FOUNDERS FUNDS INC, 497, 1997-07-17

FOUNDERS FUNDS INC
497, 1997-07-17

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PROSPECTUS
May 1, 1997

as supplemented through July 10, 1997

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

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

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

FIXED-INCOME FUND
Founders Government Securities Fund

MONEY MARKET FUND
Founders Money Market Fund

[LOGO]
Founders Funds
Growth. Plain and Simple.

<PAGE>

FOUNDERS FUNDS, INC.

PROSPECTUS
May 1, 1997

as supplemented through July 10, 1997

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

CAPITAL APPRECIATION LONG-TERM GROWTH OF CAPITAL

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

<PAGE>

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

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

WELCOME TO FOUNDERS ....................................................... 6
Investment Objectives and Risks ....................................... 6

THE FUNDS AND THEIR MANAGEMENT ............................................ 7
Founders' Investment Philosophy ....................................... 7
Founders' Investment Management Team .................................. 8
Founders' Fund Offerings .............................................. 9
Discovery Fund ........................................................ 10
Passport Fund ......................................................... 12
Frontier Fund ......................................................... 14
Special Fund .......................................................... 16
International Equity Fund ............................................. 18
Worldwide Growth Fund ................................................. 20
Growth Fund ........................................................... 22
Blue Chip Fund ........................................................ 24
Balanced Fund ......................................................... 26
Government Securities Fund ............................................ 28
Money Market Fund ..................................................... 30

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

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

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

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

4 Founders Funds Prospectus
<PAGE>

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

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

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

[Graphic: BY PHONE
Telephone]
Toll-free Investor Services 1-800-525-2440
Monday through Friday, 7 a.m. to 6:30 p.m., Mountain time
Saturday, 9 a.m. to 2 p.m., Mountain time
[Graphic: BY MAIL
Mailbox]
Founders Asset Management, Inc.
P.O. Box 173655
Denver, CO 80217-3655

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

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

[Graphic: ON THE WORLD WIDE WEB
Person at
computer Founders InvestorSITE at www.founders.com
terminal]
[Graphic: IN PERSON
Two hands
shaking]
Visit Founders' Investor Center in Denver,
Monday-Friday, 8 a.m.-5 p.m., Mountain time.
Founders Financial Center
2930 East Third Avenue (at Milwaukee)
Denver, CO 80206
For directions, call 1-800-525-2440.

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

<PAGE>

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

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

INVESTMENT OBJECTIVES AND RISKS

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

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

6 Founders Funds Prospectus

<PAGE>

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

FOUNDERS' INVESTMENT PHILOSOPHY

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

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

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

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

<PAGE>

FOUNDERS' INVESTMENT MANAGEMENT TEAM

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

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

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

8 Founders Funds Prospectus

<PAGE>

FOUNDERS' FUND OFFERINGS

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS. ACTUAL FUND
EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN
THOSE SHOWN BELOW LEFT.

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

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

<TABLE>
<CAPTION>
Years Ended December 31* 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $21.70 $19.88 $21.55 $19.93 $17.52 $11.22 $10.00
-------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (0.20) (0.12) (0.12) (0.15) (0.03) (0.04) 0.10
Net Gains or Losses on
Securities (Both Realized
and Unrealized) 4.72 6.29 (1.55) 2.29 2.68 7.02 1.22
-------------------------------------------------------------------------
Total From Investment
Operations 4.52 6.17 (1.67) 2.14 2.65 6.98 1.32
-------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (From Net Investment Income) 0.00 0.00 0.00 0.00 0.00 0.00 (0.10)
Distributions (From Capital Gains) (2.00) (4.35) 0.00 (0.52) (0.24) (0.68) 0.00
-------------------------------------------------------------------------
Total Distributions (2.00) (4.35) 0.00 (0.52) (0.24) (0.68) (0.10)
-------------------------------------------------------------------------
Net Asset Value --
End of Period $24.22 $21.70 $19.88 $21.55 $19.93 $17.52 $11.22
=========================================================================

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

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

<FN>
* No activity in inception year of 1989

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

10 11

<PAGE>

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

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

PORTFOLIO MANAGER
Michael W. Gerding, VICE PRESIDENT OF INVESTMENTS. Mr. Gerding is a Chartered
Financial Analyst who has been part of Founders' investment department since
1990. Mr. Gerding has served as the lead portfolio manager for Founders
Worldwide Growth Fund since 1990 and for Founders Passport Fund since its
inception in 1993. He also has served as portfolio manager or co-portfolio
manager for Founders International Equity Fund from 1996 until July 1997. Prior
to joining Founders, he served as a portfolio manager and research analyst with
NCNB Texas for several years. Mr. Gerding earned a BBA in finance and an MBA
from Texas Christian University.

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

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

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

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

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

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

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

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

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

<FN>
* Annualized

12 13

<PAGE>

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

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

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

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

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

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

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

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

FINANCIAL HIGHLIGHTS

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

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

<TABLE>
<CAPTION>
Period of 1/22/87
(inception) -
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $31.08 $26.50 $27.94 $25.03 $24.21 $16.87 $18.49 $13.45 $11.03 $10.00
--------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (0.15) (0.02) (0.07) (0.12) (0.11) 0.01 0.15 0.12 (0.06) (0.09)
Net Gains or Losses on
Securities (Both Realized and 4.46 9.76 (0.72) 4.23 2.24 8.27 (1.53) 5.81 3.26 1.70
Unrealized)
--------------------------------------------------------------------------------------------
Total From Investment
Operations 4.31 9.74 (0.79) 4.11 2.13 8.28 (1.38) 5.93 3.20 1.61
--------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (From Net 0.00 0.00 0.00 0.00 0.00 (0.01) (0.16) (0.05) 0.00 0.00
Investment Income)

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

TOTAL RETURN 14.3% 37.0% (2.8%) 16.5% 8.9% 49.3% (7.5%) 44.3% 29.2% 16.1%

RATIOS/SUPPLEMENTAL
DATA
Net Assets--End of Period $350,861 $331,720 $247,113 $254,248 $146,484$103,209 $39,269 $50,318 $8,771 $3,318
(000s Omitted)

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

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

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

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

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

14 15

<PAGE>

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

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

PORTFOLIO MANAGERS
Michael K. Haines, SENIOR VICE PRESIDENT OF INVESTMENTS. Mr. Haines has
been with Founders since 1985, serving as an assistant portfolio manager, and as
lead portfolio manager for Founders Frontier Fund since 1990. He also has
served as the co-lead portfolio manager of Founders Special Fund since May 1997,
after having previously served in that capacity from July to December 1996.
Mr. Haines served as the portfolio or co-portfolio manager of Founders
Discovery Fund from 1989 until July 1995. A graduate of The Colorado College,
Mr. Haines received an MBA from the University of Denver.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

16 17

<PAGE>

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

INTERNATIONAL EQUITY FUND normally invests at least 65% of its total assets in
foreign equity securities from a minimum of three countries outside of the
United States. The Fund will not invest more than 50% of its assets in the
securities of any one foreign country. Normally, the Fund will invest in
companies from countries around the world, except the United States, including
companies in both established and emerging economies. For more information on
the Fund's investment techniques and their related risks, see "Investment
Policies and Risks."

PORTFOLIO MANAGERS

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

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

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

(2) CERTAIN EXPENSES OF THE FUND ARE BEING REIMBURSED VOLUNTARILY BY FOUNDERS.
IN THE ABSENCE OF THIS EXPENSE LIMITATION, "OTHER EXPENSES" AND "TOTAL FUND
OPERATING EXPENSES" IN THE ABOVE TABLE WOULD HAVE BEEN 1.27% AND 2.52%,
RESPECTIVELY, OF THE FUND'S AVERAGE NET ASSETS BASED ON ITS ACTUAL EXPENSES FOR
THE YEAR ENDED DECEMBER 31, 1996. EFFECTIVE JULY 1, 1997, FOUNDERS IS
VOLUNTARILY REIMBURSING CERTAIN EXPENSES OF THE FUND TO THE EXTENT THEY EXCEED
1.80% OF THE FUND'S AVERAGE NET ASSETS. SINCE FOUNDERS REIMBURSED EXPENSES IN
EXCESS OF 2.00% OF THE FUND'S AVERAGE NET ASSETS DURING THE FIRST SIX MONTHS OF
1997, THE FUND'S TOTAL OPERATING EXPENSES FOR THE FISCAL YEAR ENDING DECEMBER
31, 1997 ARE EXPECTED TO BE APPROXIMATELY 1.90% OF THE FUND'S AVERAGE NET
ASSETS, AFTER SUCH REIMBURSEMENTS.

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

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

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

TOTAL RETURN 18.6%

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

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

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

Portfolio Turnover Rate 71%

Average Commission Rate Paid $0.0189

<FN>
* No activity in inception year of 1995

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

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

18 19

<PAGE>

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

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

PORTFOLIO MANAGER
Michael W. Gerding, VICE PRESIDENT OF INVESTMENTS. Mr. Gerding is a Chartered
Financial Analyst who has been part of Founders' investment department since
1990. Mr. Gerding has served as the lead portfolio manager for Founders
Worldwide Growth Fund since 1990 and for Founders Passport Funds since its
inception in 1993. He also served as portfolio manager or co-portfolio manager
for Founders International Equity Fund from 1996 until July 1997. Prior to
joining Founders, he served as a portfolio manager and research analyst with
NCNB Texas for several years. Mr. Gerding earned a BBA in finance and an MBA
from Texas Christian University.

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

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

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

(1) LONG-TERM SHAREHOLDERS MAY, OVER TIME, INDIRECTLY PAY MORE IN 12B-1 FEES
THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED BY
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES AND "GENERAL INFORMATION -
FOUNDERS' SERVICES TO THE FUNDS."

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

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

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

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

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

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

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

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

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

<FN>
* No activity in inception year of 1989

20 21

<PAGE>

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

GROWTH FUND normally invests at least 65% of its total assets in common stocks
of well-established, high-quality growth companies. These companies tend to have
strong performance records, solid market positions and reasonable financial
strength, and have continuous operating records of three years or more. The Fund
may also invest up to 30% of its total assets in foreign securities, with no
more than 25% invested in any one foreign country. For more information on the
Fund's investment techniques and their related risks, see "Investment Policies
and Risks."

PORTFOLIO MANAGER
Edward F. Keely, VICE PRESIDENT OF INVESTMENTS. Mr. Keely is a Chartered
Financial Analyst who joined Founders in 1989 and assumed lead portfolio manager
responsibilities for Founders Growth Fund in 1994. From 1992 to 1993, he served
as assistant portfolio manager of Founders Discovery and Frontier Funds. A
graduate of The Colorado College, Mr. Keely holds a bachelor of arts degree in
economics.

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

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

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

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

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

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

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

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

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

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

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

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

<FN>
* Annualized

22 23

<PAGE>

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

BLUE CHIP FUND, a large-capitalization fund, normally invests primarily in
common stocks of large, well-established, stable and mature companies of great
financial strength, commonly known as "blue chip" companies. These companies
generally have long records of profitability and dividend payments and a
reputation for quality management, products, and services.

The Fund normally invests at least 65% of its total assets in "blue chip"
stocks that:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<FN>
* Annualized

24 25

<PAGE>

FOUNDERS BALANCED FUND
- --------------------------------------------------------------------------------
[Graphic: Scale]
INVESTMENT OBJECTIVE
Current income and capital appreciation
BALANCED FUND normally invests in a balanced portfolio of common stocks, U.S.
and foreign government securities, and a variety of corporate fixed-income
obligations.
For the equity portion of its portfolio, the Fund emphasizes investments in
common stocks with the potential for capital appreciation. These stocks
generally pay regular dividends, although the Fund also may invest in
non-dividend-paying companies if, in our opinion, they offer better prospects
for capital appreciation. Normally, the Fund will invest a significant
percentage (up to 75%) of its total assets in equity securities.
The Fund will maintain a minimum of 25% of its total assets in fixed-income,
investment-grade securities rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB or higher by Standard & Poor's ("S&P"). There is no
maximum limit on the amount of straight debt securities in which the Fund may
invest, and the Fund may invest up to 100% of its assets in such securities for
temporary defensive purposes. Securities rated Baa or BBB are considered by
these services to be of low investment grade. Up to 5% of the Fund's total
assets may be invested in lower-grade (Ba or less by Moody's, BB or less by S&P)
or unrated straight debt securities where we determine that such securities
present attractive opportunities. The Fund will not invest in securities rated
lower than B.
The Fund also may invest up to 30% of its total assets in foreign
securities, with no more than 25% of its total assets invested in the securities
of any one foreign country. For more information on the Fund's investment
techniques and their related risks, see "Investment Policies and Risks."

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

** Annualized

26 27

<PAGE>

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

GOVERNMENT SECURITIES

FUND normally invests at least 65% of its total assets in obligations of the
U.S. government, such as Treasury bills, notes, and bonds and Government
National Mortgage Association (GNMA) pass-through securities, which are
supported by the full faith and credit of the U.S. Treasury.
Additionally, the Fund may invest in obligations of other agencies and
instrumentalities of the U.S. government and may invest in securities issued by
foreign governments and/or their agencies. However, the Fund will not invest
more than 25% of its total assets in the securities of any one foreign country.
The maturity of the Fund's investments will be long (10 or more years),
intermediate (three to 10 years), or short (three years or less). The proportion
invested by the Fund in each category can be expected to vary depending upon our
evaluation of market patterns and trends. For more information on the Fund's
investment techniques and their related risks, see "Investment Policies and
Risks."

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

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

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

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

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

<TABLE>
<CAPTION>
Period of 3/1/88
(inception) -
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 12/31/88
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $9.29 $8.78 $10.02 $10.19 $10.48 $9.85 $10.13 $9.68 $10.00
-------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 3.20 0.45 0.52 0.46 0.51 0.60 0.69 0.78 0.64

Net Gains or Losses on
Securities (Both Realized
and unrealized) (2.99) 0.51 (1.26) 0.47 0.03 0.81 (0.28) 0.46 (0.32)
-------------------------------------------------------------------------------
Total From Investment
Operations 0.21 0.96 (0.74) 0.93 0.54 1.41 0.41 1.24 0.32
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (From Net
Investment Income) (0.46) (0.45) (0.50) (0.46) (0.51) (0.60) (0.69) (0.79) (0.64)

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

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

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

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

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

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

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

<FN>
+ Annualized

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

* In the absence of voluntary expense reimbursements and waivers from Founders,
the Net Expenses to Average Net Assets would have been 1.46% (1996), 1.45%
(1995), 1.51% (1994), 1.37% (1993), 1.43% (1992), 1.42% (1991), 1.53% (1990),
1.48% (1989) and 1.33% (1988), the Gross Expenses to Average Net Assets would
have been 1.49% (1996), and the Net Investment Income Ratios would have
been 5.26% (1996), 4.77% (1995), 5.35% (1994), 4.14% (1993), 4.58% (1992),
5.59% (1991), 6.65% (1990), 7.07% (1989) and 6.60% (1988).
</FN>
</TABLE>

28 29

<PAGE>

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

MONEY MARKET FUND invests in high-quality money market instruments with minimal
credit risks which mature in 12 months or less. The Fund also may invest in
certain foreign securities. Although no assurances can be provided, the Fund
will use its best efforts, under normal circumstances, to maintain a constant
net asset value of $1.00 per share. The Fund declares dividends daily. For more
information on the Fund's investment techniques and their related risks, see
"Investment Policies and Risks."

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

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

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

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
Period of
6/1/87 - Year Ended
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87 5/31/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income 0.05 0.05 0.03 0.02 0.03 0.05 0.07 0.08 0.07 0.04 0.05

Net Gains or Losses
on Securities (Both
Realized and
Unrealized) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------------------------------------------------------
Total From
Investment
Operations 0.05 0.05 0.03 0.02 0.03 0.05 0.07 0.08 0.07 0.04 0.05
-------------------------------------------------------------------------------------------------------------
LESS
DISTRIBUTIONS
Dividends (From Net
Investment Income) (0.05) (0.05) (0.03) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (0.04) (0.05)

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

TOTAL RETURN 4.5% 5.1% 3.4% 2.2% 2.8% 5.1% 7.3% 8.1% 6.9% 4.0% 5.6%

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

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

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

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

<FN>
+ Annualized

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

30 31

<PAGE>

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

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

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

Money Market Fund's foreign investments are limited to dollar-denominated
obligations of foreign depository institutions or their U.S. branches, or
foreign branches of U.S. depository institutions. The Government Securities
Fund's foreign investments are limited to securities issued by foreign
governments and/or their agencies. Foreign investments of Money Market and
Government Securities Funds will be limited primarily to securities of issuers
from the major industrialized nations.

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

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

<PAGE>

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

o MARKET RISK. Foreign markets have substantially less volume than U.S.
markets, and are not generally as liquid as, and may be more volatile than,
those in the United States. Brokerage commissions and other transaction
costs are generally higher than in the United States, and settlement
periods are longer.

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

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

In addition, Passport, Worldwide Growth, and International Equity Funds may
invest in securities issued by companies located in countries not considered to
be major industrialized nations. Such countries are subject to more economic,
political and business risk than major industrialized nations, and the
securities issued by companies located there are expected to be more volatile,
less liquid and more uncertain as to payments of dividends, interest and
principal. Passport, Worldwide Growth, and International Equity Funds also may
include securities created through the Brady Plan, a program under which heavily
indebted countries have restructured their bank debt into bonds.

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

For more information, see the Statement of Additional Information.

<PAGE>

FOREIGN CURRENCY TRANSACTIONS. All of the Funds except the Money Market Fund may
use forward foreign currency contracts ("forward contracts") in connection
with the purchase or sale of a specific security. A forward contract is an
agreement between contracting parties to exchange an amount of currency at some
future time at an agreed upon rate. The Funds may conduct their foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign exchange currency market, or on a forward basis to "lock in"
the U.S. dollar price of the security.

By entering into a forward contract for the purchase or sale, for a fixed
U.S. dollar amount, of the amount of foreign currency involved in the underlying
transactions, we attempt to protect the Funds against losses due to adverse
exchange rate fluctuations during the period between the trade date and the date
on which such payments are made or received.

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

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

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

The Equity Funds may purchase convertible securities and preferred stocks
rated in medium and lower categories by Moody's or S&P (Ba or lower by Moody's
and BB or lower by S&P), but none rated lower than B. Securities rated B
generally are less desirable investments and are deemed speculative as far as
the issuer's capacity to pay interest and repay principal over a long period of
time. The Equity Funds also may invest in unrated convertible securities and
preferred stocks if we believe they are equivalent in quality to the rated
securities that the Funds may buy.

<PAGE>

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

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

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

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

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

Each of the Funds except the Money Market Fund may invest up to 15% of the
market value of its net assets, measured at the time of purchase, in securities
that are not readily marketable, including repurchase agreements maturing in
more than seven days. Money Market Fund may enter into repurchase agreements if,
as a result thereof, no more than 10% of the market value of its net assets
would be subject to repurchase agreements maturing in more than seven days.
Securities that are not readily

<PAGE>

marketable are those that, for whatever reason, cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which the applicable Fund has valued the investment.

Investments in illiquid securities, which may include restricted securities,
involve certain risks to the extent that a Fund may be unable to dispose of such
a security at the time desired or at a reasonable price. In addition, in order
to resell a restricted security, a Fund might have to bear the expense and incur
the delays associated with effecting registration.

For more information, see the Statement of Additional Information.

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

OTHER INVESTMENTS.

MONEY MARKET AND GOVERNMENT SECURITIES FUNDS. Money Market Fund invests in
U.S. government obligations, commercial paper, bank obligations, repurchase
agreements, and negotiable U.S. dollar-denominated obligations of domestic and
foreign branches of U.S. depository institutions, U.S. branches of foreign
depository institutions, and foreign depository institutions. Government
Securities Fund invests at least 65% of its total assets in U.S. government
obligations and may also acquire the other types of securities and repurchase
agreements in which Money Market Fund may invest.

TEMPORARY INVESTMENTS. Up to 100% of the assets of the Equity Funds may be
invested temporarily in the above securities, in cash, or in other cash
equivalents, if we determine it is appropriate for purposes of enhancing
liquidity or preserving capital in light of adverse market or economic
conditions. While a Fund is in a defensive position, its opportunity to achieve
capital growth will be limited and, to the extent that this assessment of market
conditions is incorrect, the Fund will be foregoing the opportunity to benefit
from capital growth resulting from increases in the value of equity investments.

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

<PAGE>

Association (GNMA) pass-through securities; and issues of U.S. agencies,
authorities, and instrumentalities. Obligations of other agencies and
instrumentalities of the U.S. government include securities issued by the
Federal Farm Credit Bank System (FFCB), the Federal Agricultural Mortgage
Corporation ("Farmer Mac"), the Federal Home Loan Bank System (FHLB), the
Financing Corporation (FICO), Federal Home Loan Mortgage Corporation (FHLMC),
the Federal National Mortgage Association (FNMA), the Student Loan Marketing
Association (SLMA), and the U.S. Small Business Administration (SBA). Some
government obligations, such as GNMA pass-through certificates, are supported by
the full faith and credit of the United States Treasury. Other obligations, such
as securities of the FHLB, are supported by the right of the issuer to borrow
from the United States Treasury; and others, such as bonds issued by FNMA (a
private corporation), are supported only by the credit of the agency, authority
or instrumentality. The Fund also may invest in obligations issued by the
International Bank for Reconstruction and Development (IBRD or "World Bank").
Mortgage-related securities, which are interests in pools of mortgage loans made
to home buyers, pose the risk that borrowers may prepay their mortgages faster
than expected, which may adversely affect the instruments' average life and
yield. For more information on the mortgage-related securities in which the
Funds may invest, including GNMA, FNMA, FHLMC and other mortgage pass-through
securities and collateralized mortgage obligations, see the Statement of
Additional Information.

COMMERCIAL PAPER AND OTHER CASH SECURITIES. Commercial paper purchased by
Money Market Fund must be rated by at least two nationally recognized
statistical rating organizations (NRSROs), or by the only NRSRO that has rated
the security, in the highest short-term rating category, or comparable unrated
securities. For a list of NRSROs and a description of their ratings, see the
Statement of Additional Information.

A Fund may also acquire certificates of deposit and bankers' acceptances of
banks which meet criteria established by the Funds' board of directors. A
certificate of deposit is a short-term obligation of a bank. A banker's
acceptance is a time draft drawn by a borrower on a bank, usually relating to an
international commercial transaction.

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

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

<PAGE>

Investment Company Act of 1940 (the 1940 Act). The Funds may enter into
repurchase agreements with banks or well-established securities dealers meeting
criteria established by the Funds' board of directors. All repurchase agreements
entered into by the Funds will be fully collateralized and marked to market
daily. In the event of default by the seller under a repurchase agreement, the
Fund may experience difficulties in exercising its rights to the underlying
security and may incur costs in connection with the disposition of that
security. None of the Funds has adopted any limits on the amounts of their total
assets that may be invested in repurchase agreements which mature in less than
seven days. See "Investment Policies and Risks--Rule 144A and Illiquid
Securities" for each Fund's limit on investments in illiquid securities and in
repurchase agreements which mature in more than seven days.

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

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

<PAGE>

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

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

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

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

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

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

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

o Board of directors
o Custodian bank
o Legal counsel
o Independent accountants
o Fund accounting agent
o Transfer and shareholder servicing agents
o Registration of shares under applicable laws
o Reports to shareholders

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

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

<PAGE>

liabilities) by the number of outstanding Fund shares.

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

DIVIDENDS AND DISTRIBUTIONS
Discovery, Passport, Frontier, Special, International Equity, Worldwide Growth,
Growth, and Blue Chip Funds intend to distribute net realized investment income
each December. Balanced Fund intends to distribute net realized investment
income on a quarterly basis every March, June, September, and December.
Government Securities Fund intends to declare dividends daily and distribute net
realized investment income monthly. Money Market Fund declares dividends daily,
which are paid on the first business day of every month. All Funds intend to
distribute any net realized capital gains, after utilization of capital loss
carryforwards, each December. Shares of Government Securities and Money Market
Funds begin receiving dividends no later than the next business day following
the day when funds are received by us. From time to time, the Funds may make
distributions in addition to those described above.

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

<PAGE>

and capital gain distributions must be reinvested in your account.

TAXES
Each of the Funds intends to qualify annually as a regulated investment company.
Generally, regulated investment companies are relieved of federal income tax on
the net investment income and net capital gains that they earn and distribute to
their shareholders. As described below, unless your account is not subject to
income taxes, you must include all dividends and capital gain distributions in
taxable income for federal, state and local income tax purposes. Dividends and
other distributions are taxable whether they are received in cash or reinvested
in the same or another Fund.

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

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

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

At the end of each calendar year, we send full information on dividends and
capital gain distributions, including information as to the portion taxable as
ordinary income and long-term capital gains. Information concerning the amount
of dividends eligible for the dividends-received deduction available for
corporations is contained in the Funds' annual report or may be obtained upon
request by calling us.

You also may realize capital gains or losses when you sell Fund shares at
more or less than the price you originally paid. Likewise, exchanges from one
Fund to another represent a sale from one Fund and a purchase of another, and
may result in a gain or loss that you will need to recognize on your tax return.
Foreign shareholders may be subject to federal income tax rules that differ from
those described above.

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

<PAGE>

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

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

FOUNDERS' SERVICES TO THE FUNDS

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

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

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

INVESTMENT ADVISORY SERVICES. Founders, which has acted as an investment
adviser since 1938, manages the investment of each Fund's assets and provides
certain related administrative services to each Fund. For these services, each
Fund pays Founders an investment advisory fee which, during the most recent
fiscal year, represented the following percentages of each Fund's average daily
net assets:

Discovery Fund 0.99%
Passport Fund 1.00%
Frontier Fund 0.94%
Special Fund 0.76%
International Equity Fund 1.00%
Worldwide Growth Fund 0.96%
Growth Fund 0.71%
Blue Chip Fund 0.63%
Balanced Fund 0.64%
Government Securities Fund 0.65%
Money Market Fund 0.50%

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

<PAGE>

are not expressly assumed by Founders shall be paid by the Fund, including the
fees paid to Founders, shareholder servicing costs, directors' fees and
expenses, legal and auditing fees, custodian fees, printing and supplies, taxes,
registration fees and distribution expenses. Each Fund's total expenses for 1996
(excluding brokerage commissions) represented the following percentages of
average daily net assets:

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

* Founders is voluntarily reimbursing certain expenses of the International
Equity Fund pursuant to a commitment to the Fund. In the absence of this
expense limitation, the total expenses of the International Equity Fund for
the fiscal year ended December 31, 1996 would have been 2.52% of the Fund's
average daily net assets. Effective July 1, 1997, Founders is voluntarily
reimbursing certain expenses of the International Equity Fund to the extent
they exceed 1.80% of the Fund's average net assets. Since Founders
reimbursed expenses in excess of 2.00% of the Fund's average net assets
during the first six months of 1997, the Fund's total operating expenses for
the fiscal year ending December 31, 1997 are expected to be approximately
1.90% of the Fund's average net assets, after such reimbursements.
** Founders is voluntarily waiving certain 12b-1 fees of the Government
Securities Fund pursuant to a commitment to the Fund. Had these fees not been
waived, the total expenses of the Government Securities Fund for the fiscal
year ended December 31, 1996 would have been 1.49% of the Fund's average
daily net assets.

SHAREHOLDER AND TRANSFER AGENT SERVICES. In addition, the Funds have entered
into shareholder services agreements with Founders, pursuant to which Founders
provides certain shareholder-related and transfer agent services to the Funds.
For such services, the Funds pay Founders a monthly fee. Out of this fee,
Founders pays the fees charged the Funds by Investors Fiduciary Trust Company
("IFTC"), the Funds' transfer agent. Out-of-pocket reimbursements are also
paid by the Funds. In 1996, Founders received aggregate shareholder services and
transfer agent fees of $24.42 for each shareholder account. Of this amount,
$10.41 per shareholder account was paid to IFTC. Effective June 1, 1997 the
aggregate shareholder services and transfer agent fee was increased to $26.00
per shareholder account per year. Shareholder services and transfer agent fees
charged by Founders and IFTC are not charged to each shareholder's account, but
are expenses of the Fund paid from the Fund's assets. IFTC, located at 127 West
10th Street, Kansas City, Missouri 64105, also serves as the Funds' dividend
disbursing agent, redemption agent, and custodian.

Registered broker/dealers, third-party administrators of tax-qualified
retirement plans, and other entities which establish omnibus accounts with the
Funds may provide sub-transfer agency, recordkeeping, or similar services to
participants in the omnibus accounts which reduce or eliminate the need for
identical services to be provided on behalf of the participants by IFTC and/or
Founders. In such cases, Founders is authorized to pay the entity a sub-transfer
agency or recordkeeping fee, and to be reimbursed for such payments by the Fund
based

<PAGE>

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

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

SELECTION OF BROKERS. Subject to the policy of seeking the best execution of
orders at the most favorable prices, sales of shares of the Funds may be
considered as a factor in the selection of brokerage firms to execute Fund
portfolio transactions. The Statement of Additional Information further explains
the selection of brokerage firms.

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

<PAGE>

personnel, brokers, financial planners, or others for their assistance with
respect to the distribution of the Fund's shares, including compensation for
such services to personnel of Founders or of affiliates of Founders; providing
payments to any financial intermediary for shareholder support, administrative,
and accounting services with respect to the shareholders of the Fund; and such
other expenses as may be approved from time to time by the Funds' board of
directors and as may be permitted by applicable statute, rule or regulation.
Plan payments may be made only to reimburse expenses incurred during a rolling
twelve-month period, subject to the annual limitation of 0.25% of average daily
net assets. Any reimbursable expenses incurred by Founders in excess of this
limitation are not reimbursable and will be borne by Founders. In addition,
Founders may from time to time make additional payments from its revenues to
securities dealers and other financial institutions that provide
distribution-related, recordkeeping, and/or other administrative services to the
Funds. The Funds' board of directors reviews a quarterly written report of
amounts expended under each Plan and the purposes of the expenditures.

<PAGE>

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

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

<PAGE>

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

OPENING YOUR ACCOUNT WITH US

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

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

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

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

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

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

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

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

o ROLLOVER IRA. Distributions from qualified employer-sponsored retirement
plans (and, in most cases, from any IRA) retain their tax advantages when
rolled over to an IRA within 60 days of receipt. You also need to complete
a Founders Direct Rollover / Transfer Form.

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

<PAGE>

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

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

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

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

o $1,000 minimum for most regular accounts.

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

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

MINIMUM ADDITIONAL INVESTMENT

o $100 for mail, TeleTransfer and wire payments

o $50 for Automatic Investment Plan payments

<PAGE>

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

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

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

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

[Graphic: Two hands shaking]

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

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

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

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

50 51

<PAGE>

CONDUCTING BUSINESS WITH FOUNDERS (CONT'D)

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

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

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

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

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

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

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

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

52 53

<PAGE>

PURCHASING SHARES THROUGH A BROKER
Be sure to read the broker's program materials for disclosures on fees and
service features that may differ from those in this prospectus. A broker may
charge a commission or transaction fee, or have different account minimums.

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

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

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

o TRUST ACCOUNTS. The trustee needs to sign a letter indicating his/her
capacity as trustee. If the trustee's name is not in the account
registration, you will need to provide a certificate of incumbency dated
within the past 60 days.

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

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

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

You can have your signature guaranteed at a:

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

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

REDEMPTION PROCEEDS
We can deliver redemption proceeds to you:

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

<PAGE>

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

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

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

OVERALL POLICIES REGARDING TRANSACTIONS

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

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

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

By signing a New Account Application (unless specifically declined on the
Application), by providing other written (for redemptions) or verbal (for
exchanges) authorization, or by requesting Automatic Investment Plan privileges,
you agree to release the Funds, Founders, and their agents from any and all
liability for acts or omissions done in good faith under the authorizations
contained in the application, including their possibly effecting unauthorized or
fraudulent transactions.

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

o requiring personal identification prior to acting upon instructions

o providing written confirmation of such transactions

o tape-recording telephone instructions

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

<PAGE>

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

EFFECTIVE DATE OF TRANSACTIONS. Transaction requests received in good order
prior to the close of the New York Stock Exchange on a given date will be
effective that date. We consider investments to be received in good order when
all required documents and your check or wired funds are received by us or our
agents. Under certain circumstances, payment of redemption proceeds may be
delayed for up to seven calendar days to allow for the orderly liquidation of
securities. Also, when the New York Stock Exchange is closed (or when trading is
restricted) for any reason other than its customary weekend or holiday closings,
or under any emergency circumstances, as determined by the Securities and
Exchange Commission, we may suspend redemptions or postpone payments. If you are
unable to reach us by phone, consider sending your order by overnight delivery
service.

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

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

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

RETURNED CHECKS. If your check is returned due to insufficient funds, we will
cancel your purchase, and you will be liable for any losses or fees incurred by
the Fund or its agents. If you are a current shareholder, shares will be
redeemed from other accounts, if needed, to reimburse the Fund.

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

We will base the decision to levy the fee or close the account on our
determination of what is best for the Fund. We will give you at least 60 days'
written notice informing you that your account will be closed or that the $10
fee will be charged, so that you may make an additional investment to bring the
account up to the required minimum balance.

WE RESERVE THE RIGHT TO:

o reject any investment or application

o cancel any purchase due to nonpayment

o modify the conditions of purchase at any time

o waive or lower investment minimums

o limit the amount that may be purchased

<PAGE>

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

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

24-HOUR ACCOUNT INFORMATION

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

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

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

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

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

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

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

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

<PAGE>

performance and commentary by the Funds' managers.

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

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

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

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

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

<PAGE>

o CHECKWRITING

o Available on Government Securities and Money Market Funds.

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

o There is no fee for this service.

o Minimum amount per check: $500

o Maximum amount per check: $250,000

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

EARNINGS: Corporate profits.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

(LOGO)
Founders Funds

FOUNDERS ASSET MANAGEMENT, INC.
Investment Adviser and Fund Distributor

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

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

TOLL-FREE: 1-800-525-2440

WWW.FOUNDERS.COM

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

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

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