement plan that
allows self-employed persons or small business owners and their employees
to make tax-deductible contributions for themselves and any eligible
employees. Call 1-800-934-GOLD (4653) for instructions.

o 403(B)(7) CUSTODIAL ACCOUNT. Available to employees of ^ tax-exempt
institutions, such as schools, hospitals, and charitable organizations,
that have active accounts with Founders. Call 1-800-934-GOLD (4653) for
instructions.

o 401(K) PLAN. A retirement plan that allows employees of corporations of any
size to contribute a percentage of their wages on a tax-deferred basis.
Call 1-800-934-GOLD (4653) for additional information.

MINIMUM INITIAL INVESTMENTS
To open a Founders account, please enclose a check for one of the following
amounts:

o $1,000 minimum for most regular accounts.

o $500 minimum for IRA and UGMA/UTMA accounts.

o No minimum if you begin an Automatic Investment Plan of $50 or more per
month.

MINIMUM ADDITIONAL INVESTMENT

o $100 for mail, TeleTransfer and wire payments

o $50 for Automatic Investment Plan payments

May 1, 1997 49

<PAGE>

CONDUCTING BUSINESS WITH FOUNDERS
- --------------------------------------------------------------------------------
HOW TO OPEN AN ACCOUNT ADD TO AN
ACCOUNT

BY PHONE
- --------------------------------------------------------------------------------
If you already have an TeleTransfer allows
account with us and you to make electronic
1-800-525-2440 have exchange purchases directly
Monday - Friday privileges, you can call from a checking or
7 a.m.-6:30 p.m. to open an account in savings account at
Saturday 9 a.m.-2 another Fund by your request. You
p.m. (MST) exchange. The names may establish
and registrations need TeleTransfer when
[Graphic: Telephone] to be identical on both your account is
accounts. opened, or add it
later by completing an
Account Changes
Form. We charge no
fee for TeleTransfer
transactions.

BY MAIL
- --------------------------------------------------------------------------------
Founders Funds Complete the proper Make your check
P.O. Box 173655 application. Make your payable to "Founders
Denver, CO 80217-3655 check payable to Funds, Inc." Enclose
"Founders Funds, the purchase stub
If you are using Inc." We cannot (from your most
certified or registered establish new recent confirmation or
mail or an overnight accounts with third- quarterly statement);
delivery service, send party checks. if you do not have
your correspondence one, write the Fund
to: name and your
Founders Funds account number on
2930 East Third the check. For IRAs,
Avenue please state the
Denver, CO 80206-5002 contribution year.
Founders Funds does
[Graphic: Mailbox] not normally accept
third-party checks.

IN PERSON
- --------------------------------------------------------------------------------
Visit the Founders Visit the Founders
Investor Center. Investors Center.
Founders Investor Hours are 8 a.m. to 5 Hours are 8 a.m. to 5
Center p.m. Mountain Time, p.m. Mountain Time,
Founders Financial Monday through Monday through
Center Friday. Call us at 1- Friday. Call us at 1-
2930 East Third Ave. 800-525-2440 for 800-525-2440 for
(at Milwaukee) directions. directions.
Denver, CO

[Graphic: Two hands shaking]

- --------------------------------------------------------------------------------
HOW TO SELL SHARES EXCHANGE
SHARES

BY PHONE
- --------------------------------------------------------------------------------
1-800-525-2440 We can send If you have telephone
Monday - Friday proceeds only to the exchange privileges,
7.m.-6:30 p.m. address or bank of you may exchange
Saturday 9 a.m.-2 record. Minimum from one fund to
p.m. (MST) redemption - $100; another. The names
If you have telephone and registrations
[Graphic: Telephone] $1,000 minimum for a need to be identical
redemption by wire. on both accounts.
Phone redemption is
not available on
retirement accounts
and certain other
accounts. You may add
phone redemption
privileges by completing
an Account Changes Form.

BY MAIL
- --------------------------------------------------------------------------------
Founders Funds
P.O. Box 173655 In a letter, please tell In a letter, include
Denver, CO 80217- us the number of the name(s) of the
3655 shares or dollars you account owner(s), the
wish to redeem, the Fund and account
If you are using name(s) of the number you wish to
certified or registered account owner(s), the exchange from, your
mail or an overnight Fund and account Social Security or tax
delivery service, send number, and your identification number,
your correspondence Social Security or tax the dollar or share
to: identification number. amount, and the
Founders Funds All account owners account you wish to
2930 East Third need to sign the exchange into. All
Avenue request exactly as their account owners need
Denver, CO 80206- names appear on the account. to sign the request
5002 We can send proceeds exactly as their
only to the address or names appear on the
bank of record. account. Exchange
requests may be
faxed to us at 303-
394-4021.
[Graphic: Mailbox]

IN PERSON
- --------------------------------------------------------------------------------
Visit the Founders Visit the Founders
Investor Center, 8 Investor Center, 8
Founders Investor a.m. to 5 p.m., a.m. to 5 p.m.,
Center Mountain Time, Mountain Time,
Founders Financial Monday through Monday through
Center Friday. Call us at 1- Friday. Call us at 1-
2930 East Third Ave. 800-525-2440 for 800-525-2440 for
(at Milwaukee) directions and to ask directions and to ask
Denver, CO whether all account whether all account
owners need to be owners need to be
[Graphic: Two hands present. present
shaking]

50 Founders Funds Prospectus
May 1, 1997 51

<PAGE>

CONDUCTING BUSINESS WITH FOUNDERS (CONT'D)

BY WIRE
- --------------------------------------------------------------------------------
Complete and mail the Wire funds to:
proper application. Investors Fiduciary
[Graphic: Tower with Wire funds to: Trust Company
dollar sign Investors Fiduciary ABA # 101003621
above] Trust Company For Credit to Account
ABA # 101003621 # 751-842-0
For Credit to Account Please indicate the
# 751-842-0 Fund name and your
Please indicate the account number, and
Fund name and your indicate the name(s)
account number, and of the account
indicate the name(s) owner(s).
of the account owner(s).

ELECTRONICALLY
- --------------------------------------------------------------------------------
Complete and mail the Automatic Investment
[Graphic: Person at proper application. Plan (AIP)
computer Automatic Investment allows you to make
terminal] Plan (AIP) electronic purchases
allows you to make directly from a
electronic purchases checking or savings
directly from a account. The
checking or savings minimum to open an
account. The minimum account is $50 per
to open an account is month.
$50 per month. Once established, AIP
Once established, AIP purchases take place
purchases take place automatically on
automatically on approximately the 5th
approximately the 5th and/or 20th of the
and/or 20th of the month. month.
We charge no fee for AIP. We charge no fee for
AIP.

FASTLINE
- --------------------------------------------------------------------------------
Follow instructions Follow instructions
provided when you provided when you
call. call.
1-800-947-FAST (3278)
Automated telephone
service

[Graphic: Telephone]
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
HOW TO SELL SHARES EXCHANGE
SHARES

BY WIRE
- --------------------------------------------------------------------------------
$6 fee; $1,000 Not applicable.
minimum. Monies are
[Graphic: Tower with usually received the
dollar sign business day after
above] the date you sell.
Unless otherwise
specified, we will
deduct the fee from
your redemption
proceeds.

ELECTRONICALLY
- --------------------------------------------------------------------------------
[Graphic: Person at Not applicable. Not applicable.
computer
terminal]

FASTLINE
- --------------------------------------------------------------------------------
We can send Follow instructions
proceeds only to the provided when you
address or bank of call. $100 minimum.
1-800-947-FAST record. Minimum
(3278) redemption - $100.
Phone redemption is
Automated telephone not available on
service retirement accounts
and certain other
accounts. You may
add phone
redemption privileges
by completing an
Account Changes
Form.
[Graphic: Telephone]

52 Founders Funds Prospectus
May 1, 1997 53

<PAGE>

PURCHASING SHARES 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 or transaction fee, or have different account minimums.

SELLING SHARES OF FOUNDERS FUNDS
o SHARES RECENTLY PURCHASED BY CHECK OR TELETRANSFER. Redemptions of shares
purchased by check (other than purchases by cashier's check) or
TeleTransfer will be placed on hold until your check has cleared (which may
take up to 10 days). During this time, you may make exchanges to another
Fund but may not receive the proceeds of redemption. Although payment may
be delayed, the price you receive for your redeemed shares will not be
affected.

o INDIVIDUAL, JOINT TENANT, TRANSFER ON DEATH AND UGMA/UTMA ACCOUNTS. If
requesting a redemption in writing, a letter of instruction needs to be
signed by all account owners as their names appear on the account.

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

o TRUST ACCOUNTS. The trustee needs to sign a 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.

o CORPORATION OR OTHER ENTITY. A certified corporate resolution complete with
a corporate seal or signature guarantee needs to be provided. At least one
person authorized to act on the account needs to sign the letter.

SIGNATURE GUARANTEE
For your protection, we require a guaranteed signature if you request:

o A redemption check made payable to anyone other than the shareholder(s) of
record.
o A redemption check mailed to an address other than the address of record.
o A redemption check or wire sent to a bank other than the bank we have on
file.
o A redemption check mailed to an address that has been changed within 30
days of your request.
o A redemption for $50,000 or more (excluding accounts held by a
corporation).

You can have your signature guaranteed at a:

o bank
o broker/dealer
o credit union (if authorized under state law)
o securities exchange/association
o clearing agency
o savings association

Please note that a notary public cannot provide a signature guarantee.

REDEMPTION PROCEEDS
We can deliver redemption proceeds to you:

o BY CHECK. Checks are sent to the address of record. If you request that a
check be sent to another

54 Founders Funds Prospectus

<PAGE>

address, we require a signature guarantee. (See
"Signature Guarantee.") If you don't specify, we will deliver proceeds via
check.

o BY WIRE. $6 fee; $1,000 minimum. Monies are usually received the business
day after the date you sell. Unless otherwise specified, we will deduct the
fee from your redemption proceeds.

o BY TELETRANSFER. No fee. Monies are usually transferred to your bank two
business days after you sell. Call your bank to find out when monies are
accessible.

OVERALL POLICIES REGARDING TRANSACTIONS

We cannot execute transaction requests that are not in good order. You will be
contacted in writing if this occurs. Call 1-800-525-2440 if you have any
questions about these procedures.

We cannot accept conditional transactions requesting that a transaction
occur on a specific date or at a specific share price. However, we reserve the
right to allow shareholders to exchange from the Money Market Fund to another
fund of their choice on a predetermined date, such as the day after
distributions are paid.

TRANSACTIONS CONDUCTED BY PHONE, FAX, FASTLINE, OR AN ONLINE COMPUTER SERVICE.
Neither the Funds, Founders, nor any of their agents are responsible for the
authenticity of purchase, exchange, or redemption instructions received by one
of these methods.

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 unauthorized or
fraudulent transactions.

As a result of your executing such a release, you bear the risk of loss from
an unauthorized or fraudulent transaction. However, if the Fund fails to employ
reasonable procedures to attempt to confirm that telephone instructions are
genuine, the Fund may be liable for any resulting losses. These procedures
include, but are not necessarily limited to, one or more of the following:

o requiring personal identification prior to acting upon instructions

o providing written confirmation of such transactions

o tape-recording telephone instructions

EXCESSIVE TRADING. To maintain competitive expense ratios and to avoid
disrupting the management of each Fund's portfolio, we reserve the right to
suspend or terminate the exchange privilege for any shareholder (including a
shareholder whose account is managed by an adviser) when the total exchanges out
of any one of the Funds exceed four in any calendar year. We will provide
written notification to any investor whose exchange privilege is being revoked
and will provide an effective date of revocation, which will

May 1, 1997 55

<PAGE>

not be less than 15 calendar days after the notification date.

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. We consider investments to be received in good order when
all required documents and your check or wired funds are received by us or our
agents. Under certain circumstances, payment of redemption proceeds may be
delayed for up to seven calendar 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 closings,
or under any emergency circumstances, as determined by the Securities and
Exchange Commission, we may suspend redemptions or postpone payments. If you are
unable to reach us by phone, consider sending your order by overnight delivery
service.

FAX TRANSMISSIONS. Exchange instructions may be faxed, but we cannot process
redemption requests received by fax.

CERTIFICATES. If you are selling shares previously issued in certificate form,
you need to include the certificates along with your redemption/exchange
request. If you have lost your certificates, please call us.

U.S. DOLLARS. Purchases need to be made in U.S. dollars, and checks need to be
drawn on U.S. banks. We cannot accept cash.

RETURNED CHECKS. If your check is returned due to insufficient funds, we will
cancel your purchase, 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.

ACCOUNT MINIMUMS. The Funds require you to maintain a minimum of $1,000 per
account ($500 for IRAs and UGMAs/UTMAs), unless you are investing under an
Automatic Investment Plan. If at any time, due to redemptions or exchanges, or
upon the discontinuance of an Automatic Investment Plan, the total value of your
account falls below this minimum, we may either charge a fee of $10, which will
be automatically deducted from your account, or close your account and mail the
proceeds to the address of record.

We will base the decision to levy the fee or close the account on our
determination of what is best for 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.

WE RESERVE THE RIGHT TO:

o reject any investment or application

o cancel any purchase due to nonpayment

o modify the conditions of purchase at any time

o waive or lower investment minimums

o limit the amount that may be purchased

56 Founders Funds Prospectus

<PAGE>

o perform a credit check on shareholders establishing a new account or
requesting checkwriting privileges.

SHAREHOLDER SERVICES
INVESTOR SERVICES
1-800-525-2440
Our Investor Services Representatives are available to assist you Monday through
Friday, from 7 a.m. to 6:30 p.m., Mountain time, and on Saturday, from 9 a.m. to
2 p.m., Mountain time. For your protection, we record calls to Investor
Services.

24-HOUR ACCOUNT INFORMATION

o BY PHONE: 1-800-947-FAST (3278)^ FASTLINE, our automated telephone service,
enables you to access account information, conduct exchanges and purchases
and request duplicate statements and tax forms 24 hours a day with a
Touch-tone phone.

o BY ONLINE COMPUTER SERVICES: By visiting Founders InvestorSITE on the World
Wide Web, you can access the latest Fund performance returns, daily prices,
portfolio manager commentaries, news articles about the Funds, and much
more. Shareholders may access account transaction histories and account
balances with a simple password. Our address is www.founders.com.

Founders information is also available at networth.galt.com/founders.

DAILY CLOSING PRICES
Founders QUOTELINE features the latest closing prices for the Funds, updated
each business day. Call 1-800-232-8088
24 hours a day, or reach us on the Internet at www.founders.com.
Fund prices for the prior business day are listed in the business section of
most major daily newspapers. Look in the Mutual Funds section under Founders.

FUND AND MARKET NEWS UPDATES
For the latest news on each of the Funds and commentary on market conditions,
call Founders INSIGHT. Recorded by our portfolio managers, it is available 24
hours a day. Call 1-800-525-2440 and press option 5 on your Touch-tone phone, or
access INSIGHT on the Internet at www.founders.com.

STATEMENTS AND REPORTS
o CONFIRMATION STATEMENTS. We will send you a confirmation after each
transaction, except in certain retirement accounts and where the only
transaction is a dividend or capital gain reinvestment or an Automatic
Investment Plan purchase. In those cases, your quarterly account statement
serves as your confirmation.

o ACCOUNT STATEMENTS. We will send you a consolidated statement at the end of
each quarter, showing that quarter's transactions and ending balances in
your accounts. The year-end statement shows the year's account activity.

o SHAREHOLDER REPORTS. The Funds prepare an annual report to shareholders as
of December 31 and a semiannual report as of June 30 each year. Each report
contains the Funds' financial statements, portfolio holdings, historical

May 1, 1997 57

<PAGE>

performance and commentary by the Funds' managers.

ESTABLISHING ADDITIONAL SERVICES
Many convenient service options are available for Founders Funds accounts. You
may call 1-800-525-2440 to request a form to establish the following services:

o AUTOMATIC INVESTMENT PLAN (AIP). Allows you to make automatic purchases of
at least $50 from a bank account once or twice a month. See "How to Add to
an ^ Account Electronically."

o TELETRANSFER PROGRAM. Allows you to purchase or redeem Fund shares with a
simple phone call at any time. Purchase or redemption amounts are
automatically transferred to/from your bank account. If you select an
Automatic Investment Plan, you are automatically authorized to participate
in the TeleTransfer program.

o TELEPHONE REDEMPTION. Available for regular (non-retirement) accounts only.

o TELEPHONE EXCHANGE. Allows you to exchange money between identically
registered accounts.

58 Founders Funds Prospectus

<PAGE>

o CHECKWRITING

o Available on Government Securities and Money Market Funds.

o May be established with a minimum account balance of $1,000.

o There is no fee for this service.

o Minimum amount per check: $500

o Maximum amount per check: $250,000

o DIVIDEND AND LONG-TERM CAPITAL GAIN DISTRIBUTION OPTIONS. Either or both
may be paid in cash or reinvested. Short-term capital gain distributions
are included in your dividends.

o SYSTEMATIC WITHDRAWAL PLAN. Permits you 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.

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

o DISTRIBUTION PURCHASE PROGRAM. Permits you to have capital gain
distributions and/or dividends from one Fund automatically reinvested in
another Fund account having a balance of at least $1,000 ($500 for IRAs or
UGMA/UTMAs).

May 1, 1997 59

<PAGE>

GLOSSARY OF TERMS
- -------------------------------------

AMERICAN DEPOSITARY RECEIPTS (ADRS): Negotiable certificates representing the
shares of a foreign-based corporation held in the vault of a U.S. bank and
entitling a shareholder to all dividends and capital gains of those shares. In
this prospectus, we also include American Depositary Shares in this definition.

AVERAGE ANNUAL TOTAL RETURN: The average annual compounded rate of return on a
hypothetical investment in a mutual fund for a specified time period.

BLUE-CHIP COMPANY: A large, well-established, stable, and mature company of
great financial strength.^

BOND: A way for a company or the government to raise capital wherein the company
or the government borrows from investors and promises to pay back principal plus
an agreed-upon rate of interest.^

BOND RATING: An evaluation of the possibility of default by a bond issuer,
whether corporate or governmental. This evaluation is based on an analysis of
the issuer's financial condition and profitability potential, and is reported
by, among others, Standard & Poor's, Moody's Investor's Service, and Fitch's
Investors Service.^

BROKER: An individual or firm who buys and sells securities for another
individual or firm, usually charging a commission for this service.

CAPITAL APPRECIATION: The increase in the value (market price) of shares owned.

CAPITAL GAINS: The profit realized when a security is sold at a price higher
than what you paid to buy it.

CERTIFICATE OF DEPOSIT (CD): A short- term debt security issued by a bank that
usually pays interest.

CHARTERED FINANCIAL ANALYST (CFA): Designation awarded by the Institute of
Chartered Financial Analysts to financial analysts who pass ^ prescribed
examinations.

COMMERCIAL PAPER: Short-term, unsecured promissory notes issued by corporations
to investors seeking to invest idle cash.

^
CONVERTIBLE SECURITY: Corporate securities that may be converted by their owner
into other securities (such as bonds or preferred stock into common stock) of
the same corporation at a prestated date and price.^

DIVERSIFICATION: A risk-management technique that mixes a number of different
investment instruments within a portfolio. Diversification reduces the impact of
one security on a portfolio's performance.

DIVIDEND: A portion of a company's earnings that it pays to its stockholders.

DOW JONES INDUSTRIAL AVERAGE (DJIA):^ A market indicator^ that comprises 30
actively traded blue-chip stocks (primarily industrials), and is widely regarded
by investors as representative of the securities market in general.

60 Founders Funds Prospectus

<PAGE>

EARNINGS: Corporate profits.

EARNINGS PER SHARE (EPS): Corporate profits divided by the number of outstanding
shares of stock.

EQUITY:^ Security representing an ownership interest in a company, including
common stocks and preferred stocks. Founders also considers securities
convertible into common stocks, such as convertible debt obligations and
warrants, to be equity securities. See "stock."

FORWARD FOREIGN CURRENCY CONTRACT ("FORWARD CONTRACT"): The purchase or sale
of a specific amount of a foreign currency at a specified price, with delivery
and settlement to be executed on a specified future date.

FOUNDERS: Founders Asset Management, Inc., the Funds' investment adviser,
distributor and shareholder servicing agent.

403(B)(7) PLAN: A retirement plan that allows employees of most tax-exempt
institutions, such as schools, hospitals, and charitable organizations, to set
aside funds on a tax-deferred basis.

401(K) PLAN: A plan that allows employees to contribute a percentage of their
pre-tax wages to a retirement account on a tax-deferred basis.

FUNDS: The 11 investment portfolios of Founders Funds, Inc.

HEDGING: A strategy used by professional money managers to offset investment
risk.

^
INDIVIDUAL RETIREMENT ACCOUNT (IRA): A personal, tax-deferred retirement account
that an employed person can establish.^

INFLATION: The increase in the price of consumer goods due to excessive money in
circulation - i.e., too much money chasing too few goods.

INTEREST:^ An amount of money a borrower must pay to his or her lender--
typically on a regular basis and added to the principal--to use the lender's
money.

JOINT TENANCY: When two or more people maintain a joint account with a bank,
brokerage firm, or mutual fund.

LARGE COMPANIES: Companies with market capitalizations or annual revenues
greater than $5 billion.

LIQUIDITY: The ease with which you can turn an asset into cash. Liquidity also
refers to the ability to buy or sell an asset quickly and in large quantities
without substantially affecting the asset's price.

LONG-TERM CAPITAL GAINS: Capital gains that are realized by the sale of a
security that is held for a year or more.^

MARKET CAPITALIZATION: The value of a corporation calculated by multiplying the
number of its outstanding shares of common stock by the current market price of
a share.

MARKET RISK: The risk that investors may lose some of their principal due to
market volatility.

May 1, 1997 61

<PAGE>

MATURITY: The length of time until a bond or other debt instrument "matures,"
or becomes due and payable.

MEDIUM-SIZED COMPANIES: Companies with market capitalizations or annual revenues
between $1 billion and $5 billion.

MONEY MARKET: The economic market that exists to provide very short-term funding
to corporations, municipalities, and the U.S. government.^

NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATIONS SYSTEM (NASDAQ):
A computer system that provides brokers and dealers with price quotations for
securities traded over the counter as well as for many New York Stock Exchange
listed securities.

NET ASSET VALUE (NAV): The market value of one share of a Fund, calculated by
dividing the net assets of the fund (assets minus liabilities) by the number of
outstanding Fund shares.

NEW YORK STOCK EXCHANGE (NYSE): The largest, oldest stock exchange in the United
States, founded in 1792.^

1940 ACT: The Investment Company Act of 1940, as amended; this is the primary
federal statute regulating mutual funds.

OVER THE COUNTER (OTC) SECURITY: A security, usually one of a smaller company,
that is not listed or traded on an organized exchange.

PORTFOLIO TURNOVER RATE: A measure of a fund's buying and selling activity
computed by dividing the fund's total security purchases or sales (excluding
short-term securities), whichever is less, by the average monthly market value
of the fund's securities portfolio.

^
PRINCIPAL: The face value of a debt instrument that must be repaid at maturity,
usually accompanied by interest.^

REPURCHASE AGREEMENT: A short-term investment instrument wherein the seller of a
security agrees to buy it back from the buyer at a predetermined time and price,
and turns the security over as collateral.

RESTRICTED SECURITY: A security that may not be resold to the public without
registration under the Securities Act of 1933.

RETURN (RATE OF RETURN): Profit or loss on an investment, usually expressed as a
percentage.

RIGHTS OF SURVIVORSHIP: A joint-tenant arrangement wherein, upon the death of
one joint tenant, ownership of the account automatically passes to the remaining
joint holder(s).

ROLLOVER: A direct transfer of money from one retirement account to another.

SHORT-TERM CAPITAL GAINS: Capital gains that are realized by the sale of a
security that is held for one year or less. Short-term capital gains are taxed
at ordinary income rates.

SIGNATURE GUARANTEE: Written confirmation by a financial institution that
verifies the legitimacy of a person's signature.

62 Founders Funds Prospectus

<PAGE>

SMALL COMPANIES: Companies with market capitalizations or annual revenues of $1
billion or less.

STANDARD & POOR'S 500 INDEX (S&P 500): The index tracking the performance of 500
widely held common^ stocks. The S&P 500 is regarded as a benchmark against which
changes in stock-market conditions are measured.

STOCK: Ownership of a company, represented by shares; also known as equity.
Holders of common stock typically have the right to vote and are entitled to
receive dividends when declared. Holders of preferred stock typically do not
vote, but receive dividends at a predetermined rate and have priority over
common stockholders as to dividends and their receipt of assets in a
liquidation.

STRAIGHT DEBT SECURITY: A bond that is not convertible into stock.

TAX-DEFERRED: The term used to describe an investment in which^ any money^
accumulated is not taxed until withdrawn.

TOTAL RETURN: The increase or decrease in the value of an investment, expressed
as a percentage. This figure includes any realized or unrealized capital gains
or losses, dividends and interest payments.

TRANSFER AGENT: An institution appointed by a mutual fund^ charged with
maintaining shareholder records and executing shareholder transactions.

TRANSFER ON DEATH (TOD): An account registration, either individual or joint,
that allows the account owner(s) to name one or more beneficiaries to be
entitled to the account upon the death(s) of the original owner(s).

TREASURIES: Marketable U.S. government debt obligations with varied maturities
that are backed by the full faith and credit of the U.S. government.^

TRUSTEE: A person who is legally responsible for holding property for and acting
on behalf of another person, called the beneficiary.

12B-1 FEES: Fees assessed to pay for a variety of promotional, marketing, sales,
and servicing activities associated with the distribution of mutual fund shares.

UNIFORM GIFT TO MINORS ACT/UNIFORM TRANSFERS TO MINORS ACT (UGMA/UTMA): Two
similar pieces of legislation that allow gifts of money, securities, and other
assets to be given to a minor and held in a custodial account that is managed by
an adult for the minor's benefit until the minor reaches the age of majority.

YIELD: The return on an investor's capital investment, expressed as a
percentage.

May 1, 1997 63

<PAGE>

(LOGO)
Founders Funds

FOUNDERS ASSET MANAGEMENT, INC.
Investment Adviser and Fund Distributor

Mailing address:
P.O. Box 173655 Denver, Colorado 80217-3655

Street address:
Founders Financial Center
2930 East Third Avenue Denver, Colorado 80206

TOLL-FREE: 1-800-525-2440

WWW.FOUNDERS.COM

FOR FURTHER INFORMATION
The Funds' annual and semiannual reports contain the Funds' financial
statements, portfolio holdings, historical performance, and commentary by Fund
management. In addition, a current Statement of Additional Information
("SAI"), containing more detailed information about the Funds, has been filed
with the Securities and Exchange Commission (the "SEC"), and is incorporated
into this prospectus by reference. You can obtain copies of the annual and
semiannual reports and the SAI without charge by calling Founders at
1-800-525-2440. In addition, the SEC maintains a website (http://www.sec.gov)
that contains the SAI, material incorporated in the SAI by reference, and other
information regarding the Funds and other registrants that file electronically
with the SEC.

FUND DIRECTORS
John K. Langum, Chairman
William H. Baughn
Bjorn K. Borgen
Alan S. Danson
Trygve E. Myhren
Jay A. Precourt
Eugene H. Vaughan, Jr.
Jonathan F. Zeschin

Founders Funds is a registered trademark of Founders Asset Management, Inc.

<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, 1997
- --------------------------------------------------------------------------------

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

This Statement of Additional Information relates to the eleven investment
portfolios (the "Funds") of Founders Funds, Inc. (the "Company"). A prospectus
for the Funds dated May 1, 1997 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.

<PAGE>

TABLE OF CONTENTS

INVESTMENT OBJECTIVES AND POLICIES...........................................3
Options On Stock Indices and Stocks....................................3
Futures Contracts......................................................6
Options on Futures Contracts...........................................9
Options on Foreign Currencies.........................................10
Risk Factors of Investing in Futures and Options......................11
Foreign Securities and ADRs...........................................12
Forward Contracts For Purchase or Sale of Foreign Currencies..........14
Illiquid Securities...................................................16
Rule 144A Securities..................................................17
Fixed-Income Securities...............................................18
Foreign Bank Obligations..............................................19
Repurchase Agreements.................................................20
Convertible Securities................................................20
Mortgage-Related Securities...........................................21
When-Issued Securities................................................24
Borrowing.............................................................25
Securities of Other Investment Companies..............................25
INVESTMENT RESTRICTIONS.....................................................25
DIRECTORS AND OFFICERS......................................................38
INVESTMENT ADVISER AND DISTRIBUTOR..........................................43
SHAREHOLDER SERVICING.......................................................48
Fund Accounting and Administrative Services Agreement.................48
Shareholder Services Agreement........................................49
Transfer Agency Agreement.............................................49
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER RATES...........................50
DETERMINATION OF NET ASSET VALUE............................................54
YIELD AND PERFORMANCE INFORMATION...........................................57
REDEMPTION PAYMENTS.........................................................60
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................................61
ADDITIONAL INFORMATION......................................................66
Capital Stock.........................................................66
Code of Ethics........................................................67
Purchases of Fund Shares by Founders Employees........................67
Custodian.............................................................67
Independent Accountants...............................................68
Registration Statement................................................68
Financial Statements..................................................68
APPENDIX....................................................................69
Ratings of Corporate Bonds............................................69
Ratings of Commercial Paper...........................................71
Ratings of Preferred Stock............................................72

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

As stated in the prospectus under "Investment Policies and Risks," in
order to hedge their portfolios, certain Funds may enter into futures contracts
and may purchase and/or write options on securities, stock indices, futures
contracts and foreign currencies. As of the date of this Statement of Additional
Information, none of the Funds intends to engage in such activities during the
coming year to the extent that more than 5% of its respective net assets would
be invested in such instruments, although each of the Funds reserves the right
to engage in such activities to the maximum extent permitted by its investment
policies and restrictions should circumstances change.

OPTIONS ON STOCK INDICES AND STOCKS

An option is a right to buy or sell a security at a specified price within
a limited period of time. All of the Funds other than the Special, Growth,
Government Securities, and Money Market Funds may write ("sell") covered call
options on any or all of their portfolio securities from time to time as
Founders shall deem appropriate; provided, however, that Balanced Fund may write
only covered call options on stocks. In addition, all of the Funds except the
Special, Balanced, Government Securities and Money Market Funds may purchase
options on securities. All Funds except Balanced, 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 that would make exercise profitable, the option generally will
expire without being exercised and the writer will realize a gain in the amount
of the premium. However, the gain may be offset by a decline in the market value
of the underlying security. If an option is exercised, the proceeds of the sale
of the underlying security by the writer are increased by the amount of the
premium and the writer realizes a gain or loss from the sale of the security.

So long as a secondary market remains available on an exchange, the writer
of an option traded on that exchange ordinarily may terminate his obligation
prior to the assignment of an exercise notice by entering into a closing
purchase transaction. The cost of a closing purchase transaction, plus
transaction costs, may be greater than the

<PAGE>

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.

All of the Funds, except the Special, Growth, Government Securities, and
Money Market Funds, may write (sell) options on stocks. These Funds retain the
freedom to write options on any or all of their portfolio securities and at such
time and from time to time as Founders shall determine to be appropriate. The
extent of a Fund's option writing activities will vary from time to time
depending upon Founders' evaluation of market, economic and monetary conditions.

When a Fund purchases a security with respect to which it intends to write
an option, it is likely that the option will be written concurrently with or
shortly after purchase. The Fund will write an option on a particular security
only if Founders believes that a liquid secondary market will exist on an
exchange for options of the same series, which will permit the Fund to enter
into a closing purchase transaction and close out its position. If the Fund
desires to sell a particular security on which it has written an option, it will
effect a closing purchase transaction prior to or concurrently with the sale of
the security.

A Fund may enter into closing purchase transactions to reduce the
percentage of its assets against which options are written, to realize a profit
on a previously written option, or to enable it to write another option on the
underlying security with either a different exercise price or expiration time or
both.

Options written by a Fund will normally have expiration dates between
three and nine months from the date written. The exercise prices of options may
be below, equal to or above the current market values of the underlying
securities at the times the options are written. From time to time for tax and
other reasons, the Fund may purchase an underlying security for delivery in
accordance with an exercise notice assigned to it, rather than delivering such
security from its portfolio.

As indicated, all Funds except the Balanced, Money Market and Government
Securities Funds may purchase options on stock indices. A stock index measures
the movement of a certain group of stocks by assigning relative values to the
stocks included in the index. Options on stock indices are similar to options on
securities. However, because options on stock indices do not involve the
delivery of an underlying security, the option represents the holder's right to
obtain from the writer in cash a fixed multiple of the amount by which the
exercise price exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the exercise date. The Funds
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

<PAGE>

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 a Fund must pay in rising markets, as cash reserves are invested.
In declining markets, any increase in the price of a put option is likely to be
offset by lower prices of stocks owned by a Fund.

Upon purchase by all Funds except Balanced, 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, Inc. ("NASDAQ"). Options traded on stock
exchanges are either broadly based, such as the Standard & Poor's 500 Stock
Index and 100 Stock Index, or involve stocks in a designated industry or group
of industries. The Funds may utilize either broadly based or market segment
indices in seeking a better correlation between the indices and the Funds'
portfolios.

Transactions in options are subject to limitations, established by each of
the exchanges upon which options are traded, governing the maximum number of
options that may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options are held in one or more
accounts. Thus, the number of options a Fund may hold may be affected by options
held by other advisory clients of Founders. As of the date of this Statement of
Additional Information, Founders believes that these limitations will not affect
the purchase of stock index options by the Funds.

<PAGE>

The value of a stock index option depends upon movements in the level of
the stock index rather than the price of a particular stock. Whether a Fund will
realize a gain or a loss from its option activities depends upon movements in
the level of stock prices generally or in an industry or market segment, rather
than movements in the price of a particular stock. Purchasing call and put
options on stock indices involves the risk that Founders may be incorrect in its
expectations as to the extent of the various stock market movements or the time
within which the options are based. To compensate for this imperfect
correlation, a Fund may enter into options transactions in a greater dollar
amount than the securities being hedged if the historical volatility of the
prices of the securities being hedged is different from the historical
volatility of the stock index.

One risk of holding a put or a call option is that if the option is not
sold or exercised prior to its expiration, it becomes worthless. However, this
risk is limited to the premium paid by the Fund. Other risks of purchasing
options include the possibility that a liquid secondary market may not exist at
a time when the Fund may wish to close out an option position. It is also
possible that trading in options on stock indices might be halted at a time when
the securities markets generally were to remain open. In cases where the market
value of an issue supporting a covered call option exceeds the strike price plus
the premium on the call, the portfolio will lose the right to appreciation of
the stock for the duration of the option.

FUTURES CONTRACTS

All Funds except Money Market Fund may enter into futures contracts for
hedging purposes. U.S. futures contracts are traded on exchanges that have been
designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a futures commission merchant (an "FCM")
or brokerage firm that is a member of the relevant contract market. 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.

<PAGE>

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, Treasury
notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, U.S. Treasury bills, bank certificates of deposit
and commercial paper. Foreign currency futures contracts currently are traded on
the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark
and on Eurodollar deposits.

Futures contracts entail risks. Although Founders believes that use of
such contracts could benefit the Funds, if Founders' investment judgment were
incorrect, a Fund's overall performance could be worse than if the Fund had not
entered into futures contracts. For example, if a Fund hedged against the
effects of a possible decrease in prices of securities held in the Fund's
portfolio and prices increased instead, the Fund would lose part or all of the
benefit of the increased value of these securities because of offsetting losses
in the Fund's futures positions. In addition, if the Fund had insufficient cash,
it might have to sell securities from its portfolio to meet margin requirements.
Those sales could be at increased prices that reflect the rising market and
could occur at a time when the sales would be disadvantageous to the Fund.

The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, the ability of investors to close out futures contracts through
offsetting transactions could distort the normal price relationship between the
cash and futures markets. Second, to the extent participants decide to make or
take delivery, liquidity in the futures markets could be reduced and prices in
the futures markets distorted. Third, from the point of view of speculators, the
margin deposit requirements in the futures markets are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures markets may cause temporary price distortions. Due to
the possibility of the foregoing distortions, a correct forecast of general
price trends still may not result in a successful use of futures.

<PAGE>

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 total 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 that 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 that 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.

<PAGE>

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, when, 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 that 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 three business days
for most types of securities, the futures markets can provide superior liquidity
to the securities markets. Nevertheless, there is no assurance a liquid
secondary market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish daily price
fluctuation limits for futures contracts and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it would be impossible
for a Fund to enter into new positions or close out existing positions. If the
secondary market for a futures contract were not liquid because of price
fluctuation limits or otherwise, a Fund would not promptly be able to liquidate
unfavorable futures positions and potentially could be required to continue to
hold a futures position until the delivery date, regardless of changes in its
value. As a result, a Fund's access to other assets held to cover its futures
positions also could be impaired.

OPTIONS ON FUTURES CONTRACTS

All Funds except Special, Balanced, 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 clearinghouse establishes a
corresponding short position for the writer of the option, in the case of a call
option, or a corresponding long position, in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits.

<PAGE>

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 clearinghouse assigns exercise notices
on a random basis to those of its members that have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers that have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.

The 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 Special, Balanced, Money Market and Government
Securities 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

<PAGE>

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 that 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.

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 that are different from those needed to select the other instruments
in which the Funds invest. All such practices entail risks and can be highly
volatile. Should interest or exchange rates or

<PAGE>

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 a Fund, as the writer of a covered call
option, to benefit from the appreciation of the underlying securities above the
exercise price of the option, and the possible need to defer closing out
positions in certain instruments to avoid adverse tax consequences. As a result,
no assurance can be given that the Funds will be able to use those instruments
effectively for the purposes set forth above.

In addition, options on U.S. Government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be affected adversely by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.

FOREIGN SECURITIES AND ADRS

The term "foreign securities" refers to securities of issuers, wherever
organized, that, in the judgment of Founders, 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
exchanges or over-the-counter.

<PAGE>

Investments in foreign countries involve certain risks that 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 that 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 that 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.

<PAGE>

payments of dividends, interest and principal. Such countries may include (but
are not limited to) Argentina, Australia, Austria, Belgium, Bolivia, Brazil,
Chile, China, Colombia, Costa Rica, Croatia, 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.

American Depositary Receipts and American Depositary Shares (collectively,
"ADRs") are receipts representing shares of a foreign corporation held by a U.S.
bank that entitle the holder to all dividends and capital gains on the
underlying foreign shares. 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.

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, at the same time they tend to limit any potential gain
that 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

<PAGE>

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 (or sometimes against another currency), Discovery,
Passport, Frontier International Equity, and Worldwide Growth Funds may each
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.
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, Passport, Frontier 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
such 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. Forward contracts
may, from time to time, be considered illiquid, in which case they would be
subject to the respective Funds' limitation on investing in illiquid securities,
as discussed below.

At the consummation of a forward contract for delivery by Discovery,
Passport, Frontier International Equity, and Worldwide Growth Funds 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, Passport, Frontier International Equity, or Worldwide Growth
Funds 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.

<PAGE>

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 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.

While forward contracts may be traded to reduce certain risks, trading in
forward contracts itself entails certain other risks. Thus, while the Funds may
benefit from the use of such contracts, if Founders is incorrect in its forecast
of currency prices, a poorer overall performance may result than if a Fund had
not entered into any forward contracts. Some forward contracts may not have a
broad and liquid market, in which case the contracts may not be able to be
closed at a favorable price. Moreover, in the event of an imperfect correlation
between the forward contract and the portfolio position that it is intended to
protect, the desired protection may not be obtained.

Dealings in forward contracts by Discovery, Passport, Frontier
International Equity, and Worldwide Growth Funds 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 that can be achieved at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to the decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might result should the value of such
currency increase.

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 that are not readily marketable. Subject to the overall 15%
limitation upon investments that are not readily marketable, certain of these
Funds may invest in restricted securities. Restricted securities are securities
that may not be resold to the public without registration under the Securities
Act of 1933 (the "1933 Act"). Restricted securities (other than liquid Rule 144A
securities, discussed below) and securities that are not readily marketable are
illiquid securities. Illiquid securities are securities that may be subject to
resale restrictions or that, 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

<PAGE>

restricted security, a Fund might have to bear the expense and incur the delays
associated with effecting registration. In purchasing illiquid securities, no
Fund intends to engage in underwriting activities, except to the extent a Fund
may be deemed to be a statutory underwriter under the 1933 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 that, as disclosed in the Prospectus, are restricted securities that
may or may not be readily marketable. Rule 144A securities are readily
marketable if institutional markets for the securities develop pursuant to Rule
144A that 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 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 securities that are not readily marketable. 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). 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. As indicated, Rule 144A securities will remain subject to certain
Fund's limitations on investments in restricted securities, those securities for
which there are legal and contractual restrictions on resale.

<PAGE>

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 ^ purchase
convertible securities and preferred stocks that are rated below investment
grade either at the time of purchase or as a result of a reduction in rating
after purchase. These Funds also may invest in unrated convertible securities
and preferred stocks if Founders believes they are equivalent in quality to the
rated securities that the Funds may buy. These Funds will invest in bonds,
debentures, and corporate obligations -- other than convertible bonds and
preferred stocks -- only if they are rated investment grade, although the
Balanced Fund may invest up to 5% of its total assets in lower-grade debt
securities. None of these Funds will invest more than 5% of its total assets in
bonds, debentures, convertible securities, and corporate obligations rated below
investment grade, either at the time of purchase or as a result of a rating
reduction after purchase, or in unrated securities that Founders believes are
equivalent in quality to securities rated below investment grade. This 5%
limitation does not apply to preferred stocks.

Investments in lower rated or unrated securities are generally considered
to be of high risk. Lower rated 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 ("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. The 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, unless such a disposition is necessary to
reduce a Fund's holdings of such securities to less than 5% of its total assets.
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

<PAGE>

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 preferred stocks and 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 securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower rated securities experiencing increased financial stress, that
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 that 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.

FOREIGN BANK OBLIGATIONS

The obligations of foreign branches of U.S. depository institutions
purchased by the Funds 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

<PAGE>

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).

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 "Investment Objectives and Policies -
Illiquid Securities."

None of the Funds has adopted any limits on the amounts of its total
assets that may be invested in repurchase agreements that 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 that 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 that gives the holder the 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

<PAGE>

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 and Balanced Funds 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"). Other
Funds also may invest in such securities for temporary defensive purposes. The
Government Securities Fund also may invest in debt securities that 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, that 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 that 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 that 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

<PAGE>

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 that 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") that 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

<PAGE>

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 that 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, that, 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.

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, ^ which may adversely affect the investment's average life
and ^ 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. Accordingly, amounts available for reinvestment by a Fund are likely
to be greater during a period of declining interest rates and, as a result,
likely to

<PAGE>

be reinvested at lower interest rates than during a period of rising interest
rates. 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. In addition, as a result of the uncertainty of cash flows of lower
tranche CMOs, the market prices of and yield on those tranches generally are
more volatile.

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.

The average life of CMOs is determined using mathematical models that
incorporate prepayment assumptions and other factors that involve estimates of
future economic and market conditions. These estimates may vary from actual
future results, particularly during periods of extreme market volatility. In
addition, under certain market conditions, such of those that developed in 1994,
the average weighted life of mortgage derivative securities may not accurately
reflect the price volatility of such securities. For example, in periods of
supply and demand imbalances in the market for such securities and/or in periods
of sharp interest rate movements, the prices of mortgage derivative securities
may fluctuate to a greater extent than would be expected from interest rate
movements alone.

A Fund's investments in CMOs also are subject to extension risk. Extension
risk is the possibility that rising interest rates may cause prepayments to
occur at a slower than expected rate. This particular risk may effectively
change a security that was considered short or intermediate-term at the time of
purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities.

WHEN-ISSUED SECURITIES

The Funds (other than the Money Market Fund) may purchase securities on a
when-issued or delayed-delivery basis; i.e., the securities are purchased with

<PAGE>

settlement taking place at some point in the future beyond a customary
settlement date. The payment obligation and, in the case of debt securities, the
interest rate that will be received on the securities are generally fixed at the
time a Fund enters into the purchase commitment. During the period between
purchase and settlement, no payment is made by the Fund and, in the case of debt
securities, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price, and
the Fund bears the risk of such market value fluctuations. The Fund will
maintain liquid assets, such as cash, U.S. government securities or other liquid
equity or debt securities, having an aggregate value equal to the purchase
price, in a segregated account with its custodian until payment is made. A Fund
also will segregate assets in this manner in situations where additional
installments of the original issue price are payable in the future.

BORROWING

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. Interest on borrowings will reduce a
Fund's income. See "Investment Restrictions" below for each Fund's limitation on
borrowing.

SECURITIES OF OTHER INVESTMENT COMPANIES

Each of the Funds may acquire securities of other investment companies if
they are acquired in connection with a plan of reorganization, merger or
consolidation. In addition, all of the Funds except the Money Market Fund may
purchase securities of other investment companies, although as of the date of
this Statement of Additional Information, no Fund intends to purchase such
securities during the coming year in excess of the following limitations: (a) no
more than 3% of the voting securities of any one investment company may be 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 may 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 may be invested in the securities of all such investment
companies. Should a Fund purchase securities of other investment companies,
shareholders may incur additional management, advisory, and distribution fees.

INVESTMENT RESTRICTIONS

Certain of 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 holders of a majority, as defined in
the Investment Company Act of 1940 (the "1940 Act"), of the outstanding voting
securities of that Fund.

<PAGE>

Other investment practices that 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
("Non-Fundamental"). 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:

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. 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. Money Market Fund
may invest up to 10% of its net assets in repurchase agreements maturing in over
seven days.

<PAGE>

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.

In applying their restrictions on investments in any one industry, set
forth below, the Funds use 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 Founders in the exercise of its
reasonable discretion.

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:

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 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.

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. 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.

2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in securities of that issuer.

<PAGE>

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 Depositary Receipts that are traded in the United States on exchanges
or over-the-counter.

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.

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. 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.

2. 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.

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.

<PAGE>

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. 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.

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.

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.*

- --------
* As of the date of this Statement of Additional Information, the Special Fund
does not intend to engage in short sales of securities during the coming year,
although it reserves the right to engage in such transactions to the maximum
extent permitted by its investment policies and restrictions should
circumstances change.

<PAGE>

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 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.

<PAGE>

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 U.S. 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. 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.

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.

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

<PAGE>

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. 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.

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.

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. 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.

<PAGE>

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 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.

<PAGE>

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 U.S. 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. Sell puts, calls, straddles, spreads or combinations thereof.

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

2. Make any investment that 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.

3. Invest in restricted securities.

<PAGE>

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. 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.

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.

<PAGE>

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.

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.

<PAGE>

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.

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

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 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 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.

<PAGE>

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.

5. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years, except that the Fund may invest in
obligations guaranteed by the U.S. government or issued by its agencies or
instrumentalities.

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

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

9. Purchase securities with legal or contractual restrictions on resale or
purchase securities which are not otherwise readily marketable, except that the
Fund may enter into repurchase agreements if, as a result thereof, 10% or less
of its net assets valued at the time of the transaction would be subject to
repurchase agreements maturing in more than seven days.

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

11. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. 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.

<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, Colorado
Director
Independent financial consultant. Senior Vice President, Opt. Mark
Technologies, Inc. (computerized securities trading services), and
President, D.H. Management, Inc. (general partner of limited
partnership with technology company holdings). Between March 1,
1992, 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, 1992.
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

<PAGE>

TRYGVE E. MYHREN
355 Clayton Street
Denver, Colorado
Director
President, Myhren Media, Inc., a firm that invests in and advises
media and communications companies. Director, The Providence
Journal Company, Providence, Rhode Island; Director, Advanced
Marketing Services, LaJolla, California; Director, Peapod, Ltd.,
Evanston, Illinois; Director, CableLabs, Boulder, Colorado; and
Director, J.D. Edwards, Denver, Colorado. Formerly, President of
The Providence Journal Company, a diversified media and
communications company, Providence, Rhode Island, from 1990 to 1996;
Chairman and Chief Executive Officer of American Television and
Communications Corporation, a cable television company, Denver,
Colorado, from 1981 to 1988; and Chairman, National Cable Television
Association, from 1986 to 1987. Mr. Myhren also serves on the board
of the University of Denver, Denver, Colorado. Born: January 3,
1937.

JAY A. PRECOURT
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, Texas
Director
President, Chief Executive Officer, Vice Chairman and Director,
Tejas Gas Corporation, Houston, Texas; Chairman of the Board of
Coral Energy, L.P., Houston, Texas; Director, Dresser Industries
Inc., Dallas, Texas; Director, Timken Company, Canton, Ohio;
Director, American Business Conference, Washington, D.C.; Director,
Alley Theater, Houston, Texas; Director of the Advisory Board,
Southwest CEO Council, Houston, Texas. Until 1988, President of the
Energy Related Group and Director, Hamilton Oil Corporation, Denver,
Colorado. Born: July 12, 1937

EUGENE H. VAUGHAN, JR., CFA
6300 Texas Commerce Tower
Houston, Texas
Director
President and CEO, Vaughan, Nelson, Scarborough & McConnell, L.P.,
an investment counseling firm, Houston, Texas. Founding Chairman
and Governor, Association for Investment Management and Research;
Past Chairman and Trustee, Institute of Chartered Financial
Analysts; Past Chairman and Director, Financial Analysts Federation;
Trustee, Vanderbilt University. 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

<PAGE>

DAVID L. RAY
Vice President 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

KENNETH R. CHRISTOFFERSEN
Secretary
Vice President and General Counsel of Founders. Formerly, assistant
general counsel (February 1993 to May 1996), vice president (April
1995 to May 1996) and assistant vice president (February 1993 to
April 1995) of INVESCO Funds Group, Inc. and INVESCO Trust Company,
Denver, Colorado, and partner (January 1989 to February 1993) and
associate (August 1981 to December 1988) with the law firm of Davis,
Graham & Stubbs, Denver, Colorado. Born: September 30, 1955.

ROBERTO GALINDO, JR.
Assistant Treasurer
Assistant Vice President of Founders. Until July, 1990, Manager of
Fund Accounting, United Services Advisors, Inc., investment adviser,
San Antonio, Texas. Born: November 11, 1960.

*Indicates an interested director as defined in the 1940 Act, because of the
status as officer 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 January 31, 1997, the Company's directors and officers as a group
owned less than 1% of the outstanding shares of each Fund, with the exception of
the Discovery, Passport, Frontier, International Equity, and Money Market Funds,
in which the ownership interests of the group totaled 1.17%, 1.78%, 1.38%,
6.50%, and 5.72%, respectively.

The committees of the board of directors are the executive committee,
audit committee, portfolio transactions committee and valuation 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 pursuant to Rule
12b-1 under the 1940

<PAGE>

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 that, 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.

DIRECTOR COMPENSATION

The following table sets forth, for the fiscal year ended December 31,
1996, the compensation paid by the Company to its independent directors for
services rendered in their capacities as directors of the Company. The Company
has no plan or other arrangement pursuant to which any of the Company's
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 Company's independent directors have estimated annual benefits to be paid by
the Company upon retirement.

<TABLE>
<CAPTION>
Compensation Table

==========================================================================================
(3) Pension (5) Total
or retirement (4) compensa-
benefits Estimated tion from
accrued as annual Company
(2) Aggregate part of benefits (11 Funds
compensation Company upon total) paid to
(1) Name of Person, Position1 from Company expenses retirement directors1
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John K. Langum, Chairman $ 43,000 None None $ 43,000
and Director
- ------------------------------------------------------------------------------------------
William H. Baughn, Director $ 32,000 None None $ 32,000
- ------------------------------------------------------------------------------------------
Alan S. Danson, Director $ 29,000 None None $ 29,000
- ------------------------------------------------------------------------------------------
Ranald H. Macdonald III, $ 18,000 None None $ 18,000
Director2
- ------------------------------------------------------------------------------------------
Trygve E. Myhren, Director3 $ 7,000 None None $ 7,000
- ------------------------------------------------------------------------------------------
Jay A. Precourt, Director $ 30,000 None None $ 30,000
- ------------------------------------------------------------------------------------------
Eugene H. Vaughan, Jr., $ 30,000 None None $ 30,000
Director
- ------------------------------------------------------------------------------------------
TOTAL $189,000 None None $189,000
- ------------------------------------------------------------------------------------------
PERCENT OF NET ASSETS4 0.006% 0% 0% 0.006%4
==========================================================================================

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

<PAGE>

<FN>
- ---------------------------------------------------------------------

1 The Chairman of the Board, the Chairmen of the Company's Audit and Portfolio
Transactions Committees, and the members of the Audit and Portfolio Transactions
Committees each receive compensation for serving in such capacities in addition
to the compensation paid to all independent directors. The Funds are the only
mutual funds distributed by Founders.

2 Mr. Macdonald died in 1996.

3 Mr. Myhren was elected to the Board of Directors in December 1996.

4 Totals as a percentage of the Company's net assets as of December 31, 1996.
</FN>
</TABLE>

INVESTMENT ADVISER AND DISTRIBUTOR

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

Special and Growth Funds
------------------------
On Assets in But Not
Excess of Exceeding Annual Fee
- -------------- ------------ ----------
$ 0 $ 30,000,000 1.00%
30,000,000 300,000,000 0.75%
300,000,000 500,000,000 0.70%
500,000,000 ---- 0.65%

Blue Chip and Balanced Funds
----------------------------
On Assets in But Not
Excess of Exceeding Annual Fee
- -------------- ------------ ----------
$ 0 $250,000,000 0.65%
250,000,000 500,000,000 0.60%
500,000,000 750,000,000 0.55%
750,000,000 ---- 0.50%

<PAGE>

Money Market Fund
-----------------
On Assets in But Not
Excess of Exceeding Annual Fee
- -------------- ------------ ----------
$ 0 $250,000,000 0.50%
250,000,000 500,000,000 0.45%
500,000,000 750,000,000 0.40%
750,000,000 ---- 0.35%

Government Securities Fund
--------------------------
On Assets in But Not
Excess of Exceeding Annual Fee
- -------------- ------------ ----------
$ 0 $250,000,000 0.65%
250,000,000 ---- 0.50%

Discovery, Passport, Frontier,
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 net assets of the Funds at the end of fiscal year 1996 were as
follows: Discovery Fund - $247,494,100; Passport Fund - $177,921,060; Frontier
Fund - $350,861,077; Special Fund - $363,835,175; International Equity Fund -
$10,119,176; Worldwide Growth Fund - $342,078,989; Growth Fund - $1,118,322,561;
Blue Chip Fund - $535,865,972; Balanced Fund - $394,895,683; Government
Securities Fund - $15,189,690; and Money Market Fund - $109,865,567.

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; an allocated portion of premiums for insurance required or permitted to
be maintained under the 1940 Act; expenses of computing the Funds' daily per
share net asset value; legal and accounting expenses; brokerage commissions and
other transaction costs; interest; all federal,

<PAGE>

state and local taxes (including stamp, excise, income and franchise taxes);
cost of stock certificates; fees payable under federal and state law to register
or qualify the Funds' shares for sale; an allocated portion of fees and expenses
incurred in connection with membership in investment company organizations and
trade associations; 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.

As described in the prospectus, certain expenses of the International
Equity and Government Securities Funds are being reimbursed or waived
voluntarily by Founders pursuant to a commitment to the Funds.

During the fiscal years ended in 1996, 1995, and 1994, the gross
investment advisory fees paid by the Funds were as follows:

Discovery Fund. During the years ended December 31, 1996, 1995, and 1994,
the Fund paid advisory fees of $2,405,895, $2,004,616, and $1,843,813,
respectively.

Passport Fund. During the years ended December 31, 1996, 1995 and 1994,
the Fund paid advisory fees of $1,343,963, $255,733, and $225,764, respectively.

Frontier Fund. During the years ended December 31, 1996, 1995, and 1994,
the Fund paid advisory fees of $3,298,000, $2,832,693, and $2,454,361,
respectively.

Special Fund. During the years ended December 31, 1996, 1995, and 1994,
the Fund paid advisory fees of $2,839,655, $2,869,635, and $2,685,886,
respectively.

International Equity Fund. During the year ended December 31, 1996, the
Fund paid advisory fees of $68,791. 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, 1996, 1995, and
1994, respectively, the Fund paid advisory fees of $3,022,945, $1,552,897, and
$996,680, respectively.

Growth Fund. During the years ended December 31, 1996, 1995, and 1994, the
Fund paid advisory fees of $5,728,768, $3,564,924, and $2,759,812, respectively.

Blue Chip Fund. During the years ended December 31, 1996, 1995, and 1994,
the Fund paid advisory fees of $2,891,784, $2,195,095, and $1,996,626,
respectively.

<PAGE>

Balanced Fund. During the years ended December 31, 1996, 1995, and 1994,
the Fund paid advisory fees of $1,538,236, $707,570, and $623,403,
respectively.

Government Securities Fund. During the years ended December 31, 1996,
1995, and 1994, the Fund paid advisory fees of $116,875, $139,194, and $184,250,
respectively.

Money Market Fund. For the years ended December 31, 1996, 1995, and 1994,
the Fund paid advisory fees of $757,666, $705,221, and $976,835, respectively.

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
on December 15, 1992. The advisory agreements between Founders and the
Government Securities and Money Market Funds were approved by the shareholders
of each respective Fund at shareholders' meetings held on September 29, 1988 and
November 17, 1987, respectively. The advisory agreements of the Passport and
International Equity Funds were approved by Founders, as the then sole
shareholder of the respective Funds, prior to their commencement of operations.
The advisory agreements of all of the Funds were last renewed on May 31, 1996
for a one-year period, 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 the Company's directors who are not
"interested persons" (as defined in the 1940 Act) (the "Independent Directors")
of the Company or Founders, cast in person at a meeting called for the purpose
of voting on such approval.

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 1940 Act. 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.

The Company's shares are sold on a continuous basis at the net asset value
per share next calculated after receipt of a purchase order in proper order. See
"Determination of Net Asset Value." 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 31, 1996. Founders is required to use its best efforts to promote the
sale of shares of the Funds, but is not obligated to sell any specific number of
shares. Founders does not receive

<PAGE>

any compensation for its services rendered pursuant to the underwriting
agreement. The provisions for the continuation, termination and assignment of
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.

Pursuant to Distribution Plans adopted by Discovery Fund, Passport Fund,
Frontier Fund, Special Fund, International Equity Fund, Worldwide Growth Fund,
Growth Fund, Blue Chip Fund, Balanced Fund, and Government Securities Fund (the
"12b-1 Funds"), the 12b-1 Funds pay for distribution and related services
expenditures at an annual rate that may be less than, but that 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 12b-1 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, 1996, Founders expended the following amounts in marketing
the shares of the 12b-1 Funds: advertising, $3,756,912; printing and mailing of
prospectuses to persons other than current shareholders, $1,622,093; payment of
compensation to third parties for shareholder support services, $3,358,959; and
public relations and trade shows, $461,150.

Each Fund's plan was last approved on May 31, 1996, 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").

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.

The benefits that the 12b-1 Funds believe are reasonably likely to flow to
the Funds and their shareholders under the plans include, but are not limited
to: (1) enhanced marketing efforts which, if successful, may result in an
increase in net assets through the sale of additional shares, thereby providing
greater resources to pursue the 12b-1 Funds' investment objectives; (2)
increased name recognition for the 12b-1

<PAGE>

Funds within the mutual fund industry, which may help instill and maintain
investor confidence; (3) positive cash flow into the 12b-1 Funds, which assists
in portfolio management; (4) the positive effect which increased 12b-1 Fund
assets could have on Founders' revenues could allow Founders to have greater
resources to make the financial commitments necessary to continue to improve the
quality and level of shareholder services, and acquire and retain talented
employees who desire to be associated with a growing organization; and (5)
increased Fund assets may result in reducing each shareholder's share of certain
expenses through economies of scale, such as by exceeding breakpoints in the
advisory fee schedules and allocating fixed expenses over a larger asset base.

Founders was organized in 1938. In addition to serving as adviser to the
Funds, Founders serves as investment adviser or sub-adviser to various other
mutual funds and 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, Edward F. Keely, Brian F. Kelly,
David G. Kern, Linda M. Ripley, Gregory P. Contillo, James P. Rankin, Kenneth R.
Christoffersen, Roberto Galindo, Jr., and ^ Frank Gaffney. The affiliations of
Messrs. Borgen, Zeschin, Ray, Christoffersen and Galindo 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 that 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 Company, including all of the directors who are not "interested persons" of
the Company or of Founders at a meeting called for such purpose. The Agreement,
which was last renewed by the directors on May 31, 1996, is continued from year
to year as long as each such continuance is specifically approved by the board
of directors of the Company, 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 for the purpose of voting on such
continuance. The Agreement may be terminated at any time without penalty by the
Company 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 Company's 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

<PAGE>

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. During the fiscal years ended December 31, 1996, 1995 and 1994, the
Company paid Fund accounting and administrative services fees of $823,632,
$630,056 and $580,897, respectively.

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 Company, including all of the
directors who are not "interested persons" of the Company 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 31, 1996. The Agreement may be
continued from year to year as long as such continuance is specifically approved
by the board of directors of the Company, 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 Company upon ninety (90) days' written notice to Founders
or by Founders upon one hundred eighty (180) days' written notice to the
Company, and terminates automatically in the event of an assignment unless the
Company's board of directors approves such assignment. The Funds pay to Founders
a prorated monthly fee for such services equal on an annual basis to $24 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 Systems, Inc. ("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. During the fiscal
years ended December 31, 1996, 1995 and 1994, the Company paid shareholder
services fees of $3,364,000, $3,363,000 and $3,248,000, respectively.

<PAGE>

TRANSFER AGENCY AGREEMENT

The Company has entered into a Transfer Agent Agreement with 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 Company 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
Agreement terminates automatically in the event of its assignment. Under the
Agreement, the Funds pay to IFTC various transfer agency transaction fees that,
in 1996, were in the amount of $10.41 per shareholder account. The fees to IFTC
are paid on behalf of the Funds by Founders from the fee of $24 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.

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 Company 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.

Subject to the policy of seeking best execution of orders at the most
favorable prices, a Fund may execute transactions with brokerage firms that
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,

<PAGE>

economic factors and trends, portfolio strategy and the performance of accounts,
and obtaining 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 that 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 will allocate in good faith 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. The
non-research part must be paid for in hard dollars from Founders. Any such
allocation may create a conflict of interest for Founders.

Neither the research services nor the amount of brokerage given to a
particular broker-dealer are made pursuant to any agreement or commitment with
any of the selected broker-dealers that would bind Founders to compensate the
selected broker-dealer for research provided. However, Founders maintains an
internal allocation procedure to identify those broker-dealers that have
provided it with research and endeavors to direct sufficient commissions to them
to ensure continued receipt of research Founders believes is useful.

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, 1996 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.

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

<PAGE>

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 by the investment adviser. 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.

Founders has been authorized by the directors of the 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
12b-1 Fund through various sales and/or shareholder servicing programs. These
fees are computed based on the average daily account balances of investments in
each 12b-1 Fund made by the entity on behalf of its customers. The directors of
the 12b-1 Funds have further authorized Founders to place a portion of the
Funds' brokerage transactions with certain of these entities which are
broker-dealers if Founders reasonably believes that 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 12b-1 Fund may be credited against the fee charged to that Fund, on a
basis that has resulted from negotiations between Founders and the entity. Any
12b-1 fees that 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. 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.

In addition, registered broker-dealers, third-party administrators of
tax-qualified retirement plans, and other entities that 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
IFTC, the Funds' transfer agent. In such instances, Founders is authorized to
pay the entity a sub-transfer agency or recordkeeping fee based on the number of
participants in the entity's omnibus account, from transfer agency fees
applicable to each participant's account that are paid to Founders by the Funds.
If commissions are earned by a registered broker-dealer from executing portfolio
transactions on behalf of a specific 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 that will have been negotiated between the
broker-dealer and Founders. In such instances, Founders will apply any such
credits to the transfer agency fee that 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

<PAGE>

Founders with respect to participants in omnibus accounts in that Fund exceeds
the sub-transfer 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 that are charged by the
broker-dealer. Such a carry-forward may not go beyond a calendar year.

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, subject to the general supervision of the
board of directors of the Company.

For the fiscal years ended 1996, 1995 and 1994, respectively, total
brokerage commissions paid by the Funds amounted to the following: Discovery
Fund - $444,760, $317,246, and $199,219; Passport Fund - $648,019, $95,245 and
$83,771; Frontier Fund - $540,893, $465,748, and $301,908, Special Fund -
$1,669,994, $2,194,333, and $2,157,969, Worldwide Growth Fund - $1,031,931,
$350,484, and $304,175, Growth Fund - $2,090,847, $1,187,642, and $1,192,989,
Blue Chip Fund - $2,186,810, $1,859,470, and $1,856,851, Balanced Fund -
$943,355, $535,439, and $523,174, For the fiscal year ended 1996, International
Equity Fund paid total brokerage commissions of $48,594. 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. The differences in the amounts of brokerage
commissions paid by the Funds during 1996 as compared to prior years are
primarily attributable to changes in the size of the Funds and differences in
portfolio turnover rates. 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.

<PAGE>

At December 31, 1996, certain of the funds held securities of their
regular brokers or dealers as follows:

Fund Broker Value
---- ------ -----
Discovery Merrill Lynch & Co. $10,591,387
commercial paper

Passport Merrill Lynch & Co. $7,892,298
commercial paper

Growth Merrill Lynch & Co. $25,075,528
commercial paper

During the fiscal years ended 1996 and 1995, respectively, the portfolio
turnover rate for each of the Funds was as follows: Discovery Fund - 106% and
118%; Passport Fund - 58% and 37%; Frontier Fund - 85% and 92%; Special Fund -
186% and 263%; Worldwide Growth Fund - 72% and 54%; Growth Fund - 134% and 130%;
Blue Chip Fund - 195% and 235%; Balanced Fund - 146% and 286%; and Government
Securities Fund - 166% and 141%. The portfolio turnover rate of the
International Equity Fund in fiscal 1996 was 71%; 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%. A 100% portfolio turnover rate would occur if
all of the securities in the portfolio were replaced during the period.
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. 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. 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. The decrease in the Balanced Fund's
portfolio turnover rate in 1996 resulted primarily from a restructuring of the
Fund's portfolio into securities positions that were held for longer periods of
time than in the prior year.

<PAGE>

DETERMINATION OF NET ASSET VALUE

The Company calculates net asset value per share, and therefore effects
sales, redemptions, and repurchases of its shares, 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.

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 that
are known to Founders to have materially affected the value of foreign
securities that 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, Passport, Frontier 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 and foreign markets are valued at their
last sale prices on the exchanges or markets where such securities are primarily
traded (except as described in the preceding paragraph). Securities traded in
the over-the counter market (including those traded on the NASDAQ National
Market System and the NASDAQ Small Cap Market), and listed securities for which
no sales were reported on a particular date, are valued at their last current
bid prices or, in the case of foreign securities, on the basis of the average of
at least two market maker quotes and/or the PORTAL system. If market quotations
are not readily available, securities will be valued at their fair values as
determined in good faith by the Company's board of directors or pursuant to
procedures approved by the board of directors. The above procedures may include
the use of valuations furnished by pricing services, including services that
employ a matrix to determine valuations for normal institutional-size trading
units of debt securities. The Company's board of directors periodically reviews
and approves the pricing services used to value the Funds' securities.
Commercial paper with 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 that
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

<PAGE>

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.

All Funds Except Special, Growth, Government Securities, and Money Market
Funds. When a 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.

All Funds Except Balanced, Money Market, and Government Securities 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.

<PAGE>

YIELD AND PERFORMANCE INFORMATION

The Company 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.

Quotations of yield for 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.

The yields of the Balanced and Government Securities Funds for the 30 days
ended December 31, 1996 were 2.99% and 4.71%, respectively.

Quotations of average annual total return for each Fund (other than 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.

<PAGE>

For the 1, 5, and 10 year periods ended December 31, 1996 the average
annual total returns of the Funds were:

10 year or
1 year 5 year Life of Fund
------ ------ ----------
Discovery Fund 21.21% 13.38% 19.33%+
Passport Fund 20.05% 11.61%**
Frontier Fund 14.34% 14.09% 19.31%*
Special Fund 15.33% 11.61% 15.46%
International Equity Fund 18.60% 18.60%++
Worldwide Growth Fund 13.95% 12.14% 14.31%+
Growth Fund 16.57% 16.52% 16.56%
Blue Chip Fund 24.37% 13.00% 13.70%
Balanced Fund 18.76% 14.25% 12.42%
Government Securities Fund 2.34% 3.90% 6.19%***

+ From inception on 12/31/89 to 12/31/96.

* From inception on 1/22/87 to 12/31/96.

** From inception on 11/16/93 to 12/31/96.

++ From inception on 12/29/95 to 12/31/96.

*** From inception on 3/1/88 to 12/31/96.

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 independent
research firms that rank 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 (iii) the Consumer Price Index (a measure 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 that 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

<PAGE>

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 Deutscher Aktienindex.

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.
Individual Investor
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
Mutual Funds Magazine
No-Load Analyst

<PAGE>

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
Worth

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

Fund Lipper Mutual Fund Grouping
- ------------------------------------------------------------------------
Discovery Small Company Growth Funds
Passport International Small Company Funds
Frontier Small Company Growth 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

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 ^ good order, although the Company may delay payment of redemption
proceeds under certain circumstances for up to seven calendar days after receipt
of the redemption request. (We consider redemptions to be received in good order
upon receipt of the required documents as described in the Prospectus under
"Investing in the Founders Funds.") In addition, 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

<PAGE>

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.

Shares of the Funds normally will be redeemed in cash, although Founders
retains the right to redeem shares of all Funds except the Money Market Fund 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 1940 Act, 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," 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.

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.

<PAGE>

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 Fund'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 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 continue 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. The Code contains a number of complex tests to determine whether a
Fund will so qualify, and a Fund might not meet those tests in a particular
year. If it did not so qualify, the Fund would be treated for tax purposes as an
ordinary corporation and receive no tax deduction for payments made to
shareholders. Qualification as a regulated investment company does not involve
supervision by any governmental authority either of the Company's management or
of the Funds' 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 continue to make
distributions in accordance with this requirement. However, the Company's Board
of Directors and Founders could determine in a particular year that it would be
in the best interests of shareholders for a Fund not to make such distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.

<PAGE>

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

<PAGE>

Gains or losses attributable to fluctuations in foreign currency exchange
rates that 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 or her 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 (the
"IRS") 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

<PAGE>

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 no later than 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 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 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 Company 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.

<PAGE>

ADDITIONAL INFORMATION

CAPITAL STOCK

The Company has ^ 3,000,000,000 shares of capital stock authorized, with a
par value per share of $0.01. Of these shares, 100,000,000 shares have been
allocated to Discovery Fund, 100,000,000 to Passport Fund, 100,000,000 to
Frontier Fund, 180,000,000 to Special Fund, 100,000,000 to International Equity
Fund, 100,000,000 to Worldwide Growth Fund, ^ 400,000,000 to Growth Fund,
^ 400,000,000 to Blue Chip Fund, ^ 500,000,000 to Balanced Fund, 20,000,000 to
Government Securities Fund, and ^ 1,000,000,000 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 February 6, 1997, 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 & Co., Inc., 101 Montgomery Street, San
Francisco, CA 94104, held of record 34.25%, 58.8%, 33.64%, 23.17%, 27.62%,
36.74%, 28.00%, 15.02%, and 28.81% of the outstanding shares of Discovery Fund,
Passport Fund, Frontier Fund, Special Fund, International Equity Fund, Worldwide
Growth Fund, Growth Fund, Blue Chip Fund, and Balanced Fund, respectively;
National Financial Services Corp., P.O. Box 3908, Church Street Station, New
York, New York 10008, held of record 12.84%, 12.84%, 7.03%, and 7.47% of the
outstanding shares of Passport Fund, Worldwide Growth Fund, Growth Fund and
Balanced Fund, respectively; Cudd & Co., 1211 Avenue of the Americas, 35th
Floor, New York, New York 10036, held of record 5.29% of the outstanding shares
of International Equity Fund (such shares were owned beneficially by Bjorn K.
Borgen); Donaldson, Lufkin & Jenrette Securities Corp., P.O. Box 2052, Jersey
City, NJ 07303-2052, held of record 8.52% of the outstanding shares of Worldwide
Growth Fund; Bankers Trust Company, 34 exchange GIMS 3048, Jersey City, NJ
07302-3901, held of record 6.75% of the outstanding shares of Growth Fund; and
Connecticut General Life Ins. Co., 350 Church St., Hartford CT 06104-2975, held
of record 18.48% of the outstanding shares of Balanced 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 "Investing in the Founders Funds" in the prospectus. Fractional shares
have the same rights proportionately as full shares but certificates for
fractional shares are not issued.

<PAGE>

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 that 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.

PURCHASES OF FUND SHARES BY FOUNDERS EMPLOYEES

Founders' employees and their household family members may open Fund
accounts with a minimum initial investment of $250. The minimum additional
investment by such persons is $25.

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 State Street Bank and Trust
Company, through which each Fund (other than Money Market Fund) participates in
the State Street global custody network. The foreign subcustodians have been
approved by the Company's board of directors as required by Rule 17f-5 under the
1940 Act (and the notes to the Rule), 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.

<PAGE>

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP, Denver, Colorado, acts as independent accountants
for the Company. The independent 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 1933 Act 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

The Funds' audited financial statements and the notes thereto for the
fiscal year ended December 31, 1996, and the report of Price Waterhouse LLP with
respect to such financial statements, are incorporated herein by reference from
the Funds' Annual Report to Shareholders for the fiscal year ended December 31,
1996.

<PAGE>

APPENDIX

RATINGS OF CORPORATE BONDS

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 Ratings Services ("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 below. For D&P,
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.

The four highest ratings of Moody's and S&P for corporate bonds are Aaa,
Aa, A and Baa and AAA, AA, A and BBB, respectively.

MOODY'S. The characteristics of these debt obligations rated by Moody's are
generally as follows:

Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities. Moody's
applies the numerical modifiers 1, 2 and 3 to the Aa rating classification. The
modifier 1 indicates a ranking for the security in the higher end of this rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of this rating category.

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A -- Bonds that are rated A 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.

Baa -- Bonds that are rated Baa 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 in fact have speculative characteristics as well.

Ba -- Bonds that 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
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B -- Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.

STANDARD & POOR'S. The characteristics of these debt obligations rated by S&P
are generally as follows:

AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.

A -- Bonds rated A 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 than bonds in higher rated categories.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.

BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they 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.

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B -- Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, and economic conditions will likely impair capacity or
willingness to pay interest and repay principal.

RATINGS OF COMMERCIAL PAPER

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 that 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 commercial paper ratings. Among the factors
considered by Moody's in assigning commercial paper 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 the 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 the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations. Relative differences in strength and weakness in respect to these
criteria would establish a rating of one of three classifications; P-1 (Highest
Quality), P-2 (Higher Quality) or P-3 (High Quality).

Description of S&P's commercial paper ratings. An S&P commercial paper
rating is a current assessment of the likelihood of timely payment of debt
having an original maturity of no more than 365 days. Ratings are graded into
four categories, ranging from "A" for the highest quality obligations to "D" for
the lowest. The "A" categories are as follows:

A -- Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety.

A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong.

A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.

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A-3 -- Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.

RATINGS OF PREFERRED STOCK

MOODY'S. The characteristics of these securities rated by Moody's are generally
as follows:

"aaa" -- An issue that 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.

"aa" -- An issue that 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 that 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 that 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 that 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 that 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.

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STANDARD & POOR'S. The characteristics of these securities rated by S&P are
generally as follows:

AAA -- This is the highest rating that may be assigned by S&P 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.

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.