1996 ANNUAL REPORT
For the Year Ended December 31, 1996
AGGRESSIVE GROWTH FUNDS
Founders Discovery Fund
Founders Frontier Fund
Founders Passport 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>
TABLE OF CONTENTS
About this Report....................... 3
A Message From the Chairman............. 4
Founders Discovery Fund................. 6
Schedule of Investments............. 8
Founders Frontier Fund.................. 11
Schedule of Investments............. 13
Founders Passport Fund.................. 16
Schedule of Investments............. 18
Founders Special Fund................... 21
Schedule of Investments............. 23
Founders International Equity Fund...... 26
Schedule of Investments............. 28
Founders Worldwide Growth Fund.......... 31
Schedule of Investments............. 33
Founders Growth Fund.................... 36
Schedule of Investments............. 38
Founders Blue Chip Fund................. 41
Schedule of Investments............. 43
Founders Balanced Fund.................. 47
Schedule of Investments............. 49
Founders Government Securities
Fund.................................. 53
Schedule of Investments............. 54
Founders Money Market Fund
Schedule of Investments............. 55
Statements of Assets and Liabilities.... 56
Statements of Operations................ 58
Statements of Changes in Net Assets..... 60
Financial Highlights.................... 64
Notes................................... 68
Report of Independent Accountants....... 73
Corporate Dividends-Received
Deduction........................... 74
<PAGE>
ABOUT THIS REPORT
HISTORICAL RETURNS
All total returns mentioned in this report account for both the change in a
Fund's per-share price and reinvestment of any dividends or capital gain
distributions made by that Fund. If your account is set up to pay out Fund
distributions rather than reinvest them, your return may differ from the figures
listed here.
The comparative indexes included with each Fund's performance chart are meant
to provide a basis for judging a Fund's performance against its peer group
and/or a specific securities market index (provided by Lipper Analytical
Services, Inc.). Each index presented accounts for both change in security price
and reinvestment of any dividends or coupon payments. The Lipper indexes reflect
the expenses of managing the mutual funds included in each index. The securities
indexes are unmanaged groups of securities; they do not reflect the costs of
managing a mutual fund. An investor may not invest in any of these indexes.
Past performance is no guarantee of future results. Actual total return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
GUIDE TO UNDERSTANDING FOREIGN
HOLDINGS OF THE FOUNDERS FUNDS
The following abbreviations are used throughout the Schedules of Investments to
indicate the country of origin of non-U.S. holdings:
AR Argentina
AU Australia
BR Brazil
CA Canada
CH Chile
CO Colombia
CZ Czech Republic
DE Denmark
FI Finland
FR France
GE Germany
HK Hong Kong
IN India
ID Indonesia
IT Italy
JA Japan
KO Korea
MA Malaysia
MX Mexico
NE Netherlands
NZ New Zealand
NW Norway
PA Panama
PH Philippines
PO Portugal
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
3
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A MESSAGE FROM THE CHAIRMAN
BJORN K. BORGEN, CHAIRMAN
DEAR FELLOW INVESTOR,
The year past proved to be quite positive for the stock market and for the
Founders Funds. The Dow Jones Industrial Average, the most widely followed
measure of stock performance, jumped above the 6,000-point level for the first
time in its history, and made a serious run for 7,000. For the same period, each
of the Founders' equity funds participated in this record-breaking market and
posted double-digit returns.
However, 1996 was more complex than this overview suggests. Points of great
turbulence throughout the year often made the market's rise more of an uphill
struggle.
TRACKING THE ECONOMY
America's economic growth proved to be the most-watched feature of 1996's
market. While market analysts had expected to see the year start with slower
economic growth and lower interest rates, investors began to see signs of
stronger growth and resurgent inflation. However, the Federal Reserve declined
to raise short-term interest rates to cool the economy. Despite this show of
faith, widespread uncertainty about the direction of the economy continued
throughout much of the year.
This uncertainty was heightened by the appearance of weak corporate earnings
at midyear. Always carefully scrutinized, a company's earnings are considered to
be one of the best indications of business growth and profitability. Earnings
disappointments of some bellwether companies produced large sell-offs in the
overall market.
While these events delivered a jolt to the markets, the second half produced a
measure of recovery. Many observers saw signs of an economic slowdown in such
indicators as high unemployment claims and business inventories. The Federal
Reserve agreed with this consensus, and at its Fall meetings it again opted
against raising interest rates. These decisions were greeted with great warmth
by the stock and bond markets.
THE ROAD AHEAD
As we enter 1997, we expect that the markets will respond to the same factors we
saw in 1996, primarily the pace of economic growth. Despite the fears of many
analysts, there seems to be little upward inflationary pressure, suggesting that
interest rates will remain stable or decline, and that the economy will continue
on its slow-growth track in 1997.
4
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A CASE FOR CAUTION
The financial community has wondered whether recent events presage a market
correction. Alan Greenspan, chairman of the Federal Reserve Board, made a thinly
veiled reference to the "irrational exuberance" of the market in a speech last
Fall.
As we look at the market ahead of us, we believe that there is some substance
to Mr. Greenspan's remarks. The past several years have seen impressive market
performance, pushing indexes beyond all historical bounds. While, of course,
this has been positive for individual investors, it is useful to remember that
the markets can go down as well as up.
THE VALUATION QUESTION
One point of concern is the valuation level of the current market. The past two
years have left some growth stocks very expensive, as measured by
price-to-earnings ratios and dividend yields. However, history has shown that
there are still companies with the fundamental strengths it takes to succeed,
whatever the market environment.
Successful companies may post growth in earnings despite slow overall economic
growth rates or trends in the market. As a growth-stock manager, Founders
focuses its efforts on finding these companies--those with the ability to
produce long-term growth in any market atmosphere. This strategy has been the
key to our Funds' performance in 1996, and will be in 1997 and beyond.
A POSITIVE YEAR FOR FOUNDERS
Just as 1996 was a banner year for the markets, it was also an important year in
Founders' history:
o In July, we were pleased to welcome Brian Kelly as the manager of Founders
Blue Chip and Balanced Funds. Brian has continued Founders' tradition of
strong long-term past performance, as evidenced by the excellent 1996 total
returns for these two funds.
o Founders International Equity Fund had a stellar inaugural year, posting a
total return of 18.60% (for the year ended 12/31/96).
o We announced an exciting reorganization of Founders Special Fund,
diversifying investors' assets among promising growth investments in small-
to mid-cap, large-cap, and international companies.
We don't try to predict where the market is headed over the short term. But
there are some certainties about the year ahead: Founders will keep looking for
the most promising growth-stock opportunities the market has to offer, and we
will continue to focus on delivering the best performance and service to you.
Thank you for your continuing investment in the Founders family of Funds.
Sincerely,
Bjorn K. Borgen
Chairman, Chief Executive Officer,
and Chief Investment Officer
5
<PAGE>
FOUNDERS DISCOVERY FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Russell Lipper Small Consumer
Discovery 2000 Company Growth Price
Fund Index Fund Index Index
--------- ------- -------------- ---------
12/31/89 ..... $10,000.00 $10,000.00 $10,000 $10,000
06/30/90 ..... $11,780.00 $10,146.36 $10,360 $10,301
12/31/90 ..... $11,317.46 $ 8,052.31 $ 8,616 $10,634
06/28/91 ..... $13,576.94 $10,280.84 $10,542 $10,785
12/31/91 ..... $18,387.36 $11,759.92 $12,783 $10,936
06/30/92 ..... $16,760.63 $11,775.58 $11,903 $11,118
12/31/92 ..... $21,176.24 $13,924.89 $14,266 $11,252
06/30/93 ..... $21,239.99 $14,838.34 $14,881 $11,451
12/31/93 ..... $23,465.06 $16,553.79 $16,681 $11,562
06/30/94 ..... $19,610.47 $15,482.47 $15,210 $11,737
12/30/94 ..... $21,646.65 $16,251.89 $16,607 $11,872
06/30/95 ..... $25,446.79 $18,596.17 $19,163 $12,070
12/29/95 ..... $28,421.29 $20,875.64 $21,286 $12,173
06/30/96 ..... $33,974.58 $23,038.27 $24,331 $12,419
12/31/96 ..... $34,448.05 $24,318.97 $25,036 $12,576
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year 5 Years Since Inception (12/31/89)
------ ------- -------------------------
21.21% 13.38% 19.33%
PERFORMANCE REVIEW
Despite the year's market volatility, which tends to have a greater impact on
the kind of smaller, rapidly growing companies held in Founders Discovery Fund,
the Fund's total return was 21.21% for the 12 months ended December 31, 1996,
outperforming the unmanaged Russell 2000 Index by 4.72%.
While Founders Discovery Fund performed quite well in 1996, the year carried
with it dramatic changes in investor sentiment toward small-cap stocks. Actual
and anticipated changes in interest rates and many investors' desires for more
liquid large-cap stocks resulted in a challenging environment for small-cap
stocks.
Amid these conditions, Founders' stock-picking strategy proved even more
crucial. Our focus on bottom-up, company-by-company research helped to uncover
attractively priced, fundamentally strong firms in the small-company
arena--firms with innovative products and services and with solid managements
focused on growth markets. These are the types of companies that, while
relatively unknown today, hold
6
<PAGE>
the potential for significant growth in the future.
INVESTMENT OPPORTUNITIES
A company that remained a top holding throughout the year was Geoworks, a
company that develops software to enable cellular phones to transmit and receive
voice calls, as well as provide for e-mail, faxing, paging, and even Internet
access. These new phones, called smart phones, are just beginning to be sold
internationally, and are expected to be available in the United States during
the second half of 1997.
Another holding that witnessed strong growth during 1996 was Parexel
International, which is benefiting from pharmaceutical and biotechnology
companies outsourcing more of their clinical trials. This trend is relatively
new and offers the leading clinical research organizations, like Parexel, the
opportunity to grow well into the future.
ECONOMIC OUTLOOK
Our intense research effort, which focuses on finding small, relatively unknown
companies demonstrating the potential for becoming much larger and more
recognized over time, paid off for our shareholders in 1996. While we expect to
experience continued market volatility going forward, we believe that
Discovery's portfolio contains some of the leading companies of tomorrow. The
truly great companies are able to produce results regardless of the
macroeconomic environment; over time, these are the companies to which investors
will migrate. Our goal is to find the innovators early.
David Kern, CFA
Portfolio Manager
TOP TEN HOLDINGS
1. Geoworks, Inc.................... 3.79%
2. Doubletree Corporation........... 3.27%
3. Scopus Technology................ 3.28%
4. Avant Corporation................ 2.87%
5. J.P. Food Service, Inc........... 2.58%
6. Digital Microwave................ 2.54%
7. Genelabs Technologies............ 2.47%
8. P Com, Inc....................... 2.40%
9. Parexel International............ 2.28%
10. Physio Control Holding
Corporation...................... 2.22%
PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
7
<PAGE>
FOUNDERS DISCOVERY FUND
SHARES MARKET VALUE
COMMON STOCKS (DOMESTIC)-83.6%
APPAREL-3.7%
107,125 Kenneth Cole Productions, Inc.
Class A* $1,660,437
60,000 North Face, Inc.* 1,140,000
50,000 Quiksilver, Inc.* 1,062,500
180,487 Wolverine World Wide, Inc. 5,234,123
---------
9,097,060
---------
BIOTECHNOLOGY-3.0%
1,040,000 Genelabs Technologies, Inc.* 6,110,000
89,975 Sequus Pharmaceuticals, Inc.* 1,428,353
---------
7,538,353
---------
BUSINESS SERVICES-4.6%
130,000 Metzler Group, Inc.* 3,997,500
210,000 Protection One, Inc.* 2,047,500
55,475 Rental Service Corporation* 1,525,563
345,000 Warrentech Corporation* 3,924,375
---------
11,494,938
---------
COMPUTER EQUIPMENT-0.2%
25,000 Microtouch Systems, Inc.* 590,625
---------
COMPUTER NETWORKING-2.3%
25,300 International Network Services* 762,163
360,775 Sync Research, Inc.* 4,825,366
---------
5,587,529
---------
COMPUTER SOFTWARE-17.0%
41,125 Applix, Inc.* 884,188
225,800 Avant Corporation* 7,112,700
63,375 CSG Systems
International, Inc.* 950,625
44,075 Cybercash, Inc.* 1,013,725
50,000 Dendrite International, Inc.* 412,500
37,500 Documentum, Inc.* 1,275,000
180,250 Edify Corporation* 2,884,000
387,100 Geoworks, Inc.* 9,387,175
35,000 Inso Corporation* 1,365,000
237,075 Premenos Technology Corporation* 1,985,503
554,750 Ross Systems, Inc.* 5,270,125
171,785 Scopus Technology, Inc.* 7,966,529
44,050 Sterling Commerce, Inc.* 1,552,762
---------
42,059,832
---------
ELECTRONICS-3.1%
119,925 REMEC, Inc.* $2,383,509
98,725 Sawtek, Inc.* 3,850,275
43,975 Ultrak Inc.* 1,341,237
---------
7,575,021
---------
ENVIRONMENTAL SERVICES-1.2%
90,000 United Waste Systems, Inc.* 3,082,500
---------
FOOD & BEVERAGES-4.8%
229,100 J.P. Food Service, Inc.* 6,386,163
54,100 Nuco2, Inc.* 703,300
150,000 Richfood Holdings, Inc. 3,637,500
64,850 United Natural Foods, Inc.* 1,094,344
---------
11,821,307
---------
HEALTHCARE SERVICES-13.9%
95,325 Advanced Paradigm, Inc.* 1,954,162
105,000 American Medserv Corporation* 1,601,250
51,000 Gulf South Medical Supply, Inc.* 1,294,125
81,925 Henry Schein, Inc.* 2,785,450
730,000 Ibah, Inc.* 4,836,250
178,500 Multicare Company, Inc.* 3,614,625
172,500 Oacis Healthcare Holdings
Corporation* 1,164,375
173,000 Orthodontic Centers of
America, Inc.* 2,681,500
110,025 Parexel International Corporation* 5,638,781
66,550 Pediatrix Medical Group, Inc.* 2,454,031
38,275 Pharmaceutical Product Development,
Inc.* 956,875
110,000 Rural/Metro Corporation* 3,905,000
58,325 Sunrise Assisted Living, Inc.* 1,603,937
---------
34,490,361
---------
INSURANCE-0.5%
33,625 Executive Risk, Inc. 1,244,125
---------
LEISURE & ENTERTAINMENT-4.4%
181,650 Doubletree Corporation* 8,083,425
47,350 Fairfield Communities, Inc.* 1,171,912
107,500 Ticketmaster Group, Inc.* 1,263,125
36,350 Trump Hotels and Casino Resorts,
Inc.* 436,200
---------
10,954,662
---------
8
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
SHARES MARKET VALUE
MANUFACTURING-0.2%
42,000 Alyn Corporation $ 435,750
---------
MEDICAL SUPPLIES &
EQUIPMENT-5.5%
80,650 Heartport, Inc.* 1,844,869
88,000 Perclose, Inc.* 1,738,000
250,000 Physio Control Holding Corporation* 5,500,000
201,450 Resmed, Inc.* 4,431,900
---------
13,514,769
---------
OIL & GAS-0.6%
50,000 National Oilwell, Inc.* 1,537,500
---------
PHARMACEUTICALS-0.6%
14,575 Medicis Pharmaceuticals Corporation* 634,013
18,050 Watson Pharmaceuticals, Inc.* 809,994
---------
1,444,007
---------
PUBLISHING & BROADCASTING-2.2%
243,750 International Family Entertainment,
Inc. Class B* 3,778,125
54,450 SFX Broadcasting, Inc. Class A 1,606,275
---------
5,384,400
---------
RESTAURANTS-1.0%
127,675 Dave and Busters, Inc.* 2,521,581
---------
RETAIL-2.7%
27,500 Hot Topic, Inc.* 522,500
50,000 Loehmanns, Inc.* 1,137,500
64,150 Men's Wearhouse, Inc.* 1,547,619
95,000 Proffitt's, Inc.* 3,467,500
---------
6,675,119
---------
SEMICONDUCTORS & EQUIPMENT-4.0%
62,575 Asyst Technologies, Inc.* $ 1,048,131
275,000 Semtech Corporation* 4,640,625
63,900 Speedfam International, Inc.* 1,821,150
51,500 Vitesse Semiconductor Corporation* 2,343,250
-----------
9,853,156
-----------
TELECOMMUNICATIONS EQUIPMENT-5.4%
227,925 Digital Microwave Corporation* 6,296,428
70,000 Harmonic Lightwaves, Inc.* 1,067,500
201,200 P Com, Inc.* 5,935,400
-----------
13,299,328
-----------
TRANSPORTATION-2.7%
90,000 Eagle USA Airfreight, Inc.* 2,272,500
105,000 Mark VII, Inc.* 2,900,625
60,000 Swift Transportation Company* 1,387,500
-----------
6,560,625
-----------
TOTAL COMMON STOCKS
(DOMESTIC)-83.6%
(COST-$158,433,007) 206,762,548
-----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
9
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FOUNDERS DISCOVERY FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
SHARES MARKET VALUE
COMMON STOCKS (FOREIGN)-5.0%
COMPUTER SOFTWARE-0.7%
200,000 JBA Holdings PLC (UK) $1,814,480
----------
PHARMACEUTICALS-1.2%
498,500 Ethical Holdings Limited Sponsored
ADR (UK)* 2,897,531
----------
PUBLISHING & BROADCASTING-1.7%
172,500 Cinar Films, Inc. Class B (CA)* 4,334,063
----------
TELECOMMUNICATION SERVICES-1.4%
120,000 Cellular Communications International
(IT)* 3,420,000
----------
TOTAL COMMON STOCKS
(FOREIGN)-5.0%
(COST-$11,135,841) 12,466,074
----------
PRINCIPAL AMOUNT MARKET VALUE
CONVERTIBLE BONDS (DOMESTIC)-0.0%
MEDICAL SUPPLIES & EQUIPMENT-0.0%
$1,783 Surgical Laser Technologies
Convertible Subordinated Note 8.0%
Due 7/30/99 $0
----------
TOTAL CONVERTIBLE BONDS
(DOMESTIC)-0.0%
(COST-$0) 0
----------
CORPORATE SHORT-TERM NOTES-13.0%
$10,000,000 Brown-Forman 6.45% 01/03/97 $ 9,996,417
10,600,000 Merrill Lynch & Company 5.85%
01/06/97 10,591,387
11,600,000 Texaco, Inc. 6.00% 01/02/97 11,598,067
-----------
TOTAL CORPORATE
SHORT-TERM NOTES-13.0%
(AMORTIZED COST-$32,185,871) 32,185,871
-----------
TOTAL INVESTMENTS-101.6%
(COST-$201,754,719) 251,414,493
OTHER ASSETS & LIABILITIES-(1.6%) (3,920,393)
-----------
NET ASSETS-100.0% $247,494,100
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
10
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FOUNDERS FRONTIER FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Russell Lipper Small Consumer
Frontier 2000 Company Growth Price
Fund Index Fund Index Index
--------- ------- -------------- ---------
01/22/87 ..... $10,000.00 $10,000.00 $10,000 $10,000
12/31/87 ..... $11,610.10 $ 8,174.41 $ 8,567 $10,378
12/30/88 ..... $15,000.54 $10,219.46 $10,348 $10,836
12/31/89 ..... $21,647.47 $11,881.42 $12,499 $11,340
12/31/90 ..... $20,032.65 $ 9,567.29 $10,768 $12,059
12/31/91 ..... $29,915.09 $13,972.45 $15,983 $12,401
12/31/92 ..... $32,587.83 $16,544.75 $17,837 $12,760
12/31/93 ..... $37,977.13 $19,668.25 $20,854 $13,112
12/30/94 ..... $36,908.30 $19,309.55 $20,762 $13,462
12/29/95 ..... $50,573.77 $24,803.22 $27,327 $13,813
12/31/96 ..... $57,826.75 $28,894.38 $31,291 $14,271
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year 5 Years Since Inception (1/22/87)
------ ------- ------------------------
14.34% 14.09% 19.31%
PERFORMANCE REVIEW
The market was concerned about liquidity throughout 1996, with investors
generally favoring large-capitalization stocks over those of smaller companies.
While this resulted in volatility in the small-cap market, it also offered
opportunities for investment. Founders Frontier Fund capitalized on these
opportunities, posting a total return of 14.34% for the one-year period ended
December 31, 1996.
INVESTMENT OPPORTUNITIES
Questions about the direction of the economy remained in the forefront of
investors' minds during the first half of 1996. The lack of clear consensus led
to an environment of increasing uncertainty in the stock market--particularly
among small caps. However, Founders Frontier found successful investments in
traditional growth areas, such as technology, healthcare/
pharmaceutical, and retail/apparel.
11
<PAGE>
The midyear market drop provided an opportunity to either add to our positions
in some of our stronger names or buy names we think have great potential. One
company is Atlas Air, Inc., an air-cargo transport provider that is taking
advantage of the globalization of trade.
The Fund also took advantage of the market's volatility by scaling back on
companies whose valuations seemed stretched and by moving toward more reasonably
priced issues in pharmaceuticals and technology. We increased our weighting in
Watson Pharmaceuticals, a generic drug and advanced drug delivery systems
manufacturer, as well as in Network General, a computer-network software
developer.
Finally, we sold several positions that had grown too large, such as HBO &
Company, a designer of computerized information systems for the healthcare
industry, and Pyxis, a developer and manufacturer of automatic drug-dispensing
machines that was acquired by Cardinal Health, Inc.
We keep the Fund well-diversified. We believe our commitment to selecting
individual small companies that demonstrate solid prospects for revenue and
earnings growth, regardless of economic conditions, served the Fund well,
particularly in this volatile environment.
ECONOMIC OUTLOOK
While the small-cap market underperformed larger companies in 1996, we expect
the gap to narrow in 1997, as the economy continues down the path of moderate
growth with low inflation. Amidst these conditions, we will continue to focus on
bottom-up, company-by-company research to uncover fundamentally strong firms in
the small-company arena--firms with strong management, competitive market
positions, and innovative products or services.
Michael K. Haines
Portfolio Manager
TOP TEN HOLDINGS
1. Watson Pharmaceuticals........... 3.28%
2. Network General.................. 2.75%
3. USA Waste Services, Inc. ........ 2.60%
4. Sanmina Corporation.............. 1.97%
5. Reinsurance Group America,
Inc. ........................... 1.79%
6. Omnicare, Inc.................... 1.77%
7. Frontier Insurance............... 1.70%
8. Reliastar Financial.............. 1.65%
9. IHC Caland NV.................... 1.63%
10. J.P. Food Service, Inc. ......... 1.59%
PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
12
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FOUNDERS FRONTIER FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
SHARES MARKET VALUE
COMMON STOCKS (DOMESTIC)-78.9%
APPAREL-4.0%
126,000 Designer Holdings Limited* $2,031,750
130,000 Jones Apparel Group, Inc.* 4,858,750
50,000 Tommy Hilfiger Corporation* 2,400,000
164,350 Warnaco Group, Inc. Class A 4,868,869
---------
14,159,369
---------
BIOTECHNOLOGY-0.7%
65,000 IDEXX Laboratories, Inc. 2,340,000
---------
BUSINESS SERVICES-6.4%
80,000 Affiliated Computer Services, Inc.
Class A* 2,320,000
177,675 American Pad & Paper Company* 4,019,897
82,750 CDW Computer Center, Inc.* 4,902,937
57,500 Corporate Express, Inc.* 1,689,063
68,500 MSC Industrial Direct Company, Inc.
Class A* 2,534,500
142,512 Sylvan Learning Systems, Inc.* 3,990,336
113,450 Teletech Holdings, Inc.* 2,864,612
---------
22,321,345
---------
CHEMICALS-1.1%
209,575 Crompton & Knowles Corporation 4,034,319
---------
COMPUTER NETWORKING-2.7%
319,950 Network General Corporation* 9,638,494
---------
COMPUTER SOFTWARE-4.0%
60,750 Midway Games, Inc.* 1,230,188
35,000 Rational Software, Inc.* 1,373,750
150,000 Sterling Commerce, Inc.* 5,287,500
90,000 Synopsys, Inc.* 4,117,500
50,000 Video Server, Inc.* 2,100,000
---------
14,108,938
---------
CONSTRUCTION-1.1%
170,000 Oakwood Homes Corporation 3,888,750
---------
CONSUMER PRODUCTS-1.1%
139,025 Rexall Sundown, Inc.* $3,753,675
---------
DIVERSIFIED-1.0%
50,000 Harsco Corporation 3,425,000
---------
ELECTRONICS-2.5%
66,775 Berg Electronics Corporation* 1,961,516
123,100 Sanmina Corporation* 6,924,375
85 Windmere Durable
Holdings, Inc. 1,094
---------
8,886,985
---------
ENVIRONMENTAL SERVICES-4.0%
286,000 USA Waste Services, Inc.* 9,116,250
140,000 United Waste Systems, Inc.* 4,795,000
---------
13,911,250
---------
FINANCIAL SERVICES-2.0%
95,650 BA Merchant Services, Inc.* 1,709,744
91,450 Credit Acceptance Corporation* 2,126,213
90,950 First USA Paymentech, Inc.* 3,080,931
---------
6,916,888
---------
FOOD & BEVERAGES-1.6%
200,600 J.P. Food Service, Inc.* 5,591,725
---------
HEALTHCARE SERVICES-9.2%
172,500 Health Care & Retirement Corporation* 4,937,812
112,500 Health Management Association
Class A* 2,531,250
120,000 Healthcare Compare Corporation* 5,085,000
125,000 Henry Schein, Inc.* 4,250,000
50,000 Multicare Company, Inc.* 1,012,500
73,275 NCS Healthcare, Inc.* 2,106,656
193,550 Omnicare, Inc. 6,217,794
230,700 Orthodontic Centers of
America, Inc.* 3,575,850
76,500 Pediatrix Medical Group, Inc.* 2,820,937
---------
32,537,799
---------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FOUNDERS FRONTIER FUND
SHARES MARKET VALUE
INSURANCE-6.2%
80,000 Equitable of Iowa Companies $3,670,000
155,567 Frontier Insurance Group, Inc. 5,950,438
133,050 Reinsurance Group of
America, Inc. 6,269,981
100,000 Reliastar Financial Corporation 5,775,000
---------
21,665,419
---------
LEISURE & ENTERTAINMENT-2.8%
75,000 Doubletree Corporation* 3,337,500
160,000 Interstate Hotels Company* 4,520,000
51,700 Sun International Hotels Limited* 1,887,050
---------
9,744,550
---------
OFFICE SUPPLIES & EQUIPMENT-1.2%
150,000 Viking Office Products, Inc.* 3,975,000
---------
OIL SERVICES-0.5%
75,000 Pride Petroleum Services, Inc.* 1,725,000
---------
PHARMACEUTICALS-5.0%
75,000 Jones Medical Industries, Inc. 2,718,750
60,525 Nexstar Pharmaceuticals, Inc.* 885,178
48,000 R.P. Scherer Corporation* 2,412,000
256,100 Watson Pharmaceuticals, Inc.* 11,492,487
---------
17,508,415
---------
PUBLISHING & BROADCASTING-2.6%
105,000 Sinclair Broadcast Group, Inc.
Class A* 2,730,000
64,200 Univision Communications, Inc.* 2,375,400
214,175 World Color Press, Inc.* 4,122,869
---------
9,228,269
---------
RETAIL-6.2%
101,700 Borders Group, Inc.* 3,648,487
156,250 Consolidated Stores Corporation* 5,019,531
77,225 Fred Meyer, Inc.* 2,741,487
165,000 Petco Animal Supplies, Inc.* 3,300,000
135,000 Sports Authority, Inc.* 2,936,250
37,200 Tiffany & Company 1,362,450
74,750 Williams Sonoma, Inc.* 2,700,344
---------
21,708,549
---------
SEMICONDUCTORS & EQUIPMENT-1.5%
113,850 International Rectifier Corporation* $1,736,213
148,300 VLSI Technology, Inc.* 3,503,588
-----------
5,239,801
-----------
SUPERMARKETS-1.5%
88,750 Vons Companies, Inc.* 5,313,906
-----------
TELECOMMUNICATION SERVICES-3.7%
82,500 Brooks Fiber Properties, Inc.* 2,103,750
98,675 LCI International, Inc.* 2,121,513
91,250 McLeod, Inc. Class A* 2,326,875
119,550 Telco Communications Group, Inc.* 1,987,519
153,575 Tel-Save Holdings, Inc.* 4,434,478
-----------
12,974,135
-----------
TELECOMMUNICATIONS EQUIPMENT-2.7%
70,000 Aspect Telecommunications
Corporation* 4,410,000
80,000 DSP Communications Corporation* 1,540,000
114,300 PictureTel Corporation* 2,943,225
25,000 Xylan Corporation* 700,000
-----------
9,593,225
-----------
TRANSPORTATION-3.6%
91,725 Atlas Air, Inc.* 4,356,937
84,625 Swift Transportation Company* 1,956,953
105,000 US Freightways Corporation 2,874,375
89,875 Wisconsin Central Transportation
Corporation* 3,550,062
-----------
12,738,327
-----------
TOTAL COMMON STOCKS
(DOMESTIC)-78.9%
(COST-$204,081,903) 276,929,133
-----------
14
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
SHARES MARKET VALUE
COMMON STOCKS (FOREIGN)-12.4%
BASIC INDUSTRY-0.4%
63,000 Madeco SA Sponsored ADR (CH) $1,527,750
---------
BUILDING MATERIALS-1.0%
50,000 Hunter Douglas NV (NE) 3,367,636
---------
CONSTRUCTION-1.7%
100,000 IHC Caland NV (NE) 5,706,192
---------
CONSUMER PRODUCTS-1.5%
72,000 Industrie Natuzzi SPA ADR (IT) 1,656,000
132,000 Skis Rossignol (FR) 3,648,406
---------
5,304,406
---------
FINANCIAL SERVICES-0.8%
56,000 Banco Latinoamericano de
Exportaciones, SA Class E (PA) 2,842,000
---------
INSURANCE-1.1%
700,000 Guoco Group Ltd. (HK) 3,918,603
---------
LEISURE & ENTERTAINMENT-0.3%
280,000 Village Roadshow Limited (AU) 1,096,426
---------
MANUFACTURING-1.1%
100,000 Hoya Corporation (JA) 3,920,048
---------
OIL & GAS-1.5%
131,000 Petroleum Geological Services
Sponsored ADR (NW)* 5,092,625
---------
PUBLISHING & BROADCASTING-1.9%
480,000 Flextech PLC (UK) $5,565,634
65,000 Scandinavian Broadcasting
Systems SA (SW)* 1,088,750
---------
6,654,384
---------
RETAIL-1.1%
400,000 Next PLC (UK) 3,885,633
---------
TOTAL COMMON STOCKS
(FOREIGN)-12.4%
(COST-$34,696,732) 43,315,703
---------
PRINCIPAL AMOUNT MARKET VALUE
CORPORATE SHORT-TERM NOTES-7.2%
$13,000,000 American Express Credit Corporation
6.05% 01/03/97 $12,995,631
4,300,000 American Express Credit Corporation
6.30% 01/02/97 4,299,247
4,800,000 Narragansett Electric 6.75% 01/02/97 4,799,100
3,100,000 Toyota Motor Credit 6.20% 01/02/97 3,099,466
-----------
TOTAL CORPORATE
SHORT-TERM NOTES-7.2%
(AMORTIZED COST-$25,193,444) 25,193,444
-----------
TOTAL INVESTMENTS-98.5%
(COST-$263,972,079) 345,438,280
OTHER ASSETS & LIABILITIES-1.5% 5,422,796
-----------
NET ASSETS-100.0% $350,861,076
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FOUNDERS PASSPORT FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Consumer
Passport MSCI World Price
Fund U.S. Index Index
---------- ---------- ---------
11/16/93 ..... $10,000.00 $10,000.00 $10,000
12/31/93 ..... $10,530.00 $10,715.92 $10,000
06/30/94 ..... $ 9,680.00 $11,574.24 $10,151
12/30/94 ..... $ 9,439.22 $11,503.04 $10,267
06/30/95 ..... $10,591.57 $11,836.83 $10,439
12/29/95 ..... $11,741.01 $12,815.34 $10,535
06/30/96 ..... $13,671.04 $13,416.94 $10,719
12/31/96 ..... $14,094.66 $13,695.21 $10,884
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year Since Inception (11/16/93)
------ -------------------------
20.05% 11.61%
PERFORMANCE REVIEW
Founders Passport Fund gained an impressive 20.05% for the year ended December
31, 1996, well ahead of its benchmark, the unmanaged Morgan Stanley Capital
International (MSCI) World ex U.S. Index, which rose only 7.20% for the same
period. In addition, for the three-year period ended December 31, 1996, the Fund
was ranked #1 of 8 international small-company funds based on total return by
Lipper Analytical Services, Inc. (for the one-year period, the Fund ranked #3 of
12 such funds).
As the performance of this MSCI index suggests, performance in international
markets was somewhat sluggish in 1996. This was due to a unique combination of
macroeconomic factors, including a rise in the U.S. dollar, slower-than-expected
economic growth abroad, and a worldwide emphasis on interest rates. In addition,
growth in some Southeast Asian economies slowed in the second half, though
growth rates for these economies are still nearly twice those of more developed
nations.
16
<PAGE>
INVESTMENT OPPORTUNITIES
In this environment, Founders Passport Fund's focus on bottom-up, company-by-
company stock selection proved to be integral to the Fund's performance. One
small and growing stock discovered through this intensive research process is
JBA Holdings, a small British software developer showing very rapid revenue and
earnings growth. We believe that this firm is one of the most attractively
valued software companies in the world.
Another company where we found investment opportunity earlier this year is
Laox, a Japanese computer retailer. There is a substantial gap in computer
ownership between Japan and other developed countries, a gap that may narrow as
the Japanese economy improves. A strong company with a dominant position in its
market, Laox may benefit from this trend.
ECONOMIC OUTLOOK
While 1996 did see slow growth in many of the world's economies, overseas
corporate earnings and economic conditions have nonetheless been improving. In
the coming year, we expect that this trend of gradual economic improvement will
continue and that foreign interest rates will either remain stable or decline.
However, we will be watching the world's markets with a keen eye toward
valuation. We believe that, on a price/earnings basis, most markets around the
world reflect earnings estimates that are generally optimistic, and we must be
very careful about what we pay for a company's potential growth. Therefore, we
will continue to rely on our intense, company-specific research approach to help
us find the best foreign small-cap growth opportunities available at reasonable
prices.
Michael Gerding, CFA
Portfolio Manager
TOP TEN HOLDINGS
1. Marschollek,
Lautenschlaeger und
Partner AG non-voting
pref............................. 2.32%
2. JD Wetherspoon PLC............... 2.29%
3. Flextech PLC..................... 2.26%
4. Gulf Canada...................... 2.02%
5. PT Matahari Putra Prima.......... 1.99%
6. Kverneland ASA................... 1.98%
7. Guilbert......................... 1.97%
8. Hunter Douglas................... 1.97%
9. JBA Holdings..................... 1.96%
10. DFS Furniture.................... 1.87%
PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
17
<PAGE>
FOUNDERS PASSPORT FUND
SHARES MARKET VALUE
PREFERRED STOCKS (FOREIGN)-3.4%
AUTOMOTIVE-1.1%
2,150 Porsche non-voting pref.(GE) $1,897,346
---------
FINANCIAL SERVICES-2.3%
29,700 Marschollek, Lautenschlaeger und
Partner AG non-voting pref. (GE) 4,124,197
---------
TOTAL PREFERRED STOCKS
(FOREIGN)-3.4%
(COST-$4,328,053) 6,021,543
---------
COMMON STOCKS (FOREIGN)-78.3%
AUTO PARTS & EQUIPMENT-0.5%
8,200 Sylea (FR) 897,494
---------
BANKING-1.5%
79,325 Banco de A. Edwards Sponsored ADR
Representing Series A (CH) 1,417,934
1,200,000 Bank Tiara (ID) 1,295,238
---------
2,713,172
---------
BASIC INDUSTRY-1.8%
64,800 Madeco SA Sponsored ADR (CH) 1,571,400
605,000 Perusahaan Perkebu (ID)* 1,600,529
---------
3,171,929
---------
BEVERAGES-0.2%
27,500 Compania Cervecerias Unidas Sponsored
ADR (CH) 440,000
---------
BUILDING MATERIALS-2.8%
52,000 Hunter Douglas NV (NE) 3,502,341
782,000 TLG PLC (UK) 1,412,580
---------
4,914,921
---------
BUSINESS SERVICES-1.1%
6,250 Altran Technologies (FR) $2,004,107
---------
CAPITAL GOODS-1.7%
65,000 Noritsu Koki Company (JA) 3,052,038
---------
COMPUTER EQUIPMENT-1.6%
374,000 Psion PLC (UK) 2,813,161
---------
COMPUTER SOFTWARE-4.6%
37,500 Baan Company NV (NE)* 1,298,437
27,500 Dassault Systems (FR)* 1,265,845
66,000 Enator AB (SW)* 1,686,731
7,500 Enator AB New (SW)* 188,928
385,000 JBA Holdings PLC (UK) 3,492,249
10,700 Misys PLC (UK) 204,459
---------
8,136,649
---------
CONSTRUCTION-1.8%
56,000 IHC Caland NV (NE) 3,195,467
---------
CONSUMER PRODUCTS-6.3%
75,000 Amer Group A Shares (FI) 1,545,888
73,700 Industrie Natuzzi SPA ADR (IT) 1,695,100
31,700 Salomon SA (FR) 2,713,385
60,000 Skis Rossignol (FR) 1,658,392
6,800,000 Solid Group, Inc. (PH)* 1,396,198
1,202,000 Vtech Holdings Ltd. (HK) 2,160,055
---------
11,169,018
---------
18
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
SHARES MARKET VALUE
ELECTRONICS-1.5%
228,650 Rofin Sinar Technologies, Inc. (GE)* $2,629,475
---------
ENVIRONMENTAL SERVICES-1.3%
143,500 Tomra Systems ASA (NW) 2,236,113
---------
FINANCIAL SERVICES-2.6%
50,250 Banco Latinoamericano de
Exportaciones, SA Class E (PA) 2,550,187
4,150,000 Manhattan Card Company (HK) 2,105,877
---------
4,656,064
---------
FOOD & BEVERAGES-1.8%
82,400 Grolsch NV (NE) 3,191,767
---------
INSURANCE-1.8%
575,000 Guoco Group Ltd. (HK) 3,218,852
---------
LEISURE & ENTERTAINMENT-2.4%
2,000,000 AAPC Limited (AU) 1,207,307
1,896,285 Grupo Posadas SA de CV
Series A (MX)* 975,604
554,000 Village Roadshow Limited (AU) 2,169,357
---------
4,352,268
---------
MACHINERY-4.5%
79,700 Konecranes International Corporation
(FI) 2,507,377
128,000 Kverneland ASA (NW) 3,528,104
79,000 Turbon International (GE) 2,024,852
---------
8,060,333
---------
MANUFACTURING-0.4%
40,000 Axxicon Group NV (NE) $ 871,827
---------
OIL & GAS-6.0%
160,000 British Borneo Petroleum (UK) 2,218,039
285,000 Cairn Energy PLC (UK) 2,033,972
488,300 Gulf Canada Resources Limited (CA) 3,601,212
74,000 Petroleum Geological Services
Sponsored ADR (NW) 2,876,750
---------
10,729,973
---------
PHARMACEUTICALS-2.9%
146,975 Medeva PLC ADR (UK) 2,480,203
35,700 Schwarz Pharma (GE) 2,640,841
---------
5,121,044
---------
PUBLISHING & BROADCASTING-6.6%
188,000 Capital Radio PLC (UK) 1,758,378
70,750 Cinar Films, Inc. Class B (CA) 1,777,594
128,000 Comcast U.K. Cable Partners Ltd.
Series A Shares (UK) 1,728,000
344,000 Dorling Kindersley Holdings PLC (UK) 2,422,727
347,000 Flextech PLC (UK) 4,023,490
---------
11,710,189
---------
RESTAURANTS-3.6%
203,400 J D Wetherspoon PLC (UK) 4,072,873
100,000 Pizza Express PLC (UK) 902,790
245,000 Regent Inns PLC (UK) 1,382,364
---------
6,358,027
---------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
FOUNDERS PASSPORT FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
SHARES MARKET VALUE
RETAIL-12.3%
128,000 Bulgari SPA (IT) $2,592,831
322,000 DFS Furniture Company (UK) 3,325,967
70,000 Doutor Coffee Company Ltd. (JA) 2,924,959
17,965 Guilbert SA (FR) 3,507,487
147,000 Laox Company Ltd. (JA) 2,229,000
215,000 Next PLC (UK) 2,088,598
44,000 Paris Miki, Inc. (JA) 1,584,805
3,041,000 PT Matahari Putra Prima (ID) 3,539,788
----------
21,793,435
----------
TELECOMMUNICATION SERVICES-1.7%
11,000 Asia Satellite Telecom Holdings
Sponsored ADR (HK) 257,125
82,400 Cellular Communications
International, Inc. (IT) 2,348,400
52,000 Grupo Iusacell L Shares (MX) 396,500
----------
3,002,025
----------
TRANSPORTATION-5.0%
117,000 ASG Class B (SW) 2,398,945
30,000 Copenhagen Airport (DE) 3,051,416
2,670,000 International Container Terminal &
Services (PH)* 1,395,913
115,425 Tranz Rail Holdings Ltd. Sponsored
ADR (NZ)* 2,034,366
----------
8,880,640
----------
TOTAL COMMON STOCKS
(FOREIGN)-78.3%
(COST-$121,085,450) 139,319,988
----------
PRINCIPAL AMOUNT MARKET VALUE
CORPORATE SHORT-TERM NOTES-18.5%
$8,900,000 Ford Motor Credit 5.91% 01/02/97 $ 8,898,539
2,000,000 Massachusetts Electric 6.00% 01/07/97 1,998,000
7,900,000 Merrill Lynch & Company 5.85%
01/07/97 7,892,298
7,100,000 Morgan Stanley Group 6.25% 01/06/97 7,093,837
7,100,000 Texaco, Inc. 6.00% 01/03/97 7,097,633
-----------
TOTAL CORPORATE SHORT-TERM NOTES-18.5%
(AMORTIZED COST-$32,980,307) 32,980,307
-----------
TOTAL INVESTMENTS-100.2%
(COST-$158,393,810) 178,321,838
OTHER ASSETS & LIABILITIES-(0.2%) (400,778)
-----------
NET ASSETS-100.0% $177,921,060
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
FOUNDERS SPECIAL FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Lipper Capital Consumer Standard &
Special Appreciation Price Poor's
Fund Fund Index Index 500 Index
--------- ------------- --------- ----------
12/31/86 ..... $10,000.00 $10,000 $10,000 $10,000.00
12/31/87 ..... $10,522.77 $10,196 $10,441 $10,522.10
12/30/88 ..... $11,910.98 $11,506 $10,902 $12,265.20
12/31/89 ..... $16,580.61 $14,762 $11,409 $16,146.98
12/31/90 ..... $14,854.60 $13,613 $12,106 $15,639.91
12/31/91 ..... $24,310.48 $18,726 $12,477 $20,402.06
12/31/92 ..... $26,327.51 $20,141 $12,838 $21,956.47
12/31/93 ..... $30,546.28 $23,313 $13,191 $24,166.20
12/30/94 ..... $29,048.17 $22,740 $13,544 $24,479.39
12/29/95 ..... $36,511.16 $29,925 $13,888 $33,668.41
12/31/96 ..... $42,109.50 $34,398 $14,347 $41,409.14
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
15.33% 11.61% 15.46% 16.21%
PERFORMANCE REVIEW
The past year, investors concentrated on the pace of economic growth: initial
concerns over a slowing U.S. economy soon gave way to fears that it was
overheating. Investors became concerned that inflation and short-term interest
rates could be on the rise. However, economic growth remained subdued, both on
domestic and international fronts, keeping inflation in check and convincing the
Federal Reserve not to raise interest rates.
As a result, equity markets (both here and abroad) recorded surprisingly
strong performance for 1996, with many market indicators reaching all-time
highs. In this environment, Founders Special Fund recorded a one-year total
return of 15.33% for the year ended December 31, 1996.
INVESTMENT OPPORTUNITIES
While the positive performance of the markets during 1996 resulted in high
valuations for many companies, Founders
21
<PAGE>
Special Fund was able to find many attractive investment opportunities in
traditional growth-stock areas. Many of these companies are high-quality, highly
liquid, and have a history of consistent earnings growth.
For example, a strong and continuing theme in the portfolio was a focus on the
data networking industry, where growth was in excess of 50% for the third year
in a row. One of our top positions is in 3Com Corporation, a leader in the
industry with a robust business poised to take advantage of this growth.
Similarly, Tellabs, Inc. and ADC Telecom--both manufacturers of a variety of
products used by providers of communications services--may benefit from
potentially rapid growth in the telecommunications industry resulting from the
Telecommunications Reform Act of 1996.
ECONOMIC OUTLOOK
We concur with the consensus view that the stock market is expensive, especially
on a price-to-earnings basis. Nevertheless, we also believe that the economy
will continue to grow, though at a slow rate; that inflationary pressures remain
weak; and that interest rates may remain stable or decline. These factors may be
quite positive for 1997's markets.
In any event, we are confident in our ability to find good growth-stock
opportunities in the small-cap, mid-cap, and international areas in the year
ahead. Trends toward greater global competition mean that corporations will
continue to focus on lowering costs and increasing productivity, which may allow
growth companies to post increases in earnings per share, regardless of market
conditions. Founders' focus on in-depth research may prove to be the key to
finding these opportunities.
Robert Ammann, CFA
John Jares, CFA
Douglas Loeffler, CFA
Co-Lead Portfolio Managers
TOP TEN HOLDINGS
1. Parametric Technology
Corporation...................... 3.25%
2. 3Com Corporation................. 3.02%
3. Oxford Health Plans.............. 2.89%
4. Eli Lilly & Company.............. 2.61%
5. Intel Corporation................ 2.30%
6. Tellabs, Inc. ................... 1.76%
7. US Freightways Corporation....... 1.71%
8. Associates First Capital
Corporation Class A.............. 1.52%
9. Compaq Computer Corp. ........... 1.43%
10. CITIC Pacific.................... 1.37%
PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
22
<PAGE>
FOUNDERS SPECIAL FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
SHARES MARKET VALUE
COMMON STOCKS (DOMESTIC)-62.2%
BUSINESS SERVICES-5.0%
55,000 CDW Computer Center, Inc.* $3,258,750
58,700 Concord EFS, Inc.* 1,628,925
75,000 First Data Corporation 2,737,500
125,000 Fiserv, Inc.* 4,593,750
107,000 Teletech Holdings, Inc.* 2,701,750
136,375 Vanstar Corporation* 3,341,188
---------
18,261,863
---------
COMPUTER EQUIPMENT-4.0%
70,000 Compaq Computer Corporation* 5,197,500
300,000 Data General Corporation* 4,350,000
25,000 International Business Machines
Corporation 3,775,000
50,000 Silicon Graphics, Inc.* 1,275,000
---------
14,597,500
---------
COMPUTER NETWORKING-4.3%
75,000 Cisco Systems, Inc.* 4,771,875
150,000 3Com Corporation 10,987,500
---------
15,759,375
---------
COMPUTER SOFTWARE-7.7%
90,000 BMC Software, Inc.* 3,723,750
90,000 Electronic Arts, Inc.* 2,688,750
46,500 Microsoft Corporation* 3,842,063
148,800 Midway Games, Inc.* 3,013,200
230,000 Parametric Technology Corporation* 11,816,250
100,000 The Sabre Group Holding Corporation
Class A* 2,787,500
---------
27,871,513
---------
CONSUMER PRODUCTS-0.0%
625 Revlon, Inc. Class A* 18,672
---------
ELECTRONICS-0.0%
555 Windmere Durable Holdings, Inc. 7,146
---------
ENVIRONMENTAL SERVICES-1.8%
100,000 USA Waste Services, Inc.* $3,187,500
100,000 United Waste Systems, Inc.* 3,425,000
---------
6,612,500
---------
FINANCIAL SERVICES-2.4%
125,000 Associates First Capital Corporation
Class A 5,515,625
30,000 Federal Home Loan Mortgage
Corporation 3,303,750
---------
8,819,375
---------
FOOD & BEVERAGES-0.2%
41,500 Hudson Foods, Inc. 788,500
---------
HEALTHCARE SERVICES-6.5%
60,000 Cardinal Health, Inc. 3,495,000
70,000 Healthcare Compare Corporation* 2,966,250
77,675 NCS Healthcare, Inc.* 2,233,156
180,000 Oxford Health Plans, Inc.* 10,530,000
50,000 Pacificare Health Systems, Inc.
Class B* 4,250,000
---------
23,474,406
---------
LEISURE & ENTERTAINMENT-2.0%
100,000 America Online, Inc.* 3,325,000
100,000 Metromedia International Group, Inc.* 987,500
150,200 WMS Industries, Inc.* 3,004,000
---------
7,316,500
---------
MANUFACTURING-1.4%
100,000 Minerals Technologies, Inc. 4,100,000
30,000 U.S. Filter Corporation* 952,500
---------
5,052,500
---------
MEDICAL SUPPLIES & EQUIPMENT-0.8%
85,075 Sybron International Corporation* 2,807,475
---------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
FOUNDERS SPECIAL FUND
SHARES MARKET VALUE
OFFICE SUPPLIES & EQUIPMENT-0.5%
70,000 Viking Office Products, Inc.* $1,855,000
---------
OIL & GAS-4.7%
110,000 Barrett Resources Corporation* 4,688,750
75,000 Noble Affiliates, Inc. 3,590,625
125,000 Parker & Parsley Petroleum Company 4,593,750
77,500 United Meridian Corporation* 4,010,625
---------
16,883,750
---------
PHARMACEUTICALS-3.6%
130,000 Eli Lilly & Company 9,490,000
79,375 Watson Pharmaceuticals, Inc.* 3,561,953
---------
13,051,953
---------
PUBLISHING & BROADCASTING-1.6%
193,000 Cox Radio, Inc.* 3,377,500
100,000 New World Communications, Inc.
Class A* 2,512,500
---------
5,890,000
---------
RESTAURANTS-0.7%
97,375 Lone Star Steakhouse & Saloon, Inc.* 2,604,781
---------
RETAIL-3.5%
95,000 CVS Corporation 3,930,625
95,025 Fred Meyer Inc.* 3,373,387
150,000 General Nutrition
Companies, Inc.* 2,531,250
120,000 Price Costco, Inc.* 3,015,000
---------
12,850,262
---------
SEMICONDUCTORS & EQUIPMENT-3.8%
123,000 Cypress Semiconductor Corporation* 1,737,375
64,000 Intel Corporation 8,376,000
154,700 VLSI Technology, Inc.* 3,654,787
---------
13,768,162
---------
SUPERMARKETS-1.3%
77,125 Vons Companies, Inc.* 4,617,859
---------
TELECOMMUNICATION SERVICES-0.8%
82,500 McLeod Inc. Class A* $2,103,750
50,000 Paging Network, Inc.* 762,500
----------
2,866,250
----------
TELECOMMUNICATIONS EQUIPMENT-3.9%
149,600 ADC Telecommunications, Inc.* 4,637,600
75,000 Dynatech Corporation* 3,300,000
170,000 Tellabs, Inc.* 6,396,250
----------
14,333,850
----------
TRANSPORTATION-1.7%
227,000 US Freightways Corporation 6,214,125
----------
TOTAL COMMON STOCKS
(DOMESTIC)-62.2%
(COST-$182,058,771) 226,323,317
----------
COMMON STOCKS (FOREIGN)-20.5%
ADVERTISING-0.1%
100,000 WPP Group (UK) 435,600
----------
AUTOMOTIVE-1.2%
100,000 Autoliv AB (SW) 4,379,028
----------
BANKING-3.1%
36,000 CS Holdings (SZ) 3,686,602
200,000 HSBC Holdings PLC (UK) 4,279,305
300,000 National Westminster Bank PLC (UK) 3,524,700
----------
11,490,607
----------
BASIC INDUSTRY-1.1%
1,300,000 Semen Gresik Bearer (ID) 4,182,010
----------
COMPUTER SOFTWARE-0.8%
100 NTT Data Communications (JA) 2,920,651
----------
CONSUMER PRODUCTS-0.4%
93,600 Tag Heuer International (SZ)* 1,509,300
----------
24
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
SHARES MARKET VALUE
DIVERSIFIED-1.4%
860,000 CITIC Pacific (HK) $4,992,178
---------
ELECTRONICS-0.9%
52,000 Sony Corporation (JA) 3,400,362
---------
FOOD & BEVERAGES-0.6%
200,000 Quilmes Industrial SA Registered (AR) 1,600,000
50,000 Quilmes Industrial SA ADR
representing one non-voting preferred
share (AR) 456,250
---------
2,056,250
---------
MACHINERY-1.0%
31,500 ABB AB Series A (SW) 3,552,285
---------
OFFICE SUPPLIES & EQUIPMENT-1.1%
36,500 OCE Van Der Grinten NV (NE) 3,958,721
---------
OIL & GAS-2.1%
227,000 Saga Petroleum A Shares (NW) 3,786,118
160,000 YPF Sociedad Anonima Sponsored ADR
(AR) 4,040,000
---------
7,826,118
---------
PUBLISHING & BROADCASTING-2.3%
465,000 Carlton Communications PLC (UK) 4,094,515
200,000 Ver Ned Uitgeversbedr Ver Bezit NV
(NE) 4,174,134
---------
8,268,649
---------
SEMICONDUCTORS & EQUIPMENT-1.2%
86,000 ASM Lithography (NE) 4,290,802
---------
TELECOMMUNICATION SERVICES-1.5%
500 DDI Corporation (JA) 3,299,733
162,792 Korea Mobile Telecommunications
Corporation ADR (KO) 2,095,941
---------
5,395,674
---------
TELECOMMUNICATIONS EQUIPMENT-1.7%
40,000 Nokia Corporation Sponsored ADR (FI) $2,305,000
125,000 Telefonaktiebolaget L M Ericsson
Company ADR Class B (SW) 3,765,625
---------
6,070,625
---------
TOTAL COMMON STOCKS
(FOREIGN)-20.5% (COST-$68,971,614)
74,728,860
---------
WARRANTS (DOMESTIC)-0.0%
6,548 Jan Bell Marketing, Inc. Expires
12/16/98* $103
---------
TOTAL WARRANTS
(DOMESTIC)-0.0%
(COST-$0) 103
---------
PRINCIPAL AMOUNT MARKET VALUE
CORPORATE SHORT-TERM NOTES-18.2%
$13,600,000 American Express Credit 6.05%
01/03/97 $13,595,429
15,800,000 Ciesco LP 5.75% 01/02/97 15,797,476
12,200,000 Ford Motor Credit 5.91% 01/03/97 12,195,994
10,000,000 Massachusetts
Electric 6.00% 01/07/97 9,990,000
14,800,000 Morgan Stanley Group 6.25% 01/06/97 14,787,153
-----------
TOTAL CORPORATE
SHORT-TERM NOTES-18.2%
(AMORTIZED COST-$66,366,052) 66,366,052
-----------
TOTAL INVESTMENTS-100.9% 367,418,332
(COST-$317,396,437)
OTHER ASSETS & LIABILITIES-(0.9%)
(3,583,157)
-----------
NET ASSETS-100.0% $363,835,175
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders MSCI Consumer
International World ex Price
Equity Fund U.S. Index Index
------------- ---------- ---------
12/31/95 ..... $10,000.00 $10,000.00 $10,000
01/31/96 ..... $10,000.00 $10,058.62 $10,040
02/29/96 ..... $10,370.00 $10,087.67 $10,060
03/29/96 ..... $10,810.00 $10,301.24 $10,100
04/30/96 ..... $11,200.00 $10,605.54 $10,141
05/31/96 ..... $11,520.00 $10,424.08 $10,171
06/30/96 ..... $11,460.00 $10,489.44 $10,181
07/30/96 ..... $10,800.00 $10,163.11 $10,212
08/30/96 ..... $11,060.00 $10,201.34 $10,222
09/30/96 ..... $11,260.00 $10,477.60 $10,253
10/31/96 ..... $11,200.00 $10,407.77 $10,283
11/29/96 ..... $11,670.00 $10,836.94 $10,314
12/31/96 ..... $11,860.00 $10,686.58 $10,331
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year Since Inception (12/29/95)
------ -------------------------
18.60% 18.60%
PERFORMANCE REVIEW
Founders International Equity Fund had a very successful inaugural year in a
challenging environment, rising 18.60% for the 12 months ended December 31,
1996. This compares quite favorably to the Fund's benchmark, the unmanaged
Morgan Stanley Capital International World ex U.S. Index, which rose only 7.20%
for the same period.
Markets overseas were affected by a variety of factors in 1996. Chief among
these was the sluggish economic growth experienced by many of the developed
markets, including those of Europe and Japan. Some Southeast Asian nations also
saw slowing, though on average these economies are still growing at nearly twice
the rate of those of developed states.
Despite this sluggishness and the increasing strength of the U.S. dollar,
Founders International Equity Fund, backed by a focus on in-depth research, was
able to find several promising growth opportunities in overseas markets.
INVESTMENT OPPORTUNITIES
After launching on December 29, 1995, we immediately put Founders International
26
<PAGE>
Equity Fund's assets to work. The Fund seeks to invest in foreign companies that
possess the fundamental strengths needed to post growth in earnings per share;
often, we find such potential in companies which dominate their industry or
local market or possess a unique niche. Companies in this position may offer
appreciation potential as they continue to gain market share or begin to expand
into new areas. Some such companies we invested in during 1996 were:
o Autoliv, a Swedish company that is one of the world's largest makers of
automotive airbags
o HSBC Holdings, a Hong Kong-based conglomerate that is a worldwide leader in
financial services, including brokerage services and investment banking
o SPT Telecom, the national telecommunications provider for the Czech Republic
ECONOMIC OUTLOOK
In general, overseas economies and corporate earnings did grow in 1996, albeit
slowly. We anticipate that this slow growth will continue throughout 1997, with
European economies recovering faster than Japan. The emerging markets still
appear robust, though growth rates there may suffer as a result of a stronger
U.S. dollar and higher oil prices.
In this environment, the challenge will remain finding companies which are
fundamentally strong enough to post consistent growth in earnings. We believe
that our research-intensive, bottom-up focus will help us meet this challenge in
the Fund's second year and beyond.
Michael Gerding, CFA
Douglas Loeffler, CFA
Co-Lead Portfolio Managers
TOP TEN HOLDINGS
1. CITIC Pacific.................... 2.01%
2. Spira AB......................... 1.91%
3. JBA Holdings..................... 1.88%
4. Autoliv.......................... 1.86%
5. Gulf Canada Resources Limited.... 1.82%
6. PT Matahari Putra Prima.......... 1.79%
7. OCE Van Der Grinten NV........... 1.71%
8. Cellular Communications.......... 1.69%
9. Guoco Group Ltd. ................ 1.66%
10. ASM Lithography.................. 1.66%
PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
27
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND
SHARES MARKET VALUE
PREFERRED STOCKS (FOREIGN)-2.2%
AUTOMOTIVE-1.4%
450 Volkswagen Preferred (GE) $ 144,394
---------
PUBLISHING & BROADCASTING-0.8%
4,800 News Corporation ADR representing
preferred shares (AU) 84,600
---------
TOTAL PREFERRED STOCKS
(FOREIGN)-2.2%
(COST-$223,171) 228,994
---------
COMMON STOCKS (FOREIGN)-90.1%
ADVERTISING-1.5%
35,000 WPP Group (UK) 152,149
---------
AIRLINES-1.0%
1,025 British Airways ADS (UK) 105,319
---------
APPAREL-1.0%
1,800 Fila Holdings SPA Sponsored ADR
representing five
ordinary shares (IT) 104,625
---------
AUTOMOTIVE-3.9%
4,300 Autoliv (SW) 188,298
9,000 Edaran Otomobil Nasional Berhad (MA) 89,982
1,925 Toyota Motors ADR (JA) 110,206
---------
388,486
---------
BANKING-6.3%
2,700 Argentaria Corporation Bancaria de
Espana (SP) $ 120,598
4,650 Banco de A. Edwards Sponsored ADR
representing Series A (CH) 83,119
1,200 CS Holdings (SZ) 122,887
7,500 HSBC Holdings PLC (HK) 160,474
2,200 National Westminster Bank PLC ADR
(UK) 152,900
---------
639,978
---------
BASIC INDUSTRY-1.1%
33,000 Semen Gresik Bearer (ID) 106,134
---------
BUSINESS SERVICES-1.1%
350 Altran Technologies (FR) 112,230
---------
CHEMICALS-1.0%
1,200 Potash Corporation of Saskatchewan,
Inc. (CA) 102,000
---------
COMPUTER SOFTWARE-4.8%
2,500 Baan Comapny NV (NE)* 86,563
21,000 JBA Holdings PLC (UK) 190,486
4,000 Konami Industry (JA) 136,125
1,500 Square Company Ltd. (JA) 75,601
---------
488,775
---------
CONSUMER PRODUCTS-3.7%
800 Christian Dior (FR) 128,809
7,000 Tag Heuer International (SZ)* 112,875
74,400 Vtech Holdings Ltd. (HK) 133,701
---------
375,385
---------
28
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
SHARES MARKET VALUE
DIVERSIFIED-2.0%
35,000 CITIC Pacific (HK) $ 203,170
---------
ELECTRONICS-3.8%
150,000 Gold Peak (HK) 102,781
12,650 Rofin Sinar Technologies,
Inc. (GE)* 145,475
2,100 Sony Corporation (JA) 137,322
---------
385,578
---------
FINANCIAL SERVICES-3.9%
2,800 Banco Latinoamericano de
Exportaciones, SA Class E (PA) 142,100
30,000 Hysan Development (HK) 119,459
251,000 Manhattan Card Company (HK) 127,368
---------
388,927
---------
FOOD & BEVERAGES-2.7%
9,000 Quilmes Industrial SA ADR
representing one non-voting preferred
share (AR) 82,125
8,200 Spira AB (SW) 193,351
---------
275,476
---------
INSURANCE-1.7%
30,000 Guoco Group Ltd. (HK) 167,939
---------
LEISURE & ENTERTAINMENT-4.0%
900 Accor (FR) 113,740
7,000 Genting BHD (MA) 48,228
40,000 Ladbroke Group PLC (UK) 158,147
20,900 Village Roadshow Limited (AU) 81,840
---------
401,955
---------
MACHINERY-3.9%
1,000 ABB AB Series A (SW) $ 112,771
4,800 Konecranes International Corporation
(FI)* 151,009
4,825 Kverneland ASA (NW) 132,993
---------
396,773
---------
MANUFACTURING-2.4%
4,000 Axxicon (NE) 87,183
4,000 Hoya Corporation (JA) 156,802
---------
243,985
---------
OFFICE SUPPLIES & EQUIPMENT-1.7%
1,600 OCE Van Der Grinten NV (NE) 173,533
---------
OIL & GAS-7.1%
25,000 Gulf Canada Resources
Limited (CA) 184,375
3,000 Petroleum Geological Services ADR
(NW)* 116,625
6,400 Saga Petroleum A Shares (NW) 106,745
4,000 Total SA Sponsored ADR (FR) 161,000
6,000 YPF Sociedad Anonima Sponsored ADR
(AR) 151,500
---------
720,245
---------
PHARMACEUTICALS-2.6%
3,050 Astra AB Series B (SW) 146,961
1,500 Schwarz Pharma (GE) 110,960
---------
257,921
---------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
SHARES MARKET VALUE
PUBLISHING & BROADCASTING-5.9%
18,000 Carlton Communications PLC (UK) $ 158,497
500 Pathe (FR)* 120,222
8,000 Ver Ned Uitgeversbedr Ver
Bezit NV (NE) 166,965
1,125 Wolters Kluwer (NE) 149,267
---------
594,951
---------
RESTAURANTS-1.6%
8,025 J D Wetherspoon (UK) 160,692
---------
RETAIL-10.0%
6,700 Bulgari SPA (IT) 135,719
15,600 Dixons Group PLC (UK) 144,840
1,200 Gucci Group NV (FR) 76,650
775 Guilbert SA (FR) 151,312
2,075 Inwear Group 144A (DE)*+ 90,402
5,500 Laox Co Ltd. (JA) 83,398
15,400 Next PLC (UK) 149,597
156,000 PT Matahari Putra Prima (ID) 181,587
---------
1,013,505
---------
SEMICONDUCTORS &
EQUIPMENT-1.7%
3,375 ASM Lithography (NE)* 167,906
---------
TELECOMMUNICATION SERVICES-8.3%
6,000 Cellular Communications International
(IT)* $ 171,000
20 DDI Corporation (JA) 131,989
8,060 Korea Mobile Telecommunications
Corporation ADR (KO) 103,769
1,225 SPT Telecom (CZ) 152,338
2,600 Telecel Comunicacoes Pessoais 144A
(PO)*+ 165,797
1,525 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 116,663
---------
841,556
---------
TRANSPORTATION-1.4%
1,375 Copenhagen Airport (DE) 139,856
---------
COMMON STOCKS
(FOREIGN)-90.1%
(COST-$8,125,678) 9,109,049
---------
PRINCIPAL AMOUNT MARKET VALUE
CORPORATE SHORT-TERM NOTES-9.9%
$500,000 Brown-Forman 6.45% 01/03/97 $ 499,821
200,000 General Electric Capital Corporation
6.00% 01/02/97 199,967
300,000 Toyota Motor Credit 6.20% 01/02/97 299,948
----------
TOTAL CORPORATE SHORT-TERM NOTES-9.9%
(AMORTIZED COST-$999,736)
999,736
----------
TOTAL INVESTMENTS-102.2%
(COST-$9,348,585) 10,337,779
OTHER ASSETS & LIABILITIES-(2.2%)
(218,603)
----------
NET ASSETS-100.0% $10,119,176
==========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders MSCI Lipper Consumer
Worldwide World Global Price
Growth Fund Index Fund Index Index
----------- ------- -------------- ---------
12/31/89 ..... $10,000.00 $10,000.00 $10,000 $10,000
06/30/90 ..... $11,050.00 $ 9,256.65 $10,319 $10,301
12/31/90 ..... $10,666.83 $ 8,298.22 $ 9,086 $10,634
06/28/91 ..... $11,797.23 $ 8,803.50 $ 9,743 $10,785
12/31/91 ..... $14,379.21 $ 9,815.49 $10,929 $10,936
06/30/92 ..... $14,089.97 $ 9,175.33 $11,045 $11,118
12/31/92 ..... $14,596.14 $ 9,302.51 $10,936 $11,252
06/30/93 ..... $15,081.64 $10,712.46 $12,119 $11,451
12/31/93 ..... $18,958.68 $11,396.10 $14,517 $11,562
06/30/94 ..... $17,701.11 $11,808.95 $14,041 $11,737
12/30/94 ..... $18,549.86 $11,974.71 $14,199 $11,872
06/30/95 ..... $20,742.42 $13,069.12 $15,243 $12,070
12/29/95 ..... $22,376.93 $14,454.90 $16,189 $12,173
06/30/96 ..... $24,922.07 $15,479.30 $17,751 $12,419
12/31/96 ..... $25,499.30 $16,403.84 $18,900 $12,576
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year 5 Years Since Inception (12/31/89)
------ ------- -------------------------
13.95% 12.14% 14.31%
PERFORMANCE REVIEW
Founders Worldwide Growth Fund returned 13.95% for the 12-month period ended
December 31, 1996, outpacing its benchmark index (the unmanaged Morgan Stanley
Capital International World Index), which rose 13.48% for the same period.
Several distinct factors affected international markets throughout 1996,
including the rising U.S. dollar and worldwide market sensitivity to potential
interest-rate increases. In addition, economic growth abroad was slower than
expected, especially in Europe and Japan. However, economies did improve and
interest rates declined somewhat, resulting in slow but positive performance for
international markets.
Founders Worldwide Growth Fund seeks global investment opportunities on a
company-by-company basis: the Fund has no predetermined country or regional
focus. This flexibility enables the Fund to find growth opportunities in markets
throughout the world, regardless of the performance of local economies.
31
<PAGE>
INVESTMENT OPPORTUNITIES
For example, one company that served the Fund well in the first half of the year
was SPT Telecom, the national telecommunications provider for the Czech
Republic. In addition to being in a dominant position in a rapidly growing
market, this company may stand to benefit as telecom service providers expand
into developing countries.
Another excellent opportunity uncovered by our intensive, bottom-up research
efforts is Square, a Japanese video-game designer which develops products for
all major game platforms. Already one of the largest game developers in the
world, Square is engaged in a promising agreement to distribute its products
through convenience stores in Japan.
ECONOMIC OUTLOOK
We believe that, over the next year, international markets will be driven by
many of the same factors we saw in 1996. Overseas economic growth continues to
be a concern, as slow growth in Europe and Japan may make it more difficult for
growth companies there to post increases in corporate earnings. Moreover, prices
in many foreign markets seem to reflect corporate earnings estimates that we
feel are too optimistic.
In the coming year, therefore, we must continue to be very careful about the
companies we invest in as well as the prices we pay for their potential earnings
growth rates. As always, we will rely on our company-by-company research efforts
to help us find attractively valued companies that meet Founders Worldwide
Growth Fund's growth criteria.
Michael Gerding, CFA
Portfolio Manager
TOP TEN HOLDINGS
1. Ladbroke Group PLC............... 2.31%
2. CITIC Pacific.................... 2.19%
3. Hoya Corporation................. 1.89%
4. VNU.............................. 1.87%
5. Wolters Kluwer................... 1.86%
6. Autoliv.......................... 1.83%
7. Marschollek, Lautenschlaeger und
Partner AG non-voting pref. ..... 1.79%
8. Dixons Group PLC................. 1.76%
9. OCE Van Der Grinten NV........... 1.74%
10. Carlton Communications PLC....... 1.72%
PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
32
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
SHARES MARKET VALUE
PREFERRED STOCKS (FOREIGN)-4.3%
AUTOMOTIVE-1.5%
16,000 Volkswagen Preferred (GE) $5,133,995
---------
FINANCIAL SERVICES-1.8%
44,200 Marschollek, Lautenschlaeger und
Partner AG non-voting pref. (GE) 6,137,694
---------
PUBLISHING & BROADCASTING-1.0%
200,000 News Corporation ADR representing
preferred shares (AU) 3,525,000
---------
TOTAL PREFERRED STOCKS (FOREIGN)-4.3%
(COST-$10,442,217) 14,796,689
---------
COMMON STOCKS (DOMESTIC)-12.4%
APPAREL-2.0%
119,725 Warnaco Group, Inc. Class A 3,546,853
115,637 Wolverine World Wide, Inc. 3,353,473
---------
6,900,326
---------
BIOTECHNOLOGY-0.8%
80,000 IDEXX Laboratories, Inc.* 2,880,000
---------
BUSINESS SERVICES-1.4%
43,125 Corporate Express, Inc.* 1,266,797
110,825 Manpower, Inc. 3,601,812
---------
4,868,609
---------
COMPUTER SOFTWARE-0.4%
55,300 Geoworks, Inc.* 1,341,025
---------
HEALTHCARE SERVICES-3.3%
97,800 Columbia/HCA Healthcare Corporation 3,985,350
130,000 Quorum Health Group, Inc* 3,835,000
92,500 Rural/Metro Corporation* 3,283,750
---------
11,104,100
---------
OIL & GAS-1.9%
108,000 Apache Corporation $3,820,500
67,500 The Williams Companies, Inc. 2,531,250
---------
6,351,750
---------
TELECOMMUNICATION SERVICES-2.0%
104,500 MCI Communications Corporation 3,409,312
135,000 WorldCom, Inc.* 3,510,000
---------
6,919,312
---------
TELECOMMUNICATIONS EQUIPMENT-0.6%
71,550 Digital Microwave Corporation* 1,976,569
---------
TOTAL COMMON STOCKS
(DOMESTIC)-12.4%
(COST-$31,703,639) 42,341,691
---------
COMMON STOCKS (FOREIGN)-71.4%
ADVERTISING-1.3%
1,000,000 WPP Group (UK) 4,347,124
---------
AIRLINES-1.4%
45,375 British Airways ADS (UK) 4,662,281
---------
APPAREL-0.4%
25,000 Fila Holdings SPA Sponsored ADR
repstg. five ordinary
shares (IT) 1,453,125
---------
AUTOMOTIVE-4.8%
143,000 Autoliv (SW) 6,262,009
344,000 Edaran Otomobil Nasional Berhad (MA) 3,439,319
96,000 Tata Engineering and Locomotive
Company GDR representing one ordinary
share (IN)* 1,026,240
100,000 Toyota Motors Corporation ADR (JA) 5,725,000
---------
16,452,568
---------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
SHARES MARKET VALUE
BANKING-6.4%
111,000 Argentaria Corporation Bancaria de
Espana (SP)* $4,957,884
61,700 Banco de A. Edwards Sponsored ADR
Representing Series A (CH) 1,102,888
46,000 CS Holdings (SZ) 4,710,658
254,000 HSBC Holdings PLC (HK) 5,434,718
80,000 National Westminster Bank PLC ADR
(UK) 5,560,000
----------
21,766,148
----------
BASIC INDUSTRY-1.6%
39,250 Madeco SA Sponsored ADR (CH) 951,813
1,450,000 Semen Gresik Bearer (ID) 4,664,549
----------
5,616,362
----------
CHEMICALS-1.0%
40,000 Potash Corporation of Saskatchewan,
Inc. (CA) 3,400,000
----------
COMPUTER SOFTWARE-2.5%
37,500 Baan Company NV (NE)* 1,298,438
110 NTT Data Communications (JA) 3,212,716
78,200 Square Company Ltd. (JA) 3,941,329
----------
8,452,483
----------
CONSUMER PRODUCTS-2.5%
27,000 Christian Dior (FR) 4,347,312
88,250 Industrie Natuzzi SPA
ADR (IT) 2,029,750
139,050 Tag Heuer International (SZ)* 2,242,181
----------
8,619,243
----------
DIVERSIFIED-2.2%
1,290,000 CITIC Pacific (HK) 7,488,267
----------
ELECTRONICS-4.6%
107,125 ASM Lithography (NE)* 5,329,469
150,000 Konami Industry (JA) 5,104,678
80,000 Sony Corporation (JA) 5,231,326
----------
15,665,473
----------
FINANCIAL SERVICES-2.4%
60,650 Banco Latinoamericano de
Exportaciones, SA
Class E (PA) $3,077,988
1,250,000 Hysan Development (HK) 4,977,440
----------
8,055,428
----------
FOOD & BEVERAGES-1.2%
400,000 Gruma SA de C.V. B shares 144A (MX)*+ 2,428,862
122,020 Quilmes Industrial SA Registered (AR) 976,160
73,010 Quilmes Industrial SA ADR
representing one non-voting preferred
share (AR) 666,216
----------
4,071,238
----------
LEISURE & ENTERTAINMENT-5.1%
38,000 Accor (FR) 4,802,446
240,000 Genting BHD (MA) 1,653,534
2,000,000 Ladbroke Group PLC (UK) 7,907,366
1,518,750 Magnum Corporation (MA) 2,946,671
----------
17,310,017
----------
MACHINERY-1.3%
39,500 ABB AB Series A (SW) 4,454,452
----------
MANUFACTURING-1.9%
165,000 Hoya Corporation (JA) 6,468,080
----------
MINING & METALS-0.8%
410,000 Sumitomo Metal Mining Company (JA) 2,758,766
----------
OFFICE SUPPLIES & EQUIPMENT-1.7%
55,000 OCE Van Der Grinten NV (NE) 5,965,196
----------
OIL & GAS-4.3%
80,000 Petroleum Geological Services ADR
(NW)* 3,110,000
25,000 Repsol SA ADR (SP) 953,125
140,155 Total SA Sponsored
ADR (FR) 5,641,239
200,000 YPF Sociedad Anonima Sponsored ADR
(AR) 5,050,000
----------
14,754,364
----------
34
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
SHARES MARKET VALUE
PHARMACEUTICALS-3.0%
121,000 Astra AB Series B (SW) $5,830,258
60,000 Schwarz Pharma (GE) 4,438,388
----------
10,268,646
----------
PUBLISHING & BROADCASTING-7.5%
670,000 Carlton Communications PLC (UK) 5,899,623
132,000 Nynex Cablecomms Group PLC ADR (UK)* 2,392,500
16,000 Pathe (FR)* 3,847,116
52,000 Scandinavian Broadcasting Systems SA
(SW)* 871,000
307,000 Ver Ned Uitgeversbedr Ver Bezit NV
(NE) 6,407,296
48,000 Wolters Kluwer (NE) 6,368,734
----------
25,786,269
----------
RETAIL-5.1%
650,000 Dixons Group PLC (UK) 6,034,999
30,050 Gucci Group NV (FR) 1,919,444
25,000 Guilbert SA (FR) 4,880,993
480,000 Next PLC (UK) 4,662,759
----------
17,498,195
----------
SEMICONDUCTORS &
EQUIPMENT-1.4%
70,000 SGS Thomson Microelectronics (FR)* 4,900,000
----------
TELECOMMUNICATION SERVICES-6.0%
680 DDI Corporation (JA) 4,487,637
230,025 Korea Mobile Telecommunications
Corporation ADR (KO) 2,961,569
40,000 SPT Telecom (CZ)* 4,974,291
67,400 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 5,156,100
120,000 Telefonica de Argentina SA ADR
Repstg. 10 Class B
ordinary shares (AR) 3,105,000
----------
20,684,597
----------
UTILITIES-1.0%
57,000 Veba AG (GE) $ 3,292,105
-----------
TOTAL COMMON STOCKS
(FOREIGN)-71.4%
(COST-$201,966,257) 244,190,427
-----------
PRINCIPAL AMOUNT MARKET VALUE
CORPORATE SHORT-TERM NOTES-11.3%
$10,100,000 American Express Credit Corporation
6.05% 01/03/97 $10,096,605
11,600,000 Ford Motor Credit 5.91% 01/02/97 11,598,096
8,900,000 General Electric Capital Corporation
6.00% 01/03/97 8,897,033
8,100,000 Morgan Stanley Group 6.25% 01/06/97 8,092,969
-----------
TOTAL CORPORATE
SHORT-TERM NOTES-11.3%
(AMORTIZED COST-$38,684,703) 38,684,703
-----------
TOTAL INVESTMENTS-99.4%
(COST-$282,796,816) 340,013,510
OTHER ASSETS & LIABILITIES-0.6%
2,065,779
-----------
NET ASSETS-100.0% $342,079,289
===========
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
FOUNDERS GROWTH FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Lipper Consumer Standard &
Growth Growth Price Poor's 500
Fund Fund Index Index Index
-------- ---------- -------- ----------
12/31/86 ..... $10,000.00 $10,000 $10,000 $10,000.00
12/31/87 ..... $11,014.03 $10,325 $10,441 $10,522.10
12/30/88 ..... $11,543.87 $11,785 $10,902 $12,265.20
12/31/89 ..... $16,360.96 $15,022 $11,409 $16,146.98
12/31/90 ..... $14,626.66 $14,209 $12,106 $15,639.91
12/31/91 ..... $21,557.63 $19,371 $12,477 $20,402.06
12/31/92 ..... $22,487.97 $20,849 $12,838 $21,956.47
12/31/93 ..... $28,229.71 $23,347 $13,191 $24,166.20
12/30/94 ..... $27,285.37 $22,980 $13,544 $24,479.39
12/29/95 ..... $39,724.74 $30,483 $13,888 $33,668.41
12/31/96 ..... $46,305.85 $35,811 $14,347 $41,409.14
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year 5 Years 10 Years 20 Years
------ ------- -------- ---------
16.57% 16.52% 16.56% 16.40%
PERFORMANCE REVIEW
As the year began, the market was beset with uncertainty about where the economy
was headed. While most analysts predicted a year of slow growth, some statistics
indicated otherwise, leading to a general fear of impending interest-rate
increases. As it happened, economic growth was moderate, inflationary pressures
were contained, and long-term interest rates posted a decline by the end of the
year.
Nevertheless, a measure of this concern permeated the market throughout the
year, leading to increased demand (and thereby increased performance) for
high-quality, highly liquid mid- and large-cap issues. Despite the high
valuations that resulted from investors rushing to these issues, Founders Growth
Fund relied on in-depth equity research to find many promising investment
opportunities, resulting in a total return of 16.57% for the year ended December
31, 1996.
36
<PAGE>
INVESTMENT OPPORTUNITIES
Founders Growth Fund looks for companies whose fundamental strengths indicate
the potential for increases in earnings per share. These strengths may include
such characteristics as a visionary management team, efficient operations,
participation in a "niche" market, and commitment to innovation. In 1996, we
invested in a number of companies which exhibited another such characteristic:
having a strong and growing market share. These companies included:
o Intel, the world's largest manufacturer of computer microprocessors
o Cisco Systems, a market leader in providing systems to handle data flow
through computer networks
o Associates First Capital, a specialty lender which is the largest publicly
traded finance company in the United States.
ECONOMIC OUTLOOK
It is likely that the rate of the economy's growth will determine much of the
character of 1997's market. While many analysts are worried about the prospect
of an overheating economy, we feel that the real risk is of a slowing economy
that may see a pronounced decrease in corporate profit growth.
However, we are optimistic that the economy will continue growing at its
modest pace, inflation will remain low, and interest rates will either stay at
current levels or decline. While these factors may foster an environment
beneficial to growth-stock investing, Founders Growth Fund will continue to rely
on its bottom-up, company-by-company research methods to find the most promising
mid- and large-cap investment opportunities the market has to offer.
Edward Keely, CFA
Portfolio Manager
TOP TEN HOLDINGS
1. Intel Corporation................ 4.06%
2. Warner-Lambert Company........... 2.76%
3. Xilinix, Inc. ................... 2.23%
4. Cisco Systems, Inc. ............. 1.89%
5. General Electric Company......... 1.77%
6. Parametric Technology
Corporation...................... 1.61%
7. International Business Machines
Corporation...................... 1.49%
8. Altera Corporation............... 1.44%
9. Circus Circus Enterprises........ 1.39%
10. Boeing Company................... 1.38%
PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
37
<PAGE>
FOUNDERS GROWTH FUND
SHARES MARKET VALUE
COMMON STOCKS (DOMESTIC)-75.0%
AEROSPACE-3.4%
145,000 Boeing Company $15,424,375
550,000 Gulfstream Aerospace Corporation* 13,337,500
105,000 Lockheed Martin Corporation 9,607,500
----------
38,369,375
----------
BANKING-1.9%
110,000 BankAmerica Corporation 10,972,500
120,200 Chase Manhattan Corporation 10,727,850
----------
21,700,350
----------
BUSINESS SERVICES-3.5%
182,775 Computer Sciences Corporation* 15,010,397
136,000 First Data Corporation 4,964,000
259,950 Fiserv, Inc.* 9,553,162
235,000 Gartner Group, Inc. Class A* 9,135,625
----------
38,663,184
----------
CHEMICALS-0.7%
204,000 B.F. Goodrich Company 8,262,000
----------
COMPUTER EQUIPMENT-2.6%
170,000 Compaq Computer Corporation* 12,622,500
110,000 International Business Machines
Corporation 16,610,000
----------
29,232,500
----------
COMPUTER NETWORKING-3.8%
332,975 Cisco Systems, Inc.* 21,185,534
315,000 FORE Systems, Inc.* 10,355,625
155,000 3Com Corporation* 11,353,750
----------
42,894,909
----------
COMPUTER SOFTWARE-8.5%
316,000 BMC Software, Inc.* $13,074,500
315,000 Cadence Design System, Inc.* 12,521,250
270,000 Computer Associates International,
Inc. 13,432,500
108,000 Microsoft Corporation* 8,923,500
345,000 Oracle Systems Corporation* 14,360,625
350,000 Parametric Technology Corporation* 17,981,250
300,000 PeopleSoft, Inc.* 14,362,500
----------
94,656,125
----------
CONSUMER PRODUCTS-2.9%
115,000 Clorox Company 11,543,125
125,000 Duracell International, Inc. 8,734,375
460,000 Sunbeam Corporation 11,845,000
----------
32,122,500
----------
ELECTRONICS-1.8%
200,000 General Electric Company 19,775,000
----------
FINANCIAL SERVICES-2.5%
296,575 Associates First Capital Corporation
Class A 13,086,372
65,000 Federal Home Loan Mortgage
Corporation 7,158,125
215,000 Federal National Mortgage Association 8,008,750
----------
28,253,247
----------
FOOD & BEVERAGES-2.2%
285,700 Coca Cola Enterprises, Inc. 13,856,450
200,000 Coca-Cola Company 10,525,000
----------
24,381,450
----------
38
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
SHARES MARKET VALUE
HEALTHCARE SERVICES-6.7%
185,187 Cardinal Health, Inc. $10,787,143
337,500 Columbia/ HCA Healthcare Corporation 13,753,125
210,000 HBO & Company 12,468,750
230,000 Oxford Health Plans, Inc.* 13,455,000
45,000 Pacificare Health Systems, Inc.
Class B* 3,825,000
425,000 Phycor, Inc.* 11,953,125
180,000 Shared Medical Systems Corporation 8,842,500
----------
75,084,643
----------
INSURANCE-2.1%
47,500 Cigna Corporation 6,489,687
240,000 Everest Reinsurance Holdings, Inc. 6,900,000
150,000 Progressive Corporation 10,106,250
----------
23,495,937
----------
LEISURE & ENTERTAINMENT-4.6%
452,275 Circus Circus
Enterprises, Inc.* 15,546,953
110,000 HFS, Inc.* 6,572,500
386,550 Host Marriott, Inc. 6,184,800
495,000 International Game Technology 9,033,750
180,000 Marriott International, Inc. 9,945,000
110,400 Sun International
Hotels, Ltd.* 4,029,600
----------
51,312,603
----------
MEDICAL SUPPLIES & EQUIPMENT-2.1%
176,000 Johnson & Johnson 8,756,000
120,000 Stryker Corporation 3,585,001
272,000 US Surgical Corporation 10,710,000
----------
23,051,001
----------
OIL & GAS-2.7%
40,000 Exxon Corporation 3,920,000
210,000 Global Marine, Inc.* 4,331,250
140,000 Phillips Petroleum Company 6,195,000
80,000 Schlumberger Ltd. 7,990,000
31,000 Texaco, Inc. 3,041,875
135,000 The Williams
Companies, Inc.* 5,062,500
----------
30,540,625
----------
PHARMACEUTICALS-4.8%
136,000 Bristol-Myers Squibb Company $14,790,000
105,000 Eli Lilly & Company 7,665,000
411,275 Warner Lambert Company 30,845,625
----------
53,300,625
----------
RETAIL-1.5%
238,500 Consolidated Stores Corporation* 7,661,812
255,000 Federated Department
Stores, Inc.* 8,701,875
----------
16,363,687
----------
SEMICONDUCTORS & EQUIPMENT-8.0%
221,925 Altera Corporation* 16,117,303
300,000 Intel Corporation 39,262,500
220,000 Maxim Integrated
Products, Inc.* 9,515,000
680,000 Xilinx, Inc.* 24,990,000
----------
89,884,803
----------
SUPERMARKETS-1.6%
138,550 Kroger Company* 6,442,575
260,000 Safeway, Inc.* 11,115,000
----------
17,557,575
----------
TELECOMMUNICATION SERVICES-1.3%
540,000 WorldCom, Inc.* 14,040,000
----------
TELECOMMUNICATIONS EQUIPMENT-5.8%
476,125 ADC Telecommunications, Inc.* 14,759,875
100,000 Andrew Corp.* 5,300,000
234,125 Ascend Communication, Inc.* 14,515,750
200,000 Lucent Technologies, Inc. 9,250,000
173,600 PictureTel Corporation* 4,470,200
210,000 Premisys Communication* 7,061,250
267,000 Tellabs, Inc.* 10,045,875
----------
65,402,950
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
FOUNDERS GROWTH FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
SHARES MARKET VALUE
COMMON STOCKS
(DOMESTIC)-75.0%
(COST-$708,110,223) $838,345,089
-----------
COMMON STOCKS (FOREIGN)-6.4%
APPAREL-0.4%
70,000 Fila Holdings SPA Sponsored ADR
Repstg. five ordinary shares (IT) 4,068,750
-----------
BUILDING MATERIALS-0.7%
125,000 Hunter Douglas NV (NE) 8,419,090
-----------
OFFICE SUPPLIES & EQUIPMENT-0.6%
60,000 OCE Van Der Grinten
NV (NE) 6,507,487
-----------
OIL & GAS-0.8%
35,000 British Petroleum PLC
ADR (UK) 4,948,125
24,000 Royal Dutch Petroleum (NE) 4,098,000
-----------
9,046,125
-----------
PHARMACEUTICALS-2.2%
240,000 Astra AB Series B (SW) 11,564,148
40,000 Astra AB Series A (SW) 1,974,224
160,000 Smithkline Beecham PLC ADR Ordinary A
Shares (UK) 10,880,000
-----------
24,418,372
-----------
TELECOMMUNICATION SERVICES-1.7%
1,200 DDI Corporation (JA) 7,919,359
238,934 Korea Mobile Telecommunications
Corporation ADR (KO) 3,076,278
112,000 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 8,568,000
-----------
19,563,637
-----------
TOTAL COMMON STOCKS
(FOREIGN)-6.4%
(COST-$63,023,175) 72,023,461
-----------
WARRANTS (DOMESTIC)-0.6%
66,600 Intel Corporation Expires 3/14/98 $ 6,152,175
-------------
TOTAL WARRANTS
(DOMESTIC)-0.6%
(COST-$5,164,244) 6,152,175
-------------
PRINCIPAL AMOUNT MARKET VALUE
CORPORATE SHORT-TERM NOTES-8.9%
$22,800,000 Ford Motor Credit 5.91% 01/02/97 $ 22,796,257
25,100,000 Merrill Lynch & Company 5.85%
01/07/97 25,075,528
27,900,000 Morgan Stanley Group 6.25% 01/06/97 27,875,781
24,200,000 Texaco, Inc. 6.00%
01/03/97 24,191,933
-------------
TOTAL CORPORATE
SHORT-TERM NOTES-8.9%
(AMORTIZED
COST-$99,939,499) 99,939,499
-------------
TOTAL INVESTMENTS-90.9%
(COST-$876,237,141) 1,016,460,224
OTHER ASSETS & LIABILITIES-9.1%
101,862,337
-------------
NET ASSETS-100.0% $1,118,322,561
=============
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
FOUNDERS BLUE CHIP FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Lipper Growth Consumer Standard &
Blue Chip and Income Price Poor's
Fund Fund Index Index 500 Index
--------- ------------- ----------- -----------
12/31/86 ..... $10,000.00 $10,000 $10,000 $10,000.00
12/31/87 ..... $10,191.38 $10,264 $10,441 $10,522.10
12/30/88 ..... $11,217.61 $12,147 $10,902 $12,265.20
12/31/89 ..... $15,206.83 $15,030 $11,409 $16,146.98
12/31/90 ..... $15,273.86 $14,129 $12,106 $15,639.91
12/31/91 ..... $19,602.50 $18,051 $12,477 $20,402.06
12/31/92 ..... $19,552.37 $19,790 $12,838 $21,956.47
12/31/93 ..... $22,385.08 $22,683 $13,191 $24,166.20
12/30/94 ..... $22,502.56 $22,589 $13,554 $24,479.39
12/29/95 ..... $29,041.03 $29,623 $13,888 $33,668.41
12/31/96 ..... $36,118.40 $35,752 $14,347 $41,409.14
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
24.37% 13.00% 13.70% 12.68%
PERFORMANCE REVIEW
While many areas of the market moved in and out of favor during the first half
of 1996, large-capitalization issues--those in which Founders Blue Chip Fund
concentrates its investments--enjoyed support throughout the period. As a result
of careful stock selection, the Fund posted an above-average total return of
24.37% in the 12 months ended December 31, 1996, topping the performance of the
benchmark Standard & Poor's 500 Index by 1.38%.
INVESTMENT OPPORTUNITIES
During the first half of 1996, the Blue Chip investment team believed the
economy would see moderate growth and stable to declining interest rates. A
better-than-expected rise in gross domestic product and increased job growth
rates led to heightened consumer confidence, and a subsequent increase in
spending. The Fund therefore held significant weightings in retail stocks in the
first half of the year. Two of our best performers were Gap Stores and Intimate
Brands--both of which were large
41
<PAGE>
holdings at one point. We also liked financial securities, which represented a
large weighting in the Fund throughout the first half of the year.
As we ventured into the second half of the year, we reduced the Fund's
holdings in the retail and financial sectors, as we were unsure of their
abilities to meet earnings expectations throughout the remainder of the year. In
redeploying these assets, we enhanced the Fund's diversity by expanding exposure
to more of the major S&P 500 industries, in an effort to maintain stability,
temper volatility, and increase liquidity. Three specific areas in which we
increased our exposure were in the oil and gas, agriculture, and pharmaceuticals
industries.
One company that performed well for the Fund was Williams Cos., a natural-gas
transporter and provider of telecommunications services that we believe is
well-positioned to benefit from the consolidations that are taking place within
the natural gas and electric utilities industries. We also found some attractive
opportunities in agriculture stocks, such as Arcadian Corporation, the largest
producer of nitrogen fertilizers in the United States. With the increased global
demand for grain, we believe we will continue to find companies in the farming
industry that hold the potential for superior long-term growth.
ECONOMIC OUTLOOK
Whatever happens in the markets, the Founders Blue Chip management team will
keep the Fund's portfolio broadly diversified, and will continue to seek
attractively valued companies that meet our growth criteria. By sticking to this
fundamental strategy, we believe that the Fund will be well-positioned over the
long term, regardless of short-term market events.
Brian F. Kelly
Portfolio Manager
TOP TEN HOLDINGS
1. Agrium, Inc. .................... 2.35%
2. Arcadian Corporation............. 2.13%
3. The Williams Companies........... 2.12%
4. Arco Chemical Corporation........ 1.79%
5. Exxon Corporation................ 1.78%
6. Amoco Corporation................ 1.75%
7. IES Industries................... 1.67%
8. International Business Machines
Corporation...................... 1.52%
9. PepsiCo, Inc. ................... 1.51%
10. Pharmacia & Upjohn, Inc. ........ 1.48%
PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
42
<PAGE>
FOUNDERS BLUE CHIP FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
SHARES MARKET VALUE
PREFERRED STOCKS (DOMESTIC)-0.8%
CHEMICALS-0.8%
184,000 Arcadian Corporation
Preferred A shares $4,485,000
---------
TOTAL PREFERRED STOCKS
(DOMESTIC)-0.8%
(COST-$3,791,829) 4,485,000
---------
COMMON STOCKS (DOMESTIC)-65.3%
AEROSPACE-1.2%
53,700 Lockheed Martin Corporation 4,913,550
31,700 Raytheon Company 1,525,563
---------
6,439,113
---------
AUTO PARTS & EQUIPMENT-0.1%
9,200 Genuine Parts Company 409,400
---------
BANKING-3.3%
14,000 BankAmerica Corporation 1,396,500
40,000 Bank of New York
Company, Inc. 1,350,000
21,000 Bankers Trust New York Corporation 1,811,250
35,000 Barnett Banks, Inc. 1,439,375
20,100 Chase Manhattan Corporation 1,793,925
26,000 Fleet Financial Group, Inc. 1,296,750
18,900 J.P. Morgan & Company 1,845,113
10,000 Mellon Bank Corporation 710,000
22,000 Mercantile Bancorporation, Inc. 1,130,250
12,000 NationsBank Corporation 1,173,000
50,300 PNC Bank Corporation 1,892,538
6,800 Wells Fargo & Company # 1,834,300
---------
17,673,001
---------
BUSINESS SERVICES-0.4%
55,000 The Bisys Group* 2,035,000
---------
CHEMICALS-4.9%
260,000 Arcadian Corporation 6,890,000
195,800 Arco Chemical Company 9,594,200
51,400 Du Pont EI de Nemours 4,850,875
23,225 IMC Global, Inc. 908,678
240,375 Millenium Chemical, Inc. 4,266,656
---------
26,510,409
---------
COMPUTER EQUIPMENT-2.3%
50,200 Hewlett-Packard Company $2,522,550
54,000 International Business Machines
Corporation # 8,154,000
76,000 Sun Microsystems, Inc.* 1,947,500
---------
12,624,050
---------
COMPUTER NETWORKING-0.9%
44,000 Cisco Systems, Inc.* 2,799,500
26,600 3Com Corporation* 1,948,450
---------
4,747,950
---------
COMPUTER SOFTWARE-0.6%
75,000 Cadence Design System, Inc. 2,981,250
---------
CONSUMER PRODUCTS-1.3%
37,000 Gillette Company 2,876,750
40,000 Kimberly Clark Corporation 3,810,000
---------
6,686,750
---------
ELECTRONICS-0.9%
50,000 General Electric Company 4,943,750
---------
FINANCIAL SERVICES-1.2%
30,000 American Express Company 1,695,000
57,400 Federal National Mortgage Association 2,138,150
45,900 St. Paul Companies 2,690,887
---------
6,524,037
---------
FOOD & BEVERAGES-5.5%
27,100 Anheuser-Busch Companies 1,084,000
235,900 Archer Daniels Midland Company 5,189,800
33,400 CPC International, Inc. 2,588,500
144,000 Coca-Cola Company 7,578,000
60,000 H. J. Heinz Company 2,145,000
40,100 Kellogg Company 2,631,562
277,400 Pepsico, Inc. 8,113,950
---------
29,330,812
---------
HEALTHCARE SERVICES-0.7%
91,487 Columbia/HCA Healthcare Corporation 3,728,095
---------
* NON-INCOME PRODUCING.
# SECURITY HAS BEEN RESTRICTED FROM SALE FOR WRITTEN CALL OPTIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
FOUNDERS BLUE CHIP FUND
SHARES MARKET VALUE
INSURANCE-3.3%
44,000 Chubb Corporation $2,365,000
32,200 General Re Corporation 5,079,550
74,700 Lincoln National Corporation 3,921,750
69,300 Safeco Corporation 2,720,025
67,500 W. R. Berkley Corporation 3,425,625
---------
17,511,950
---------
LEISURE & ENTERTAINMENT-0.9%
46,000 Circus Circus Enterprises, Inc. 1,581,250
35,000 Hilton Hotels Corporation 914,375
31,400 Walt Disney Company 2,186,225
---------
4,681,850
---------
MACHINERY-0.2%
33,000 Deere & Company 1,340,625
---------
MANUFACTURING-0.3%
27,200 Allied Signal, Inc. 1,822,400
---------
MEDICAL SUPPLIES & EQUIPMENT-2.1%
125,000 Baxter International, Inc. 5,125,000
123,100 Johnson & Johnson 6,124,225
---------
11,249,225
---------
MINING & METALS-1.4%
55,700 Newmont Mining Corporation 2,492,575
15,700 Phelps Dodge Corporation 1,059,750
9,100 Reynolds Metal Company 513,013
230,900 Sante Fe Pacific Gold Corporation 3,550,087
---------
7,615,425
---------
OIL & GAS-13.3%
116,500 Amoco Corporation $9,378,250
70,000 Baker Hughes, Inc. 2,415,000
21,100 Coastal Corporation 1,031,263
35,200 ENSCO International, Inc. 1,707,200
62,050 Equitable Resources, Inc. 1,845,988
97,600 Exxon Corporation 9,564,800
30,000 Halliburton Company 1,807,500
39,700 Mobil Corporation 4,853,325
120,000 Panenergy Corporation 5,400,000
163,500 Questar Corporation 6,008,625
53,000 Tenneco, Inc. 2,391,625
57,500 Texaco, Inc. 5,642,187
64,000 Tidewater, Inc. 2,896,000
35,500 Tosco Corporation 2,808,937
80,500 Ultramar Diamond Shamrock Corporation 2,545,812
303,263 The Williams Companies, Inc. 11,372,344
---------
71,668,856
---------
PACKAGING-0.2%
50,000 Owens Illinois, Inc. 1,137,500
---------
PAPER & FOREST PRODUCTS-0.8%
48,100 Potlatch Corporation 2,068,300
42,200 Weyerhauser Company 1,999,225
---------
4,067,525
---------
PHARMACEUTICALS-7.9%
50,000 Abbott Laboratories 2,537,500
39,500 American Home Products Corporation 2,315,688
38,300 Bristol-Myers Squibb Company 4,165,125
31,900 Eli Lilly & Company 2,328,700
57,000 Mallinckrodt, Inc. 2,515,125
90,000 Merck & Company 7,132,500
62,200 Pfizer, Inc. 5,154,825
200,000 Pharmacia & Upjohn, Inc. 7,925,000
15,000 Schering Plough Corporation 971,250
95,000 Warner Lambert Company 7,125,000
---------
42,170,713
---------
RESTAURANTS-0.6%
70,300 McDonald's Corporation 3,181,075
---------
RETAIL-0.5%
99,500 Autozone, Inc. 2,736,250
---------
44
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
SHARES MARKET VALUE
SEMICONDUCTORS & EQUIPMENT-0.8%
35,500 Applied Materials, Inc.* $1,273,563
22,600 Intel Corporation 2,957,775
----------
4,231,338
----------
SUPERMARKETS-0.6%
87,200 Albertson's, Inc. 3,106,500
----------
TELECOMMUNICATION SERVICES-3.3%
120,000 Alltel Corporation 3,765,000
69,200 Ameritech Corporation 4,195,250
21,525 Century Telephone
Enterprises, Inc. 664,584
9,800 Cincinnati Bell, Inc. 603,925
15,000 Frontier Corporation 339,375
103,900 Nynex Corporation 5,000,187
48,000 SBC Communications, Inc. 2,484,000
35,500 Southern New England Telecom
Corporation 1,380,063
----------
18,432,384
----------
TRANSPORTATION-0.5%
83,400 Illinois Central Corporation 2,668,800
----------
UTILITIES-5.3%
46,000 Duke Power Company 2,127,500
99,500 Idaho Power Company 3,096,937
300,000 IES Industries, Inc. 8,962,500
180,000 Kansas City Power & Light Company 5,130,000
170,000 OGE Energy Corporation 7,097,500
70,000 Western Resources, Inc. 2,161,250
----------
28,575,687
----------
TOTAL COMMON STOCKS
(DOMESTIC)-65.3%
(COST-$309,671,513) 350,831,720
----------
COMMON STOCKS (FOREIGN)-13.8%
BANKING-0.3%
46,500 Royal Bank of Canada (CA) 1,631,877
----------
CHEMICALS-2.3%
921,000 Agrium, Inc. (CA) 12,571,830
----------
COMPUTER EQUIPMENT-0.4%
67,500 Newbridge Networks Corporation (CA) $1,906,875
----------
LEISURE & ENTERTAINMENT-0.4%
165,000 Granada Group (UK) 2,432,783
----------
MINING & METALS-0.5%
96,800 Barrick Gold Corporation (CA) 2,783,000
----------
OFFICE SUPPLIES & EQUIPMENT-0.4%
20,000 OCE Van Der Grinten
NV (NE) 2,169,162
----------
OIL & GAS-4.0%
151,200 Imperial Oil (CA) 7,114,342
225,400 Renaissance Energy Ltd. (CA) 7,671,740
39,000 Royal Dutch Petroleum (NE) 6,659,250
----------
21,445,332
----------
PHARMACEUTICALS-2.9%
60,000 Astra AB Sponsored ADR
representing Series A
Shares (SW) 2,940,000
60,000 Astra AB Series B (SW) 2,891,037
65,200 Glaxo Wellcome PLC (UK) 2,070,100
111,000 Smithkline Beecham PLC ADR Ordinary A
(UK) 7,548,000
----------
15,449,137
----------
PUBLISHING & BROADCASTING-0.5%
215,000 Scottish Television (UK) 2,476,490
----------
TELECOMMUNICATION SERVICES-0.4%
25,000 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 1,912,500
----------
TRANSPORTATION-1.7%
138,000 Canadian National
Railway (CA) 5,243,933
149,000 Canadian Pacific Ltd (CA) 3,948,500
----------
9,192,433
----------
TOTAL COMMON STOCKS
(FOREIGN)-13.8%
(COST-$64,722,279) 73,971,419
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
FOUNDERS BLUE CHIP FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
PRINCIPAL AMOUNT MARKET VALUE
CORPORATE BONDS (DOMESTIC)-0.5%
ENERGY-0.5%
$2,700,000 Columbia Gas System,
Inc. 7.62% Due 11/28/25 $2,626,384
---------
CORPORATE BONDS
(DOMESTIC)-0.5%
(COST-$2,707,209) 2,626,384
---------
CORPORATE BONDS (FOREIGN)-0.8%
OIL & GAS-0.8%
C$5,000,000 Transcanada Pipelines, Ltd. 8.55% Due
2/1/06 (CA) 4,117,369
---------
TOTAL CORPORATE BONDS
(FOREIGN)-0.8%
(COST-$4,162,019) 4,117,369
---------
U.S. GOVERNMENT SECURITIES-10.1%
U.S. TREASURY NOTES-9.0%
$8,500,000 U.S. Treasury Note 6.625% Due
06/30/01 8,635,464
8,500,000 U.S. Treasury Note 6.375% Due
08/15/02 8,555,777
8,000,000 U.S. Treasury Note 6.375% Due
03/31/01 8,052,496
4,600,000 U.S. Treasury Note 6.25% Due
04/30/01 4,610,060
13,900,000 U.S. Treasury Note 7.00% Due
07/15/06 14,442,962
4,000,000 U.S. Treasury Note 6.875% Due
07/31/99 4,081,248
---------
48,378,007
---------
U.S. TREASURY BONDS-1.1%
5,500,000 U.S. Treasury Bond 7.25% Due
8/15/22 5,817,955
---------
TOTAL U.S. GOVERNMENT
SECURITIES-10.1%
(COST-$53,173,262) 54,195,962
---------
FOREIGN GOVERNMENT
SECURITIES-2.9%
FOREIGN GOVERNMENT BONDS-2.9%
C$5,000,000 British Columbia Global 7.75% Due
06/16/03 (CA) $ 3,961,980
C$5,000,000 Province of Alberta 6.125% Due
10/04/01 (CA) 3,733,124
C$5,000,000 Province of Manitoba 6.50% Due
09/04/01 (CA) 3,784,718
C$5,000,000 Province of Ontario 7.75% Due
07/24/06 (CA) 3,942,797
-----------
TOTAL FOREIGN GOVERNMENT
SECURITIES-2.9%
(COST-$15,690,644) 15,422,619
-----------
CORPORATE SHORT-TERM NOTES-6.5%
9,000,000 FHLB Discount Note 5.00%
01/02/97 8,998,750
1,745,000 General Electric Capital Corporation
5.66% 03/21/97 1,724,601
24,000,000 Morgan Stanley Group 6.79%
01/02/97 23,995,473
----------
TOTAL CORPORATE
SHORT-TERM NOTES-6.5%
(AMORTIZED COST-$34,717,808) 34,718,824
-----------
TOTAL INVESTMENTS-100.7%
(COST-$488,636,563) 540,369,297
OTHER ASSETS & LIABILITIES-(0.7%) (4,503,325)
-----------
NET ASSETS-100.0% $535,865,972
===========
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
FOUNDERS BALANCED FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lehman Bros.
Lipper Intermediate
Balanced Government Consumer Standard &
Balanced Fund Corporate Price Poors
Fund Index Bond Index Index 500 Index
-------- -------- ------------ -------- ----------
12/31/86 ..... $10,000.00 $10,000.00 $10,000 $10,000 $10,000.00
12/31/87 ..... $10,195.52 $10,412.05 $10,366 $10,441 $10,522.10
12/30/88 ..... $11,325.91 $11,575.54 $11,057 $10,902 $12,265.20
12/31/89 ..... $14,187.89 $13,856.03 $12,469 $11,409 $16,146.98
12/31/90 ..... $13,479.75 $13,947.21 $13,611 $12,106 $15,639.91
12/31/91 ..... $16,561.41 $17,549.29 $15,601 $12,477 $20,402.06
12/31/92 ..... $17,559.08 $18,858.07 $16,720 $12,838 $21,956.47
12/31/93 ..... $21,395.57 $21,114.21 $18,189 $13,191 $24,166.20
12/30/94 ..... $20,981.49 $20,681.95 $17,838 $13,544 $24,479.39
12/29/95 ..... $27,151.71 $25,831.74 $20,574 $13,888 $33,668.41
12/31/96 ..... $32,244.35 $29,192.74 $21,406 $14,347 $41,409.14
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
18.76% 14.25% 12.42% 12.45%
PERFORMANCE REVIEW
Due both to our stock-picking philosophy and portfolio flexibility, Founders
Balanced Fund performed well during the year, rising 18.76% in the 12 months
ended December 31, 1996, and comfortably outpacing the Lipper Balanced Fund
Index's one-year return of 13.01%. This is particularly remarkable considering
the Balanced Fund is never more than 75% exposed to the equity market.
INVESTMENT OPPORTUNITIES
The direction of the economy and the markets were in question during the
reporting period. Positive economic news during the first half of the year
caused great concern among investors that interest-rate increases were on the
horizon. Seeking safety and liquidity, many investors shifted their dollars to
the stocks of larger, more mature companies. We found many investment
opportunities in the retail and apparel industries, where companies were selling
at attractive valuations and producing better- than-expected earnings.
As we moved into the second half of the year, the management team became
47
<PAGE>
concerned about the retail and financial industries' abilities to outperform
during the remainder of the year. In an attempt to maintain stability, reduce
volatility, and increase liquidity, we further diversified the Fund by
increasing the number of companies represented and by expanding into more major
S&P 500 industry sectors. Three areas where we found attractive stocks were
agriculture, oil and gas, and pharmaceuticals.
Using a bottom-up approach, the Balanced Fund investment team examines growth
companies one by one to uncover those securities with the best potential for
earnings appreciation. One company that remained a top holding in the second
half was Arcadian Corporation, the largest producer of nitrogen fertilizer in
the United States. Another strong performer was Williams Cos., a natural-gas
transporter and provider of telecommunications services that we believe is
well-positioned to benefit from the consolidations that are taking place within
the natural gas and electric utilities industries.
At year end, the Fund held 65.61% in equities and 34.39% in fixed-income
securities. The bulk of the fixed-income portion of the Fund was held in U.S.
Treasuries with maturities of 1-5 years, providing an additional degree of
stability in the event of a turbulent market, and also generating additional
income.
ECONOMIC OUTLOOK
In today's uncertain market environment, we believe that our recent moves toward
increased portfolio breadth and liquidity should help defend the Fund against
potential volatility.
Furthermore, our focus on fundamental company research remains critical. By
meeting with a company's executives, understanding its target markets, and
talking to its competitors, suppliers, and customers, we can better judge its
potential to grow. This intense process often uncovers even more investment
opportunities for the Fund.
Brian F. Kelly
Portfolio Manager
TOP TEN HOLDINGS
1. Ingles Market Company............ 2.49%
2. Arcadian Corporation............. 2.19%
3. Williams Companies............... 2.11%
4. Exxon Corporation................ 1.76%
5. Amoco Corporation................ 1.75%
6. PepsiCo, Inc..................... 1.50%
7. Equitable Resources, Inc. ....... 1.49%
8. Arco Chemical Corporation........ 1.45%
9. W.R. Berkley Corporation......... 1.43%
10. Pharmacia & Upjohn, Inc. ........ 1.38%
PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
48
<PAGE>
FOUNDERS BALANCED FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
SHARES MARKET VALUE
PREFERRED STOCKS (DOMESTIC)-2.6%
CHEMICALS-2.2%
355,000 Arcadian Corporation
Preferred A shares $8,653,125
---------
UTILITIES-0.4%
55,000 MCN Corporation Convertible Preferred 1,519,375
---------
TOTAL PREFERRED STOCKS
(DOMESTIC)-2.6%
(COST-$8,447,113) 10,172,500
---------
COMMON STOCKS (DOMESTIC)-56.7%
AEROSPACE-0.9%
31,700 Lockheed Martin Corporation 2,900,550
16,900 Raytheon Company 813,313
---------
3,713,863
---------
AUTO PARTS & EQUIPMENT-0.1%
6,050 Genuine Parts Company 269,225
---------
BANKING-2.9%
9,000 BankAmerica Corporation 897,750
30,000 Bank of New York
Company, Inc. 1,012,500
14,500 Bankers Trust New York Corporation 1,250,625
26,000 Barnett Banks, Inc. 1,069,250
14,800 Chase Manhattan Corporation 1,320,900
18,000 Fleet Financial Group, Inc. 897,750
14,900 J.P. Morgan & Company 1,454,613
12,000 Mercantile Bancorporation, Inc. 616,500
8,000 NationsBank Corporation 782,000
32,600 PNC Bank Corporation 1,226,575
3,800 Wells Fargo & Company # 1,025,050
---------
11,553,513
---------
CHEMICALS-3.2%
116,900 Arco Chemical Company 5,728,100
35,300 Du Pont EI de Nemours 3,331,437
16,725 IMC Global, Inc. 654,366
175,625 Millenium Chemical, Inc.* 3,117,344
---------
12,831,247
---------
COMPUTER EQUIPMENT-1.2%
29,700 Hewlett-Packard Company $1,492,425
21,000 International Business Machines
Corporation 3,171,000
---------
4,663,425
---------
COMPUTER NETWORKING-0.4%
19,600 3Com Corporation* 1,435,700
---------
CONSUMER PRODUCTS-0.9%
22,000 Gillette Company 1,710,500
18,500 Kimberly Clark Corporation 1,762,125
---------
3,472,625
---------
ELECTRONICS-0.4%
40,000 Technitrol, Inc. 1,535,000
---------
FINANCIAL SERVICES-1.0%
15,800 American Express Company 892,700
30,500 Federal National Mortgage Association 1,136,125
31,200 St. Paul Companies 1,829,100
---------
3,857,925
---------
FOOD & BEVERAGES-3.9%
16,300 Anheuser-Busch Companies 652,000
154,500 Archer Daniels Midland Company 3,399,000
23,600 CPC International, Inc. 1,829,000
49,000 H. J. Heinz Company 1,751,750
28,000 Kellogg Company 1,837,500
202,100 Pepsico, Inc. 5,911,425
---------
15,380,675
---------
HEALTHCARE SERVICES-0.4%
35,212 Columbia/HCA Healthcare Corporation 1,434,889
---------
INSURANCE-3.9%
20,200 Chubb Corporation 1,085,750
70,000 GCR Holdings Limited 1,548,750
21,400 General Re Corporation 3,375,850
46,900 Lincoln National Corporation 2,462,250
36,000 Safeco Corporation 1,413,000
111,200 W. R. Berkley Corporation 5,643,400
---------
15,529,000
---------
* NON-INCOME PRODUCING.
# SECURITY HAS BEEN RESTRICTED FROM SALE FOR WRITTEN CALL OPTIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
FOUNDERS BALANCED FUND
SHARES MARKET VALUE
LEISURE & ENTERTAINMENT-0.5%
23,000 Hilton Hotels Corporation $ 600,875
18,100 Walt Disney Company 1,260,213
---------
1,861,088
---------
MACHINERY-0.2%
24,000 Deere & Company 975,000
---------
MANUFACTURING-0.3%
20,000 Allied Signal, Inc. 1,340,000
---------
MEDICAL SUPPLIES & EQUIPMENT-1.1%
85,700 Johnson & Johnson 4,263,575
---------
MINING & METALS-1.4%
38,900 Newmont Mining Corporation 1,740,775
11,000 Phelps Dodge Corporation 742,500
8,800 Reynolds Metal Company 496,100
161,100 Sante Fe Pacific Gold Corporation 2,476,912
---------
5,456,287
---------
OIL & GAS-13.6%
85,700 Amoco Corporation 6,898,850
21,000 Baker Hughes, Inc. 724,500
20,800 Chevron Corporation 1,352,000
15,500 Coastal Corporation 757,563
197,125 Equitable Resources, Inc. 5,864,469
71,100 Exxon Corporation 6,967,800
9,000 Halliburton Company 542,250
27,600 Mobil Corporation 3,374,100
57,400 Panenergy Corporation 2,583,000
106,000 Questar Corporation 3,895,500
46,600 Sun Company 1,135,875
38,000 Tenneco, Inc. 1,714,750
42,300 Texaco, Inc. 4,150,687
38,300 Tidewater, Inc. 1,733,075
26,200 Tosco Corporation 2,073,075
52,300 Ultramar Diamond Shamrock Corporation 1,653,988
222,338 The Williams Companies, Inc. 8,337,656
---------
53,759,138
---------
PAPER & FOREST PRODUCTS-0.5%
30,600 Potlatch Corporation 1,315,800
13,200 Weyerhauser Company 625,350
---------
1,941,150
---------
PHARMACEUTICALS-7.0%
12,000 Abbott Laboratories $ 609,000
29,000 American Home Products Corporation 1,700,125
40,000 Baxter International, Inc. 1,640,000
26,800 Bristol-Myers Squibb Company 2,914,500
20,500 Eli Lilly & Company 1,496,500
33,000 Mallinckrodt, Inc. 1,456,125
57,300 Merck & Company 4,541,025
25,000 Pfizer, Inc. 2,071,875
138,000 Pharmacia & Upjohn, Inc. 5,468,250
11,000 Schering Plough Corporation 712,250
67,900 Warner Lambert Company 5,092,500
---------
27,702,150
---------
RESTAURANTS-0.6%
48,800 McDonald's Corporation 2,208,200
---------
RETAIL-0.2%
43,000 Casey's General Stores, Inc. 806,250
---------
SEMICONDUCTORS &
EQUIPMENT-0.4%
12,600 Intel Corporation 1,649,025
---------
SUPERMARKETS-2.8%
29,900 Albertson's, Inc. 1,065,188
785,975 Ingles Market Company
Class A 9,824,687
---------
10,889,875
---------
TELECOMMUNICATION SERVICES-3.0%
55,000 Alltel Corporation 1,725,625
45,300 Ameritech Corporation 2,746,312
16,475 Century Telephone
Enterprises, Inc. 508,666
5,000 Cincinnati Bell, Inc. 308,125
10,000 Frontier Corporation 226,250
72,300 Nynex Corporation 3,479,437
34,700 SBC Communications, Inc. 1,795,725
26,200 Southern New England Telecom
Corporation 1,018,525
---------
11,808,665
---------
50
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
SHARES MARKET VALUE
TRANSPORTATION-0.4%
54,000 Illinois Central Corporation $ 1,728,000
-----------
UTILITIES-5.5%
62,550 Brooklyn Union Gas Company 1,884,319
33,200 Duke Power Company 1,535,500
177,500 IES Industries, Inc. 5,302,812
57,900 Idaho Power Company 1,802,138
108,000 Kansas City Power & Light Company 3,078,000
118,000 OGE Energy Corporation 4,926,500
104,600 Western Resources, Inc. 3,229,525
-----------
21,758,794
-----------
TOTAL COMMON STOCKS
(DOMESTIC)-56.7%
(COST-$212,117,242) 223,824,284
-----------
COMMON STOCKS (FOREIGN)-8.2%
BANKING-0.3%
32,000 Royal Bank of Canada (CA) 1,123,012
---------
CHEMICALS-2.0%
569,350 Agrium, Inc. (CA) 7,789,690
---------
COMPUTER SOFTWARE-0.1%
10,500 Square Company Ltd. (JA) 529,207
---------
LEISURE & ENTERTAINMENT-0.3%
80,000 Granada Group (UK) 1,179,531
---------
MINING & METALS-0.5%
67,600 Barrick Gold Corporation (CA) 1,943,500
---------
OIL & GAS-1.7%
62,400 Imperial Oil (CA) 2,936,068
23,600 Royal Dutch Petroleum (NE) 4,029,700
---------
6,965,768
---------
PHARMACEUTICALS-1.0%
39,500 Glaxo Wellcome PLC (UK) 1,254,125
39,000 Smithkline Beecham PLC ADR Ordinary A
(UK) 2,652,000
---------
3,906,125
---------
PUBLISHING & BROADCASTING-0.3%
110,000 Scottish Television (UK) $1,267,037
----------
TRANSPORTATION-2.0%
125,600 Canadian National Railway (CA) 4,774,376
116,900 Canadian Pacific Ltd. (CA) 3,097,850
----------
7,872,226
----------
TOTAL COMMON STOCKS
(FOREIGN)-8.2%
(COST-$29,610,735) 32,576,096
----------
PRINCIPAL AMOUNT MARKET VALUE
CORPORATE BONDS (DOMESTIC)-2.1%
BANKING-0.1%
$200,000 Mellon Corporation 6.30%
Due 6/1/00 $ 198,935
---------
ENERGY-1.0%
4,000,000 Panenergy Corporation 7.25% Due
5/15/05 4,040,536
---------
FINANCIAL SERVICES-1.0%
4,000,000 Ford Motor Credit Company 6.375% Due
09/15/99 4,002,064
---------
TOTAL CORPORATE BONDS
(DOMESTIC)-2.1%
(COST-$8,186,938) 8,241,535
---------
CORPORATE BONDS (FOREIGN)-0.7%
OIL & GAS-0.7%
C$3,500,000 Transcanada Pipelines, Ltd. 8.55% Due
2/1/06 (CA) 2,882,158
---------
TOTAL CORPORATE BONDS
(FOREIGN)-0.7%
(COST-$2,913,414) 2,882,158
---------
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
FOUNDERS BALANCED FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(CONTINUED)
PRINCIPAL AMOUNT MARKET VALUE
PRINCIPAL AMOUNT MARKET VALUE
U.S. GOVERNMENT SECURITIES-19.7%
U.S. TREASURY NOTES-18.1%
$3,450,000 U.S. Treasury Note 6.00% Due
9/30/98 $3,454,312
850,000 U.S. Treasury Note 5.625% Due
10/31/97 848,140
8,900,000 U.S. Treasury Note 6.75% Due
04/30/00 9,069,652
9,000,000 U.S. Treasury Note 6.50% Due
08/15/05 9,061,875
10,700,000 U.S. Treasury Note 7.00% Due
07/15/06 11,117,963
8,500,000 U.S. Treasury Note 6.125% Due
07/31/00 8,500,000
2,000,000 U.S. Treasury Note 6.25% Due
06/30/98 2,009,374
2,000,000 U.S. Treasury Note 6.375% Due
05/15/99 2,017,500
7,000,000 U.S. Treasury Note 6.25% Due
08/31/00 7,026,250
9,000,000 U.S. Treasury Note 6.25% Due
02/15/03 8,991,558
8,900,000 U.S. Treasury Note 6.875% Due
05/15/06 9,175,339
---------
71,271,963
---------
U.S. TREASURY BONDS-1.1%
4,000,000 U.S. Treasury Bond 7.25% Due
8/15/22 4,231,240
---------
U.S. AGENCIES-0.5%
2,000,000 Federal Home Loan Bank Note 5.30% Due
06/11/97 1,998,606
---------
TOTAL U.S. GOVERNMENT
SECURITIES-19.7%
(COST-$75,951,104) 77,501,809
---------
FOREIGN GOVERNMENT
SECURITIES-2.7%
FOREIGN GOVERNMENT BONDS-2.7%
C$3,500,000 British Columbia Global 7.75% Due
06/16/03 (CA) $2,773,386
C$3,500,000 Province of Alberta 6.125% Due
10/04/01 (CA) 2,613,187
C$3,500,000 Province of Manitoba 6.50% Due
09/04/01 (CA) 2,648,655
C$3,500,000 Province of Ontario 7.75% Due
07/24/06 (CA) 2,760,657
----------
TOTAL FOREIGN GOVERNMENT
SECURITIES-2.7%
(COST-$10,998,173) ` 10,795,885
----------
CORPORATE SHORT-TERM NOTES-5.9%
$5,600,000 FHLB Discount Note 5.00%
01/02/97 5,599,222
840,000 General Electric Capital 5.66%
03/21/97 830,180
16,800,000 Morgan Stanley Group 6.79%
01/02/97 16,796,831
-----------
TOTAL CORPORATE SHORT-TERM
NOTES-5.9%
(AMORTIZED COST-$23,225,746) 23,226,233
-----------
TOTAL INVESTMENTS-98.6%
(COST-$371,450,465) 389,220,500
OTHER ASSETS & LIABILITIES-1.4%
5,675,199
-----------
NET ASSETS-100.0% $394,895,699
===========
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lehman Bros.
U.S. Founders Lipper U.S.
Consumer Treasury Government Government
Price Composite Securities Fund
Index Index Index Index
--------- ------------ ----------- ----------
03/01/88 ..... $10,000 $10,000 $10,066 $10,000
06/30/88 ..... $10,129 $10,095 $10,202 $10,087
12/30/88 ..... $10,343 $10,362 $10,397 $10,318
06/30/89 ..... $10,652 $11,328 $11,314 $11,133
12/29/89 ..... $10,824 $11,852 $11,781 $11,612
06/29/90 ..... $11,150 $12,099 $11,707 $11,809
12/31/90 ..... $11,511 $12,864 $12,303 $12,504
06/28/91 ..... $11,674 $13,311 $12,711 $12,918
12/31/91 ..... $11,837 $14,832 $14,132 $14,370
06/30/92 ..... $12,034 $15,139 $14,348 $14,617
12/31/92 ..... $12,179 $15,901 $14,883 $15,220
06/30/93 ..... $12,395 $17,108 $15,853 $16,137
12/31/93 ..... $12,515 $17,600 $16,267 $16,567
06/30/94 ..... $12,704 $16,876 $15,155 $15,737
12/30/94 ..... $12,850 $17,005 $15,047 $13,283
06/30/95 ..... $13,064 $18,910 $16,037 $14,639
12/29/95 ..... $13,176 $20,125 $16,721 $15,514
06/28/96 ..... $13,442 $19,756 $16,506 $15,177
12/31/96 ..... $13,612 $20,683 $17,112 $15,483
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1996
1 Year 5 Years Since Inception (3/1/88)
------ ------- -----------------------
2.34% 3.90% 6.19%
PERFORMANCE REVIEW
Changing perceptions about the direction of the economy had a large impact on
the bond market during 1996. While investors in the first half were concerned
that an overheating economy would lead to hikes in interest rates, the second
half saw the bond market rally in response to news that the economy was growing
at a moderate rate. In this environment, Founders Government Securities Fund
returned 2.34% for the year ended December 31, 1996.
INVESTMENT OPPORTUNITIES
Throughout 1996, we monitored the yield curve for investment opportunities.
While we increased the average maturity of the Fund during the first half of the
year, we began to reduce maturities in the second half as the bond markets
showed signs of weakness. At the end of 1996, the average maturity of Government
Securities Fund stood at 6.49 years, compared to 7.28 years at the end of June.
53
<PAGE>
ECONOMIC OUTLOOK
So far, the bond market has reacted positively to the prospect of a slowing
economy, minimal inflation, and stable interest rates. However, there is cause
for concern: a tight labor market suggests the possibility of upward pressure on
wages, considered a precursor to rising inflation. We will remain vigilant for
signs of strength or weakness in the economy and continue to monitor the yield
curve for the best investment opportunities available.
Margaret Danuser
Fixed-Income Manager
FOUNDERS GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
PRINCIPAL AMOUNT MARKET VALUE
U.S. GOVERNMENT SECURITIES-77.1%
U.S. TREASURY NOTES-53.2%
$1,000,000 U.S. Treasury Note 6.375%
Due 08/15/02 $1,006,562
1,000,000 U.S. Treasury Note 7.00%
Due 07/15/06 1,039,062
1,000,000 U.S. Treasury Note 6.25%
Due 05/31/00 1,004,375
2,000,000 U.S. Treasury Note 6.25%
Due 02/15/03 1,998,124
1,500,000 U.S. Treasury Note 6.50%
Due 08/15/05 1,510,313
1,500,000 U.S. Treasury Note 6.50%
Due 05/31/01 1,516,875
----------
8,075,311
----------
PRINCIPAL AMOUNT MARKET VALUE
U.S. TREASURY BONDS-10.5%
$1,500,000 U.S. Treasury Bond 7.25%
Due 08/15/22 $1,586,717
----------
U.S. AGENCIES-13.4%
1,000,000 Federal National Mortgage Association
6.70% Due 08/10/01 1,007,654
1,025,000 FFCB 6.55%
Due 08/19/03 1,025,821
----------
2,033,475
----------
TOTAL U.S. GOVERNMENT
SECURITIES-77.1%
(COST-$11,634,235) 11,695,503
----------
CORPORATE SHORT-TERM NOTES-24.3%
400,000 FHLMC Discount Note
5.29% 01/03/97 399,882
2,600,000 FNMA Discount Note
5.39% 01/17/97 2,593,772
700,000 Morgan Stanley Group
6.79% 01/02/97 699,868
----------
TOTAL CORPORATE SHORT-TERM
NOTES-24.3%
(AMORTIZED COST-$3,693,522) 3,693,522
----------
TOTAL INVESTMENTS-101.4%
(COST-$15,327,757) 15,389,025
OTHER ASSETS &
LIABILITIES-(1.4%) (199,335)
----------
NET ASSETS-100.0% $15,189,690
==========
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
FOUNDERS MONEY MARKET FUND SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
PRINCIPAL AMOUNT VALUE
CORPORATE SHORT-TERM
NOTES-97.7%
$1,210,000 Air Products & Chemicals,
Inc. 5.50% 03/03/97 $ 1,198,723
5,900,000 American Express Capital
5.32% 01/08/97 5,893,897
5,000,000 American Family Finance
5.43% 03/11/97 4,947,963
2,600,000 Bankers Trust
5.75% 01/16/97 2,593,771
4,900,000 B.A.T. Capital
5.45% 02/14/97 4,867,361
5,000,000 Ciesco LP
5.75% 01/02/97 4,999,201
9,200,000 FNMA Discount Note
5.21% 02/04/97 9,154,731
3,500,000 Ford Motor Credit
5.33% 01/17/97 3,491,709
8,000,000 General Electric Capital Corporation
5.61% 05/22/97 7,824,220
4,600,000 Georgia Power
5.53% 02/24/97 4,561,843
10,000,000 Hitachi America
5.40% 02/07/97 9,944,500
4,500,000 H. J. Heinz Company
5.35% 01/07/97 4,495,987
$1,300,000 Lubrizol Corporation
6.06% 01/10/97 $ 1,298,030
5,100,000 Morgan Stanley Group
5.43% 01/09/97 5,093,846
4,100,000 New England Power
5.70% 01/07/97 4,096,105
3,000,000 Paccar Financial
5.65% 04/14/97 2,951,504
7,500,000 Safeco Credit
5.31% 01/06/97 7,494,469
4,390,000 Sara Lee
6.45% 01/03/97 4,388,427
5,500,000 Sharp Electronics
5.34% 03/14/97 5,441,260
2,200,000 Texaco, Inc.
5.65% 01/10/97 2,196,892
6,700,000 Toshiba America
5.32% 03/17/97 6,625,742
3,770,000 Walt Disney Company
5.35% 01/14/97 3,762,716
-----------
TOTAL CORPORATE SHORT-TERM
NOTES-97.7%
(AMORTIZED COST-
$107,322,897) 107,322,897
-----------
TOTAL INVESTMENTS-97.7%
(AMORTIZED COST-
$107,322,897) 107,322,897
OTHER ASSETS &
LIABILITIES-2.3% 2,542,670
-----------
NET ASSETS-100.0% $109,865,567
===========
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
- -------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
INTERNATIONAL WORLDWIDE
DECEMBER 31, 1996 DISCOVERY FRONTIER PASSPORT SPECIAL EQUITY GROWTH
(In Thousands) FUND FUND FUND FUND FUND FUND
--------- -------- -------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities, at market
(cost $201,754, $263,972, $158,394,
$317,396, $9,349, $282,797,
$876,237, $488,637, $371,450,
$15,328, $107,323 respectively).... $251,414 $345,438 $178,322 $367,418 $10,338 $340,014
Cash................................. 1,214 1,370 894 895 86 1,598
Foreign currency (cost $2,350 and
$212 respectively)................. 0 0 2,367 0 214 0
Receivables:
Investment securities sold......... 0 4,560 0 2,081 85 0
Capital shares sold................ 1,506 1,308 485 376 24 2,251
Dividends and interest............. 5 109 91 26 8 325
Other assets......................... 0 7 4 5 0 0
--------- -------- -------- -------- ------------- ---------
Total Assets..................... 254,139 352,792 182,163 370,801 10,755 344,188
--------- -------- -------- -------- ------------- ---------
LIABILITIES
Bank overdraft....................... 0 0 0 0 0 0
Written call options (Premium $284
and $54 respectively).............. 0 0 0 0 0 0
Payables:
Investment securities purchased.... 2,679 325 2,597 5,574 581 0
Capital shares redeemed............ 3,688 1,233 1,451 1,055 44 1,739
Advisory fee....................... 208 276 148 237 8 270
Shareholder servicing fees......... 26 37 10 40 2 23
Accounting fees.................... 5 7 4 8 0 15
Other.............................. 39 53 32 52 1 62
Dividends.......................... 0 0 0 0 0 0
--------- -------- -------- -------- ------------- ---------
Total Liabilities................ 6,645 1,931 4,242 6,966 636 2,109
--------- -------- -------- -------- ------------- ---------
Net Assets........................... $247,494 $350,861 $177,921 $363,835 $10,119 $342,079
========= ======== ======== ======== ============= =========
Capital shares:
Authorized (Par value $0.01 per
share)........................... 100,000 100,000 100,000 180,000 100,000 100,000
========= ======== ======== ======== ============= =========
Outstanding........................ 10,219 10,852 12,784 47,497 853 15,701
========= ======== ======== ======== ============= =========
Net Asset Value, Offering and
Redemption Price Per Share......... $ 24.22 $ 32.34 $ 13.91 $7.66 $11.86 $21.79
========= ======== ======== ======== ============= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT MONEY
DECEMBER 31, 1996 GROWTH BLUE CHIP BALANCED SECURITIES MARKET
(In Thousands) FUND FUND FUND FUND FUND
--------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment securities, at market
(cost $201,754, $263,972, $158,394,
$317,396, $9,349, $282,797,
$876,237, $488,637, $371,450,
$15,328, $107,323 respectively).... $1,016,460 $540,369 $389,221 $ 15,389 $107,323
Cash................................. 7,120 0 1,899 171 1,008
Foreign currency (cost $2,350 and
$212 respectively)................. 0 0 0 0 0
Receivables:
Investment securities sold......... 8,364 5,468 7,623 0 0
Capital shares sold................ 97,490 1,002 2,239 157 2,833
Dividends and interest............. 478 2,293 2,530 246 0
Other assets......................... 18 3 4 0 2
--------- --------- -------- ---------- --------
Total Assets..................... 1,129,930 549,135 403,516 15,963 111,166
--------- --------- -------- ---------- --------
LIABILITIES
Bank overdraft....................... 0 1,493 0 0 0
Written call options (Premium $284
and $54 respectively).............. 0 1,006 49 0 0
Payables:
Investment securities purchased.... 6,398 9,472 7,539 543 0
Capital shares redeemed............ 4,418 893 765 155 805
Advisory fee....................... 610 283 211 8 48
Shareholder servicing fees......... 55 41 13 0 5
Accounting fees.................... 41 22 13 0 2
Other.............................. 85 59 30 4 20
Dividends.......................... 0 0 0 63 420
--------- --------- -------- ---------- --------
Total Liabilities................ 11,607 13,269 8,620 773 1,300
--------- --------- -------- ---------- --------
Net Assets........................... $1,118,323 $535,866 $394,896 $15,190 $109,866
========= ========= ======== ========== ========
Capital shares:
Authorized (Par value $0.01 per
share)........................... 200,000 200,000 100,000 20,000 800,000
========= ========= ======== ========== ========
Outstanding........................ 70,476 74,078 37,196 1,679 109,835
========= ========= ======== ========== ========
Net Asset Value, Offering and
Redemption Price Per Share......... $15.87 $7.23 $10.61 $9.04 $1.00
========= ========= ======== ========== ========
</TABLE>
57
<PAGE>
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
INTERNATIONAL WORLDWIDE
DISCOVERY FRONTIER PASSPORT SPECIAL EQUITY GROWTH
FUND FUND FUND FUND FUND FUND
--------- -------- -------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends.......................... $72 $1,225 $1,572 $1,379 $84 $3,873
Interest........................... 1,691 2,425 1,234 2,620 49 2,915
Foreign taxes withheld............. (1) (6) (157) (21) (9) (374)
--------- -------- -------- -------- ------------- ---------
Total Investment Income.......... 1,762 3,644 2,649 3,978 124 6,414
--------- -------- -------- -------- ------------- ---------
Expenses:
Advisory fees...................... 2,406 3,298 1,344 2,840 69 3,023
Shareholder servicing fees......... 352 488 95 530 20 301
Accounting fees.................... 64 93 36 100 2 84
Distribution fees.................. 606 874 336 934 17 789
Transfer agency expenses........... 131 181 35 197 3 118
Registration fees.................. 40 44 49 66 10 69
Postage and mailing expenses....... 43 60 12 67 2 41
Custodian fees and expenses........ 36 69 164 62 25 240
Printing expenses.................. 69 97 19 110 3 68
Legal and audit fees............... 32 45 17 51 2 49
Directors' fees and expenses....... 20 30 8 33 1 25
Organization expenses.............. 0 0 2 0 18 0
Other expenses..................... 63 89 24 100 2 70
--------- -------- -------- -------- ------------- ---------
Total Expenses................... 3,862 5,368 2,141 5,090 174 4,877
Earnings Credits................. (38) (63) (27) (68) (4) (54)
Reimbursed Expenses.............. 0 0 0 0 (36) 0
--------- -------- -------- -------- ------------- ---------
Net Expenses..................... 3,824 5,305 2,114 5,022 134 4,823
--------- -------- -------- -------- ------------- ---------
Net Investment Income (Loss)....... (2,062) (1,661) 535 (1,044) (10) 1,591
--------- -------- -------- -------- ------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Gain (Loss) from
Security Transactions:
Proceeds from long-term securities
sold............................. 234,601 258,114 62,952 650,208 4,519 184,866
Proceeds from long-term U.S.
Government Obligations........... 0 0 0 0 0 0
Cost of securities sold............ 205,666 216,070 58,848 624,834 4,444 175,314
--------- -------- -------- -------- ------------- ---------
Net Realized Gain (Loss) From
Security Transactions.......... 28,935 42,044 4,104 25,374 75 9,552
Net Realized Gain (Loss) From Foreign
Currency Transactions.............. (4) (25) (232) (180) (16) (409)
Net Change in Unrealized Appreciation
(Depreciation)..................... 12,543 4,816 15,369 28,967 989 27,216
--------- -------- -------- -------- ------------- ---------
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions............ 41,474 46,835 19,241 54,161 1,048 36,359
--------- -------- -------- -------- ------------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations.......... $39,412 $45,174 $19,776 $53,117 $1,038 $37,950
========= ======== ======== ======== ============= =========
Purchases of long-term securities.... $222,122 $258,773 $149,741 $594,600 $12,792 $267,947
========= ======== ======== ======== ============= =========
Purchases of long-term U.S.
Government Obligations............. $0 $0 $0 $0 $0 $0
========= ======== ======== ======== ============= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
YEAR ENDED DECEMBER 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
BLUE GOVERNMENT MONEY
GROWTH CHIP BALANCED SECURITIES MARKET
FUND FUND FUND FUND FUND
--------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends.......................... $4,523 $7,120 $4,388 $ 0 $ 0
Interest........................... 6,350 4,691 5,665 1,136 8,241
Foreign taxes withheld............. (43) (68) (32) 0 0
--------- -------- -------- ---------- ------
Total Investment Income.......... 10,830 11,743 10,021 1,136 8,241
--------- -------- -------- ---------- ------
Expenses:
Advisory fees...................... 5,729 2,892 1,538 117 758
Shareholder servicing fees......... 638 508 166 41 236
Accounting fees.................... 214 122 63 5 40
Distribution fees.................. 2,021 1,155 598 9 0
Transfer agency expenses........... 242 190 63 16 88
Registration fees.................. 207 62 60 14 62
Postage and mailing expenses....... 86 65 22 5 19
Custodian fees and expenses........ 124 76 38 6 17
Printing expenses.................. 137 102 34 8 40
Legal and audit fees............... 102 61 30 3 20
Directors' fees and expenses....... 62 36 16 2 13
Organization expenses.............. 0 0 0 0 0
Other expenses..................... 153 104 44 6 38
--------- -------- -------- ---------- ------
Total Expenses................... 9,715 5,373 2,672 232 1,331
Earnings Credits................. (130) (80) (49) (5) (28)
Reimbursed Expenses.............. 0 0 0 0 0
--------- -------- -------- ---------- ------
Net Expenses..................... 9,585 5,293 2,623 227 1,303
--------- -------- -------- ---------- ------
Net Investment Income (Loss)....... 1,245 6,450 7,398 909 6,938
--------- -------- -------- ---------- ------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Gain (Loss) from
Security Transactions:
Proceeds from long-term securities
sold............................. 920,357 802,794 282,220 0 0
Proceeds from long-term U.S.
Government Obligations........... 0 0 27,634 33,840 0
Cost of securities sold............ 840,649 719,018 285,489 33,937 0
--------- -------- -------- ---------- ------
Net Realized Gain (Loss) From
Security Transactions.......... 79,708 83,776 24,365 (97) 0
Net Realized Gain (Loss) From Foreign
Currency Transactions.............. (70) (202) (101) 0 0
Net Change in Unrealized Appreciation
(Depreciation)..................... 25,598 5,927 7,811 (459) 0
--------- -------- -------- ---------- ------
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions............ 105,236 89,501 32,075 (556) 0
--------- -------- -------- ---------- ------
Net Increase (Decrease) in Net Assets
Resulting from Operations.......... $106,481 $95,951 $39,473 $353 $6,938
========= ======== ======== ========== ======
Purchases of long-term securities.... $1,173,134 $912,675 $438,400 $0 $0
========= ======== ======== ========== ======
Purchases of long-term U.S.
Government Obligations............. $0 $0 $96,761 $27,678 $0
========= ======== ======== ========== ======
</TABLE>
59
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DISCOVERY FRONTIER PASSPORT
FUND FUND FUND
-------------------- -------------------- ---------------------
YEAR YEAR YEAR YEAR YEAR YEAR
DECEMBER 31, 1996 ENDED ENDED ENDED ENDED ENDED ENDED
(In Thousands) 12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) ........ ($ 2,062) ($ 1,196) ($ 1,661) ($ 196) $ 535 $ 152
Net Realized Gain (Loss) From
Security Transactions ............. 28,935 40,209 42,044 47,223 4,104 (36)
Net Realized Gain (Loss) From Foreign
Currency Transactions ............. (4) 0 (25) (31) (232) (74)
Net Change in Unrealized
Appreciation/Depreciation ......... 12,543 13,488 4,816 44,192 15,369 4,598
--------- --------- --------- --------- --------- ---------
Net Increase (Decrease) in Net
Assets Resulting From
Operations ...................... 39,412 52,501 45,174 91,188 19,776 4,640
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ............... 0 0 0 0 (308) (154)
Net realized gains from security
transactions ...................... (18,990) (36,838) (30,511) (47,059) (1,080) 0
--------- --------- --------- --------- --------- ---------
Net Decrease from Distributions ... (18,990) (36,838) (30,511) (47,059) (1,388) (154)
--------- --------- --------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........... 239,294 111,895 130,929 128,859 214,884 46,686
Reinvested distributions ............ 17,850 32,276 29,845 45,631 1,334 148
--------- --------- --------- --------- --------- ---------
257,144 144,171 160,774 174,490 216,218 46,834
Cost of shares redeemed ............. (246,695) (128,521) (156,296) (134,012) (106,607) (17,841)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) from
capital share transactions ...... 10,449 15,650 4,478 40,478 109,611 28,993
--------- --------- --------- --------- --------- ---------
Net Increase (Decrease) in Net
Assets .......................... 30,871 31,313 19,141 84,607 127,999 33,479
NET ASSETS
Beginning of period ............... 216,623 185,310 331,720 247,113 49,922 16,443
--------- --------- --------- --------- --------- ---------
End of period ..................... $ 247,494 $ 216,623 $ 350,861 $ 331,720 $ 177,921 $ 49,922
========= ========= ========= ========= ========= =========
Net Assets consist of:
Capital (par value and paid-in
surplus) .......................... $ 190,379 $ 179,930 $ 258,025 $ 255,234 $ 156,922 $ 47,310
Accumulated undistributed
(distribution in excess of) net
investment income ................. 0 0 0 20 0 0
Accumulated undistributed net
realized gain (loss) from security
transactions ...................... 7,455 (424) 11,370 (184) 1,071 (1,947)
Unrealized appreciation
(depreciation) on investments ..... 49,660 37,117 81,466 76,650 19,928 4,559
--------- --------- --------- --------- --------- ---------
Total ............................. $ 247,494 $ 216,623 $ 350,861 $ 331,720 $ 177,921 $ 49,922
========= ========= ========= ========= ========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SPECIAL INTERNATIONAL WORLDWIDE
FUND EQUITY FUND GROWTH FUND
--------------------- ----------------------- ---------------------
YEAR YEAR YEAR YEAR YEAR
DECEMBER 31, 1996 ENDED ENDED ENDED 12/29/95- ENDED ENDED
(In Thousands) 12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) ........ ($ 1,044) $ 18 ($ 10) $ 0 $ 1,591 $ 954
Net Realized Gain (Loss) From
Security Transactions ............. 25,374 77,526 75 0 9,552 7,367
Net Realized Gain (Loss) From Foreign
Currency Transactions ............. (180) (25) (16) 0 (409) (166)
Net Change in Unrealized
Appreciation/Depreciation ......... 28,967 4,867 989 0 27,216 18,535
--------- --------- -------- -------- --------- ---------
Net Increase (Decrease) in Net
Assets Resulting From
Operations ...................... 53,117 82,386 1,038 0 37,950 26,690
--------- --------- -------- -------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ............... 0 0 0 0 (1,143) (959)
Net realized gains from security
transactions ...................... (20,770) (77,376) 0 0 (11,387) (7,208)
--------- --------- -------- -------- --------- ---------
Net Decrease from Distributions ... (20,770) (77,376) 0 0 (12,530) (8,167)
--------- --------- -------- -------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........... 120,997 195,291 11,395 767 220,374 190,341
Reinvested distributions ............ 19,816 72,687 0 0 11,322 7,509
--------- --------- -------- -------- --------- ---------
140,813 267,978 11,395 767 231,696 197,850
Cost of shares redeemed ............. (198,079) (183,424) (3,081) 0 (143,632) (91,822)
--------- --------- -------- -------- --------- ---------
Net increase (decrease) from
capital share transactions ...... (57,266) 84,554 8,314 767 88,064 106,028
--------- --------- -------- -------- --------- ---------
Net Increase (Decrease) in Net
Assets .......................... (24,919) 89,564 9,352 767 113,484 124,551
NET ASSETS
Beginning of period ............... 388,754 299,190 767 0 228,595 104,044
--------- --------- -------- -------- --------- ---------
End of period ..................... $ 363,835 $ 388,754 $ 10,119 $ 767 $ 342,079 $ 228,595
========= ========= ======== ======== ========= =========
Net Assets consist of:
Capital (par value and paid-in
surplus) .......................... $ 311,172 $ 368,445 $ 9,081 $ 767 $ 286,659 $ 198,594
Accumulated undistributed
(distribution in excess of) net
investment income ................. (48) 1 (2) 0 1 0
Accumulated undistributed net
realized gain (loss) from security
transactions ...................... 2,689 (747) 51 0 (1,798) 0
Unrealized appreciation
(depreciation) on investments ..... 50,022 21,055 989 0 57,217 30,001
--------- --------- -------- -------- --------- ---------
Total ............................. $ 363,835 $ 388,754 $ 10,119 $ 767 $ 342,079 $ 228,595
========= ========= ======== ======== ========= =========
</TABLE>
61
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
GROWTH BLUE CHIP
FUND FUND
--------------------- --------------------
YEAR YEAR YEAR YEAR
DECEMBER 31, 1996 ENDED ENDED ENDED ENDED
(In Thousands) 12/31/96 12/31/95 12/31/96 12/31/95
--------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) ........ $ 1,245 $ 562 $ 6,450 $ 4,120
Net Realized Gain (Loss) From
Security Transactions ............. 79,708 81,832 83,776 55,358
Net Realized Gain (Loss) From Foreign
Currency Transactions ............. (70) (177) (202) (207)
Net Change in Unrealized
Appreciation/Depreciation ......... 25,598 91,435 5,927 28,160
----------- --------- --------- ---------
Net Increase (Decrease) in Net
Assets Resulting From
Operations ...................... 106,481 173,652 95,951 87,431
----------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ............... (1,034) (571) (6,304) (4,097)
Net realized gains from security
transactions ...................... (77,512) (81,093) (64,011) (55,828)
----------- --------- --------- ---------
Net Decrease from Distributions ... (78,546) (81,664) (70,315) (59,925)
----------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........... 856,521 356,140 211,850 40,173
Reinvested distributions ............ 74,765 77,099 63,797 53,767
----------- --------- --------- ---------
931,286 433,239 275,647 93,940
Cost of shares redeemed ............. (496,825) (177,288) (140,617) (57,297)
----------- --------- --------- ---------
Net increase (decrease) from
capital share transactions ...... 434,461 255,951 135,030 36,643
----------- --------- --------- ---------
Net Increase (Decrease) in Net
Assets .......................... 462,396 347,939 160,666 64,149
NET ASSETS
Beginning of period ............... 655,927 307,988 375,200 311,051
----------- --------- --------- ---------
End of period ..................... $ 1,118,323 $ 655,927 $ 535,866 $ 375,200
=========== ========= ========= =========
Net Assets consist of:
Capital (par value and paid-in
surplus) .......................... $ 975,859 $ 541,397 $ 465,983 $ 330,953
Accumulated undistributed
(distribution in excess of) net
investment income ................. 227 86 (13) 0
Accumulated undistributed net
realized gain (loss) from security
transactions ...................... 2,014 (181) 18,886 (836)
Unrealized appreciation
(depreciation) on investments ..... 140,223 114,625 51,010 45,083
----------- --------- --------- ---------
Total ............................. $ 1,118,323 $ 655,927 $ 535,866 $ 375,200
=========== ========= ========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
BALANCED GOVERNMENT MONEY MARKET
FUND SECURITIES FUND FUND
-------------------- --------------------- ---------------------
YEAR YEAR YEAR YEAR YEAR YEAR
DECEMBER 31, 1996 ENDED ENDED ENDED ENDED ENDED ENDED
(In Thousands) 12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) ........ $ 7,398 $ 3,174 $ 909 $ 1,054 $ 6,938 $ 7,204
Net Realized Gain (Loss) From
Security Transactions ............. 24,365 15,035 (97) (13) 0 0
Net Realized Gain (Loss) From Foreign
Currency Transactions ............. (101) (61) 0 0 0 0
Net Change in Unrealized
Appreciation/Depreciation ......... 7,811 10,061 (459) 1,230 0 0
--------- --------- -------- --------- --------- ---------
Net Increase (Decrease) in Net
Assets Resulting From
Operations ...................... 39,473 28,209 353 2,271 6,938 7,204
--------- --------- -------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ............... (7,112) (3,203) (904) (1,062) (6,913) (7,197)
Net realized gains from security
transactions ...................... (16,854) (14,330) 0 0 0 0
--------- --------- -------- --------- --------- ---------
Net Decrease from Distributions ... (23,966) (17,533) (904) (1,062) (6,913) (7,197)
--------- --------- -------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........... 323,317 49,371 17,018 22,097 440,366 293,433
Reinvested distributions ............ 22,653 16,094 823 994 6,354 6,666
--------- --------- -------- --------- --------- ---------
345,970 65,465 17,841 23,091 446,720 300,099
Cost of shares redeemed ............. (96,927) (41,021) (22,363) (25,360) (462,525) (375,802)
--------- --------- -------- --------- --------- ---------
Net increase (decrease) from
capital share transactions ...... 249,043 24,444 (4,522) (2,269) (15,805) (75,703)
--------- --------- -------- --------- --------- ---------
Net Increase (Decrease) in Net
Assets .......................... 264,550 35,120 (5,073) (1,060) (15,780) (75,696)
NET ASSETS
Beginning of period ............... 130,346 95,226 20,263 21,323 125,646 201,342
--------- --------- -------- --------- --------- ---------
End of period ..................... $ 394,896 $ 130,346 $ 15,190 $ 20,263 $ 109,866 $ 125,646
========= ========= ======== ========= ========= =========
Net Assets consist of:
Capital (par value and paid-in
surplus) .......................... $ 369,513 $ 120,470 $ 18,446 $ 22,968 $ 109,829 $ 125,646
Accumulated undistributed
(distribution in excess of) net
investment income ................. 186 0 5 0 37 0
Accumulated undistributed net
realized gain (loss) from security
transactions ...................... 7,422 (88) (3,322) (3,225) 0 0
Unrealized appreciation
(depreciation) on investments ..... 17,775 9,964 61 520 0 0
--------- --------- -------- --------- --------- ---------
Total ............................. $ 394,896 $ 130,346 $ 15,190 $ 20,263 $ 109,866 $ 125,646
========= ========= ======== ========= ========= =========
</TABLE>
63
<PAGE>
FINANCIAL HIGHLIGHTS
For a share outstanding throughout
each period.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------
NET REALIZED LESS DISTRIBUTIONS
NET & UNREALIZED ---------------------
NAV INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME OR ON INVESTMENT INVESTMENT REALIZED
OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME GAINS
--------- -------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
DISCOVERY FUND
Year ended 12/31/96........... $ 21.70 (0.20) 4.72 4.52 0.00 (2.00)
Year ended 12/31/95........... 19.88 (0.12) 6.29 6.17 0.00 (4.35)
Year ended 12/31/94........... 21.55 (0.12) (1.55) (1.67) 0.00 0.00
Year ended 12/31/93........... 19.93 (0.15) 2.29 2.14 0.00 (0.52)
Year ended 12/31/92........... 17.52 (0.03) 2.68 2.65 0.00 (0.24)
FRONTIER FUND
Year ended 12/31/96........... $ 31.08 (0.15) 4.46 4.31 0.00 (3.05)
Year ended 12/31/95........... 26.50 (0.02) 9.76 9.74 0.00 (5.16)
Year ended 12/31/94........... 27.94 (0.07) (0.72) (0.79) 0.00 (0.65)
Year ended 12/31/93........... 25.03 (0.12) 4.23 4.11 0.00 (1.20)
Year ended 12/31/92........... 24.21 (0.11) 2.24 2.13 0.00 (1.31)
PASSPORT FUND
Year ended 12/31/96........... $ 11.68 0.04 2.30 2.34 (0.02) (0.09)
Year ended 12/31/95........... 9.42 0.04 2.26 2.30 (0.04) 0.00
Year ended 12/31/94........... 10.53 0.02 (1.11) (1.09) (0.02) 0.00
11/16/93 (inception) to
12/31/93.................... 10.00 0.00 0.53 0.53 0.00 0.00
SPECIAL FUND
Year ended 12/31/96........... $7.05 (0.02) 1.09 1.07 0.00 (0.46)
Year ended 12/31/95........... 7.01 0.00 1.79 1.79 0.00 (1.75)
Year ended 12/31/94........... 7.67 (0.02) (0.36) (0.38) 0.00 (0.28)
Year ended 12/31/93........... 7.76 (0.01) 1.25 1.24 0.00 (1.33)
Year ended 12/31/92........... 7.59 (0.01) 0.64 0.63 0.00 (0.46)
INTERNATIONAL EQUITY FUND
Year ended 12/31/96........... $ 10.00 (0.01) 1.87 1.86 0.00 0.00
12/29/95 (inception) to
12/31/95...................... 10.00 0.00 0.00 0.00 0.00 0.00
WORLDWIDE GROWTH FUND
Year ended 12/31/96........... $ 19.87 0.10 2.64 2.74 (0.07) (0.75)
Year ended 12/31/95........... 17.09 0.09 3.43 3.52 (0.09) (0.65)
Year ended 12/31/94........... 17.94 (0.02) (0.37) (0.39) 0.00 (0.46)
Year ended 12/31/93........... 14.13 (0.02) 4.24 4.22 0.00 (0.41)
Year ended 12/31/92........... 13.92 0.00 0.21 0.21 0.00 0.00
</TABLE>
- ------------
* The average commission per share is calculated by dividing agency commissions
paid on equity securities trades by the number of shares traded. This is a
new requirement under revised SEC regulations.
# Net Expenses include the custodial credits shown as Earnings credits on the
Statements of Operations. These credits are earned on uninvested cash held at
the custodian. Gross Expenses are grossed up by the earned credits as required
by the SEC.
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
---------------------------------------------------------
NET ASSETS, NET GROSS
NAV END OF EXPENSES EXPENSES
TOTAL END TOTAL PERIOD TO AVERAGE TO AVERAGE
DISTRIBUTIONS OF PERIOD RETURN (THOUSANDS) NET ASSETS# NET ASSETS#
------------- --------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DISCOVERY FUND
Year ended 12/31/96........... (2.00) $ 24.22 21.2% $ 247,494 1.58% 1.59%
Year ended 12/31/95........... (4.35) 21.70 31.3% 216,623 1.58% 1.63%
Year ended 12/31/94........... 0.00 19.88 -7.8% 185,310 1.67% n/a
Year ended 12/31/93........... (0.52) 21.55 10.8% 226,069 1.65% n/a
Year ended 12/31/92........... (0.24) 19.93 15.2% 151,983 1.85% n/a
FRONTIER FUND
Year ended 12/31/96........... (3.05) $ 32.34 14.3% $ 350,861 1.52% 1.53%
Year ended 12/31/95........... (5.16) 31.08 37.0% 331,720 1.53% 1.57%
Year ended 12/31/94........... (0.65) 26.50 -2.8% 247,113 1.62% n/a
Year ended 12/31/93........... (1.20) 27.94 16.5% 254,248 1.66% n/a
Year ended 12/31/92........... (1.31) 25.03 8.9% 146,484 1.83% n/a
PASSPORT FUND
Year ended 12/31/96........... (0.11) $ 13.91 20.1% $ 177,921 1.57% 1.59%
Year ended 12/31/95........... (0.04) 11.68 24.4% 49,922 1.76% 1.84%
Year ended 12/31/94........... (0.02) 9.42 -10.4% 16,443 1.88% n/a
11/16/93 (inception) to
12/31/93.................... 0.00 10.53 5.3% 18,567 1.70%** n/a
SPECIAL FUND
Year ended 12/31/96........... (0.46) $ 7.66 15.3% $ 363,835 1.34% 1.36%
Year ended 12/31/95........... (1.75) 7.05 25.7% 388,754 1.29% 1.35%
Year ended 12/31/94........... (0.28) 7.01 -4.9% 299,190 1.36% n/a
Year ended 12/31/93........... (1.33) 7.67 16.0% 432,710 1.33% n/a
Year ended 12/31/92........... (0.46) 7.76 8.3% 456,793 1.23% n/a
INTERNATIONAL EQUITY FUND
Year ended 12/31/96........... 0.00 $ 11.86 18.6% $10,119 1.94%+ 2.00%
12/29/95 (inception) to
12/31/95...................... 0.00 10.00 0.0% 767 n/a n/a
WORLDWIDE GROWTH FUND
Year ended 12/31/96........... (0.82) $ 21.79 14.0% $ 342,079 1.53% 1.55%
Year ended 12/31/95........... (0.74) 19.87 20.6% 228,595 1.56% 1.65%
Year ended 12/31/94........... (0.46) 17.09 -2.2% 104,044 1.66% n/a
Year ended 12/31/93........... (0.41) 17.94 29.9% 85,214 1.80% n/a
Year ended 12/31/92........... 0.00 14.13 1.5% 36,622 2.06% n/a
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
--------------------------------------------------------
NET INVESTMENT
INCOME (LOSS) PORTFOLIO AVERAGE
TO AVERAGE TURNOVER TOTAL COMM.
NET ASSETS RATE DISTRIBUTIONS PER SHARE*
----------------------------- ------------- ----------
<S> <C> <C> <C> <C>
DISCOVERY FUND
Year ended 12/31/96........... -0.85% 106% (2.00) 0.0566
Year ended 12/31/95........... -0.60% 118% (4.35) n/a
Year ended 12/31/94........... -0.62% 72% 0.00 n/a
Year ended 12/31/93........... -0.97% 99% (0.52) n/a
Year ended 12/31/92........... -0.67% 111% (0.24) n/a
FRONTIER FUND
Year ended 12/31/96........... -0.47% 85% (3.05) 0.0567
Year ended 12/31/95........... -0.07% 92% (5.16) n/a
Year ended 12/31/94........... -0.25% 72% (0.65) n/a
Year ended 12/31/93........... -0.75% 109% (1.20) n/a
Year ended 12/31/92........... -0.58% 155% (1.31) n/a
PASSPORT FUND
Year ended 12/31/96........... 0.40% 58% (0.11) 0.0147
Year ended 12/31/95........... 0.60% 37% (0.04) n/a
Year ended 12/31/94........... 0.12% 78% (0.02) n/a
11/16/93 (inception) to
12/31/93.................... 0.18%** 6% 0.00 n/a
SPECIAL FUND
Year ended 12/31/96........... -0.28% 186% (0.46) 0.0417
Year ended 12/31/95........... 0.00% 263% (1.75) n/a
Year ended 12/31/94........... -0.27% 272% (0.28) n/a
Year ended 12/31/93........... -0.14% 285% (1.33) n/a
Year ended 12/31/92........... -0.05% 223% (0.46) n/a
INTERNATIONAL EQUITY FUND
Year ended 12/31/96........... -0.15% 71% 0.00 0.0189
12/29/95 (inception) to
12/31/95...................... n/a n/a 0.00 n/a
WORLDWIDE GROWTH FUND
Year ended 12/31/96........... 0.50% 72% (0.82) 0.0247
Year ended 12/31/95........... 0.61% 54% (0.74) n/a
Year ended 12/31/94........... -0.14% 87% (0.46) n/a
Year ended 12/31/93........... -0.19% 117% (0.41) n/a
Year ended 12/31/92........... 0.01% 152% 0.00 n/a
</TABLE>
- ------------
+ Certain fees were waived by the management company. Had these fees not been
waived, the expense ratios would have been 2.46% for International Equity
Fund and 1.49% for Government Securities Fund.
n/a Disclosure not applicable or not required in prior periods.
** Annualized
65
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share outstanding throughout
each period.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------
NET REALIZED LESS DISTRIBUTIONS
NET & UNREALIZED ---------------------
NAV INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME OR ON INVESTMENT INVESTMENT REALIZED
OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME GAINS
--------- -------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
GROWTH FUND
Year ended 12/31/96........... $ 14.77 0.02 2.40 2.42 (0.02) (1.30)
Year ended 12/31/95........... 11.63 0.02 5.27 5.29 (0.02) (2.13)
Year ended 12/31/94........... 12.38 (0.02) (0.39) (0.41) 0.00 (0.34)
Year ended 12/31/93........... 10.54 (0.01) 2.70 2.69 0.00 (0.85)
Year ended 12/31/92........... 11.22 0.01 0.48 0.49 (0.01) (1.16)
BLUE CHIP FUND
Year ended 12/31/96........... $ 6.69 0.09 1.52 1.61 (0.09) (0.98)
Year ended 12/31/95........... 6.16 0.09 1.70 1.79 (0.09) (1.17)
Year ended 12/31/94........... 6.49 0.06 (0.02) 0.04 (0.06) (0.31)
Year ended 12/31/93........... 6.91 0.04 0.96 1.00 (0.04) (1.38)
Year ended 12/31/92........... 7.67 0.08 (0.10) (0.02) (0.08) (0.66)
BALANCED FUND
Year ended 12/31/96........... $ 9.58 0.28 1.50 1.78 (0.27) (0.48)
Year ended 12/31/95........... 8.56 0.28 2.21 2.49 (0.28) (1.19)
Year ended 12/31/94........... 8.93 0.20 (0.37) (0.17) (0.20) 0.00
Year ended 12/31/93........... 8.30 0.22 1.58 1.80 (0.21) (0.96)
Year ended 12/31/92........... 8.19 0.27 0.21 0.48 (0.28) (0.09)
GOVERNMENT SECURITIES FUND
Year ended 12/31/96........... $ 9.29 3.20 (2.99) 0.21 (0.46) 0.00
Year ended 12/31/95........... 8.78 0.45 0.51 0.96 (0.45) 0.00
Year ended 12/31/94........... 10.02 0.52 (1.26) (0.74) (0.50) 0.00
Year ended 12/31/93........... 10.19 0.46 0.47 0.93 (0.46) (0.64)
Year ended 12/31/92........... 10.48 0.51 0.03 0.54 (0.51) (0.32)
MONEY MARKET FUND
Year ended 12/31/96........... $ 1.00 0.05 0.00 0.05 (0.05) 0.00
Year ended 12/31/95........... 1.00 0.05 0.00 0.05 (0.05) 0.00
Year ended 12/31/94........... 1.00 0.03 0.00 0.03 (0.03) 0.00
Year ended 12/31/93........... 1.00 0.02 0.00 0.02 (0.02) 0.00
Year ended 12/31/92........... 1.00 0.03 0.00 0.03 (0.03) 0.00
</TABLE>
- ------------
* The average commission per share is calculated by dividing agency commissions
paid on equity securities trades by the number of shares traded. This is a
new requirement under revised SEC regulations.
# Net Expenses include the custodial credits shown as Earnings credits on the
Statements of Operations. These credits are earned on uninvested cash held at
the custodian. Gross Expenses are grossed up by the earned credits as
required by the SEC.
+ Certain fees were waived by the management company. Had these fees not been
waived, the expense ratios would have been 2.46% for International Equity
Fund and 1.49% for Government Securities Fund.
n/a Disclosure not applicable or not required in prior periods.
** Annualized
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
--------------------------------------------------------
NET ASSETS, NET GROSS
NAV END OF EXPENSES EXPENSES
TOTAL END TOTAL PERIOD TO AVERAGE TO AVERAGE
DISTRIBUTIONS OF PERIOD RETURN (THOUSANDS) NET ASSETS# NET ASSETS#
------------- --------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GROWTH FUND
Year ended 12/31/96........... (1.32) $ 15.87 16.6% $1,118,323 1.19% 1.20%
Year ended 12/31/95........... (2.15) 14.77 45.6% 655,927 1.24% 1.28%
Year ended 12/31/94........... (0.34) 11.63 -3.4% 307,988 1.33% n/a
Year ended 12/31/93........... (0.85) 12.38 25.5% 343,423 1.32% n/a
Year ended 12/31/92........... (1.17) 10.54 4.3% 145,035 1.54% n/a
BLUE CHIP FUND
Year ended 12/31/96........... (1.07) $ 7.23 24.4% $ 535,866 1.15% 1.16%
Year ended 12/31/95........... (1.26) 6.69 29.1% 375,200 1.17% 1.22%
Year ended 12/31/94........... (0.37) 6.16 0.5% 311,051 1.21% n/a
Year ended 12/31/93........... (1.42) 6.49 14.5% 306,592 1.22% n/a
Year ended 12/31/92........... (0.74) 6.91 -0.3% 290,309 1.23% n/a
BALANCED FUND
Year ended 12/31/96........... (0.75) $ 10.61 18.8% $ 394,896 1.10% 1.12%
Year ended 12/31/95........... (1.47) 9.58 29.4% 130,346 1.19% 1.23%
Year ended 12/31/94........... (0.20) 8.56 -1.9% 95,226 1.26% n/a
Year ended 12/31/93........... (1.17) 8.93 21.9% 72,859 1.34% n/a
Year ended 12/31/92........... (0.37) 8.30 6.0% 31,538 1.88% n/a
GOVERNMENT SECURITIES FUND
Year ended 12/31/96........... (0.46) $ 9.04 2.3% $ 15,190 1.26%+ 1.29%
Year ended 12/31/95........... (0.45) 9.29 11.1% 20,263 1.30% 1.30%
Year ended 12/31/94........... (0.50) 8.78 -7.5% 21,323 1.34% n/a
Year ended 12/31/93........... (1.10) 10.02 9.3% 30,465 1.18% n/a
Year ended 12/31/92........... (0.83) 10.19 5.3% 25,047 1.18% n/a
MONEY MARKET FUND
Year ended 12/31/96........... (0.05) $ 1.00 4.5% $ 109,866 0.86% 0.88%
Year ended 12/31/95........... (0.05) 1.00 5.1% 125,646 0.89% 0.89%
Year ended 12/31/94........... (0.03) 1.00 3.4% 201,342 0.91% n/a
Year ended 12/31/93........... (0.02) 1.00 2.2% 142,399 0.95% n/a
Year ended 12/31/92........... (0.03) 1.00 2.8% 120,295 0.95% n/a
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
--------------------------------------------------------
NET INVESTMENT
INCOME (LOSS) PORTFOLIO AVERAGE
TO AVERAGE TURNOVER TOTAL COMM.
NET ASSETS RATE DISTRIBUTIONS PER SHARE*
------------------------------ ------------- ----------
<S> <C> <C> <C> <C>
GROWTH FUND
Year ended 12/31/96........... 0.15% 134% (1.32) 0.0649
Year ended 12/31/95........... 0.12% 130% (2.15) n/a
Year ended 12/31/94........... -0.17% 172% (0.34) n/a
Year ended 12/31/93........... -0.15% 131% (0.85) n/a
Year ended 12/31/92........... 0.06% 216% (1.17) n/a
BLUE CHIP FUND
Year ended 12/31/96........... 1.40% 195% (1.07) 0.0613
Year ended 12/31/95........... 1.19% 235% (1.26) n/a
Year ended 12/31/94........... 0.88% 239% (0.37) n/a
Year ended 12/31/93........... 0.57% 212% (1.42) n/a
Year ended 12/31/92........... 1.13% 103% (0.74) n/a
BALANCED FUND
Year ended 12/31/96........... 3.09% 146% (0.75) 0.0588
Year ended 12/31/95........... 2.92% 286% (1.47) n/a
Year ended 12/31/94........... 2.37% 258% (0.20) n/a
Year ended 12/31/93........... 2.30% 251% (1.17) n/a
Year ended 12/31/92........... 3.57% 96% (0.37) n/a
GOVERNMENT SECURITIES FUND
Year ended 12/31/96........... 5.06% 166% (0.46) n/a
Year ended 12/31/95........... 4.92% 141% (0.45) n/a
Year ended 12/31/94........... 5.52% 379% (0.50) n/a
Year ended 12/31/93........... 4.33% 429% (1.10) n/a
Year ended 12/31/92........... 4.83% 204% (0.83) n/a
MONEY MARKET FUND
Year ended 12/31/96........... 4.58% n/a (0.05) n/a
Year ended 12/31/95........... 5.11% n/a (0.05) n/a
Year ended 12/31/94........... 3.49% n/a (0.03) n/a
Year ended 12/31/93........... 2.26% n/a (0.02) n/a
Year ended 12/31/92........... 2.78% n/a (0.03) n/a
</TABLE>
67
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES
Founders Funds, Inc. (the "Funds") is a diversified open-end management
investment company registered under the Investment Company Act of 1940. Eleven
series of shares are currently issued: Discovery, Frontier, Passport, Special,
International Equity, Worldwide Growth, Growth, Blue Chip, Balanced, Government
Securities and Money Market Funds (individually a "Fund"). The following
significant accounting policies have been consistently followed by the Funds in
the preparation of their financial statements.
SECURITIES VALUATION--With the exception of Money Market Fund, market value of
investments is determined from closing quotations on national security exchanges
or at the last current bid price in the case of securities traded over-the-
counter or by quotes from dealers making a market for securities not listed on
an exchange or traded over-the-counter. In the event that the closing price of a
foreign security is not available in time to calculate a Fund's net asset value
on a particular day, the Fund'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 market quotations are not readily available,
securities will be valued at their fair values as determined in good faith by
the Funds' board of directors or pursuant to procedures approved by the board of
directors. London closing quotes for exchange rates are used to convert foreign
security values into U.S. dollars. Short-term securities, with maturities of
less than 60 days, and all securities held by the Money Market Fund are valued
at amortized cost, which approximates market.
FOREIGN SECURITIES--Foreign securities may carry more risk than U.S.
securities; such as currency fluctuations, political stability, economic
stability and regulatory capabilities. All of the Funds may invest at least a
portion of their assets in foreign securities. In the event that a Fund executes
a foreign security transaction, the Fund will enter into a foreign currency
contract to settle the foreign security transaction. The resultant foreign
currency gain or loss from the contract is recorded as foreign currency gain or
loss and is presented as such in the Statements of Operations. Foreign currency
held at December 31, 1996 for settling foreign trades is listed on the
Statements of Assets and Liabilities.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Funds to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies, and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. Each Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded as soon as the Fund
is informed of the dividend if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and amortization of premiums.
DISTRIBUTIONS TO SHAREHOLDERS--For Government Securities and Money Market
Funds, distributions are declared daily and paid monthly from net investment
income, and capital gains (if any) are distributed annually. For Balanced Fund,
distributions from income are declared and distributed quarterly and capital
gains (if any) are distributed annually. All other Funds declare and distribute
dividends and capital gains (if any) annually. All distributions are recorded on
the ex-dividend date.
EXPENSES--Each of the Funds bears expenses incurred specifically on its behalf
and, in addition, each Fund bears a portion of general expenses based on the
relative net assets, or accounts of each Fund. The type of expense determines
the allocation method.
OPTIONS--Premiums received by the Funds upon writing call options are recorded
as an asset with a corresponding liability which is subsequently adjusted to the
current market value of the option. When an option expires, is exercised, or is
closed, the Funds realize a gain or loss, and the liability is eliminated. The
Funds continue to bear the risk of adverse movements in the price of the
underlying asset during the period of the option, although any potential loss
during the period would be reduced by the amount of the option premium received.
The underlying securities are restricted from sale until the
68
<PAGE>
option is exercised or expires, and are footnoted as such in the Schedules of
Investments.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
OTHER--Security transactions are recorded on the date the securities are
purchased or sold (trade date).
2. MANAGEMENT FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
In accordance with the investment advisory agreements between the Funds and
Founders Asset Management, Inc. ("FAMI"), the Funds compensate FAMI for its
services as investment adviser by the payment of fees computed daily and paid
monthly at the annual rate equal to a percentage of the average daily value of
each Fund's net assets. For Discovery, Frontier, Passport, International Equity
and Worldwide Growth Funds, the fee is 1% of the first $250 million of net
assets, 0.80% of the next $250 million of net assets, and 0.70% of net assets in
excess of $500 million. For Special and Growth Funds, the fee is 1% of the first
$30 million of net assets, 0.75% of the next $270 million of net assets, 0.70%
of the next $200 million of net assets and 0.65% of net assets in excess of $500
million. For Blue Chip and Balanced Funds, the fee is 0.65% of the first $250
million of net assets, 0.60% of the next $250 million of net assets, 0.55% of
the next $250 of net assets and 0.50% of net assets in excess of $750 million.
For Money Market Fund, the fee is 0.50% of the first $250 million of net assets,
0.45% of the next $250 million of net assets, 0.40% of the next $250 million of
net assets, and 0.35% of the net assets in excess of $750 million. For
Government Securities Fund, the fee is 0.65% of the first $250 million of net
assets, and 0.50% of the net assets in excess of $250 million.
At this time, FAMI has committed to limit International Equity Fund's expenses
to 2.00% of average net assets. For the year ended December 31, 1996, $35,790
was reimbursed to the Fund.
Investors Fiduciary Trust Company ("IFTC") is the designated shareholder
accounting, transfer and dividend disbursing agent for each Fund. With the
exception of out of pocket charges, the fees charged by IFTC are paid by FAMI.
The out of pocket charges from IFTC are paid by the Funds. IFTC also serves as
custodian for the Funds. The fees for the custody services are subject to
reduction by credits earned on the cash balances of each Fund held
at IFTC.
The Funds have agreed to compensate FAMI for providing certain shareholder
servicing functions in addition to those currently provided by IFTC. The Funds
paid FAMI a monthly fee equal on an annual basis to $25.00 per shareholder
account considered to be an open account at any time during a given month.
Effective June 1, 1996, the annual fee for providing these services was changed
to $24.00.
The Funds have also agreed to compensate FAMI for providing accounting
services, administration, compliance monitoring, regulatory and shareholder
reporting, as well as facilities, equipment and clerical help as shall be
necessary to provide these services to the Funds. The fee is computed at the
annual rate of 0.06% of the average daily net assets of the Funds up to $500
million and 0.02% of the average daily net assets of the Funds in excess of $500
million.
Discovery, Frontier, Passport, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced and Government Securities Funds each has
adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940. Each plan provides that the Fund may pay distribution expenses of
up to 0.25% each year on its average daily net assets. During the year, Founders
elected not to collect the full 0.25% from Government Securities Fund, which
resulted in the Fund paying 0.05% under the plan.
Certain officers, directors, and shareholders of the Funds are also officers
and/or directors of FAMI.
69
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. OTHER
A complaint was filed in the U.S. District Court in Colorado in October 1995 by
Plaintiff William O. Foster, designating the Funds and Bjorn K. Borgen,
President and a Director of the Funds, as Defendants. The complaint principally
alleged that the Defendants breached an alleged oral compensation agreement,
thereby damaging the Plaintiff. The Defendants deny that the alleged oral
agreement existed and deny any wrongdoing. In January 1996 the Defendants moved
to dismiss the action for failure to state a claim or, in the alternative, to
stay the action pending arbitration. On November 11, 1996, the Court entered an
order dismissing the action in its entirety for failure to state a claim. On
December 11, 1996, the Plaintiff filed a notice of appeal from the order of
dismissal. The Defendants continue to believe that the suit is entirely without
merit, and will continue to vigorously defend the case on appeal. To date all
litigation costs and expenses relating to this matter have been paid by FAMI.
4. WRITTEN CALL OPTIONS
During 1996, Balanced and Blue Chip wrote covered call options. A call option is
a contract that entitles the holder to buy, at his or her option, a specified
number of units of a particular security at a specified price at any time until
the stated expiration date of the contract.
Written Call Options activity during 1996:
<TABLE>
<CAPTION>
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
BEGINNING OF PERIOD WRITTEN CLOSED END OF PERIOD
------------------- ------------------- ------------------- ------------------- REALIZED
FUND NUMBER PREMIUM NUMBER PREMIUM NUMBER PREMIUM NUMBER PREMIUM GAIN/(LOSS)
- -------------- ------- -------- ------ -------- ------ -------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Fund 0 $0 834 $387,842 226 $625,116 608 $283,998 ($521,272)
Balanced Fund 0 $0 164 111,891 126 348,516 38 53,996 (290,621)
</TABLE>
Written Call Options open at December 31, 1996:
<TABLE>
<CAPTION>
NO. OF EXERCISE EXP. VALUE AT
FUND ISSUER CONTRACTS PREMIUM PRICE DATE 12/31/96
- --------------- ------------ ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip Fund IBM 540 $187,374 $ 135 01/20/97 ($918,000)
Wells Fargo 68 96,625 $ 260 01/20/97 (88,400)
--- -------- ----------
608 $283,999 ($1,006,400)
Balanced Fund Wells Fargo 38 $ 53,996 $ 260 01/20/97 ($49,400)
</TABLE>
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<PAGE>
5. FEDERAL INCOME TAX
Net investment income distributions and capital gains distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards. Permanent
items identified in the period ended December 31, 1996 have been reclassified
among the components of net assets as follows:
<TABLE>
<CAPTION>
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT NET REALIZED PAID-IN
INCOME GAINS AND LOSSES CAPITAL
-------------- ---------------- ---------
<S> <C> <C> <C>
Discovery Fund...................... $2,061,999 $(2,061,999) $ 0
Frontier Fund....................... 1,640,985 45,046 (1,686,031)
Passport Fund....................... (227,233) 227,233 0
Special Fund........................ 994,371 (994,371) 0
International Equity Fund........... 8,346 (8,346) 0
Worldwide Growth Fund............... (446,405) 446,405 0
Growth Fund......................... (70,058) 70,058 0
Blue Chip Fund...................... (159,377) 159,377 0
Balanced Fund....................... (100,789) 100,789 0
Government Securities Fund.......... 333 0 (333)
Money Market Fund................... 13,076 0 (13,076)
</TABLE>
Net capital loss carryovers and post-October 31 capital losses noted below, if
any, as of December 31, 1996, are available to offset future realized capital
gains and thereby reduce future taxable gains distributions. Post-October 31
foreign currency losses noted below, if any, will offset future net investment
income and thereby reduce future ordinary income distributions. The capital loss
carryover for the Government Securities Fund expires in the years 2002 through
2004. The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
POST- POST-
NET OCTOBER OCTOBER
CAPITAL CAPITAL CURRENCY FEDERAL NET
LOSS LOSS LOSS TAX UNREALIZED UNREALIZED APPRECIATION/
CARRYOVERS DEFERRAL DEFERRAL COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
---------- ------- -------- -------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Discovery Fund....................... $ 0 $ 0 $ 0 $201,754 $ 63,957 $(14,297) $ 49,660
Frontier Fund........................ 0 0 0 348,848 87,722 (6,341) 81,381
Passport Fund........................ 0 0 (33) 453,849 24,385 (4,752) 19,633
Special Fund......................... 0 0 (49) 317,396 56,695 (6,673) 50,022
International Equity Fund............ 0 0 (2) 9,806 1,249 (260) 989
Worldwide Growth Fund................ 0 (1,591) (41) 762,799 63,408 (6,671) 56,737
Growth Fund.......................... 0 0 (7) 876,237 155,917 (15,694) 140,223
Blue Chip Fund....................... 0 0 (15) 500,695 54,792 (3,794) 50,998
Balanced Fund........................ 0 0 (31) 497,411 22,504 (4,855) 17,649
Government Securities Fund........... (3,322) 0 0 15,328 95 (34) 61
Money Market Fund.................... 0 0 0 107,323 0 0 0
</TABLE>
71
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FUND SHARE TRANSACTIONS
Transactions in shares of the Funds for the periods indicated were as follows
(in thousands):
<TABLE>
<CAPTION>
REINVESTED NET INCREASE
SOLD DISTRIBUTIONS REDEEMED (DECREASE)
<S> <C> <C> <C> <C>
Discovery Fund:
Year ended 12/31/96 ................. 9,601 767 (10,129) 239
Year ended 12/31/95 ................. 4,806 1,505 (5,654) 657
Frontier Fund:
Year ended 12/31/96 ................. 3,958 968 (4,748) 178
Year ended 12/31/95 ................. 4,248 1,490 (4,390) 1,348
Passport Fund:
Year ended 12/31/96 ................. 16,459 98 (8,046) 8,511
Year ended 12/31/95 ................. 4,155 13 (1,641) 2,527
Special Fund:
Year ended 12/31/96 ................. 15,920 2,631 (26,226) (7,675)
Year ended 12/31/95 ................. 24,417 10,369 (22,286) 12,500
International Equity Fund:
Year ended 12/31/96 ................. 1,051 0 (275) 776
From 12/29/95 (inception) to
12/31/95 .......................... 77 0 0 77
Worldwide Growth Fund:
Year ended 12/31/96 ................. 10,382 537 (6,721) 4,198
Year ended 12/31/95 ................. 9,895 380 (4,861) 5,414
Growth Fund:
Year ended 12/31/96 ................. 52,751 4,809 (31,481) 26,079
Year ended 12/31/95 ................. 25,006 5,259 (12,349) 17,916
Blue Chip Fund:
Year ended 12/31/96 ................. 27,721 8,894 (18,585) 18,030
Year ended 12/31/95 ................. 5,812 8,049 (8,330) 5,531
Balanced Fund:
Year ended 12/31/96 ................. 30,655 2,148 (9,216) 23,587
Year ended 12/31/95 ................. 5,141 1,684 (4,344) 2,481
Government Securities Fund:
Year ended 12/31/96 ................. 1,885 91 (2,478) (502)
Year ended 12/31/95 ................. 2,424 108 (2,779) (247)
Money Market Fund:
Year ended 12/31/96 ................. 440,366 6,354 (462,525) (15,805)
Year ended 12/31/95 ................. 293,433 6,647 (375,802) (75,722)
</TABLE>
72
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Founders Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the portfolios constituting
Founders Funds, Inc. (the "Fund") at December 31, 1996, the results of each of
their operations, the changes in each of their net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and the application of alternative auditing procedures for unsettled
security transactions, provide a reasonable basis for the opinion expressed
above. The financial statements of the Fund for the year ended December 31, 1995
were audited by other independent accountants whose report dated January 26,
1996 expressed an unqualified opinion on those statements.
PRICE WATERHOUSE LLP
Denver, Colorado
January 31, 1997
73
<PAGE>
CORPORATE DIVIDENDS-RECEIVED DEDUCTION (UNAUDITED)
Dividends paid by the Funds from net investment income and distributions of net
realized short term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. Of the ordinary income distributions
declared for the period ended December 31, 1996, the following amounts qualified
for the dividend received deduction available to the Funds' corporate
shareholders:
Discovery............................ 0.38%
Frontier............................. 3.45%
Passport............................. 0.00%
Special.............................. 14.54%
International Equity................. 0.00%
Worldwide Growth..................... 4.69%
Growth............................... 17.03%
Blue Chip............................ 11.15%
Balanced............................. 16.23%
74
<PAGE>
Founders Funds [Logo]
Founders Asset Management, Inc.
2930 East Third Avenue
Denver, CO 80206-5002
1-800-525-2440
DIRECTORS
John K. Langum, Chairman
William H. Baughn
Bjorn K. Borgen
Alan S. Danson
Trygve Myhren
Jay A. Precourt
Eugene H. Vaughan, Jr.
Jonathan F. Zeschin
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus for Founders Funds, Inc., which
contains more complete information, including management fees and expenses.
Please read the prospectus carefully before you invest or send money.
(c)1997 Founders Asset Management, Inc., Distributor. Founders Funds is a
registered trademark of Founders Asset Management, Inc.
Date of first use: February 28, 1997
A-470-AR
