^ File No. 2-17531
^ File No. 811-1018
^ As filed on February 24, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----
Pre-Effective Amendment No. _____
Post-Effective Amendment No. ^ 62 X
-----
^
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
Amendment No. ^ 33 X
-----
FOUNDERS FUNDS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (303) 394-4404
Bjorn K. Borgen
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
this post-effective amendment becomes effective.
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
^___ on ^______________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
^ X on ^ May 1, 1997 pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on ______________ pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has ^ previously elected to register an indefinite number of ^ shares
of its common stock pursuant to Rule 24f-2 under the Investment Company Act of
1940. ^ Registrant's Rule 24f-2 Notice for ^ the fiscal year ended December 31,
1996 was filed on or about February ^ 21, 1997.
Page 1 of 228
Exhibit index is located at page 166
<PAGE>
FOUNDERS FUNDS, INC.
CROSS REFERENCE SHEET
Form N-1A
Item No. Caption
Part A Prospectus
1....................^ Front Cover Page; Back Cover Page
2....................Overview; The Funds and Their Management
3....................The Funds and Their Management; General Information;
Back Cover Page
4....................The Funds and Their Management; ^ Investment Policies ^
and ^ Risks; General Information
5....................The Funds and Their Management; Founders' Investment
^ Philosophy; ^ General Information
5A...................Not Applicable
6....................^ Investing in the Founders Funds; General Information
7....................Investing in the Founders Funds;^ General Information
8....................Investing in the Founders Funds
9....................Not Applicable
Part B Statement of Additional Information
10...................Cover Page
11...................Table of Contents
12...................Not Applicable
13...................Investment Objectives and Policies;
Investment Restrictions; Brokerage Allocation
and Portfolio Turnover Rates
^
14...................Directors and Officers
-i-
<PAGE>
Form N-1A
Item No. Caption
15...................Directors and Officers; Additional Information
16...................Investment Adviser and Distributor;
Directors and Officers; Shareholder Servicing;
Additional Information
17...................Brokerage Allocation and Portfolio Turnover Rates
18...................Additional Information
19...................Determination of Net Asset Value; Redemption Payments
20...................Dividends, Distributions and Taxes
21...................Investment Adviser and Distributor
22...................Yield and Performance Information
23...................Additional Information
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
-ii-
<PAGE>
P R O S P E C T U S
May 1, 1997
Aggressive Growth Funds
Founders Discovery Fund
Founders Passport Fund
Founders Frontier Fund
Founders Special Fund
Growth Funds
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund
Growth-and-Income Funds
Founders Blue Chip Fund
Founders Balanced Fund
Fixed-Income Fund
Founders Government Securities Fund
Money Market Fund
Founders Money Market Fund
[Logo]
Founders Funds
Growth. Plain and Simple.
<PAGE>
[LOGO] Founders Funds, Inc.
PROSPECTUS
May 1, 1997
This prospectus briefly tells you information you need to know before investing.
We recommend that you read it carefully and keep it for future reference.
Inside, you'll find information about the 11 funds in the Founders family,
listed by investment objective below:
Capital Appreciation Long-Term Growth of Capital
Founders Discovery Fund Founders International Equity Fund
Founders Passport Fund Founders Worldwide Growth Fund
Founders Frontier Fund Founders Growth Fund
Founders Special Fund
Long-Term Growth of Capital Current Income and
and Income Capital Appreciation
Founders Blue Chip Fund Founders Balanced Fund
Current Income Maximum 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:
- - are not bank deposits or obligations
- - are not federally insured by the FDIC, the Federal Reserve Board or any other
agency
- - are not guaranteed or endorsed by any bank or government agency
- - are not guaranteed to maintain stable net asset values
- - are not guaranteed to achieve their objectives
<PAGE>
CONTENTS
HOW TO CONTACT US............................................................3
OVERVIEW.....................................................................5
Who is Founders?..........................................................5
Investment Objectives and Risks...........................................5
THE FUNDS AND THEIR MANAGEMENT...............................................6
FOUNDERS' INVESTMENT PHILOSOPHY..............................................6
Founders' Investment Management Team......................................6
Discovery Fund............................................................7
Passport Fund.............................................................9
Frontier Fund............................................................12
Special Fund.............................................................14
International Equity Fund................................................18
Worldwide Growth Fund....................................................20
Growth Fund..............................................................23
Blue Chip Fund...........................................................27
Balanced Fund............................................................29
Government Securities Fund...............................................32
Money Market Fund........................................................35
INVESTMENT POLICIES AND RISKS...............................................38
GENERAL INFORMATION.........................................................44
Understanding Fund Expenses..............................................44
Understanding Financial Highlights.......................................45
Calculating Share Price..................................................46
Dividends and Distributions..............................................46
Dividend and Capital Gain Distribution Options...........................47
Taxes....................................................................47
Founders' Services to the Funds..........................................48
Distribution Plans.......................................................50
Voting Rights............................................................51
Fund Performance Information.............................................51
INVESTING IN THE FOUNDERS FUNDS.............................................51
GLOSSARY OF TERMS...........................................................60
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:
- - call us toll-free
- - mail us your written instructions
- - fax exchange requests
- - find us on the Internet
- - visit our Denver Investor Center
<PAGE>
By Phone
Toll-free Investor Service 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
By Mail
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
By Fax
Exchange requests may be sent by fax to (303) 394-4021.
On the World Wide Web
Founders Investorsite at www.founders.com
In Person
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>
OVERVIEW
Who Is Founders?
Founders Asset Management, Inc. ("Founders") is the investment manager of the
Founders Funds. A registered investment adviser first established as an asset
manager in 1938, Founders is a "growth-style" manager of equity portfolios,
which means that we invest in stocks based on their potential to provide
superior earnings growth over time, despite short-term volatility.
Using a bottom-up approach and supported by intensive research, we focus
on the fundamental financial, marketing, and operating strengths of the
companies we invest in. We are less concerned with short-term impacts resulting
from changing macroeconomic conditions and market cycles.
The fundamentally strong companies we target may have strong management
teams and solid market positions and have earnings prospects that are
significantly above the average for their market sectors. For more information,
see "Founders' Investment Philosophy."
All references in this prospectus to "we," "us," or "our" refer to
Founders.
Investment Objectives and Risks
Since 1938, Founders has offered investment tools to help investors pursue their
financial goals. Today, Founders has grown to include 11 no-load mutual funds
spanning many investment objectives. 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 guarantees to 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. The Funds' investments in debt securities are subject to market risk
and credit risk. 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."
<PAGE>
Graphic: Risk/Return Spectrum
Higher Risk - Higher Return Potential
Micro/Small Cap Discovery Fund
International Small Cap Passport Fund
Small Cap Frontier Fund
Capital Appreciation Special Fund
Core International International Equity Fund
Global Equity Worldwide Growth Fund
Mid/Large Cap Growth Fund
Growth and Income Blue Chip Fund
Balanced Balanced Fund
Fixed Income Government Securities Fund
Money Market Money Market Fund
Lower Risk - Lower Return Potential
This risk/reward spectrum is not indicative of the past or future performance of
any particular Fund. Positions of the Funds on the spectrum are subject to
change.
For an explanation of many of the terms used in this prospectus, please see the
Glossary of Terms.
THE FUNDS AND THEIR MANAGEMENT
FOUNDERS' INVESTMENT PHILOSOPHY
Founders has adopted a distinctive approach to portfolio management based on
several elements:
- - 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.
- - Bottom-Up Focus - In our search for promising investments, 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.
- - 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.
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
<PAGE>
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.
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).
Founders Discovery Fund
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."
Graphic: Spacecraft
Portfolio manager:
David G. Kern, Vice President of Investments
Mr. Kern joined Founders in 1995, and serves as the lead portfolio manager
for Founders Discovery Fund. Prior to joining Founders, Mr. Kern served
for five years as a vice president and assistant portfolio manager for
Delaware Management Company. A graduate of Lehigh University with a degree
in business and economics, Mr. Kern is also a Chartered Financial Analyst.
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 $6.00 fee will be assessed for wire redemptions).
<PAGE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.99%
12b-1 Fees (1) 0.25%
Other Expenses 0.35%
------
Total Fund Operating Expenses 1.59%
======
(1) Long-term shareholders may, over time, indirectly pay more in 12b-1
fees than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<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>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
<PAGE>
Founders Passport Fund
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."
Graphic: Compass
Portfolio Manager:
Michael W. Gerding, Vice President of Investments
Mr. Gerding is a Chartered Financial Analyst who has been part of
Founders' investment department since 1990. Mr. Gerding has served as the
lead portfolio manager for Founders Worldwide Growth and Passport Funds
since their inceptions in 1990 and 1993, respectively. He also has served
as lead portfolio manager for Founders International Equity Fund during
1996 and as co-lead portfolio manager for that Fund since 1997. Prior to
joining Founders, he served as a portfolio manager and research analyst
with NCNB Texas for several years. Mr. Gerding earned a BBA in finance and
an MBA from Texas Christian University.
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 $6.00 fee will be assessed for wire redemptions).
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 1.00%
12b-1 Fees (1) 0.25%
Other Expenses 0.34%
------
Total Fund Operating Expenses 1.59%
======
(1) Long-term shareholders may, over time, indirectly pay more in 12b-1
fees than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
<PAGE>
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31 Period of
------------------------------------
1996 1995 1994 11/16/93
(inception)
- 12/31/93
<C> <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
# 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>
<PAGE>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
Founders Frontier Fund
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 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."
Graphic: Spyglass
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.
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 $6.00 fee will be assessed for wire redemptions).
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%
======
(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.
<PAGE>
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 $49 $84 $183
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31 Period of
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1/22/87
(inception)
- 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 $0.0567 --- --- --- --- --- --- --- --- ---
Paid
<PAGE>
<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.
</FN>
</TABLE>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
Founders Special Fund
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."
Graphic: Compass star
Portfolio Managers:
Robert T. Ammann, Portfolio Manager
Mr. Ammann is a Chartered Financial Analyst who has been co-lead portfolio
manager for Founders Special Fund since 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.
John B. Jares, Portfolio Manager
Mr. Jares is a Chartered Financial Analyst who has been co-lead portfolio
manager for Founders Special Fund since 1997. Mr. Jares joined Founders in
1994 as a research analyst. Prior to joining Founders, he worked with
Lipper Analytical Services, Inc., a provider of mutual fund information.
A graduate of Colorado State University, Mr. Jares received a master's
degree in finance from the University of Colorado at Denver.
Douglas A. Loeffler, Portfolio Manager
Mr. Loeffler is a Chartered Financial Analyst who has been co-lead
portfolio manager for Founders International Equity and Special Funds
since 1997. Mr. Loeffler joined Founders in 1995 as a senior
international equities analyst and previously served as assistant
portfolio manager for Founders International Equity Fund. Prior to
joining Founders, he served for seven years with Scudder, Stevens & Clark
as an international equities analyst and as a quantitative analyst. A
graduate of Washington State University, Mr. Loeffler received an MBA in
finance from the University of Chicago.
<PAGE>
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 $6.00 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%
======
(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.
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
-------- -------- -------- --------
$14 $43 $75 $164
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<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% --- --- --- --- --- --- ---- ---
<PAGE>
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
# 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>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
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).
<PAGE>
Founders International Equity Fund
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."
Graphic: Three flags flying on poles
Portfolio Managers:
Michael W. Gerding, Vice President of Investments
Mr. Gerding is a Chartered Financial Analyst who has been part of
Founders' investment department since 1990. Mr. Gerding has served as the
lead portfolio manager for Founders Worldwide Growth and Passport Funds
since their inceptions in 1990 and 1993, respectively. He also has served
as lead portfolio manager for Founders International Equity Fund during
1996 and as co-lead portfolio manager for that Fund since 1997. Prior to
joining Founders, he served as a portfolio manager and research analyst
with NCNB Texas for several years. Mr. Gerding earned a BBA in finance and
an MBA from Texas Christian University.
Douglas A. Loeffler, Portfolio Manager
Mr. Loeffler is a Chartered Financial Analyst wh o has been co-lead
portfolio manager for Founders International Equity and Special Funds
since 1997. Mr. Loeffler joined Founders in 1995 as a senior international
equities analyst and previously served as assistant portfolio manager for
Founders International Equity Fund. Prior to joining Founders, he served
for seven years with Scudder, Stevens & Clark as an international equities
analyst and as a quantitative analyst. A graduate of Washington State
University, Mr. Loeffler received an MBA in finance from the University of
Chicago.
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 $6.00 fee will be assessed for wire redemptions).
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 1.00%
12b-1 Fees(1) 0.25%
Other Expenses (after expense reimbursements) (2) 0.75%
------
Total Fund Operating Expenses
(after expense reimbursements) (2) 2.00%
======
<PAGE>
(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.
(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 be
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.
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
-------- -------- -------- --------
$21 $63 $109 $234
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<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>
<PAGE>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
Founders Worldwide Growth Fund
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. For more information on the
Fund's investment techniques and their related risks, see "Investment Policies
and Risks."
Graphic: Globe with an arrow
Portfolio Manager:
Michael W. Gerding, Vice President of Investments
Mr. Gerding is a Chartered Financial Analyst who has been part of
Founders' investment department since 1990. Mr. Gerding has served as the
lead portfolio manager for Founders Worldwide Growth and Passport Funds
since their inceptions in 1990 and 1993, respectively. He also has served
as lead portfolio manager for Founders International Equity Fund during
1996 and as co-lead portfolio manager for that Fund since 1997. Prior to
joining Founders, he served as a portfolio manager and research analyst
with NCNB Texas for several years. Mr. Gerding earned a BBA in finance and
an MBA from Texas Christian University.
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 $6.00 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.
<PAGE>
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 $49 $85 $186
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31*
-------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
<C> <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
# 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>
<PAGE>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
Founders Growth Fund
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."
Graphic: Up-and-down arrow on a grid
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.
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 $6.00 fee will be assessed for wire redemptions).
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%
======
(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.
<PAGE>
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
-------- -------- -------- --------
$12 $38 $66 $146
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Years Ended December 31 Period of October 31
--------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 11/1/87- 1987
12/31/87
<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%
<PAGE>
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
# 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>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
<PAGE>
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.
Founders Blue Chip Fund
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:
- - 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
- - Generally pay regular dividends
- - 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."
Graphic: Blue ribbon
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 to
1996), and as a senior equity investment analyst for Sears Investment
Management Company (1986 to 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 $6.00 fee will be assessed for wire redemptions).
<PAGE>
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%
======
(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.
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
-------- -------- -------- --------
$12 $37 $64 $142
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Years Ended December 31 Period of September 30
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 10/1/87- 1987
12/31/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
DATA
Net Asset Value --
Beginning of Period $6.69 $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
<PAGE>
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
# 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>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
<PAGE>
Founders Balanced Fund
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. 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."
Graphic: Scale
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 to
1996), and as a senior equity investment analyst for Sears Investment
Management Company (1986 to 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 $6.00 fee will be assessed for wire redemptions).
<PAGE>
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%
======
(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.
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
-------- -------- -------- --------
$11 $36 $62 $137
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Years Ended December 31 Period of September 30
---------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 10/1/87- 1987*
12/31/87*
<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% --- --- --- --- --- --- ---- --- ---
<PAGE>
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
# 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>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
<PAGE>
INCOME-ORIENTED FUNDS
These funds are the lowest-risk funds offered by Founders.
Founders Government Securities Fund
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."
Graphic: Building with pillars
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.
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 $6.00 fee will be assessed for wire redemptions).
Annual Fund Operating Expenses
(as a percentage of average net assets)
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%
======
<PAGE>
(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.
(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.
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
-------- -------- -------- --------
$13 $41 $71 $156
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31 Period of
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 3/1/88
(inception)
- 12/31/88
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $9.29 $8.78 $10.02 $10.19 $10.48 $9.85 $10.13 $9.68 $10.00
-------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 3.20 0.45 0.52 0.46 0.51 0.60 0.69 0.78 0.64
Net Gains or Losses on
Securities (Both Realized
and unrealized) (2.99) 0.51 (1.26) 0.47 0.03 0.81 (0.28) 0.46 (0.32)
-------------------------------------------------------------------------------
Total From Investment
Operations 0.21 0.96 (0.74) 0.93 0.54 1.41 0.41 1.24 0.32
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (From Net
Investment Income) (0.46) (0.45) (0.50) (0.46) (0.51) (0.60) (0.69) (0.79) (0.64)
Distributions (From
Capital Gainms) 0.00 0.00 0.00 (0.64) (0.32) (0.18) 0.00 0.00 0.00
-------------------------------------------------------------------------------
Total Distributions (0.46) (0.45) (0.50) (1.10) (0.83) (0.78) (0.69) (0.79) (0.64)
-------------------------------------------------------------------------------
Net Asset Value --
End of Period $9.04 $9.29 $8.78 $10.02 $10.19 $10.48 $9.85 $10.13 $9.68
===============================================================================
TOTAL RETURN 2.3% 11.1% (7.5%) 9.3% 5.3% 14.9% 4.4% 13.3% 3.2%
RATIOS
Net Assets--End of Period
(000s Omitted) $15,190 $20,263 $21,323 $30,465 $25,047 $18,146 $7,424 $6,460 $4,392
Net Expenses to Average
Net Assets*# 1.26% 1.30% 1.34% 1.18% 1.18% 1.12% 1.03% 0.65% 0.26%+
<PAGE>
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>
* 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).
+ 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.
</FN>
</TABLE>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
<PAGE>
Founders Money Market Fund
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."
Graphic: Bag with a dollar sign
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.
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 $6.00 fee will be assessed for wire redemptions).
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.50%
12b-1 Fees N/A
Other Expenses 0.38%
------
Total Fund Operating Expenses 0.88%
======
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
-------- -------- -------- --------
$9 $28 $49 $109
<PAGE>
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 above.
If you would like more information regarding these expenses, please see
"General Information - Understanding Fund Expenses" and "General
Information - Founders' Services to the Funds."
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.
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Years Ended December 31 Period of May 31
-------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 6/1/87- 1987
12/31/87
<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#*
<PAGE>
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>
* 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).
+ 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.
</FN>
</TABLE>
<PAGE>
If you would like more information regarding these financial highlights, please
see "General Information - Understanding Financial Highlights."
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:
<PAGE>
- - 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.
- - 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.
- - 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.
- - Political Risk. 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.
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
<PAGE>
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.
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 unrated bonds, debentures, and corporate obligations or those or rated
below investment grade either at the time we purchase them or as a result of a
rating reduction after purchase.
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
<PAGE>
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. 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 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
<PAGE>
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 prevailing 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 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"). 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.
<PAGE>
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 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 have 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, Frontier, Passport, 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. 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
<PAGE>
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.
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 $6.00 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.
- Management Fees: These fees compensate the Funds' investment
manager, Founders Asset Management, Inc., for administering the Funds
and selecting the Funds' securities portfolios.
- 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:
- Preparing, printing, and mailing prospectuses, sales literature,
and other promotional materials to prospective investors
- Direct-mail solicitations
- Advertising
- Public relations
- Compensation of sales personnel, brokers, financial planners, or
others for their assistance in selling and distributing the
Fund's shares
- Payments to financial intermediaries for shareholder support
services
- Other expenses: These include, but are not limited to, fees and
expenses of the Funds':
- Board of directors
- Custodian bank
- Legal counsel
- Independent accountants
- Fund accounting agent
- Tansfer and shareholder servicing agents
- Registration of Fund shares under applicable laws
- Reports to shareholders
<PAGE>
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 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.
- 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.
- 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.
<PAGE>
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.
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 order is received in proper
form by us or our agents. We consider investments to be received in proper form
only when your check or wired funds are received by us or our agents. We
consider wired funds to be received on the day they are deposited in the
custodian bank account if your phone purchase order is received before the close
of regular trading on the Exchange on that day.
For more information concerning the computation of net asset value, see
the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
Discovery, Frontier, Passport, 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
<PAGE>
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 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
distributions 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.
<PAGE>
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 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 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:
<PAGE>
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%
The fees currently paid by Discovery, Passport, Frontier, Special, International
Equity, Worldwide Growth, and Government Securities Funds are higher than the
fees generally charged by most investment companies having similar objectives
and policies but are, in the opinion of the Funds' management, comparable to
those of numerous other similar mutual funds.
Fund Expenses. Each investment advisory agreement between a Fund and
Founders provides that expenses relating to the Fund's operations which are not
expressly assumed by Founders shall be paid by the Fund, including the fee paid
to Founders, shareholder servicing costs, directors' fees and expenses, legal
and auditing fees, custodian fees, printing and supplies, taxes, registration
fees and distribution expenses. Each Fund's total expenses for 1996 (excluding
brokerage commissions) represented the following percentages of average daily
net assets:
Discovery Fund 1.59%
Passport Fund 1.59%
Frontier Fund 1.53%
Special Fund 1.36%
International Equity Fund 2.00% *
Worldwide Growth Fund 1.55%
Growth Fund 1.20%
Blue Chip Fund 1.16%
Balanced Fund 1.12%
Government Securities Fund 1.29% **
Money Market Fund 0.88%
* Founders is voluntarily reimbursing certain expenses of the International
Equity Fund pursuant to a commitment to the Fund. In the absence of this expense
limitation, the total expenses of the International Equity Fund for the fiscal
year ended December 31, 1996 would have been 2.52% of the Fund's average daily
net assets.
** Founders is voluntarily waiving certain 12b-1 fees of the Government
Securities Fund pursuant to a commitment to the Fund. Had these fees not been
waived, the total expenses of the Government Securities Fund for the fiscal year
ended December 31, 1996 would have been 1.49% of the Fund's average daily net
assets.
<PAGE>
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. Due to a reduction in such
aggregate fees to $24 per account per annum effective June 1, 1996, Founders
anticipates that per account fees for providing such services in 1997 will be
less than those paid by the Funds in 1996. 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 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
<PAGE>
mailing of prospectuses, reports to shareholders (such as semiannual and annual
reports, performance reports, and newsletters), sales literature and other
promotional material to prospective investors; direct mail solicitation;
advertising; public relations; compensation of sales personnel, brokers,
financial planners or others for their assistance with respect to the
distribution of the Fund's shares, including compensation for such services to
personnel of Founders or of affiliates of Founders; providing payments to any
financial intermediary for shareholder support, administrative, and accounting
services with respect to the shareholders of the Fund; and such other expenses
as may be approved from time to time by the Funds' board of directors and as may
be permitted by applicable statute, rule or regulation. Plan payments may be
made only to reimburse expenses incurred during a rolling twelve-month period,
subject to the annual limitation of 0.25% of 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.
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 shareholders 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.
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:
<PAGE>
- - 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.
- - 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.
- - UGMA or UTMA. (Uniform Gifts to Minors Act or Uniform Transfers to Minors
Act) These accounts are a way to give money to a child or to help a child
save on his/her own. Depending on state laws, we will set the account up as
an UGMA or UTMA.
- - Trust. The trust needs to be effective before we can establish this kind of
account.
- - 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:
- - 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.
- - 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.
- - 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.
- - 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.
- - 403(b)(7) Custodial Account. Available to employees of most tax-exempt
institutions, such as schools, hospitals, and charitable organizations. Call
1-800-934-GOLD (4653) for instructions.
<PAGE>
- - 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:
- - $1,000 minimum for most regular accounts.
- - $500 minimum for IRA and UGMA/UTMA accounts.
- - No minimum if you begin an Automatic Investment Plan of $50 or more per month.
MINIMUM ADDITIONAL INVESTMENT
- - $100 for mail, TeleTransfer and wire payments
- - $50 for Automatic Investment Plan payments
<PAGE>
- --------------------------------------------------------------------------------
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: phone 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: envelope not normally accept
third-party checks.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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: man
- --------------------------------------------------------------------------------
BY WIRE Complete and mail the Wire funds to:
proper application. Investors Fiduciary
Graphic: wiggly arrow Wire funds to: Trust Company
Investors Fiduciary ABA # 101003621
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 AIP (Automatic
Graphic: two arrows proper application. Investment Plan)
pointing opposite AIP (Automatic allows you to make
directions Investment Plan) 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
1-800-947-FAST call. call.
(3278)
Automated telephone
service
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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: phone $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: envelope
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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: man present. present
- --------------------------------------------------------------------------------
BY WIRE $6 fee; $1,000 Not applicable.
minimum. Monies are
Graphic: wiggly arrow usually received the
business day after
the date you sell.
Unless otherwise
specified, we will
deduct the fee from
your redemption
proceeds.
- --------------------------------------------------------------------------------
ELECTRONICAL Not applicable. Not applicable.
LY
Graphic: two arrows
pointing opposite
directions
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
<PAGE>
SELLING SHARES OF FOUNDERS FUNDS
- - 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.
- - 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.
- - Retirement Accounts. Please call 1-800-525-2440 for the appropriate form.
- - 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.
- - 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:
- - A redemption check made payable to anyone other than the shareholder(s) of
record.
- - A redemption check mailed to an address other than the address of record.
- - A redemption check or wire sent to a bank other than the bank we have on file.
- - A redemption check mailed to an address that has been changed within 30 days
of your request.
- - A redemption for $50,000 or more (excluding accounts held by a corporation).
You can have your signature guaranteed at a:
- - bank
- - broker/dealer
- - credit union (if authorized under state law)
- - securities exchange/association
- - clearing agency
- - savings association
Please note that a notary public cannot provide a signature guarantee.
REDEMPTION PROCEEDS
We can deliver redemption proceeds to you:
- - By Check. Checks are sent to the address of record. If you request that a
check be sent to another address, we require a signature guarantee. (See
"Signature Guarantee.") If you don't specify, we will deliver proceeds via
check.
- - 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.
- - 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.
<PAGE>
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:
- - requiring personal identification prior to acting upon instructions
- - providing written confirmation of such transactions
- - 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 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. However, 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
<PAGE>
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:
- - reject any investment or application
- - cancel any purchase due to nonpayment
- - modify the conditions of purchase at any time
- - waive or lower investment minimums
- - limit the amount that may be purchased
- - perform a credit check on shareholders establishing a new account or
requesting checkwriting privileges.
<PAGE>
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
- - 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.
- - 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
- - 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.
- - 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.
- - 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
performance and commentary by the Funds' managers.
<PAGE>
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:
- - 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."
- - 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.
- - Telephone Redemption. Available for regular (non-retirement) accounts only.
- - Telephone Exchange. Allows you to exchange money between identically
registered accounts.
- - Checkwriting
- Available on Government Securities and Money Market Funds.
- May be established with a minimum account balance of $1,000.
- There is no fee for this service.
- Minimum amount per check: $500
- Maximum amount per check: $250,000
- - 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.
- - 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.
- - 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.
- - 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. Mutual
funds generally provide their average annual total return for the past 1, 5, and
10 years (or up to the life of the fund, if it's less than 10 years old).
Blue-chip company: A large, well-established, stable, and mature company of
great financial strength. Blue-chip companies generally have long records of
profitability and dividend payments, as well as reputations for quality
management, products, and services.
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.
A bondholder is issued an IOU from the company or government but, unlike a
stockholder, has no corporate-ownership privileges.
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 Investors Service, and Fitch's
Investors Service.
Bond ratings range from AAA (highly unlikely to default; often
governmental) to D (in default). For more information concerning bond ratings,
see the Statement of Additional Information.
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 exams in economics,
financial accounting, portfolio management, security analysis, and standards of
conduct.
Commercial paper: Short-term, unsecured promissory notes issued by corporations
to investors seeking to invest idle cash.
Common stock: A security (share) that represents ownership of a corporation.
Common-stock owners are granted certain entitlements, including the right to
vote and to receive dividends on their holdings.
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. Corporations may add
conversion features to securities to make them more marketable.
<PAGE>
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): The oldest and most widely used market
indicator. The DJIA, which comprises 30 actively traded blue-chip stocks
(primarily industrials), is widely regarded by investors as representative of
the securities market in general.
Earnings: Corporate profits.
Earnings per share (EPS): Corporate profits divided by the number of outstanding
shares of stock.
Equity: Securities 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 of corporations 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.
Index: A statistical composite that tracks the performance of the stock, bond,
or commodities markets. Examples include the Dow Jones Industrial Average and
the Standard & Poor's 500 Index.
Individual Retirement Account (IRA): A personal, tax-deferred retirement account
that an employed person can establish. Any money withdrawn before age 59 1/2 is
generally subject to a 10% penalty tax, in addition to regular taxes due at the
time of withdrawal.
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: "Rent on money"; i.e., 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.
<PAGE>
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. Long-term capital gains are taxed
differently than short-term capital gains.
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.
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. These entities may use
money-market instruments--e.g., banker's acceptance certificates, commercial
paper, and certificates of deposit--to satisfy their short-term obligations and
cash requirements.
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. The NYSE lists the oldest, largest, best-known
companies.
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.
Preferred stock: A class of stock that pays a consistent, predetermined
dividend, which must be paid before dividends are paid to common stockholders.
Also, should a company go bankrupt, preferred-stock owners must be paid before
common-stock owners are paid. Preferred stock does not ordinarily carry voting
rights.
Principal: The face value of a debt instrument that must be repaid at maturity,
usually accompanied by interest. For example, the principal of a $1,000 loan
would be $1,000.
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.
<PAGE>
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, such as a
bank, brokerage firm, credit union, or securities exchange/association, that
verifies the legitimacy of a person's signature.
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 industrial, transportation, financial, and utility 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.
Straight debt security: A bond that is not convertible into stock.
Tax-deferred: The term used to describe an investment in which the money
invested and 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 that's 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.
Treasury bills have maturities of one year or less, and are sold at a
discount to face value. Treasury bonds have maturities of 10 years or longer.
And Treasury notes have maturities of between one and 10 years.
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
FOR FURTHER INFORMATION
The Funds' annual and semi-annual 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 semi-annual
reports and the SAI without charge by calling Founders at 1-800-525-2440. In
addition, the SEC maintains a Web site (http://www.sec.gov) that contains the
SAI, material incorporated in the SAI by reference, and other information
regarding the Funds and other registrants that file electronically with the SEC.
FUND DIRECTORS
John K. Langum, Chairman
William H. Baughn
Bjorn K. Borgen
Alan S. Danson
Trygve E. Myhren
Jay A. Precourt
Eugene H. Vaughan, Jr.
Jonathan F. Zeschin
Founders Funds is a registered trademark of
Founders Asset Management, Inc.
<PAGE>
FOUNDERS
FUNDS, INC.
^
- --------------------------------------------------------------------------------
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
Toll Free 1-800-525-2440
STATEMENT OF ADDITIONAL INFORMATION
^ May 1, 1997
^
- --------------------------------------------------------------------------------
FOUNDERS ASSET MANAGEMENT, INC., DISTRIBUTOR
^
- --------------------------------------------------------------------------------
This Statement of Additional Information relates to the eleven investment
portfolios (the "Funds") of Founders Funds, Inc. (the "Company"). A prospectus
for the Funds dated ^ May 1, 1997 provides the basic information you should know
before investing and may be obtained without charge from Founders Asset
Management, Inc. ("Founders") at the telephone number and address shown above.
This Statement of Additional Information, which is not a prospectus, contains
information in addition to and in more detail than in the prospectus. It is
intended to provide you with additional information regarding the activities and
operations of the Funds, and should be read in conjunction with the prospectus.
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES.........................................^ 70
Options On Stock Indices and Stocks..................................^ 70
Futures Contracts....................................................^ 73
Options on Futures Contracts.........................................^ 76
Options on Foreign Currencies........................................^ 77
Risk Factors of Investing in Futures and Options.....................^ 78
Foreign Securities ^ and ADRs..........................................79
Forward Contracts For Purchase or Sale of Foreign Currencies.........^ 81
Illiquid Securities..................................................^ 83
Rule 144A Securities.................................................^ 84
Fixed-Income Securities..............................................^ 85
Foreign Bank Obligations...............................................86
Repurchase Agreements................................................^ 87
Convertible Securities...............................................^ 87
Mortgage-Related Securities..........................................^ 87
When-Issued Securities.................................................91
Borrowing..............................................................92
Securities of Other Investment Companies...............................92
INVESTMENT RESTRICTIONS....................................................^ 92
DIRECTORS AND OFFICERS....................................................^ 105
INVESTMENT ADVISER AND DISTRIBUTOR........................................^ 110
SHAREHOLDER SERVICING.....................................................^ 115
Fund Accounting and Administrative Services Agreement...............^ 115
Shareholder Services Agreement......................................^ 116
Transfer Agency Agreement...........................................^ 116
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER RATES.........................^ 117
DETERMINATION OF NET ASSET VALUE..........................................^ 121
YIELD AND PERFORMANCE INFORMATION.........................................^ 124
REDEMPTION PAYMENTS.......................................................^ 127
DIVIDENDS, DISTRIBUTIONS AND TAXES........................................^ 128
ADDITIONAL INFORMATION....................................................^ 133
Capital Stock.......................................................^ 133
Code of Ethics......................................................^ 134
^ Purchases of Fund Shares by Founders Employees......................134
Custodian.............................................................134
Independent Accountants.............................................^ 135
Registration Statement..............................................^ 135
Financial Statements................................................^ 135
APPENDIX....................................................................136
Ratings of Corporate Bonds............................................136
Ratings of Commercial Paper...........................................138
Ratings of Preferred Stock............................................139
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
As stated in the prospectus under "Investment Policies and Risks," in
order to hedge their portfolios, certain Funds may enter into futures contracts
and may purchase and/or write options on securities, stock indices, futures
contracts and foreign currencies. As of the date of this Statement of Additional
Information, none of the Funds intends to engage in such activities to the
extent that more than 5% of its respective net assets would be invested in such
instruments, although each of the Funds reserves the right to engage in such
activities to the maximum extent permitted by its investment policies and
restrictions should circumstances change.
Options On Stock Indices and Stocks ^
An option is a right to buy or sell a security at a specified price within
a limited period of time. All of the Funds other than the Special, Growth,
Government Securities, and Money Market Funds may write ("sell") covered call
options on any or all of their portfolio securities from time to time as
Founders shall deem appropriate; provided, however, that Balanced Fund may write
only covered call options on stocks. In addition, all of the Funds except the
Special, Balanced, Government Securities and Money Market Funds may purchase
options on securities. All Funds except Balanced, Money Market, and Government
Securities Funds may purchase put and call options on stock indices.
For the right to buy or sell the underlying instrument (e.g., individual
stocks or stock indices), the buyer pays a premium to the seller (the "writer"
of the option). Options have standardized terms, including the exercise price
and expiration time. The current market value of a traded option is the last
sales price or, in the absence of a sale, the last offering price. The market
value of an option will usually reflect, among other factors, the market price
of the underlying security. When the market value of an option appreciates, the
purchaser may realize a gain by exercising the option and selling the underlying
security, or by selling the option on an exchange (provided that a liquid
secondary market is available). If the underlying security does not reach a
price level ^ that would make exercise profitable, the option generally will
expire without being exercised and the writer will realize a gain in the amount
of the premium. However, the gain may be offset by a decline in the market value
of the underlying security. If an option is exercised, the proceeds of the sale
of the underlying security by the writer are increased by the amount of the
premium and the writer realizes a gain or loss from the sale of the security.
So long as a secondary market remains available on an exchange, the writer
of an option traded on that exchange ordinarily may terminate his obligation
prior to the assignment of an exercise notice by entering into a closing
purchase transaction. The cost of a closing purchase transaction, plus
transaction costs, may be greater than the premium received upon writing the
original option, in which event the writer will incur a loss on the transaction.
However, because an increase in the market price of an option generally reflects
an increase in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by appreciation of the underlying security that the writer continues to own.
^
<PAGE>
All of the Funds, except the Special, Growth, Government Securities, and
Money Market Funds, may write (sell) options on stocks. These Funds retain the
freedom to write options on any or all of their portfolio securities and at such
time and from time to time as Founders shall determine to be appropriate.^ The
extent of a Fund's option writing activities will vary from time to time
depending upon Founders' evaluation of market, economic and monetary conditions.
When a Fund purchases a security with respect to which it intends to write
an option, it is likely that the option will be written concurrently with or
shortly after purchase. The Fund will write an option on a particular security
only if Founders believes that a liquid secondary market will exist on an
exchange for options of the same series, which will permit the Fund to enter
into a closing purchase transaction and close out its position. If the Fund
desires to sell a particular security on which it has written an option, it will
effect a closing purchase transaction prior to or concurrently with the sale of
the security.
A Fund may enter into closing purchase transactions to reduce the
percentage of its assets against which options are written, to realize a profit
on a previously written option, or to enable it to write another option on the
underlying security with either a different exercise price or expiration time or
both.
Options written by a Fund will normally have expiration dates between
three and nine months from the date written. The exercise prices of options may
be below, equal to or above the current market values of the underlying
securities at the times the options are written. From time to time for tax and
other reasons, the Fund may purchase an underlying security for delivery in
accordance with an exercise notice assigned to it, rather than delivering such
security from its portfolio.
As indicated, all Funds except the Balanced, Money Market and Government
Securities Funds may purchase options on stock indices. A stock index measures
the movement of a certain group of stocks by assigning relative values to the
stocks included in the index. Options on stock indices are similar to options on
securities. However, because options on stock indices do not involve the
delivery of an underlying security, the option represents the holder's right to
obtain from the writer in cash a fixed multiple of the amount by which the
exercise price exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the exercise date. The Funds
purchase put options on stock indices to protect the Funds' portfolios against
decline in value. The Funds purchase call options on stock indices to establish
a position in equities as a temporary substitute for purchasing individual
stocks that then may be acquired over the option period in a manner designed to
minimize adverse price movements. Purchasing put and call options on stock
indices also permits greater time for evaluation of investment alternatives.
When Founders believes that the trend of stock prices may be downward,
particularly for a short
<PAGE>
period of time, the purchase of put options on stock indices may eliminate the
need to sell less liquid stocks and possibly repurchase them later. The purpose
of these transactions is not to generate gain, but to "hedge" against possible
loss. Therefore, successful hedging activity will not produce net gain to the
Funds. Any gain in the price of a call option is likely to be offset by higher
prices ^ a Fund must pay in rising markets, as cash reserves are invested. In
declining markets, any increase in the price of a put option is likely to be
offset by lower prices of stocks owned by ^ a Fund.
Upon purchase by all Funds except Balanced, Money Market and Government
Securities Funds of a call on a stock index, the Funds pay a premium and have
the right during the call period to require the seller of such a call, upon
exercise of the call, to deliver to the Funds an amount of cash if the closing
level of the stock index upon which the call is based is above the exercise
price of the call. This amount of cash is equal to the difference between the
closing price of the index and the lesser exercise price of the call. Upon
purchase by the Funds of a put on a stock index, the Funds pay a premium and
have the right during the put period to require the seller of such a put, upon
exercise of the put, to deliver to the Funds an amount of cash if the closing
level of the stock index upon which the put is based is below the exercise price
of the put. This amount of cash is equal to the difference between the exercise
price of the put and the lesser closing level of the stock index. Buying stock
index options permits the Funds, if cash is deliverable to them during the
option period, either to sell the option or to require delivery of the cash. If
such cash is not so deliverable, and as a result the option is not exercised or
sold, the option becomes worthless at its expiration date.
The Funds may purchase only those put and call options that are listed on
a domestic exchange or quoted on the automatic quotation system of the National
Association of Securities Dealers, Inc. ("NASDAQ"). Options traded on stock
exchanges are either broadly based, such as the Standard & Poor's 500 Stock
Index and 100 Stock Index, or involve stocks in a designated industry or group
of industries. The Funds may utilize either broadly based or market segment
indices in seeking a better correlation between the indices and the Funds'
portfolios.
Transactions in options are subject to limitations, established by each of
the exchanges upon which options are traded, governing the maximum number of
options that may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options are held in one or more
accounts. Thus, the number of options a Fund may hold may be affected by options
held by other advisory clients of Founders. As of the date of this Statement of
Additional Information, Founders believes that these limitations will not affect
the purchase of stock index options by the Funds.
The value of a stock index option depends upon movements in the level of
the stock index rather than the price of a particular stock. Whether a Fund will
realize a gain or a loss from its option activities depends upon movements in
the level of
<PAGE>
stock prices generally or in an industry or market segment, rather than
movements in the price of a particular stock. Purchasing call and put options on
stock indices involves the risk that Founders may be incorrect in its
expectations as to the extent of the various stock market movements or the time
within which the options are based. To compensate for this imperfect
correlation, a Fund may enter into options transactions in a greater dollar
amount than the securities being hedged if the historical volatility of the
prices of the securities being hedged is different from the historical
volatility of the stock index.
One risk of holding a put or a call option is that if the option is not
sold or exercised prior to its expiration, it becomes worthless. However, this
risk is limited to the premium paid by the Fund. Other risks of purchasing
options include the possibility that a liquid secondary market may not exist at
a time when the Fund may wish to close out an option position. It is also
possible that trading in options on stock indices might be halted at a time when
the securities markets generally were to remain open. In cases where the market
value of an issue supporting a covered call option exceeds the strike price plus
the premium on the call, the portfolio will lose the right to appreciation of
the stock for the duration of the option.
Futures Contracts
All Funds except Money Market Fund may enter into futures contracts for
hedging purposes. U.S. futures contracts are traded on exchanges ^ that have
been designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a futures commission merchant (an "FCM")
or brokerage firm ^ that is a member of the relevant contract market. Although
futures contracts by their terms call for the delivery or acquisition of the
underlying commodities or a cash payment based on the value of the underlying
commodities, in most cases the contractual obligation is offset before the
delivery date of the contract by buying, in the case of a contractual obligation
to sell, or selling, in the case of a contractual obligation to buy, an
identical futures contract on a commodities exchange. Such a transaction cancels
the obligation to make or take delivery of the commodities.
The acquisition or sale of a futures contract could occur, for example, if
a Fund held or considered purchasing equity securities and sought to protect
itself from fluctuations in prices without buying or selling those securities.
For example, if prices were expected to decrease, a Fund could sell equity index
futures contracts, thereby hoping to offset a potential decline in the value of
equity securities in the portfolio by a corresponding increase in the value of
the futures contract position held by the Fund and thereby prevent the Fund's
net asset value from declining as much as it otherwise would have. A Fund also
could protect against potential price declines by selling portfolio securities
and investing in money market instruments. However, since the futures market is
more liquid than the cash market, the use of futures contracts as an investment
technique would allow the Fund to maintain a defensive position without having
to sell portfolio securities.
<PAGE>
Similarly, when prices of equity securities are expected to increase,
futures contracts could be bought to attempt to hedge against the possibility of
having to buy equity securities at higher prices. This technique is sometimes
known as an anticipatory hedge. Since the fluctuations in the value of futures
contracts should be similar to those of equity securities, a Fund could take
advantage of the potential rise in the value of equity securities without buying
them until the market had stabilized. At that time, the futures contracts could
be liquidated and the Fund could buy equity securities on the cash market.
The Funds may also enter into interest rate and foreign currency futures
contracts. Interest rate futures contracts currently are traded on a variety of
fixed-income securities, including long-term U.S. Treasury ^ bonds, Treasury ^
notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, U.S. Treasury ^ bills, bank certificates of deposit
and commercial paper. Foreign currency futures contracts currently are traded on
the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark
and on Eurodollar deposits.
Futures contracts entail risks. Although Founders believes that use of
such contracts could benefit the Funds, if ^ Founders' investment judgment were
incorrect, a Fund's overall performance could be worse than if the Fund had not
entered into futures contracts. For example, if a Fund hedged against the
effects of a possible decrease in prices of securities held in the Fund's
portfolio and prices increased instead, the Fund would lose part or all of the
benefit of the increased value of these securities because of offsetting losses
in the Fund's futures positions. In addition, if the Fund had insufficient cash,
it might have to sell securities from its portfolio to meet margin requirements.
Those sales could be at increased prices ^ that reflect the rising market and
could occur at a time when the sales would be disadvantageous to the Fund.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, the ability of investors to close out futures contracts through
offsetting transactions could distort the normal price relationship between the
cash and futures markets. Second, to the extent participants decide to make or
take delivery, liquidity in the futures markets could be reduced and prices in
the futures markets distorted. Third, from the point of view of speculators, the
margin deposit requirements in the futures markets are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures markets may cause temporary price distortions. Due to
the possibility of the foregoing distortions, a correct forecast of general
price trends still may not result in a successful use of futures.
The prices of futures contracts depend primarily on the
value of their underlying instruments. Because there are a
<PAGE>
limited number of types of futures contracts, it is possible that the
standardized futures contracts available to the Funds would not match exactly a
Fund's current or potential investments. A Fund might buy or sell futures
contracts based on underlying instruments with different characteristics from
the securities in which it would typically invest -- for example, by hedging
investments in portfolio securities with a futures contract based on a broad
index of securities -- which involves a risk that the futures position might not
correlate precisely with the performance of the Fund's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a Fund's
investments. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments, and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between a Fund's investments and its futures positions could also
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures contracts. A
Fund would be able to buy or sell futures contracts with a greater or lesser
value than the securities it wished to hedge or was considering purchasing in
order to attempt to compensate for differences in historical volatility between
the futures contract and the securities, although this might not be successful
in all cases. If price changes in the Fund's futures positions were poorly
correlated with its other investments, its futures positions could fail to
produce desired gains or result in losses that would not be offset by the gains
in the Fund's other investments.
A Fund will not, as to any positions, whether long, short or a combination
thereof, enter into futures and options thereon for which the aggregate initial
margins and premiums exceed 5% of the fair market value of its total assets
after taking into account unrealized profits and losses on options entered into.
In the case of an option that is "in-the-money," the in-the-money amount may be
excluded in computing such 5%. In general a call option on a future is
"in-the-money" if the value of the future exceeds the exercise ("strike") price
of the call; a put option on a future is "in-the-money" if the value of the
future ^ that is the subject of the put is exceeded by the strike price of the
put. The Funds may use futures and options thereon solely for bona fide hedging
or for other non-speculative purposes. As to long positions ^ that are used as
part of a Fund's portfolio strategies and are incidental to its activities in
the underlying cash market, the "underlying commodity value" of the Fund's
futures and options thereon must not exceed the sum of (i) cash set aside in an
identifiable manner, or short-term U.S. debt obligations or other
dollar-denominated high-quality, short-term money instruments so set aside, plus
sums deposited on margin; (ii) cash proceeds from existing investments due in 30
days; and (iii) accrued profits held at the futures commission merchant. The
"underlying commodity value" of a future is computed by multiplying the size of
the future by the daily settlement price
<PAGE>
of the future. For an option on a future, that value is the
underlying commodity value of the future underlying the option.
Unlike the situation in which a Fund purchases or sells a security, no
price is paid or received by a Fund upon the purchase or sale of a futures
contract. Instead, the Fund is required to deposit in a segregated asset account
an amount of cash or qualifying securities (currently U.S. Treasury bills),
currently in a minimum amount of $15,000. This is called "initial margin." Such
initial margin is in the nature of a performance bond or good faith deposit on
the contract. However, since losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Fund may be
required to make additional payments during the term of a contract to its
broker. Such payments would be required, for example, ^ when, during the term of
an interest rate futures contract purchased by the Fund, there was a general
increase in interest rates, thereby making the Fund's portfolio securities less
valuable. In all instances involving the purchase of financial futures contracts
by a Fund, an amount of cash together with such other securities as permitted by
applicable regulatory authorities to be utilized for such purpose, at least
equal to the market value of the future contracts, will be deposited in a
segregated account with the Fund's custodian to collateralize the position. At
any time prior to the expiration of a futures contract, the Fund may elect to
close its position by taking an opposite position ^ that will operate to
terminate the Fund's position in the futures contract.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of three business days
for most types of securities, the futures markets can provide superior liquidity
to the securities markets. Nevertheless, there is no assurance a liquid
secondary market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish daily price
fluctuation limits for futures contracts and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it would be impossible
for a Fund to enter into new positions or close out existing positions.
If the secondary market for a futures contract were not liquid because of price
fluctuation limits or otherwise, a Fund would not promptly be able to liquidate
unfavorable futures positions and potentially could be required to continue to
hold a futures position until the delivery date, regardless of changes in its
value. As a result, a Fund's access to other assets held to cover its futures
positions also could be impaired.
Options on Futures Contracts
All Funds except Special, Balanced, Money Market and Government Securities
Funds may purchase put and call options on futures contracts. An option on a
futures contract provides the holder with the right to enter into a "long"
position in the underlying futures contract, in the case of a call option, or a
"short" position in the underlying futures contract, in the case of a put
option, at a fixed exercise price to a stated expiration
<PAGE>
date. Upon exercise of the option by the holder, a contract market ^
clearinghouse establishes a corresponding short position for the writer of the
option, in the case of a call option, or a corresponding long position, in the
case of a put option. In the event that an option is exercised, the parties will
be subject to all the risks associated with the trading of futures contracts,
such as payment of variation margin deposits.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market ^ clearinghouse assigns exercise notices
on a random basis to those of its members ^ that have written options of the
same series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers ^ that
have written options of the same series and expiration date. A writer therefore
has no control over whether an option will be exercised against it, nor over the
time of such exercise.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. See
"Options on Foreign Currencies" below. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying instrument, ownership of the option may or may not
be less risky than ownership of the futures contract or the underlying
instrument. As with the purchase of futures contracts, when a Fund is not fully
invested it could buy a call option on a futures contract to hedge against a
market advance.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund would be able to buy a put option on a futures contract to hedge
the Fund's portfolio against the risk of falling prices.
The amount of risk a Fund would assume, if it bought an option on a
futures contract, would be the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above, the
purchase of an option also entails the risk that changes in the value of the
underlying futures contract will not fully be reflected in the value of the
options bought.
Options on Foreign Currencies
All of the Funds except Special, Balanced, Money Market and Government
Securities Funds may buy and sell options on foreign
<PAGE>
currencies for hedging purposes in a manner similar to that in which futures on
foreign currencies would be utilized. For example, a decline in the U.S. dollar
value of a foreign currency in which portfolio securities are denominated would
reduce the U.S. dollar value of such securities, even if their value in the
foreign currency remained constant. In order to protect against such diminutions
in the value of portfolio securities, a Fund could buy put options on the
foreign currency. If the value of the currency declines, the Fund would have the
right to sell such currency for a fixed amount in U.S. dollars and would thereby
offset, in whole or in part, the adverse effect on its portfolio ^ that
otherwise would have resulted. Conversely, when a rise is projected in the U.S.
dollar value of a currency in which securities to be acquired are denominated,
thereby increasing the cost of such securities, the Fund could buy call options
thereon.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities, and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices, or prohibitions on exercise.
Risk Factors of Investing in Futures and Options
The successful use of the investment practices described above with
respect to futures contracts, options on futures contracts, and options on
securities indices, securities, and foreign currencies draws upon skills and
experience ^ that are
<PAGE>
different from those needed to select the other instruments in which the Funds
invest. All such practices entail risks and can be highly volatile. Should
interest or exchange rates or the prices of securities or financial indices move
in an unexpected manner, the Funds may not achieve the desired benefits of
futures and options or may realize losses and thus be in a worse position than
if such strategies had not been used. Unlike many exchange-traded futures
contracts and options on futures contracts, there are no daily price fluctuation
limits with respect to options on currencies and negotiated or over-the-counter
instruments, and adverse market movements could therefore continue to an
unlimited extent over a period of time. In addition, the correlation between
movements in the price of the securities and currencies hedged or used for cover
will not be perfect and could produce unanticipated losses.
A Fund's ability to dispose of its positions in the foregoing instruments
will depend on the availability of liquid markets in the instruments. Markets in
a number of the instruments are relatively new and still developing and it is
impossible to predict the amount of trading interest that may exist in those
instruments in the future. Particular risks exist with respect to the use of
each of the foregoing instruments and could result in such adverse consequences
to the Funds as the possible loss of the entire premium paid for an option
bought by a Fund, the inability of ^ a Fund, as the writer of a covered call
option, to benefit from the appreciation of the underlying securities above the
exercise price of the option, and the possible need to defer closing out
positions in certain instruments to avoid adverse tax consequences. As a result,
no assurance can be given that the Funds will be able to use those instruments
effectively for the purposes set forth above.
In addition, options on U.S. Government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be affected adversely by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
Foreign Securities and ADRs
The term "foreign securities" refers to securities of issuers, wherever
organized, that, in the judgment of Founders, have their principal business
activities outside of the United States. The determination of whether an
issuer's principal activities are outside of the United States will be based on
the location of the issuer's assets, personnel, sales, and earnings, and
specifically on whether more than 50% of the issuer's assets
<PAGE>
are located, or more than 50% of the issuer's gross income is earned, outside of
the United States, or on whether the issuer's sole or principal stock exchange
listing is outside of the United States. Foreign securities typically will be
traded on the applicable country's principal stock exchange but may also be
traded on regional exchanges or over-the-counter.
Investments in foreign countries involve certain risks ^ that are not
typically associated with U.S. investments. There may be less publicly available
information about foreign companies comparable to reports and ratings published
about U.S. companies. Foreign companies are not generally subject to uniform
accounting, auditing, and financial reporting standards and requirements
comparable to those applicable to U.S. companies. There also may be less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the United States.
Foreign stock markets may have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies may be less liquid and
may be more volatile than securities of comparable U.S. companies. Brokerage
commissions and other transaction costs on foreign securities exchanges
generally are higher than in the United States.
Because investment in foreign companies will usually involve currencies of
foreign countries, and because a Fund may temporarily hold funds in bank
deposits in foreign currencies during the course of investment programs, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversion between various currencies. A change in the value of any foreign
currency relative to the U.S. dollar, when the Fund holds that foreign currency
or a security denominated in that foreign currency, will cause a corresponding
change in the dollar value of the Fund assets denominated or traded in that
country. Moreover, there is the possibility of expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of the Fund,
political, economic or social instability or diplomatic developments ^ that
could affect U.S. investments in foreign countries.
Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes, thus reducing the net return on such
investments compared with U.S. investments. The operating expense ratio of a
Fund ^ that invests in foreign securities can be expected to be higher than that
of a fund which invests exclusively in domestic securities, since the expenses
of the Fund, such as foreign custodial costs, are higher. In addition, the Fund
incurs costs in converting assets from one currency to another.
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
<PAGE>
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. Such countries may include (but are not limited to) Argentina,
Australia, Austria, Belgium, Bolivia, Brazil, Chile, China, Colombia, Costa
Rica, Croatia, Czech Republic, Denmark, Ecuador, Egypt, Finland, Greece, Hong
Kong, Hungary, India, Indonesia, Ireland, Italy, Israel, Jordan, Malaysia,
Mexico, Netherlands, New Zealand, Nigeria, North Korea, Norway, Pakistan,
Paraguay, Peru, Philippines, Poland, Portugal, Singapore, Slovak Republic, South
Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand,
Turkey, Uruguay, Venezuela, Vietnam and the countries of the former Soviet
Union.
American Depositary Receipts and American Depositary Shares (collectively,
"ADRs") are receipts representing shares of a foreign corporation held by a U.S.
bank that entitle the holder to all dividends and capital gains on the
underlying foreign shares. ADRs are denominated in U.S. dollars and trade in the
U.S. securities markets. ADRs may be issued in sponsored or unsponsored
programs. In sponsored programs, the issuer makes arrangements to have its
securities traded in the form of ADRs; in unsponsored programs, the issuer may
not be directly involved in the creation of the program. Although the regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, the issuers of unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, such information may not be
reflected in the market value of the ADRs.
Forward Contracts For Purchase or Sale of Foreign Currencies
The Funds generally conduct their foreign currency exchange transactions
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
currency market. When a Fund purchases or sells a security denominated in a
foreign currency, it may enter into a forward foreign currency contract
("forward contract") for the purchase or sale, for a fixed amount of dollars, of
the amount of foreign currency involved in the underlying security transaction.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. In this manner, a Fund may obtain protection against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the foreign currency during the period between the date the security is
purchased or sold and the date upon which payment is made or received. Although
such contracts tend to minimize the risk of loss due to the decline in the value
of the hedged currency, at the same time they tend to limit any potential gain ^
that might result should the value of such currency increase. The Funds will not
speculate in forward contracts.
Forward contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Generally a forward contract has no deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange
<PAGE>
dealers do not charge a fee for conversion, they do realize a profit based on
the difference between the prices at which they buy and sell various currencies.
When Founders believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. dollar (or sometimes against
another currency), Discovery ^, Passport, Frontier ^ International Equity ^, and
Worldwide Growth ^ Funds may each enter into ^ forward ^ contracts to sell, for
a fixed ^-dollar or other currency amount, foreign currency approximating the
value of some or all of ^ the Funds' portfolio securities denominated in ^ that
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible. The future value of such
securities in foreign currencies changes as a consequence of market movements in
the value of those securities between the date on which the contract is entered
into and the date it expires. Frontier Fund does not intend to sell such foreign
currencies on a regular or continuous basis, and will not do so if, as a result,
the Fund will have more than 15% of the value of its total assets committed to
the consummation of such foreign currency sales. Discovery ^, Passport, Frontier
^ International Equity ^, and Worldwide Growth ^ Funds generally will not enter
into forward contracts with a term greater than one year. In addition, the Funds
generally will not enter into such forward contracts or maintain a net exposure
to such contracts where the ^ fulfillment of the contracts would ^ require the
Funds to deliver an amount of foreign currency in excess of the value of ^ the
Funds' portfolio securities or other assets denominated in that currency. Under
normal circumstances, consideration of the possibility of changes in currency
exchange rates will be incorporated into the Funds' long-term investment
strategies. Forward contracts may, from time to time, be considered illiquid, in
which case they would be subject to the respective Funds' limitation on
investing in illiquid securities, as discussed below.
At the consummation of a forward contract for delivery by Discovery ^,
Passport, Frontier ^ International Equity ^, and Worldwide Growth ^ Funds of a
foreign currency, those Funds may either make delivery of the foreign currency
or terminate its contractual obligation to deliver the foreign currency by
purchasing an offsetting contract obligating it to purchase, at the same
maturity date, the same amount of the foreign currency. If the Fund chooses to
make delivery of the foreign currency, it may be required to obtain such
currency through the sale of portfolio securities denominated in such currency
or through conversion of other Fund assets into such currency. It is impossible
to forecast the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver, and if a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
<PAGE>
If Discovery ^, Passport, Frontier ^ International Equity ^, or Worldwide
Growth ^ Funds retain the portfolio security and engage in an offsetting
transaction, they will incur a gain or loss to the extent that there has been
movement in spot or forward contract prices. If any one of those Funds engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices decline during the
period between the Fund's entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer a
loss to the extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.
While forward contracts may be traded to reduce certain risks, trading in
forward contracts itself entails certain other risks. Thus, while the Funds may
benefit from the use of such contracts, if Founders is incorrect in its forecast
of currency prices, a poorer overall performance may result than if a Fund had
not entered into any forward contracts. Some forward contracts may not have a
broad and liquid market, in which case the contracts may not be able to be
closed at a favorable price. Moreover, in the event of an imperfect correlation
between the forward contract and the portfolio position that it is intended to
protect, the desired protection may not be obtained.
Dealings in forward contracts by Discovery ^, Passport, Frontier ^
International Equity ^, and Worldwide Growth ^ Funds will be limited to the
transactions described above. Of course, those Funds are not required to enter
into such transactions with regard to their foreign currency-denominated
securities and will not do so unless deemed appropriate by Founders. It also
should be realized that this method of protecting the value of the Funds'
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange ^ that can be achieved at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to the decline in the value of the hedged currency, at the same time they
tend to limit any potential gain ^ that might result should the value of such
currency increase.
Illiquid Securities
As discussed in the Prospectus, certain of the Funds may invest up to 15%
of the value of their net assets, measured at the time of investment, in
investments ^ that are not readily marketable. Subject to the overall 15%
limitation upon investments ^ that are not readily marketable, certain of these
Funds may invest ^ in restricted securities. Restricted securities are
securities that may not be resold to the public without registration under the
Securities Act of 1933 (the "1933 Act"). Restricted securities (other than
liquid Rule 144A securities, discussed below) and securities ^ that are not
readily marketable are illiquid securities. Illiquid securities
<PAGE>
are securities ^ that may be subject to resale restrictions or ^ that, due to
their market or the nature of the security, have no readily available markets
for their disposition. These limitations on resale and marketability may have
the effect of preventing a Fund from disposing of such a security at the time
desired or at a reasonable price. In addition, in order to resell a restricted
security, a Fund might have to bear the expense and incur the delays associated
with effecting registration. In purchasing illiquid securities, no ^ Fund
intends to engage in underwriting activities, except to the extent a Fund may be
deemed to be a statutory underwriter under the 1933 Act in disposing of such
securities. Illiquid securities will be purchased for investment purposes only
and not for the purpose of exercising control or management of other companies.
Rule 144A Securities
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend on an efficient institutional market in which such
unregistered securities can readily be resold or on an issuer's ability to honor
a demand for repayment. Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain institutions is not
dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Certain of the Funds may invest in Rule 144A
securities ^ that, as disclosed in the Prospectus, are restricted securities ^
that may or may not be readily marketable. Rule 144A securities are readily
marketable if institutional markets for the securities develop pursuant to Rule
144A ^ that provide both readily ascertainable values for the securities and the
ability to liquidate the securities when liquidation is deemed necessary or
advisable. However, an insufficient number of qualified institutional buyers
interested in purchasing a Rule 144A security held by one of the Funds could
affect adversely the marketability of the security. In such an instance, the
Fund might be unable to dispose of the security promptly or at reasonable
prices.
The board of directors of the Funds has delegated to Founders the
authority to determine that a liquid market exists for securities eligible for
resale pursuant to Rule 144A under the 1933 Act, or any successor to such rule,
and that such securities are not subject to the Funds' limitations on investing
in ^ securities that are not readily marketable^. Under guidelines established
by the directors, Founders will consider the following factors, among others, in
making this determination: (1) the unregistered nature of a Rule 144A security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers willing to purchase or sell the security and the number of additional
potential purchasers; (4) dealer undertakings to make a market in the security;
and (5)
<PAGE>
the nature of the security and the nature of market place trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfers). Founders is required to monitor the readily marketable
nature of each Rule 144A security on a basis no less frequently than quarterly.
The Funds' directors monitor the determinations of Founders quarterly. As
indicated, Rule 144A securities will remain subject to ^ certain Fund's ^
limitations on investments in restricted securities, those securities for which
there are legal and contractual restrictions on resale.
Fixed-Income Securities
With the exception of Government Securities and Money Market Funds, which
are prohibited from making such investments, each of the Funds may invest up to
5% of their assets in convertible securities and preferred stocks ^ that are
unrated or are rated below investment grade either at the time of purchase or as
a result of reduction in rating after purchase. Investments in lower rated or
unrated securities are generally considered to be of high risk. Lower rated debt
securities, commonly referred to as junk bonds, are generally subject to two
kinds of risk, credit risk and market risk. Credit risk relates to the ability
of the issuer to meet interest or principal payments, or both, as they come due.
The ratings given a security by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's ("S&P") provide a generally useful guide as to such credit
risk. The Appendix to this Statement of Additional Information provides a
description of such debt security ratings. The lower the rating given a security
by a rating service, the greater the credit risk such rating service perceives
to exist with respect to the security. Increasing the amount of a Fund's assets
invested in unrated or lower grade securities, while intended to increase the
yield produced by those assets, will also increase the risk to which those
assets are subject.
Market risk relates to the fact that the market values of debt securities
in which a Fund invests generally will be affected by changes in the level of
interest rates. An increase in interest rates will tend to reduce the market
values of such securities, whereas a decline in interest rates will tend to
increase their values. Medium and lower rated securities (Baa or BBB and lower)
and non-rated securities of comparable quality tend to be subject to wider
fluctuations in yields and market values than higher rated securities and may
have speculative characteristics. The Funds are not required to dispose of debt
securities whose ratings are downgraded below these ratings subsequent to a
Fund's purchase of the securities, unless such a disposition is necessary to
reduce a Fund's holdings of such securities to less than 5% of its total assets.
In order to decrease the risk in investing in debt securities, in no event will
a Fund ever invest in a debt security rated below B by Moody's or by S&P. Of
course, relying in part on ratings assigned by credit agencies in making
investments will not protect the Funds from the risk that the securities in
which they invest will decline in value, since credit ratings represent
evaluations of the safety of principal, dividend, and interest payments on
preferred stocks and debt securities, and not the
<PAGE>
market values of such securities, and such ratings may not be changed on a
timely basis to reflect subsequent events.
Because investment in medium and lower rated securities involves both
greater credit risk and market risk, achievement of the Funds' investment
objectives may be more dependent on the investment adviser's own credit analysis
than is the case for funds that do not invest in such securities. In addition,
the share price and yield of these Funds may fluctuate more than in the case of
funds investing in higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower rated securities experiencing increased financial stress, ^
that would adversely affect their ability to service their principal, dividend,
and interest obligations, meet projected business goals, and obtain additional
financing. In this regard, it should be noted that while the market for high
yield debt securities has been in existence for many years and from time to time
has experienced economic downturns in recent years, this market has involved a
significant increase in the use of high yield debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may not,
therefore, provide an accurate indication of future performance of the high
yield debt securities market, particularly during periods of economic recession.
Furthermore, expenses incurred in recovering an investment in a defaulted
security may adversely affect a Fund's net asset value. Finally, while the
Funds' investment adviser attempts to limit purchases of medium and lower rated
securities to securities having an established secondary market, the secondary
market for such securities may be less liquid than the market for higher quality
securities. The reduced liquidity of the secondary market for such securities
may adversely affect the market price of, and ability of a Fund to value,
particular securities at certain times, thereby making it difficult to make
specific valuation determinations. The Funds do not invest in any medium and
lower rated securities ^ that present special tax consequences, such as zero
coupon bonds or pay-in-kind bonds.
The Funds' investment adviser seeks to reduce the overall risks associated
with the Funds' investments through diversification and consideration of factors
affecting the value of securities it considers relevant. No assurance can be
given, however, regarding the degree of success that will be achieved in this
regard or that the Funds will achieve their investment objectives.
Foreign Bank Obligations
The obligations of foreign branches of U.S. depository institutions
purchased by the Funds may be general obligations of the parent depository
institution in addition to being an obligation of the issuing branch. These
obligations, and those of foreign depository institutions, may be limited by the
terms of the specific obligation and by governmental regulation. The payment of
these obligations, both interest and principal, also may be affected by
governmental action in the country of domicile of the institution or branch,
such as imposition of currency
<PAGE>
controls and interest limitations. In connection with these investments, a Fund
will be subject to the risks associated with the holding of portfolio securities
overseas, such as possible changes in investment or exchange control
regulations, expropriation, confiscatory taxation, or political or financial
instability.
Obligations of U.S. branches of foreign depository institutions may be
general obligations of the parent depository institution in addition to being an
obligation of the issuing branch, or may be limited by the terms of a specific
foreign regulation applicable to the depository institutions and by government
regulation (both domestic and foreign).
Repurchase Agreements
As discussed in the Funds' Prospectus, the Funds may enter into repurchase
agreements with respect to money market instruments eligible for investment by
the Funds with member banks of the ^ Federal Reserve system, registered
broker-dealers, and registered government securities dealers. A repurchase
agreement may be considered a loan collateralized by securities. The resale
price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the collateral securities acquired
by a Fund (including accrued interest earned thereon) must have a total value at
least equal to the value of the repurchase agreement, and are held as collateral
by the Funds' custodian bank until the repurchase agreement is completed.
Repurchase agreements maturing in more than seven days are considered illiquid
and will be subject to each Fund's limitation with respect to illiquid
securities. For a further explanation, see "Investment Objectives and Policies
^- Illiquid Securities."
None of the Funds ^ has adopted any limits on the amounts of ^ its total
assets that may be invested in repurchase agreements ^ that mature in less than
seven days. Each of the Funds except Money Market Fund may invest up to 15% of
the market value of its net assets, measured at the time of purchase, in
securities ^ that are not readily marketable, including repurchase agreements
maturing in more than seven days. Money Market Fund may enter into repurchase
agreements if, as a result thereof, no more than 10% of the market value of its
net assets would be subject to repurchase agreements maturing in more than seven
days.
Convertible Securities
All Funds except Government Securities and Money Market Funds may buy
securities convertible into common stock if, for example, the Fund's investment
adviser believes that a company's convertible securities are undervalued in the
market. Convertible securities eligible for purchase include convertible bonds,
convertible preferred stocks, and warrants. A warrant is an instrument issued by
a corporation ^ that gives the holder the right to subscribe to a specific
amount of the corporation's capital stock at a set price for a specified period
of time. Warrants do not represent ownership of the securities, but only the
right to buy the securities. The prices of warrants do not
<PAGE>
necessarily move parallel to the prices of underlying securities.
Warrants may be considered speculative in that they have no
voting rights, pay no dividends, and have no rights with respect to the assets
of a corporation issuing them. Warrant positions will not be used to increase
the leverage of a Fund; consequently, warrant positions are generally
accompanied by cash positions equivalent to the required exercise amount.
Mortgage-Related Securities
Government Securities ^ and Balanced Funds may invest in mortgage-related
securities, which are interests in pools of mortgage loans made to residential
home buyers, including mortgage loans made by savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage loans are
assembled as securities for sale to investors by various governmental and
government-related organizations (see "Mortgage Pass-Through Securities"). ^
Other Funds also may invest in such securities for temporary defensive purposes.
The Government Securities Fund also may invest in debt securities ^ that are
secured with collateral consisting of mortgage-related securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.
Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, ^ that normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or at specified call dates. Instead, these securities provide a monthly
payment ^ that consists of both interest and principal payments. In effect,
these payments are a "pass-through" of the monthly payments made by the
individual borrowers on their residential or commercial mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional payments
are caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs ^ that may be
incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association ("GNMA")) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned U.S. government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored
<PAGE>
corporation owned entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
conventional (i.e., not insured or guaranteed by any government agency)
residential mortgages from a list of approved seller/servicers ^ that include
state and federally chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage bankers. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA but are not backed by the full faith and credit of the U.S.
government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") ^ that represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the U.S. government.
Mortgage-backed securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities, are not subject to a Fund's
industry concentration restrictions, by virtue of the exclusion from that test
available to all U.S. government securities. The assets underlying such
securities may be represented by a portfolio of first lien residential mortgages
(including both whole mortgage loans and mortgage participation interests) or
portfolios of mortgage pass-through securities issued or guaranteed by GNMA,
FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn
be insured or guaranteed by the Federal Housing Administration or the Department
of Veterans Affairs.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds").
<PAGE>
Proceeds of the Bond offering are used to purchase mortgages or mortgage
pass-through certificates ("Collateral"). The Collateral is pledged to a third
party trustee as security for the Bonds. Principal and interest payments from
the Collateral are used to pay principal on the Bonds in the order A, B, C, Z.
The Series A, B, and C Bonds all bear current interest. Interest on the Series Z
Bond is accrued and added to principal and a like amount is paid as principal on
the Series A, B, or C Bond currently being paid off. When the Series A, B, and C
Bonds are paid in full, interest and principal on the Series Z Bond begin to be
paid currently. With some CMOs, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates ^ that are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs,
payments of principal and interest on the CMOs are made semiannually, as opposed
to monthly. The amount of principal payable on each semiannual payment date is
determined in accordance with FHLMC's mandatory sinking fund schedule, ^ that,
in turn, is equal to approximately 100% of FHA prepayment experience applied to
the mortgage collateral pool. All sinking fund payments in the CMOs are
allocated to the retirement of the individual classes of bonds in the order of
their stated maturities. Payment of principal on the mortgage loans in the
collateral pool in excess of the amount of FHLMC's minimum sinking fund
obligation for any payment date are paid to the holders of the CMOs as
additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, thereby affecting the investment's average life and
perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise.
Accordingly, amounts available for reinvestment by a Fund are
<PAGE>
likely to be greater during a period of declining interest rates and, as a
result, likely to be reinvested at lower interest rates than during a period of
rising interest rates. Besides the effect of prevailing interest rates, the rate
of prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and a fund invested in such securities wishing to sell them may find
it difficult to find a buyer, which may in turn decrease the price at which they
may be sold. In addition, as a result of the uncertainty of cash flows of lower
tranche CMOs, the market prices of and yield on those tranches generally are
more volatile.
Credit risk reflects the risk that a Fund may not receive all or part of
its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. With respect to GNMA
certificates, although GNMA guarantees timely payment even if homeowners delay
or default, tracking the "pass-through" payments may, at times, be difficult.
The average life of CMOs is determined using mathematical models that
incorporate prepayment assumptions and other factors that involve estimates of
future economic and market conditions. These estimates may vary from actual
future results, particularly during periods of extreme market volatility. In
addition, under certain market conditions, such of those that developed in 1994,
the average weighted life of mortgage derivative securities may not accurately
reflect the price volatility of such securities. For example, in periods of
supply and demand imbalances in the market for such securities and/or in periods
of sharp interest rate movements, the prices of mortgage derivative securities
may fluctuate to a greater extent than would be expected from interest rate
movements alone.
A Fund's investments in CMOs also are subject to extension risk. Extension
risk is the possibility that rising interest rates may cause prepayments to
occur at a slower than expected rate. This particular risk may effectively
change a security that was considered short or intermediate-term at the time of
purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities.
When-Issued Securities
The Funds (other than the Money Market Fund) may purchase securities on a
when-issued or delayed-delivery basis; i.e., the
<PAGE>
securities are purchased with settlement taking place at some point in the
future beyond a customary settlement date. The payment obligation and, in the
case of debt securities, the interest rate that will be received on the
securities are generally fixed at the time a Fund enters into the purchase
commitment. During the period between purchase and settlement, no payment is
made by the Fund and, in the case of debt securities, no interest accrues to the
Fund. At the time of settlement, the market value of the security may be more or
less than the purchase price, and the Fund bears the risk of such market value
fluctuations. The Fund will maintain liquid assets, such as cash, U.S.
government securities or other liquid equity or debt securities, having an
aggregate value equal to the purchase price, in a segregated account with its
custodian until payment is made. A Fund also will segregate assets in this
manner in situations where additional installments of the original issue price
are payable in the future.
Borrowing
If a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is repaid. Each Fund will attempt to minimize
such fluctuations by not purchasing securities when borrowings are greater than
5% of the value of the Fund's total assets. See "Investment Restrictions" below
for each Fund's limitation on borrowing.
Securities of Other Investment Companies
Each of the Funds may acquire securities of other investment companies if
they are acquired in connection with a plan of reorganization, merger or
consolidation. In addition, all of the Funds except the Money Market Fund may
purchase securities of other investment companies, although as of the date of
this Statement of Additional Information, no Fund intends to purchase such
securities in excess of the following limitations: (a) no more than 3% of the
voting securities of any one investment company may be owned in the aggregate by
the Fund and all other Funds, (b) no more than 5% of the value of the total
assets of the Fund may be invested in any one investment company, and (c) no
more than 10% of the value of the total assets of the Fund and all other Funds
may be invested in the securities of all such investment companies. Should a
Fund purchase securities of other investment companies, shareholders may incur
additional management, advisory, and distribution fees.
INVESTMENT RESTRICTIONS
^ Certain of the investment restrictions set forth below are fundamental
("Fundamental") policies of each Fund, i.e., they may not be changed with
respect to a Fund without approval of the ^ holders of a majority, as defined in
the Investment Company Act of 1940 (the "1940 Act"), of the outstanding voting
securities of that Fund. Other investment practices ^ that may be changed by the
Board of Directors without the approval of shareholders to the extent permitted
by applicable law, regulation or regulatory policy are considered
non-fundamental ("Non-Fundamental"). If a
<PAGE>
percentage restriction is adhered to at the time of investment, a later increase
or decrease in percentage beyond the specified limit that results from a change
in values or net assets will not be considered a violation.
Subject to the preceding considerations, as a Fundamental or
Non-Fundamental restriction, each Fund may not:
Fundamental
1. Purchase any securities on margin except to obtain such
short-term credits as may be necessary for the clearance of
transactions.
2. Sell securities short. Special Fund may make short
sales under certain circumstances as described elsewhere in this
Statement of Additional Information under the Fund's Fundamental
Policies.
3. Make loans to other persons; the purchase of a portion of an issue of
publicly distributed bonds, debentures or other securities is not considered the
making of a loan by a Fund. A Fund may also enter into repurchase agreements by
purchasing U.S. government securities with a simultaneous agreement with the
seller to repurchase them at the original purchase price plus accrued interest.
4. Underwrite the securities of other issuers.
5. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, including
limited partnership interests therein, except that a Fund may invest in
securities of issuers which invest in commodities, commodity futures, real
estate, real estate mortgage loans or other illiquid interests in real estate,
and in readily marketable interests in real estate investment trusts.
6. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry.
7. Issue any senior securities.
Non-Fundamental
1^. With the exception of Money Market Fund, invest more than 15% of the
market value of its net assets in securities which are not readily marketable,
including repurchase agreements maturing in over seven days ^. Money Market Fund
may invest up to 10% of its net assets in repurchase agreements maturing in over
seven days.
As a non-fundamental investment policy, in periods of uncertain market and
economic conditions, as determined by each Fund's investment adviser, each Fund
may depart from its basic investment objective and assume a defensive position
with all or a large portion of its assets temporarily invested in high
<PAGE>
quality corporate bonds or notes and government issues, or held
in cash.
In applying their restrictions on investments in any one industry, set
forth below, the Funds use industry classifications based, where applicable, on
Bridge Information Systems, Reuters, the S&P Stock Guide published by Standard &
Poor's, information obtained from Bloomberg L.P. and Moody's International,
and/or the prospectus of the issuing company. Selection of an appropriate
industry classification resource will be made by Founders in the exercise of its
reasonable discretion.
The following is a list of each Fund's Fundamental and Non-Fundamental
investment restrictions, as indicated. As to each Fund, the Fund may not:
Discovery Fund
Fundamental
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may enter into forward foreign
currency exchange contracts.
2. Make any investment which would concentrate 25% or more
of ^ the Fund's total assets in the securities of issuers having
their principal business activities in the same industry,
provided that this limitation does not apply to obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. ^
3. Borrow money, except for extraordinary or emergency purposes, and then
only from banks in amounts up to 10% of the Fund's net assets computed at the
lesser of cost or value.
Non-Fundamental
1^. Purchase more than 10% of any class of securities of any single issuer
or purchase more than 10% of the voting securities of any single issuer.
^ 2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in securities of that issuer.
The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American ^ Depositary Receipts ^ that are traded in the United States on
exchanges or over-the-counter.
<PAGE>
Passport Fund
Fundamental
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may enter into forward foreign
currency exchange contracts.
2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
3. Borrow money, except for extraordinary or emergency purposes, and then
only from banks in amounts up to 10% of the Fund's net assets computed at the
lesser of cost or value.
Non-Fundamental
1. Purchase more than 10% of any class of securities of any single issuer
or purchase more than 10% of the voting securities of any single issuer.
2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
Frontier Fund
Fundamental
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may enter into forward foreign
currency exchange contracts.
2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.^
3. Invest in restricted securities.
4. Borrow money, except for extraordinary or emergency
<PAGE>
purposes, and then only from banks in amounts up to 10% of the Fund's net assets
computed at the lesser of cost or value.
Non-Fundamental
1^. Purchase more than 10% of any class of securities of any single issuer
or purchase more than 10% of the voting securities of any single issuer.
^ 2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
The Fund may invest without limitation in U.S. or foreign securities,
although it normally will be at least 50% invested in U.S. companies, with no
more than 25% of its total assets invested in any one foreign country.
^
Special Fund
Fundamental
1. Sell securities short, except that the Fund may sell securities short
provided that at all times during which a short position is open it owns an
equal amount of such securities or by virtue of ownership of convertible or
exchangeable securities it has the right, without payment of further
consideration, to obtain through the conversion or exchange of such other
securities an equal amount of the securities sold short, and unless not more
than 15% of the Fund's net assets (taken at market or other current value) are
held as collateral for such sales at any one time.
2. Underwrite the securities of other issuers, except in those instances
where the Fund acquires restricted securities which it would not be free to sell
without registering and being deemed an underwriter for purposes of the
Securities Act of 1933.
3. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.
4. Participate in any joint trading account.
5. Purchase or sell puts, calls, straddles, spreads or combinations
thereof except that the Fund may purchase put and call options on stock indices
and enter into closing transactions with respect to such options.
<PAGE>
6. Purchase more than 10% of any class of securities or purchase more than
10% of the voting securities of any single issuer.
7. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years.
8. Purchase securities of other investment companies, except that the Fund
may purchase such securities in the open market where no commission or profit to
a sponsor or dealer other than the customary broker's commission results from
such purchase, and only if immediately thereafter (a) no more than 3% of the
voting securities of any one investment company is owned in the aggregate by the
Fund and all other Funds, (b) no more than 5% of the value of the total assets
of the Fund would be invested in any one investment company, and (c) no more
than 10% of the value of the total assets of the Fund and all other Funds would
be invested in the securities of all such investment companies. Should the Fund
purchase securities of other investment companies, shareholders may incur
additional management, advisory, and distribution fees. The Fund may acquire
such securities if they are acquired in connection with a purchase or
acquisition in accordance with a plan of reorganization, merger or
consolidation.
9. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.
10. Invest in companies for the purpose of exercising
control or management.
11. Issue any senior securities, except that the Fund may borrow from
banks so long as the requisite asset coverage has been provided.
12. Borrow from banks unless if immediately after such borrowing the value
of the assets of the Fund (including the amount borrowed) less its liabilities
(not including the borrowing) is at least three times the amount of the
borrowing. While borrowings are outstanding, no purchases of securities will be
made. Interest on borrowings will reduce a Fund's income.
13. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in securities of that issuer.
Non-Fundamental
1. ^ Make any investment which would concentrate 25% or
more of a Fund's total assets in the securities of issuers having
<PAGE>
their principal business activities in the same industry,
provided that this limitation does not apply to obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
^ The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American ^ Depositary Receipts ^ that are traded in the United States on
exchanges or over-the-counter.
International Equity Fund
Fundamental
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may enter into forward foreign
currency exchange contracts.
2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.^
3. Borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an aggregate amount not
exceeding 33-1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings that exceed
33-1/3% of the value of the Fund's total assets by reason of a decline in total
assets will be reduced within three days, not including Sundays and holidays, to
the extent necessary to comply with the 33-1/3% limitation. This restriction
shall not prohibit deposits of assets to margin or guarantee positions in
futures, options, or forward contracts, or the segregation of assets in
connection with such contracts.
Non-Fundamental
1^. Purchase more than 10% of any class of securities of any single issuer
or purchase more than 10% of the voting securities of any single issuer.
^ 2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
Worldwide Growth Fund
<PAGE>
Fundamental
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may enter into forward foreign
currency exchange contracts.
2. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.^
3. Borrow money, except for extraordinary or emergency purposes, and then
only from banks in amounts up to 10% of the Fund's net assets computed at the
lesser of cost or value.
Non-Fundamental
1^. Purchase more than 10% of any class of securities of any single issuer
or purchase more than 10% of the voting securities of any single issuer.
^ 2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
Growth Fund
Fundamental
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.
2. Participate in any joint trading account.
3. Purchase more than 10% of any class of securities or purchase more than
10% of the voting securities of any single issuer.
4. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years.
5. Purchase securities of other investment companies,
<PAGE>
except that the Fund may purchase such securities in the open market where no
commission or profit to a sponsor or dealer other than the customary broker's
commission results from such purchase, and only if immediately thereafter (a) no
more than 3% of the voting securities of any one investment company is owned in
the aggregate by the Fund and all other Funds, (b) no more than 5% of the value
of the total assets of the Fund would be invested in any one investment company,
and (c) no more than 10% of the value of the total assets of the Fund and all
other Funds would be invested in the securities of all such investment
companies. Should the Fund purchase securities of other investment companies,
shareholders may incur additional management, advisory, and distribution fees.
The Fund may acquire such securities if they are acquired in connection with a
purchase or acquisition in accordance with a plan of reorganization, merger or
consolidation.
6. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.
7. Invest in companies for the purpose of exercising
control or management.
8. Pledge, mortgage or hypothecate its assets except to secure permitted
borrowings, and then only in an amount up to 15% of the value of the Fund's net
assets taken at the lower of cost or market value at the time of such
borrowings.
9. Redeem its shares in kind unless the proceeds of cash redemptions
exceed the lesser of $250,000 or 1% of the net asset value of the Fund during
any 90 day period for any one shareholder.
10. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's assets would be invested in
securities of that issuer.
11. Borrow money, except for extraordinary or emergency purposes, and then
only from banks in amounts up to 10% of the Fund's net assets computed at the
lesser of cost or value.
Non-Fundamental
1. ^ Sell puts, calls, straddles, spreads or combinations
thereof.
2. ^ Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
<PAGE>
^ The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American Depositary Receipts that are traded in the United States on exchanges
or over-the-counter.
Blue Chip Fund
Fundamental
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.
2. Make any investment that would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
3. Invest in restricted securities.
4. Borrow money, except for extraordinary or emergency purposes, and then
only from banks in amounts up to 10% of the Fund's net assets computed at the
lesser of cost or value.
Non-Fundamental
1. Purchase more than 10% of any class of securities of any single issuer
or purchase more than 10% of the voting securities of any single issuer.
2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American ^ Depositary Receipts ^ that are traded in the United States on
exchanges or over-the-counter.
Balanced Fund
Fundamental
1. Invest in commodities, commodity futures contracts,
real estate, real estate mortgage loans or other illiquid
interests in real estate, except that (i) the Fund may invest in
<PAGE>
securities of issuers which invest in commodities, commodity futures, real
estate, real estate mortgage loans or other illiquid interests in real estate
and (ii) the Fund may hedge a foreign securities transaction by entering into
forward foreign currency transactions.
2. Participate in any joint trading account.
3. Purchase or sell puts, calls, straddles, spreads or combinations
thereof except that the Fund may sell covered call options with respect to any
or all of its portfolio securities and enter into closing purchase transactions
with respect to such options.
4. Purchase more than 10% of any class of securities or purchase more than
10% of the voting securities of any single issuer.
5. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years.
6. Purchase securities of other investment companies, except that the Fund
may purchase such securities in the open market where no commission or profit to
a sponsor or dealer other than the customary broker's commission results from
such purchase, and only if immediately thereafter (a) no more than 3% of the
voting securities of any one investment company is owned in the aggregate by the
Fund and all other Funds, (b) no more than 5% of the value of the total assets
of the Fund would be invested in any one investment company, and (c) no more
than 10% of the value of the total assets of the Fund and all other Funds would
be invested in the securities of all such investment companies. Should the Fund
purchase securities of other investment companies, shareholders may incur
additional management, advisory, and distribution fees. The Fund may acquire
such securities if they are acquired in connection with a purchase or
acquisition in accordance with a plan of reorganization, merger or
consolidation.
7. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.
8. Invest in companies for the purpose of exercising
control or management.
9. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
10. Borrow money, except for extraordinary or emergency
purposes, and then only from banks in amounts up to 10% of the
<PAGE>
Fund's net assets computed at the lesser of cost or value.
Non-Fundamental
1. ^ Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
^ The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American ^ Depositary Receipts ^ that are traded in the United States on
exchanges or over-the-counter.
Government Securities Fund
Fundamental
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.
2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.^
3. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
4. Borrow money, except for extraordinary or emergency purposes, and then
only from banks in amounts up to 10% of the Fund's net assets computed at the
lesser of cost or value.
Non-Fundamental
1^. Purchase or sell puts, calls, straddles, spreads or
combinations thereof.
^ 2. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.
^ 3. Invest more than 5% of the market value of its net
assets in equity securities.
<PAGE>
Money Market Fund
Fundamental
1. Make loans to other persons; the purchase of a portion of an issue of
publicly distributed bonds, debentures or other securities is not considered the
making of a loan by a Fund. The Fund may also enter into repurchase agreements
by purchasing money market instruments with a simultaneous agreement with the
seller to repurchase them at the original purchase price plus accrued interest.
2. Purchase or sell puts, calls, straddles, spreads or
combinations thereof.
3. Purchase more than 10% of any class of securities of a
single issuer.
4. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that (i) this limitation does not
apply to obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities and (ii) this limitation does not apply to obligations of
domestic commercial banks.^
5. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years, except that the Fund may invest in
obligations guaranteed by the U.S. government or issued by its agencies or
instrumentalities.
6. Purchase securities of other investment companies except in connection
with a purchase or acquisition in accordance with a plan of reorganization,
merger or consolidation.
7. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.
8. Invest in interests in oil, gas or other mineral exploration or
development programs or leases, although the Fund may invest in the securities
of issuers which invest in or sponsor such programs or leases.
9. Purchase securities with legal or contractual restrictions on resale or
purchase securities which are not otherwise readily marketable, except that the
Fund may enter into repurchase agreements if, as a result thereof, 10% or less
of its net assets valued at the time of the transaction would be subject to
repurchase agreements maturing in more than seven days.
10. Purchase common stocks, preferred stocks, warrants or other equity
securities.
<PAGE>
11. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in securities of that issuer.
12. Borrow money, except for extraordinary or emergency purposes, and then
only from banks in amounts up to 10% of the Fund's net assets computed at the
lesser of cost or value.
^
DIRECTORS AND OFFICERS
The directors and officers of the Company, their principal occupations for
the last five years and their affiliations, if any, with Founders, are as
follows:
JOHN K. LANGUM
Diamond T. Ranch
9820 East Old Spanish Trail
Tucson, Arizona
Chairman and Executive Committee Member Economic Consultant. President,
Business Economics, Inc., a firm engaged in economics and business
research and publications, Tucson, Arizona.
Born: June 18, 1913
WILLIAM H. BAUGHN
555 Baseline Road
Boulder, Colorado
Director and Executive Committee Member
President Emeritus, University of Colorado.
Dean Emeritus, Graduate School of Business,
University of Colorado. Born: August 27, 1918
BJORN K. BORGEN*
President, Executive Committee Member, and
Director
Chairman, Chief Executive Officer, Chief
Investment Officer, Secretary, and Director
of Founders. Born: September 22, 1937
ALAN S. DANSON
6400 S. Jamaica Circle
Englewood, ^ Colorado
Director
Independent financial consultant. ^ Senior Vice President, Opt. Mark
Technologies, Inc. (computerized securities trading services), and
President, D. H. Management, Inc. (general partner of limited
partnership with technology company holdings). Between March 1, 1992,
and June 30, 1993,
<PAGE>
Mr. Danson was President and Chief Executive Officer of ACCI
Securities, Inc., a wholly-owned subsidiary of Acciones y Valores de
Mexico, S.A. de C.V., a Mexican brokerage firm. Mr. Danson was
Director of International Relations of Acciones y Valores between
March 1, 1990, and February 28, ^ 1992. Prior to joining Acciones y
Valores, Mr. Danson was President of Integrated Medical Systems, Inc.,
a privately held company based in Golden, Colorado. Born: June 15,
1939.
TRYGVE E. MYHREN
355 Clayton Street
Denver, Colorado
Director
President, Myhren Media, Inc., a firm that invests in and advises
media and communications companies. Director, The Providence Journal
Company, Providence, Rhode Island; Director, Advanced Marketing
Services, LaJolla, California; Director, Peapod, Ltd., Evanston,
Illinois; Director, CableLabs, Boulder, Colorado; and Director, J.D.
Edwards, Denver, Colorado. Formerly, President of The Providence
Journal Company, a diversified media and communications company,
Providence, Rhode Island, from 1990 to 1996; Chairman and Chief
Executive Officer of American Television and Communications
Corporation, a cable television company, Denver, Colorado, from 1981
to 1988; and Chairman, National Cable Television Association, from
1986 to 1987. Mr. Myhren also serves on the board of the University
of Denver, Denver, Colorado. Born: January 3, 1937.
JAY A. PRECOURT
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, Texas
Director
President, Chief Executive Officer, Vice Chairman and Director,
Tejas Gas Corporation, Houston, Texas; Chairman of the Board of
Coral Energy, L.P., Houston, Texas; Director, Dresser Industries
Inc., Dallas, Texas; Director, Timken Company, Canton, Ohio;
Director, American Business Conference, Washington, D.C.; Director,
Alley Theater, Houston, Texas; Director ^ of the Advisory Board,
Southwest CEO Council, Houston, Texas. Until 1988, President of the
Energy Related Group and Director, Hamilton Oil Corporation,^
Denver, Colorado. Born: July 12, 1937
EUGENE H. VAUGHAN, JR., CFA
6300 Texas Commerce Tower
Houston, Texas
<PAGE>
Director
President and CEO, Vaughan, Nelson, Scarborough & McConnell, L.P.,
an investment counseling firm, Houston, Texas. ^ Founding Chairman
and Governor, Association for Investment Management and Research;
^ Past Chairman and Trustee, Institute of Chartered Financial
Analysts; ^ Past Chairman and Director, Financial Analysts
Federation; Trustee, Vanderbilt University. Born: October 5, 1933
JONATHAN F. ZESCHIN*
Director
President and Chief Operating Officer of Founders. Formerly,
executive vice president of INVESCO Funds Group, Inc., Denver,
Colorado, from October 1993 to April 15, 1995; prior thereto
(January 1992 to October 1993) senior vice president of INVESCO
Funds Group, Inc.; trust officer of INVESCO Trust Company from
January 1993 to April 15, 1995; senior vice president and director
of marketing of SteinRoe & Farnham, Inc., Chicago, Illinois, from
January 1987 to December 1991. Born:
September 4, 1953
DAVID L. RAY
Vice President^ and Treasurer
Vice President, Assistant Secretary, and Treasurer of Founders.
Until January, 1990, President, United Shareholder Services, Inc., a
mutual fund transfer agent, San Antonio, Texas and Vice President,
United Services Advisors, Inc., investment adviser, San Antonio,
Texas. Born: July 10, 1957
KENNETH R. CHRISTOFFERSEN
Secretary Vice President and General Counsel of Founders. Formerly,
assistant general counsel (February 1993 to May 1996), vice
president (April 1995 to May 1996) and assistant vice president
(February 1993 to April 1995) of INVESCO Funds Group, Inc. and
INVESCO Trust Company, Denver, Colorado, and partner (January 1989
to
<PAGE>
February 1993) and associate (August 1981 to December 1988) with the
law firm of Davis, Graham & Stubbs, Denver, Colorado. Born:
September 30, 1955.
ROBERTO GALINDO, JR.
Assistant Treasurer
Assistant Vice President of Founders. Until July,
1990, Manager of Fund Accounting, United Services
Advisors, Inc., investment adviser, San Antonio,
Texas. Born: November 11, 1960.
*Indicates an interested director as defined in the ^ 1940 Act, because of the
status as officer ^ of the Fund's investment adviser and principal underwriter.
The address of interested directors and all officers of the Company is
Founders Financial Center, 2930 E. Third Ave., Denver, Colorado 80206.
As of ^ January 31, 1997, the Company's directors and officers as a group
owned less than 1% of the outstanding shares of each Fund, with the exception of
the Discovery, Passport, Frontier, International Equity, ^ and Money Market
Funds, in which the ownership interests of the group totaled ^ 1.17%, 1.78%,
1.38%, 6.50%, and 5.72%, respectively.
The committees of the board of directors are the executive committee,
audit committee, ^ portfolio transactions committee and valuation committee. The
Company also has a committee on directors, composed of all of the non-interested
("independent") directors and chaired by Dr. Langum, which serves as a
nominating committee. So long as the plans of distribution ^ pursuant to Rule
12b-1 ^ under the 1940 Act of certain of the Company's Funds remain in effect,
the selection and nomination of the Company's independent directors will be a
matter left to the discretion of such independent directors. Except for certain
powers ^ that, under applicable law, may only be exercised by the full board of
directors, the executive committee may exercise all powers and authority of the
board of directors in the management of the business of the Company.
Director Compensation
The following table sets forth, for the fiscal year ended December 31, ^
1996, the compensation paid by the Company to its independent directors for
services rendered in their capacities as directors of the Company. ^ The Company
has no plan or other arrangement pursuant to which any of the Company's
independent directors receive pension or retirement
<PAGE>
benefits, with the exception of an arrangement with director Langum, who will
receive an annual payment of $30,000 from Founders commencing with his
retirement. This payment is not subject either to cancellation or amendment of
any kind and is one to which Dr. Langum is automatically entitled upon
retirement at any time. Therefore, none of the Company's independent directors
have estimated annual benefits to be paid by the Company upon retirement.
<TABLE>
<CAPTION>
Compensation Table
===========================================================================================
(3) Pension or (5) Total
or retirement (4) compensa-
benefits Estimated tion from
accrued as annual Company
(2) Aggregate part of benefits (11 Funds
Compensation Company upon total) paid to
(1) Name of Person, Position1 from Company Expenses retirement directors1
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John K. Langum, Chairman $43,000 None None $ ^ 43,000
and Director
- ------------------------------------------------------------------------------------------
William H. Baughn, Director $^ 32,000 None None $ ^ 32,000
- ------------------------------------------------------------------------------------------
Alan S. Danson, Director $ ^29,000 None None $ ^ 29,000
- ------------------------------------------------------------------------------------------
Ranald H. Macdonald III, $ ^ 18,000 None None $ ^ 18,000
Director2
- ------------------------------------------------------------------------------------------
Trygve E. Myhren, $ 7,000 None None $ 7,000
Director3
- ------------------------------------------------------------------------------------------
Jay A. Precourt, $ ^ 30,000 None None $ ^ 30,000
Director
- ------------------------------------------------------------------------------------------
Eugene H. Vaughan, $ ^ 30,000 None None $ ^ 30,000
Jr., Director
- ------------------------------------------------------------------------------------------
TOTAL $ ^ 189,000 None None ^ $189,000
- ------------------------------------------------------------------------------------------
PERCENT OF NET ASSETS4 0.006% 0% 0% ^ 0.006%4
==========================================================================================
<PAGE>
Messrs. Borgen and Zeschin, as "interested persons" of the Fund, receive
compensation as officers and employees of Founders, and do not receive any
director's fees or other compensation from the Fund for their service as
officers and/or directors.
^
- ---------------------------------------------------------------------
<FN>
1 The Chairman of the Board, the Chairmen of the ^ Company's Audit and Portfolio
Transactions Committees, and the members of the ^ Audit and Portfolio
Transactions Committees each ^ receive compensation for serving in such
capacities in addition to the compensation paid to all independent directors.
The ^ Funds are the only mutual ^ funds distributed by Founders ^.
^ 2 Mr. Macdonald died in 1996.
^ 3 Mr. Myhren was elected to the Board of Directors in December 1996.
4 Totals as a percentage of the Company's net assets as of December 31, ^ 1996.
</FN>
</TABLE>
INVESTMENT ADVISER AND DISTRIBUTOR
Under the investment advisory agreements between the Company, on behalf of
each Fund, and Founders, Founders furnishes investment management and
administrative services to the Funds, subject to the overall supervision of the
Board of Directors of the Company. In addition, Founders provides office space
and facilities for the Funds and pays the salaries, fees and expenses of all
officers and other employees connected with the operation of the Company. The
Funds compensate Founders for its services by the payment of fees computed daily
and paid monthly as follows:
Special and Growth Funds
------------------------
On Assets in But Not
Excess of Exceeding Annual Fee
- -------------- ------------ ----------
$ 0 $30,000,000 1.00%
30,000,000 300,000,000 0.75%
300,000,000 500,000,000 0.70%
500,000,000 ---- 0.65%
Blue Chip and Balanced Funds
----------------------------
On Assets in But Not
Excess of Exceeding Annual Fee
- -------------- ------------ ----------
$ 0 $250,000,000 0.65%
250,000,000 500,000,000 0.60%
500,000,000 750,000,000 0.55%
750,000,000 ---- 0.50%
Money Market Fund
-----------------
On Assets in But Not
Excess of Exceeding Annual Fee
- -------------- ------------ ----------
$ 0 $250,000,000 0.50%
250,000,000 500,000,000 0.45%
500,000,000 750,000,000 0.40%
750,000,000 ---- 0.35%
<PAGE>
Government Securities Fund
--------------------------
On Assets in But Not
Excess of Exceeding Annual Fee
- -------------- ------------ ----------
$ 0 $250,000,000 0.65%
250,000,000 ---- 0.50%
Discovery, ^ Passport, Frontier International Equity,
and Worldwide Growth Funds
-----------------------------------------------------
On Assets in But Not
Excess of Exceeding Annual Fee
- -------------- ------------ ----------
$ 0 $250,000,000 1.00%
250,000,000 500,000,000 0.80%
500,000,000 ---- 0.70%
The fees of Discovery, ^ Passport, Frontier Special, International Equity,
Worldwide Growth, Growth, and Government Securities Funds are higher than the
fee schedules of certain investment companies having similar investment
objectives and policies but are, in the opinion of the Company's management,
comparable to those of numerous other similar mutual funds. The net assets of
the Funds at the end of fiscal year ^ 1996 were as follows: Discovery Fund - ^
$247,494,100; Passport Fund - $177,921,060; Frontier Fund - $350,861,077;
Special Fund - $363,835,175; International Equity Fund - ^ $10,119,176;
Worldwide Growth Fund - ^ $342,078,989; Growth Fund - ^ $1,118,322,561; Blue
Chip Fund - ^ $535,865,972; Balanced Fund - ^ $394,895,683; Government
Securities Fund - ^ $15,189,690; and Money Market Fund - ^ $109,865,567.
<PAGE>
The Funds pay all of their expenses not assumed by Founders, including
fees to directors not affiliated with Founders and expenses of all members of
the Board of Directors, of advisory boards or of committees of the Board of
Directors; compensation of the Company's custodian, transfer agent and other
agents; ^ an allocated portion of premiums for insurance required or permitted
to be maintained under the ^ 1940 Act; expenses of computing the Funds' daily
per share net asset value; legal and accounting expenses; brokerage commissions
and other transaction costs; interest; all federal, state and local taxes
(including stamp, excise, income and franchise taxes); cost of stock
certificates; fees payable under federal and state law to register or qualify
the Funds' shares for sale; an allocated portion of fees and expenses incurred
in connection with membership in investment company organizations and trade
associations; preparation of prospectuses (including typesetting) and printing
and distribution thereof to existing shareholders; expenses of local
representation in Maryland; and expenses of shareholder and directors meetings
and of preparing, printing and distributing reports to shareholders. The Company
also has the obligation for expenses, if any, incurred by it in connection with
litigation, proceedings or claims, and the legal obligation it may have to
indemnify its officers and directors with respect thereto.
^ As described in the prospectus, certain expenses of the International
Equity and Government Securities Funds are being reimbursed or waived
voluntarily by Founders pursuant to a commitment to the Funds.
During the fiscal years ended in 1996, 1995, and 1994, ^ the gross
investment advisory fees paid by the Funds were as follows:
Discovery Fund. During the ^ years ended December 31, 1996, 1995, and
1994, ^ the Fund paid advisory fees of ^ $2,405,895, $2,004,616, and $1,843,813,
respectively.
Passport Fund. During the years ended December 31, 1996, 1995 and 1994,
the Fund paid advisory fees of $1,343,963, $255,733, and $225,764, respectively.
Frontier Fund. During the years ended December 31, 1996, 1995, and 1994, ^
the Fund paid advisory fees of ^ $3,298,000, $2,832,693, and $2,454,361,
respectively.
^ Special Fund. During the years ended December 31, ^ 1996, 1995, and 1994,
the Fund paid advisory fees of $2,839,655, $2,869,635, and $2,685,886,
respectively. ^
International Equity Fund. During the year ended
<PAGE>
December 31, 1996, the Fund paid advisory fees of $68,791. Since the Fund did
not commence the public offering of its shares until December 29, 1995, the Fund
paid no advisory fees in 1995.
Worldwide Growth Fund. During the years ended December 31, 1996, 1995, and
1994, ^ respectively, the Fund paid advisory fees of ^ $3,022,945, $1,552,897,
and $996,680, respectively.
Growth Fund. During the ^ years ended December 31, ^ 1996, 1995, and 1994,
the Fund paid advisory fees of $5,728,768, $3,564,924, and $2,759,812,
respectively.
Blue Chip Fund. During the ^ years ended December 31, ^ 1996, 1995, and
1994, the Fund paid advisory fees of $2,891,784, $2,195,095, and $1,996,626,
respectively.
Balanced Fund. During the ^ years ended December 31, ^ 1996, 1995, and
1994, the Fund paid advisory fees of $ 1,538,236, $707,570, and $623,403,
respectively.
Government Securities Fund. During the years
ended December 31, 1996, 1995, and 1994, ^ the Fund paid advisory fees of ^
$116,875, $139,194, and $184,250, respectively.
Money Market Fund. For the ^ years ended December 31, ^ 1996, 1995, and
1994, the Fund paid advisory fees of $757,666, $705,221, and $976,835,
respectively.
The advisory agreements between Founders and Discovery, Frontier, Special,
Worldwide Growth, Growth, Blue Chip, and Balanced Funds were approved by the
shareholders of each respective Fund at shareholders' meetings of the Funds held
on December 15, 1992. The advisory agreements between Founders and the
Government Securities and Money Market Funds were approved by the shareholders
of each respective Fund at shareholders' meetings held on September 29, 1988 and
November 17, 1987, respectively. The advisory agreements of the Passport and
International Equity Funds were approved by Founders, as the then sole
shareholder of the respective Funds, prior to their commencement of operations.
The advisory agreements of all of the Funds were last renewed on May 31, 1996
for a one-year period, and will continue from year to year thereafter either by
the vote of a majority of the entire board of directors or by the vote of a
majority of the outstanding voting securities of each Fund, and in either case,
after review, by the vote of a majority of the Company's directors who are not
"interested persons" (as defined in the ^ 1940 Act) (the "Independent
Directors") of the Company or Founders, cast in person at a meeting called for
the purpose of voting on such approval.
<PAGE>
With respect to the advisory agreements between Founders and each of the
Funds, each agreement may be terminated without penalty at any time by the Board
of Directors of the Company or by vote of a majority of the outstanding
securities of the Fund on 60 days' written notice to Founders or by Founders on
60 days' written notice to the Company. Each agreement will terminate
automatically if it is assigned, as that term is defined in the ^ 1940 Act. Each
agreement provides that the Fund may use the word "Founders" in its name and
business only as long as the agreement remains in effect. Finally, each
agreement provides that Founders shall not be subject to any liability in
connection with matters to which the agreement relates in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Company's shares are sold on a continuous basis at the net asset value
per share next calculated after receipt of a purchase order in proper order. See
"Determination of Net Asset Value." Founders is the principal underwriter
(distributor) for the Company and acts as agent of the Company in the sale of
shares of the Funds, under an agreement last renewed by the Company's directors
on May 31, 1996. Founders is required to use its best efforts to promote the
sale of shares of the Funds, but is not obligated to sell any specific number of
shares. Founders does not receive any compensation for its services rendered
pursuant to the underwriting agreement. The provisions for the continuation,
termination and assignment of this agreement are identical to those described
above with regard to the investment advisory agreements, except that termination
other than upon assignment or mutual agreement requires six months notice by
either party.
Pursuant to Distribution Plans adopted by Discovery Fund, ^ Passport Fund,
Frontier Fund, Special Fund, International Equity Fund, Worldwide Growth Fund,
Growth Fund, Blue Chip Fund, Balanced Fund, and Government Securities Fund^ (the
"12b-1 Funds"), the 12b-1 Funds pay for distribution and related services
expenditures at an annual rate ^ that may be less than, but ^ that may not
exceed, 0.25% of each Fund's average daily net assets. These fees may be used to
pay directly, or to reimburse Founders for paying, expenses in connection with
distribution of the 12b-1 Funds' shares and related activities as are described
in the Funds' prospectus. A report of the amounts expended pursuant to the
Distribution Plans, and the purposes for which such expenditures occurred, must
be made to the Board of Directors at least quarterly. During the fiscal year
ended December 31, ^ 1996, Founders expended the following amounts in marketing
the shares of the 12b-1 Funds: advertising, ^ $3,756,912; printing and mailing
of prospectuses to persons other than current shareholders, ^ $1,622,093;
payment of
<PAGE>
compensation to third parties for shareholder support services, ^ $3,358,959;
and public relations and trade shows, $461,150.
Each Fund's plan was last approved on May 31, 1996, at a meeting called
for such purpose by a majority of the directors of the Company, including a
majority of the directors who are neither "interested persons" of the Company
nor have any financial interest in the operation of the plan ("12b-1
Directors").
Each Fund's plan provides that it shall continue in effect with respect to
each Fund for so long as such continuance is approved at least annually by the
vote of the board of directors of the Company cast in person at a meeting called
for the purpose of voting on such continuance. Each plan can be terminated at
any time with respect to any Fund, without penalty, if a majority of the 12b-1
Directors or shareholders of such Fund^ vote to terminate the plan. So long as
any Fund's plan is in effect, the selection and nomination of persons to serve
as independent directors of the Company shall be committed to the independent
directors then in office at the time of such selection or nomination. Each
Fund's plan may not be amended to increase materially the amount of any Fund's
payments thereunder without approval of the shareholders of that Fund, and all
material amendments to the plan must be approved by the board of directors of
the Company, including a majority of the 12b-1 Directors.
The benefits that the 12b-1 Funds believe are reasonably likely to flow to
the Funds and their shareholders under the plans include, but are not limited
to: (1) enhanced marketing efforts which, if successful, may result in an
increase in net assets through the sale of additional shares, thereby providing
greater resources to pursue the 12b-1 Funds' investment objectives; (2)
increased name recognition for the 12b-1 Funds within the mutual fund industry,
which may help instill and maintain investor confidence; (3) positive cash flow
into the 12b-1 Funds, which assists in portfolio management; (4) the positive
effect which increased 12b-1 Fund assets could have on Founders' revenues could
allow Founders to have greater resources to make the financial commitments
necessary to continue to improve the quality and level of shareholder services,
and acquire and retain talented employees who desire to be associated with a
growing organization; and (5) increased Fund assets may result in reducing each
shareholder's share of certain expenses through economies of scale, such as by
exceeding breakpoints in the advisory fee schedules and allocating fixed
expenses over a larger asset base.
Founders was organized in 1938. In addition to serving as adviser to the
Funds, Founders serves as ^ investment adviser or sub-adviser to various other
<PAGE>
mutual funds and private accounts. The sole director of Founders is Bjorn K.
Borgen. The officers of Founders include Mr. Borgen, Jonathan F. Zeschin, David
L. Ray, Michael K. Haines, Michael W. Gerding, Edward F. Keely, Brian F. Kelly,
David G. Kern, Linda M. Ripley, Gregory P. Contillo, James P. Rankin, Kenneth R.
Christoffersen, Roberto Galindo, Jr., and Thomas Mauer. The affiliations of
Messrs. Borgen, Zeschin, Ray, Christoffersen and ^ Galindo with the Company and
Founders are shown under "Directors and Officers." Mr. Borgen owns all of the
voting stock of Founders.
SHAREHOLDER SERVICING
Fund Accounting and Administrative Services Agreement
Founders performs administrative, accounting, and recordkeeping services
for the Funds pursuant to a Fund Accounting and Administrative Services
Agreement ^ that was initially approved in May 1991 (August 25, 1995 for
International Equity Fund), by a vote cast in person by all of the directors of
the Company, including all of the directors who are not "interested persons" of
the Company or of Founders at a meeting called for such purpose. The Agreement,
which was last renewed by the directors on May 31, 1996, is continued from year
to year as long as each such continuance is specifically approved by the board
of directors of the Company, including a majority of the directors who are not
parties to the Agreement or interested persons (as defined in the ^ 1940 Act) of
any such party, cast in person at a meeting for the purpose of voting on such
continuance. The Agreement may be terminated at any time without penalty by the
Company on ninety (90) days' written notice, or by Founders upon ninety (90)
days' written notice, and terminates automatically in the event of its
assignment unless the Company's board of directors approves such assignment.
Pursuant to the Agreement, Founders maintains the portfolios, general
ledgers, and financial statements of the Funds; accumulates data from the Funds'
shareholder servicing and transfer agent, custodian, and manager and calculates
daily the net asset value of the Funds; monitors the data and transactions of
the custodian, transfer agent, shareholder servicing agent, and manager of the
Funds; monitors compliance with tax and federal securities rules and
regulations; provides reports and analyses of portfolio, transfer agent,
shareholder servicing agent, and custodial operations, performance and costs;
and reports on regulatory and other shareholder matters. The Funds pay a fee for
this service which is computed at an annual rate of 0.06 percent of the daily
net assets of the Funds from $0 to $500 million and at an annual rate of 0.02
percent of the daily net assets of the Funds in excess of $500 million, plus
reasonable out-of-pocket
<PAGE>
expenses. During the fiscal years ended December 31, 1996, 1995^ and 1994 ^, the
Company paid Fund accounting and administrative services fees of $823,632,
$630,056^ and $580,897, ^ respectively.
Shareholder Services Agreement
Pursuant to an amended Shareholder Services Agreement, Founders performs
certain telephone, retirement plan, quality control, personnel training,
shareholder inquiry, shareholder account, and other shareholder-related and
transfer agent services for the Funds. The amended Agreement was initially
approved in May 1991 (August 25, 1995 for International Equity Fund), by a vote
cast in person by all of the directors of the Company, including all of the
directors who are not "interested persons" of the Company or Founders at a
meeting called for such purpose. The Agreement was for an initial one-year term
and was last renewed for a one-year term on May 31, 1996. The Agreement may be
continued from year to year as long as such continuance is specifically approved
by the board of directors of the Company, including a majority of the directors
who are not parties to the Agreement or interested persons (as defined in the
1940 Act) of any such party, cast in person at a meeting called for the purpose
of voting on such continuance. The Agreement may be terminated at any time
without penalty by the Company upon ninety (90) days' written notice to Founders
or by Founders upon one hundred eighty (180) days' written notice to the
Company, and terminates automatically in the event of an assignment unless the
Company's board of directors approves such assignment. The Funds pay to Founders
a prorated monthly fee for such services equal on an annual basis to $24 for
each shareholder account of the Funds considered to be an open account at any
time during the applicable month. The fee provides for the payment not only of
services rendered and facilities furnished by Founders pursuant to the
Agreement, but also for services rendered and facilities furnished by Investors
Fiduciary Trust Company ("IFTC") and DST Systems, Inc. ("DST") in performing
transfer agent services and in providing hardware and software system
capabilities on behalf of the Funds. In addition to the per account fee,
Founders, IFTC, and DST are reimbursed for all reasonable out-of-pocket expenses
incurred in the performance of their respective services. During the fiscal
years ended December 31, 1996, 1995^ and 1994 ^, the Company paid shareholder
services fees of $3,364,000, $3,363,000^ and $3,248,000, ^ respectively.
Transfer Agency Agreement
The Company has entered into a Transfer Agent Agreement with IFTC,
pursuant to which IFTC provides certain transfer agent services to the Funds
which are not provided to the Funds by Founders. DST provides
<PAGE>
hardware and software system capabilities to IFTC and to Founders, to assist
IFTC and Founders in providing transfer agency and related shareholder services
to the Funds. The Transfer Agent Agreement between the Company and IFTC was
initially approved on November 12, 1993, and will continue until terminated at
any time without penalty by either party upon ninety (90) days' written notice.
The Agreement terminates automatically in the event of its assignment. Under the
Agreement, the Funds pay to IFTC various transfer agency transaction fees ^
that, in ^ 1996, were in the amount of ^ $10.41 per shareholder account. The
fees to IFTC are paid on behalf of the Funds by Founders from the fee of $24 per
account per annum received by Founders for providing shareholder services to the
Funds. See "Shareholder Services Agreement," above.
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER RATES
It is the policy of the Company, in effecting transactions in portfolio
securities, to seek the best execution of orders at the most favorable prices.
The determination of what may constitute best execution in a securities
transaction involves a number of judgmental considerations, including, without
limitation, the overall direct net economic result to a Fund (involving both
price paid or received and any commissions and other costs), the efficiency with
which the transaction is effected, the ability to effect the transaction at all
where a large block is involved, the availability of the broker to stand ready
to execute possibly difficult transactions for the Fund in the future, and the
financial strength and stability of the broker.
Because selection of executing brokers is not based solely on net
commissions, a Fund may pay an executing broker a commission higher than that
which might have been charged by another broker for that transaction. Founders
will not knowingly pay higher mark-ups on principal transactions to brokerage
firms as consideration for receipt of research services or products. While it is
not practicable for the Company to solicit competitive bids for commissions on
each portfolio transaction, consideration is regularly given to available
information concerning the level of commissions charged in comparable
transactions by various brokers. Transactions in over the counter securities are
normally placed with principal market makers, except in circumstances where, in
the opinion of Founders, better prices and execution are available elsewhere.
Subject to the policy of seeking best execution of orders at the most
favorable prices, a Fund may execute transactions with brokerage firms ^ that
provide research services and products to Founders. The phrase
<PAGE>
"research services and products" includes advice as to the value of securities,
the advisability of investing in, purchasing or selling securities, the
availability of securities or purchasers or sellers of securities, the
furnishing of analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts,
and obtaining products such as third-party publications, computer and electronic
access equipment, software programs, and other information and accessories that
may assist Founders in furtherance of its investment advisory responsibilities
to the Company. Such services and products permit Founders to supplement its own
research and analysis activities, and provide it with information from
individuals and research staffs of many securities firms. Generally, it is not
possible to place a dollar value on the benefits derived from specific research
services and products. Founders may receive a benefit from these research
services and products ^ that is not passed on to a Fund in the form of a direct
monetary benefit. If Founders determines that any research product or service
has a mixed use, such that it also serves functions that do not assist in the
investment decision-making process, Founders will allocate in good faith the
cost of such service or product accordingly. The portion of the product or
service that Founders determines will assist it in the investment
decision-making process may be paid for in brokerage commission dollars. The
non-research part must be paid for in hard dollars from Founders. Any such
allocation may create a conflict of interest for Founders.
Neither the research services nor the amount of brokerage given to a
particular broker-dealer are made pursuant to any agreement or commitment with
any of the selected broker-dealers that would bind Founders to compensate the
selected broker-dealer for research provided. However, Founders maintains an
internal allocation procedure to identify those broker-dealers ^ that have
provided it with research and endeavors to direct sufficient commissions to them
to ensure continued receipt of research Founders believes is useful.
Research services and products may be useful to Founders in providing
investment advice to any of the Funds or clients it advises. Likewise,
information made available to Founders from brokers effecting securities
transactions for such other Funds and clients may be utilized on behalf of
another Fund. Thus, there may be no correlation between the amount of brokerage
commissions generated by a particular Fund or client and the indirect benefits
received by that Fund or client.
A significant proportion of the total commissions paid by the Funds for
portfolio transactions during the
<PAGE>
year ended December 31, ^ 1996 was paid to brokers that provided research
services to Founders, and it is expected that, in the future, a majority of each
Fund's brokerage business will be placed with firms that provide such services.
Subject to the policy of seeking the best execution of orders at the most
favorable prices, sales of shares of the Funds may also be considered as a
factor in the selection of brokerage firms to execute Fund portfolio
transactions.
A Fund and one or more of the other Funds or clients to which Founders
serves as investment adviser may own the same securities from time to time. If
purchases or sales of securities for a Fund and other Funds or clients arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective Funds and clients in a manner
deemed equitable to all by the investment adviser. To the extent that
transactions on behalf of more than one client during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on the price and amount of the
security being purchased or sold for the Fund. However, the ability of the Fund
to participate in volume transactions may possibly produce better executions for
the Fund in some cases.
Founders has been authorized by the directors of ^ the 12b-1 Funds to
apply dollars generated from each Fund's Rule 12b-1 distribution plan to pay to
brokers and to other entities a fee for distribution, recordkeeping, accounting,
and shareholder-related services provided to investors purchasing shares of a ^
12b-1 Fund through various sales and/or shareholder servicing programs. ^ These
fees are computed based on the average daily account balances of investments in
each ^ 12b-1 Fund made by the entity on behalf of ^ its customers. The directors
of the ^ 12b-1 Funds have further authorized Founders to place a portion of the
Funds' brokerage transactions with certain of these entities which are
broker-dealers if Founders reasonably believes that ^ the entity is able to
provide the best execution of orders at the most favorable prices. Commissions
earned by the entity from executing portfolio transactions on behalf of a
specific ^ 12b-1 Fund may be credited against the fee charged to that Fund, on a
basis ^ that has resulted from negotiations between Founders and the entity. Any
12b-1 fees ^ that are not expended as a result of the application of any such
credit will not be used either to pay or to reimburse Founders for other
distribution expenses. These directed brokerage arrangements have no adverse
effect either on the level of brokerage commissions paid by the Funds or on any
Fund's expenses.
<PAGE>
In addition, registered broker-dealers, third-party administrators of
tax-qualified retirement plans, and other entities ^ that establish omnibus
investor accounts with the Funds may provide sub-transfer agency, recordkeeping,
or similar services to participants in the omnibus accounts. These services
reduce or eliminate the need for identical services to be provided on behalf of
the participants by Founders, the Funds' shareholder servicing agent, and/or by
IFTC, the Funds' transfer agent. In such instances, Founders is authorized to
pay the entity a sub-transfer agency or recordkeeping fee ^ based on the number
of participants in the entity's omnibus account, from transfer agency fees
applicable to each participant's account ^ that are paid to Founders by the
Funds. If commissions are earned by a registered broker-dealer from executing
portfolio transactions on behalf of a specific ^ Fund, the commissions may be
credited by the broker-dealer against the sub-transfer agency or recordkeeping
fee payable with respect to that Fund, on a basis ^ that will have been
negotiated between the broker-dealer and Founders. In such instances, Founders
will apply any such credits to the transfer agency fee ^ that it receives from
the applicable Fund. Thus, the Fund will pay a transfer agency fee to Founders,
and Founders will pay a sub-transfer agency or recordkeeping fee to the
broker-dealer only to the extent that the fee is not off-set by brokerage
credits. In the event that the transfer agency fee paid by a Fund to Founders
with respect to participants in omnibus accounts in that Fund exceeds the
sub-transfer agent or recordkeeping fee applicable to that Fund, Founders may
carry forward the excess and apply it to future sub-transfer agent or
recordkeeping fees applicable to that Fund ^ that are charged by the
broker-dealer. Such a carry-forward may not go beyond a calendar year.
Decisions relating to purchases and sales of securities for a Fund,
selection of broker-dealers to execute transactions, and negotiation of
commission rates are made by Founders, subject to the general supervision of the
board of directors of the Company.
For the fiscal years ended 1996, 1995^ and 1994, ^ respectively, total
brokerage commissions paid by the Funds amounted to the following: Discovery
Fund - ^ $444,760, $317,246, and $199,219; Passport Fund - $648,019, $95,245 and
$83,771; Frontier Fund - $540,893, $465,748, and $301,908, Special Fund -
$1,669,994, $2,194,333, and $2,157,969, Worldwide Growth Fund - $1,031,931,
$350,484, and $304,175, ^ Growth Fund - $2,090,847, $1,187,642, and $1,192,989,
^ Blue Chip Fund - $2,186,810, $1,859,470, and $1,856,851, ^ Balanced Fund -
$943,355, $535,439, and $523,174, ^ For the fiscal ^ year ended ^ 1996,
International Equity Fund paid total brokerage
<PAGE>
commissions of ^ $48,594. For the period from December 29, 1995 (the date upon
which International Equity Fund commenced the offering and sale of its shares to
the public) through December 31, 1995, the Fund paid no brokerage commissions.
The differences in the amounts of brokerage commissions paid by the Funds during
1996 as compared to prior years are primarily attributable to changes in the
size of the Funds and differences in portfolio turnover rates. During the last
three years no officer, director or affiliated person of the Company or Founders
executed any portfolio transactions for a Fund, or received any commission
arising out of such portfolio transactions.
<PAGE>
At December 31, ^ 1996, certain of the funds held securities of their
regular brokers or dealers as follows:
Fund Broker Value
---- ------ -----
^ Discovery Merrill Lynch & Co.^ $10,591,387
commercial paper
Passport Merrill Lynch & Co.^ $7,892,298
commercial paper
Growth Merrill Lynch & Co.^ $25,075,528
commercial paper
During the fiscal years ended 1996 and 1995 ^, respectively, the portfolio
turnover rate for each of the Funds was as follows: Discovery Fund - ^ 106% and
118%; Passport Fund - 58% and 37%; Frontier Fund - 85% and 92%; Special Fund -
186% and 263%; Worldwide Growth Fund - ^ 72% and ^ 54%; Growth Fund - 134% and
130% ^; Blue Chip Fund - 195% and 235% ^; Balanced Fund - 146% and 286% ^; and
Government Securities Fund - ^ 166% and 141%. The portfolio turnover rate of the
International Equity Fund in fiscal 1996 was 71%; for the period from December
29, 1995 (the date upon which International Equity Fund commenced the offering
and sale of its shares to the public) through December 31, 1995, the Fund's
portfolio turnover rate was 0%. A 100% portfolio turnover rate would occur if
all of the securities in the portfolio were replaced during the period.
Portfolio turnover rates for certain of the Funds are higher than those of other
mutual funds. Although each Fund purchases and holds securities with the goal of
meeting its investment objectives, portfolio changes are made whenever Founders
believes
<PAGE>
they are advisable, usually without reference to the length of time that a
security has been held. Certain of the Funds may, therefore, engage in a
significant number of short-term transactions. Portfolio turnover rates may also
increase as a result of the need for a Fund to effect significant amounts of
purchases or redemptions of portfolio securities due to economic, market, or
other factors that are not within Founders' control. Balanced Fund does not
anticipate any significant differences between the portfolio turnover rates of
the common stock portion of its investment portfolios and the rate of turnover
of the remainder of its securities holdings. The ^ decrease in the ^ Balanced
Fund's portfolio turnover rate in ^ 1996 resulted primarily from a restructuring
of the ^ Fund's portfolio into securities positions that were held for longer
periods of time than in the prior year.
DETERMINATION OF NET ASSET VALUE
The Company calculates net asset value per share, and therefore effects
sales, redemptions, and repurchases of its shares, once daily as of the close of
the New York Stock Exchange (the "Exchange") on each day the Exchange is open
for trading. The Exchange is not open for trading on the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Foreign Securities. Since regular trading in most foreign securities
markets is completed simultaneously with, or prior to, the close of regular
trading on the Exchange, closing prices for foreign securities usually are
available for purposes of computing each Fund's net asset value. However, in the
event that the closing price of a foreign security is not available in time to
calculate a Fund's net asset value on a particular day, the Company's board of
directors has authorized the use of the market price for the security obtained
from an approved pricing service at an established time during the day which may
be prior to the close of regular trading in the security. If events occur ^ that
are known to Founders to have materially affected the value of foreign
securities ^ that are not reflected in the value obtained through regular
procedures, the securities will be valued at fair market value as determined in
good faith by the Board of Directors. All foreign currencies are converted into
U.S. dollars by utilizing exchange rate closing quotations obtained from the
London Stock Exchange.
Discovery, ^ Passport, Frontier Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced and Government Securities Funds. The net
asset value per share of each Fund is calculated by dividing the value of all
securities held by that Fund
<PAGE>
and its other assets (including dividends and interest accrued but not
collected), less the Fund's liabilities (including accrued expenses), by the
number of outstanding shares of that Fund. Securities traded on national
securities exchanges and foreign markets are valued at their last sale prices on
the exchanges or markets where such securities are primarily traded (except as
described in the preceding paragraph). Securities traded in the over-the counter
market (including those traded on the NASDAQ National Market System and the
NASDAQ Small Cap Market), and listed securities for which no sales were reported
on a particular date, are valued at their last current bid prices or, in the
case of foreign securities, on the basis of the average of at least two market
maker quotes and/or the PORTAL system. If market quotations are not readily
available, securities will be valued at their fair values as determined in good
faith by the Company's board of directors or pursuant to procedures approved by
the board of directors. The above procedures may include the use of valuations
furnished by pricing services, including services that employ a matrix to
determine valuations for normal institutional-size trading units of debt
securities. The Company's board of directors periodically reviews and approves
the pricing services used to value the Funds' securities. Commercial paper with
remaining maturities of sixty days or less at the time of purchase will be
valued at amortized cost, absent unusual circumstances.
Money Market Fund. The Board of Directors has adopted a policy ^ that
requires that the Fund use its best efforts, under normal circumstances, to
maintain a constant net asset value of $1.00 per share using the amortized cost
method. The amortized cost method involves valuing a security at its cost and
thereafter accruing any discount or premium at a constant rate to maturity. By
declaring these accruals to the Fund's shareholders in the daily dividend, the
value of the Fund's assets, and thus its net asset value per share, generally
will remain constant. No assurances can be provided that the Fund will be able
to maintain a stable $1.00 per share net asset value. This method may result in
periods during which the value of the Fund's securities, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the securities. During periods of declining interest rates, the daily yield
on shares of the Fund computed as described above may tend to be higher than a
like computation made by a similar fund with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its portfolio securities. Thus, if the use of amortized cost by the Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher yield than would
result from
<PAGE>
investment in a similar fund utilizing market values, and existing investors in
the Fund would receive less investment income. The converse would apply in a
period of rising interest rates.
In connection with its use of the amortized cost method, Money Market Fund
must maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only portfolio securities having remaining maturities of one year or
less, and invest only in securities, whether rated or unrated, determined by the
board of directors to be of high quality with minimal credit risks. The board of
directors also has established procedures designed to stabilize, to the extent
reasonably possible, the Fund's net asset value per share, as computed for the
purpose of sales and redemptions, at $1.00. Such procedures include review of
the Fund's portfolio holdings by the board of directors at such intervals as it
may deem appropriate to determine whether the Fund's net asset value calculated
by using available market quotations deviates from $1.00 per share, and, if so,
whether such deviation may result in material dilution or may otherwise be
unfair to existing shareholders. In the event the board of directors determines
that such a deviation exists, the Board will take such corrective action as it
deems necessary and appropriate, which action might include selling portfolio
securities prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends, or establishing a net asset
value per share by using available market quotations.
All Funds Except Special, Growth, Government Securities, and Money Market
Funds. When a Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
All Funds Except Balanced, Money Market, and Government Securities Funds.
When these Funds purchase a put or call option on a stock index, the premium
paid is included in the asset section of the Fund's Statement of Assets and
Liabilities and subsequently adjusted to the current market value of the option.
Thus, if the current market value of the option exceeds the premium paid, the
excess is unrealized appreciation and, conversely, if the premium exceeds the
current market value, such excess is unrealized depreciation.
YIELD AND PERFORMANCE INFORMATION
The Company may, from time to time, include the
<PAGE>
yield or total return of the Funds (other than ^ Money Market Fund) in
advertisements or reports to shareholders or prospective investors.
Quotations of yield for ^ will be based on all investment income per share
earned during a particular 30-day period (including dividends and interest),
less expenses accrued during the period ("net investment income"), and are
computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
YIELD = 2[(1 + a-b)^6 - 1]
---
cd
where a = dividends and interest earned during the
period,
b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of shares
outstanding during the period
that were entitled to receive dividends,
and
d = the maximum offering price per share on
the last day of the period.
The yields of the Balanced and Government Securities Funds for the 30 days
ended December 31, 1996 were 2.99% and 4.71%, respectively.
Quotations of average annual total return for each Fund (other than ^
Money Market Fund) will be expressed in terms of the average annual compounded
rate of return of a hypothetical investment in the Fund over periods of 1, 5,
and 10 years (up to the life of the Fund). These are the annual total rates of
return that would equate the initial amount invested to the ending redeemable
value. These rates of return are calculated pursuant to the following formula: P
(1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the
average annual total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). All total return figures reflect the deduction of a proportional share
of Fund expenses on an annual basis, and assume that all dividends and
distributions are reinvested when paid.
For the 1, 5, and 10 year periods ended December 31, ^ 1996 the average
annual total returns of the Funds were:
<PAGE>
10 year or
1 year 5 year Life of Fund
------ ------ ------------
Discovery Fund ^ 21.21% 13.38% 19.33%+
^ Passport Fund 20.05% 11.61%**
^ Frontier Fund 14.34% 14.09% 19.31%*
^ Special Fund 15.33% 11.61% 15.46%
International Equity Fund ^ 18.60% 18.60%++
Worldwide Growth Fund ^ 13.95% 12.14% 14.31%+
Growth Fund ^ 16.57% 16.52% 16.56%
Blue Chip Fund ^ 24.37% 13.00% 13.70%
Balanced Fund ^ 18.76% 14.25% 12.42%
Government Securities Fund ^ 2.34% 3.90% 6.19%***
+ From inception on 12/31/89 to ^ 12/31/96.
* From inception on 1/22/87 to ^ 12/31/96.
** From inception on 11/16/93 to ^ 12/31/96.
^ ++ From inception on 12/29/95 to 12/31/96.
*** From inception on 3/1/88 to ^ 12/31/96.
Performance information for a Fund may be compared in reports and
promotional literature to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare a Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by ^ independent
research ^ firms that rank mutual funds by overall performance, investment
objectives^ and assets, or tracked by other services, companies, publications,
or persons ^, that rank mutual funds on overall performance or other criteria,
such as Lipper Analytical Services, Money, Morningstar, Kiplinger's Personal
Finance, CDA Weisenberger, Financial World, Wall Street Journal, U.S. News,
Barron's, USA Today, Business Week, Investor's Business Daily, Fortune, Mutual
Funds Magazine and Forbes; and (iii) the Consumer Price Index ^(a measure for
inflation), to assess the real rate of return from an investment in the ^ Funds.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
Other unmanaged indices that may be used by the Funds in providing
comparison data of performance and shareholder service include Lehman Brothers,
National Association of Securities Dealers Automated Quotations, Frank Russell
Company, Value Line Investment Survey, American Stock Exchange, Morgan Stanley
Capital International, Wilshire Associates, Financial Times Stock Exchange, New
York Stock Exchange, the Nikkei
<PAGE>
Stock Average, and the Deutscher Aktienindex.
Performance information for any Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objectives and policies, characteristics and
quality of the portfolios and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.
In conjunction with performance reports, comparative data between the
Funds' performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
Rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service made by independent sources
may be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Funds. Sources of Fund performance information and articles about the Funds
include, but are not limited to, the following:
American Association of Individual Investors' Journal
^ Banxquote
^ Barron's
^ Business Week^
CDA Investment Technologies
^ CNBC
^ CNN
^ Consumer Digest
^ Financial Times
^ Financial World
^ Forbes
^ Fortune^
Ibbotson Associates, Inc.
^ Individual Investor
^ Institutional Investor^
Investment Company Data, Inc.
^ Investor's Business Daily
^ Kiplinger's Personal Finance^
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis
^ Money
Morningstar
Mutual Fund Forecaster
Mutual Funds Magazine
^ No-Load Analyst^
No-Load Fund X
^ Personal Investor
^ Smart Money^
The New York Times^
The No-Load Fund Investor
<PAGE>
^ U.S. News and World Report
^ United Mutual Fund Selector
^ USA Today^
Wall Street Journal
^ Weisenberger Investment Companies Service
^ Working Woman
^ Worth
The Lipper Analytical Services mutual fund rankings and comparisons that
may be provided by the Funds in performance reports will be drawn from the
following Lipper mutual fund groupings:
Fund Lipper Mutual Fund Grouping
- ------------------------------------------------------------------
Discovery Small Company Growth Funds
Passport International Small Company Funds
Frontier Small Company Growth Funds
Special Capital Appreciation Funds
International Equity International Funds
Worldwide Growth Global Funds
Growth Growth Funds
Blue Chip Growth and Income Funds
Balanced Balanced Funds
Government Securities U.S. Government Funds
REDEMPTION PAYMENTS
All Funds. Proceeds of redemptions normally will be forwarded within three
business days after receipt by the Company's transfer agent of the request for
redemption in proper order, although the Company may delay payment of redemption
proceeds under certain circumstances for up to seven calendar days after receipt
of the redemption request. In addition, net asset value determination for
purposes of redemption may be suspended or the date of payment postponed during
periods when (1) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or the Exchange is closed
(except for holidays or weekends), (2) the Securities and Exchange Commission
permits such suspension and so orders, or (3) an emergency exists as defined by
the Securities and Exchange Commission so that disposal of securities or
determination of net asset value is not reasonably practicable. In such a case,
a shareholder
<PAGE>
seeking to redeem shares may withdraw his request or leave it standing for
execution at the per share net asset value next computed after the suspension
has been terminated.
A redemption charge is authorized by the Company's Articles of
Incorporation, but the Company currently has no intent to impose this charge.
Shareholders will be notified in the event of the imposition of any such charge.
Shares of the Funds normally will be redeemed in cash, although Founders
retains the right to redeem shares of all Funds except the Money Market Fund in
kind by delivery of readily marketable securities selected from a Fund's assets
at its discretion under unusual circumstances, such as a period with an
unusually large number of redemption requests, in order to protect the interests
of the remaining shareholders.
However, the Company has elected to be governed by Rule 18f-1 under the 1940
Act, pursuant to which the Company is obligated during any 90-day period to
redeem shares for any one shareholder solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of that
period. The method of valuing securities used to make redemptions in kind will
be the same as the method of valuing portfolio securities described under
"Determination of Net Asset Value," and such valuation will be made as of the
same time the redemption price is determined. The investor will incur brokerage
costs in converting these securities into cash. Fund shares have not been
redeemed in kind during the past ten years.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Distributions paid from a Fund's investment company taxable income (which
includes, among other items, dividends, interest, and the excess of net
short-term capital gains over net long-term capital losses) are taxable as
ordinary income whether received in cash or additional shares. Distributions of
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) designated by a Fund as capital gain dividends are taxable as
long-term capital gain, regardless of the length of time the shareholder has
held his Fund shares at the time of the distribution, whether received in cash
or additional shares. Shareholders receiving distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share received equal to the net asset value of a share of that Fund on the
reinvestment date.
Any loss realized by a shareholder upon the disposition of shares held for
six months or less from the date of his or her purchase will be treated as a
long-term capital loss to the extent of any amounts
<PAGE>
treated as distributions of long-term capital gain during such six-month period.
Further, a loss realized on a disposition will be disallowed to the extent the
shares disposed of are replaced (whether by reinvestment of distributions or
otherwise) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
A portion of a Fund's dividends may qualify for the corporate
dividends-received deduction; however, the revised alternative minimum tax
applicable to corporations may reduce the value of the dividends-received
deduction.
All dividends and distributions are regarded as taxable to the investor,
whether or not such dividends and distributions are reinvested in additional
shares. If the net asset value of Fund shares should be reduced below a
shareholder's cost as a result of a distribution of such realized capital gains,
such distribution would be taxable to the shareholder although a portion would
be, in effect, a return of invested capital. The net asset value of each ^
Fund's shares reflects accrued net investment income and undistributed realized
capital gains; therefore, when a distribution is made, the net asset value is
reduced by the amount of the distribution. Distributions generally are taxable
in the year in which they are received, regardless of whether received in cash
or reinvested in additional shares. However, dividends declared in October,
November, or December of a calendar year to shareholders of record on a date in
such a month and paid by a Fund during January of the following calendar year
will be taxable as though received by shareholders on December 31 of the
calendar year in which the dividends were declared.
While the Funds intend to make distributions at the times set forth in the
prospectus, those times may be changed at each Fund's discretion. The Funds
intend to distribute substantially all investment company taxable income and net
realized capital gains. Through such distributions, and by meeting certain other
requirements, each Fund intends to continue to qualify for the tax treatment
accorded to regulated investment companies under Subchapter M of the Internal
Revenue Code (the "Code"). In each year in which a Fund so qualifies, it will
not be subject to ^ federal income tax upon the amounts so distributed to
investors. The Code contains a number of complex tests to determine whether a
Fund will so qualify, and a Fund might not meet those tests in a particular
year. If it did not so qualify, the Fund would be treated for tax purposes as an
ordinary corporation and receive no tax deduction for payments made to
shareholders. Qualification as a regulated investment company does not involve
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supervision by any governmental authority either of the Company's management or
of the ^ Funds' investment policies and practices.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent application of the excise tax, the Funds intend to continue to make
distributions in accordance with this requirement. However, the Company's Board
of Directors and Founders could determine in a particular year that it would be
in the best interests of shareholders for a Fund not to make such distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
Certain options and forward contracts in which the Funds may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses;
however, foreign currency gains or losses (as discussed below) arising from
certain section 1256 contracts may be treated as ordinary income or loss. Also,
section 1256 contracts held by the Funds at the end of each taxable year (and,
with some exceptions, for purposes of the 4% excise tax, on October 31 of each
year) are "marked-to-market," with the result that unrealized gains or losses
are treated as though they were realized.
Generally, the hedging transactions undertaken by the Funds may result in
"straddles" for ^ federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Funds. In addition, losses
realized by the Funds on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Funds, which is taxed as ordinary income when
distributed to shareholders.
The Funds may make one or more of the elections available under the Code ^
that are applicable to straddles. If any of the elections are made, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
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straddle positions.
Because application of the straddle rules may affect the character of
gains or losses by deferring losses and/or accelerating the recognition of gains
from the affected straddle positions, the amount ^ that must be distributed to
shareholders and ^ that will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Requirements related to the Funds' status as regulated investment
companies may limit the extent to which any particular Fund will be able to
engage in transactions in options and forward contracts.
The Funds intend to accrue dividend income for Federal income tax purposes
in accordance with Code rules applicable to regulated investment companies. In
some cases, these rules may have the effect of accelerating (in comparison to
other recipients of the dividend) the time at which the dividend is taken into
account by a Fund as income.
Gains or losses attributable to fluctuations in foreign currency exchange
rates ^ that occur between the time a Fund accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign currency and
the time a Fund actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, on disposition of debt
securities denominated in a foreign currency and on disposition of certain
options and forward contracts, gains or losses attributable to fluctuations in
the value of the foreign currency between the date of acquisition of the
position and the date of disposition also are treated as ordinary gain or loss.
These gains and losses, referred to under the Code as "section 988" gains or
losses, may increase or decrease the amount of a Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income, rather than increasing or decreasing the amount of the Fund's net
capital gain. If section 988 losses exceed other investment company taxable
income during a taxable year, a Fund generally would not be able to make any
ordinary income dividend distributions. Such distributions made before the
losses were realized generally would be recharacterized as a return of capital
to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares.
A Fund may be required to withhold ^ federal income tax at the rate of 31%
of all taxable distributions and gross proceeds from the disposition of Fund
shares payable to shareholders who fail to
<PAGE>
provide the Fund with their correct taxpayer identification numbers or to make
required certifications, or where a Fund or a shareholder has been notified by
the Internal Revenue Service (the "IRS") that a shareholder is subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code generally are exempt from such backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's ^ federal income tax liability.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the amount of
foreign taxes that will be imposed on a Fund. If more than 50% of the value of a
Fund's total assets at the close of any taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the IRS that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign and U.S.
possessions' income taxes paid by it. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's income
from sources within, and taxes paid to, foreign countries and U.S. possessions
if it makes this election.
Certain Funds may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
Money Market Fund will declare a dividend of its investment company
taxable income on a daily basis, and shareholders of record begin receiving
dividends ^ no later than the next day following the day when the purchase is
effected. The dividend declared at 4:00 p.m. Eastern time will be deducted
immediately before the net asset value calculation is made. Shareholders will
receive dividends in additional shares, unless they elect to receive cash by
notifying the Transfer
<PAGE>
Agent in writing. Dividends will be reinvested monthly on the first business day
of each month at the per share net asset value on that date. If cash payment is
requested, checks will be mailed as soon as possible after the end of the month.
If a shareholder redeems his entire account, all dividends declared to the
effective date of redemption will be paid at that time.
Shareholders will receive monthly statements of account activity, including
information on dividends paid or reinvested. Shareholders also will receive
statements after the opening of a new account, each transfer of shares, and each
automatic withdrawal plan payment and redemption (except telephone exchanges).
Tax information will be provided annually.
Money Market Fund's net income consists of all interest income accrued
(including accrued discount earned and premium amortized), plus or minus all
short-term realized gains and losses on portfolio assets, less accrued expenses.
The amount of the daily dividend will fluctuate. To the extent necessary to
attempt to maintain a net asset value of $1.00 per share, the Board of Directors
may consider the advisability of temporarily reducing or suspending payment of
daily dividends.
Founders may provide the Funds' shareholders with information concerning
the average cost basis of their shares to assist them in preparing their tax
returns. This information is intended as a convenience to the Funds'
shareholders and will not be reported to the ^ IRS. The IRS permits the use of
several methods in determining the cost basis of mutual fund shares. Cost basis
information provided by Founders will be computed using the single-category
average cost method, although neither Founders nor the Company recommends any
particular method of determining cost basis. Other methods may result in
different tax consequences. If a Fund's shareholder has reported gains or losses
from investments in the Fund in past years, the shareholder must continue to use
the method previously used, unless the shareholder applies to the IRS for
permission to change methods.
The treatment of any ordinary dividends and capital gains distributions to
shareholders from a Fund under the various state and local income tax laws may
not parallel that under federal law. In addition, distributions from a Fund may
be subject to additional state, local, and foreign taxes, depending upon each
shareholder's particular situation. Shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in a Fund.
<PAGE>
ADDITIONAL INFORMATION
Capital Stock
The Company has ^ 2,000,000,000 shares of capital stock authorized, with a
par value per share of $0.01. Of these shares, ^ 100,000,000 shares have been
allocated to Discovery Fund, ^ 100,000,000 to Passport Fund, 100,000,000 to
Frontier Fund, 180,000,000 to Special Fund, ^ 100,000,000 to International
Equity Fund, ^ 100,000,000 to Worldwide Growth Fund, ^ 200,000,000 to Growth
Fund, ^ 200,000,000 to Blue Chip Fund, ^ 100,000,000 to Balanced Fund,
20,000,000 to Government Securities Fund, and ^ 800,000,000 to Money Market
Fund. The Board of Directors is authorized to create additional series or
classes of shares, each with its own investment objectives and policies.
As of ^ February 6, 1997, no person owned of record or, to the knowledge
of the Company, beneficially, more than 5% of the capital stock of any Fund then
outstanding except: Charles Schwab & Co., Inc., 101 Montgomery Street, San
Francisco, CA 94104, held of record ^ 34.25%, 58.8%, 33.64%, 23.17%, 27.62%,
36.74%, 28.00%, 15.02%, and 28.81% of the outstanding shares of Discovery Fund,
Passport Fund, Frontier Fund, ^ Special Fund, International Equity Fund,
Worldwide Growth Fund, Growth Fund, Blue Chip Fund, and Balanced Fund,
respectively; National Financial Services Corp., P.O. Box 3908, Church Street
Station, New York, New York 10008, held of record ^ 12.84%, 12.84%, 7.03%, and
7.47% of the outstanding shares of ^ Passport Fund, ^ Worldwide Growth Fund,
Growth Fund and Balanced Fund, respectively; Cudd & Co., 1211 Avenue of the
Americas, 35th Floor, New York, New York 10036, held of record ^ 5.29% of the
outstanding shares of International Equity Fund ^(such shares were owned
beneficially by Bjorn K. Borgen); Donaldson, Lufkin & Jenrette Securities Corp.,
P.O. Box 2052, Jersey City, NJ 07303-2052, held of record 8.52% of the
outstanding shares of Worldwide Growth Fund; Bankers Trust Company, 34 exchange
GIMS 3048, Jersey City, NJ 07302-3901, held of record 6.75% of the outstanding
shares of Growth Fund; and Connecticut General Life Ins. Co., 350 Church St.,
Hartford CT 06104-2975, held of record 18.48% of the outstanding shares of
Balanced Fund.
Shares of each Fund are fully paid and nonassessable when issued. All
shares participate equally in dividends and other distributions by each Fund,
and in the residual assets of a Fund in the event of its liquidation. Shares of
each Fund are redeemable as described herein under "Redemption Payments" and
under "Investing in the Founders Funds" in the prospectus. Fractional shares
have the same rights proportionately as full shares but certificates for
fractional shares are not issued.
Shares of the Company have no conversion,
subscription or preemptive rights. Each full share of
the Company has one vote and fractional shares have
<PAGE>
proportionate voting rights. Shares of the Company have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of directors can elect 100% of the directors if they choose to do
so^ and, in such an event, the holders of the remaining less than 50% of the
shares voting for the election of directors will not be able to elect any person
or persons to the board of directors.
Code of Ethics
The Company and Founders have adopted a strict code of ethics ^ that
limits directors, officers, investment personnel and other Founders employees in
investing in securities for their own accounts. The code of ethics requires
pre-clearance of personal securities transactions and imposes restrictions and
reporting requirements upon such transactions. The Company and Founders
carefully monitor compliance with the code of ethics by their respective
personnel. Violations or apparent violations of the code of ethics are reported
to the president of the Company or to the Company's legal counsel, and
thereafter to the Company's board of directors. The Company's board of directors
determines whether a violation of the code of ethics has occurred and, if so,
the sanctions, if any, deemed appropriate. Sanctions may include a letter of
censure, suspension, termination of employment, disgorgement of profits from
improper transactions, or other penalties. The code of ethics requires
maintenance of the highest standards of integrity and conduct. In engaging in
personal business activities, personnel of the Company and of Founders must act
in the best interests of the Company and its shareholders.
The Company's shareholders may obtain a copy of the code of ethics without
charge by calling Founders at 1-800-525-2440.
Purchases of Fund Shares by Founders Employees
Founders' employees and their household family members may open Fund
accounts with a minimum initial investment of $250. The minimum additional
investment by such persons is $25.
Custodian
Investors Fiduciary Trust Company ("IFTC"), 127 West 10th Street, Kansas
City, Missouri, is custodian of the portfolio securities and cash of the Funds.
IFTC has entered into a subcustodian agreement with ^ State Street Bank and
Trust Company, through which each Fund (other than Money Market Fund)
participates in the ^ State Street global custody network. The foreign
subcustodians ^ have been approved by the Company's board of directors ^ as
required by Rule 17f^-5 under the ^ 1940 Act (and the notes to the Rule), ^
based on
<PAGE>
the following: the financial strength of the foreign subcustodian, its general
reputation and standing in the country in which it is located, its ability to
provide efficiently the custodial services required, the relative cost for these
services, the level of safeguards for maintaining the Fund's assets and whether
or not the foreign subcustodian has branch offices in the United States.
Independent Accountants
Price Waterhouse LLP, Denver, Colorado, acts as independent accountants
for the Company. The independent accountants are responsible for auditing the
financial statements of each Fund and meeting with the Audit Committee of the
Board of Directors.
Registration Statement
A Registration Statement (Form N-1A) under the ^ 1933 Act has been filed
with the Securities and Exchange Commission, Washington, D.C., with respect to
the securities to which this Statement of Additional Information relates. If
further information is desired with respect to the Company or such securities,
reference should be made to the Registration Statement and the exhibits filed as
a part thereof.
Financial Statements
^ The Funds' audited financial statements and the notes thereto for the
fiscal year ended December 31, 1996, and the report of Price Waterhouse LLP with
respect to such financial statements, are incorporated herein by reference from
the Funds' Annual Report to Shareholders for the fiscal year ended December 31,
1996.
<PAGE>
APPENDIX
Ratings of Corporate Bonds
An NRSRO is a nationally recognized statistical rating organization. The
Division of Market Regulation of the Securities and Exchange Commission
currently recognizes six NRSROs: Duff & Phelps, Inc. ("D&P"), Fitch Investors
Services, Inc. ("Fitch"), Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's ^ Ratings Services ("S&P"), Thompson Bankwatch, Inc. ("TBW"), and IBCA
Limited and its affiliate, IBCA Inc. ("IBCA").
Guidelines for Moody's and S&P ratings are described ^ below. For D&P,
ratings correspond exactly to S&P's format from AAA through B-. For Fitch,
ratings correspond exactly to S&P's format from AAA through CCC-. For both TBW
and IBCA, ratings correspond exactly to S&P's format in all ratings categories.
Because the Funds cannot purchase
<PAGE>
securities rated below B^, ratings from D&P, Fitch, TBW, and IBCA can be
compared directly to the S&P ratings scale to determine the suitability of a
particular investment for a given Fund. For corporate bonds, a security must be
rated in the appropriate category by one or more of these six agencies to be
considered a suitable investment.
^ The four highest ratings of Moody's and S&P for corporate bonds are Aaa,
Aa, A and Baa and AAA, AA, A and BBB, respectively.
Moody's. The characteristics of these debt obligations
rated by Moody's are generally as follows:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities. Moody's
applies the numerical modifiers 1, 2 and 3 to the Aa rating classification. The
modifier 1 indicates a ranking for the security in the higher end of this rating
category; the modifier 2 indicates a mid- range ranking; and the modifier 3
indicates a ranking in the lower end of this rating category.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
<PAGE>
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.
Standard & Poor's. The characteristics of these debt
obligations rated by S&P are generally as follows:
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments.
B -- Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, and economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
<PAGE>
Ratings of Commercial Paper
The SEC recognizes the same six nationally recognized statistical rating
organizations (NRSROs) for commercial paper that it does for corporate bonds:
D&P, Fitch, Moody's, S&P, TBW, and IBCA. The ratings ^ that would constitute the
highest short-term rating category are Duff 1 (D&P), F-1 (Fitch), P-1 (Moody's),
A-1 or A-1+ (S&P), TBW-1 (TBW), and A1 (IBCA).
Description of Moody's ^ commercial paper ratings.
Among the factors considered by Moody's in assigning
commercial paper ratings are the following: (1) evaluation of the management of
the issuer; (2) economic evaluation of the issuer's industry or industries and
an appraisal of the risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative differences in
strength and weakness in respect to these criteria would establish a rating of
one of three classifications; P-1 (Highest Quality), P-2 (Higher Quality) or P-3
(High Quality).
^ Description of S&P's commercial paper ratings. An S&P commercial paper
rating is a current assessment of the likelihood of timely payment of debt
having an original maturity of no more than 365 days. Ratings are graded into
four categories, ranging from "A" for the highest quality obligations to "D" for
the lowest.
The "A" categories are as follows:
A -- Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
A-3 -- Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations
<PAGE>
carrying the higher designations.
Ratings of Preferred Stock
Moody's. The characteristics of these securities rated
by Moody's are generally as follows:
"aaa" -- An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
"aa" -- An issue ^ that is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
"a" -- An issue ^ that is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
"baa" -- An issue ^ that is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
"ba" -- An issue ^ that is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
"b" -- An issue ^ that is rated "b" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
^ Standard & Poor's. The characteristics of these
securities rated by S&P are generally as follows:
^ AAA -- This is the highest rating that may be
<PAGE>
assigned by ^ S&P to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
^ AA -- A preferred stock issue rated ^ AA also qualifies as a
high-quality fixed-income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated ^
AAA.
^ A -- An issue rated ^ A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
^ BBB -- An issue rated ^ BBB is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments
for a preferred stock in this category than for issues in the ^ A category.
^ BB, B -- Preferred stocks rated ^ BB and ^ B are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. ^ BB indicates the lowest degree of speculation and
^ B a higher degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications of preferred
stock quality, the ratings from ^ AA to ^ B may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements And Exhibits
(a) Financial Statements:
Part A: Financial Highlights for the Discovery, Passport, Frontier,
^ Special, International Equity, Worldwide Growth, Growth,
Blue Chip, Balanced, Government Securities and Money Market
Funds for each of the fiscal years or periods in the ten year
(or since inception) period ended December 31, 1996.
Part B: The following audited financial statements of the Discovery,
Passport, Frontier, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced, Government Securities
and Money Market Funds and the notes thereto for the fiscal
year ended December 31, ^ 1996, and the report of ^ Price
Waterhouse LLP with respect to such financial statements, are
incorporated in the Statement of Additional Information by
reference from the Company's annual report to shareholders for
the fiscal year ended December 31, ^ 1996 (the "Annual
Report"): Schedules of Investments as of December 31, ^ 1996;
Statements of Assets and Liabilities as of December 31, ^1996;
Statements of Operations for the year ended December 31, ^
1996; Statements of Changes in Net Assets for ^ the year
ended December 31, 1996; Financial Highlights for the year
ended December 31, 1996. The Statements of Changes in Net
Assets for the year ended December 31, 1995 ^ and the
Financial Highlights for each of the fiscal years or periods
in the ^ four year (or since inception) period ended December
31, 1995^ for the foregoing Funds were audited by another
independent accounting firm, and are also incorporated in the
Statement of Additional Information ^ by reference from the
Annual Report.
(b) Exhibits
(1) (A) ^ Articles of Incorporation of Founders Funds, Inc.,
dated June 19, 1987.1^
(B) Articles Supplementary to the Articles of Incorporation,
filed November 25, 1987.1
(C) Articles Supplementary to the Articles of Incorporation,
<PAGE>
filed February 25, 1988.1
(D) Articles Supplementary to the Articles of Incorporation,
filed December 12, 1989.1
(E) Articles Supplementary to the Articles of Incorporation,
filed May 3, 1990.1
(F) Articles Supplementary to the Articles of Incorporation,
filed September 22, 1993.1
(G) Articles Supplementary to the Articles of Incorporation,
filed December 27, 1995.1
(H) Articles Supplementary to the Articles of Incorporation,
filed May 20,1996.
(I) Articles Supplementary to the Articles of Incorporation,
filed October 21, 1996.
(2) By-Laws of Founders Funds, Inc.1
(3) Not applicable.
(4) Specimen Stock Certificates. Not required to be filed on
EDGAR.
(5) (A) Form of Investment Advisory Agreement between Founders
Funds, Inc. on behalf of Founders Discovery, Passport,
Frontier, Special, International Equity, Worldwide Growth,
Growth, Blue Chip, and Balanced Funds and Founders Asset
Management, Inc., dated August 27, 1993.1
(B) Investment Advisory Agreement between Founders Funds, Inc.
on behalf of Founders Money Market Fund and Founders
Asset Management, Inc. (formerly, Founders Mutual Depositor
Corporation), dated November 30, 1987.2
(C) Amended and Restated Investment Advisory Agreement
between Founders Funds, Inc. on behalf of Founders
Government Securities Fund and Founders Asset
Management, Inc. (formerly, Founders Mutual Depositor
Corporation), dated September 29, 1988.2
(6) ^(A) Underwriting Agreement^ between Founders Funds, Inc. and
<PAGE>
Founders Asset Management, Inc., dated June 1, 1996.2
^(B) ^ Form of ^ Distribution and Shareholder Support Agreement ^
for Founders Funds, Inc.
^(7) Not applicable.
^(8) (A) Custody Agreement between Investors Fiduciary Trust
Company and Founders Funds, Inc., dated January 3, 1994.
(B) Proposed Fee Schedule ^ effective August 1996.
(9) (A) ^ Amended Shareholder Services Agreement between
Founders Funds, Inc. and Founders Asset Management, Inc.,
dated June 1, 1994.2
(B) ^ Addendum to Amended Shareholder Services Agreement
between Founders Funds, Inc. and Founders Asset
Management, Inc., dated June 1, 1995.2
(C) ^ Fund Accounting and Administrative Services Agreement,
dated June 26, 1991, amended August 25, 1995.2
(10) ^ Opinion and consent of Moye, Giles, ^ O'Keefe, Vermeire &
Gorrell was filed with the Securities and Exchange
Commission on or about February ^ 21, 1997 pursuant to Rule
24f-2 and herein incorporated by reference.
(11) ^ Consent of^ Independent ^ Accountants.
(12) Not applicable.
(13) Not applicable.
(14) (A) ^ Prototype Profit Sharing and Money Purchase Pension Plan
^(included in Post-Effective Amendment No. 39 to the
Registration Statement).
(B) ^ Form of Individual Retirement Custodian Account ^(included
in Post-Effective Amendment No. 43 to the Registration
Statement).
(C) ^ 403(b) Plan ^(included in Post-Effective Amendment No. 36
to the Registration Statement)^.
^(15) Founders Funds, Inc. Rule 12b-1 Distribution Plan, as
amended December 6, 1996.
<PAGE>
(16) ^(A) Schedule showing computation of performance quotations ^ in
response to Item 22 (unaudited)^ (included in Post-Effective
Amendment No. 50 to the Registration Statement).
(B) Schedule showing computation of yield performance quotations
in response to Item 22 (unaudited).
(17) ^(A) Financial Data Schedule for the year ended December 31,
^ 1996 for Founders Discovery Fund.
^(B) Financial Data Schedule for the year ended December 31, ^
1996 for ^ Founders Passport Fund.
^(C) Financial Data Schedule for the year ended December 31, ^
1996 for ^ Founders Frontier Fund.
^(D) Financial Data Schedule for the year ended December 31, ^
1996 for Founders Special Fund.
^(E) Financial Data Schedule for the year ended December 31, ^
1996 for Founders International Equity Fund.
^(F) Financial Data Schedule for the year ended December 31, ^
1996 for Founders Worldwide Growth Fund.
^(G) Financial Data Schedule for the year ended
December 31, ^ 1996 for Founders Growth Fund.
^(H) Financial Data Schedule for the year ended December 31, ^
1996 for Founders Blue Chip Fund.
^(I) Financial Data Schedule for the year ended December 31, ^
1996 for Founders Balanced Fund.
^(J) Financial Data Schedule for the year ended
December 31, ^ 1996 for Founders Government Securities
Fund.
^(K) Financial Data Schedule for the year ended December 31, ^
1996 for Founders Money Market Fund.
^(18) Not applicable.
<PAGE>
(19) ^ Code of Ethics for Founders Funds, Inc.^ and ^ Founders
Asset Management, Inc., dated January 1, 1995.2
^--------------
1 Filed previously on EDGAR with Post-Effective Amendment No. 60 to the
Registration Statement on April 29, 1996 and incorporated herein by reference.
2 Filed previously on EDGAR with Post-Effective Amendment No. 61 to the
Registration Statement on July 26, 1996 and incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with Registrant
Registrant knows of no person or group of persons directly or indirectly
controlled by or under common control with the Registrant within the
meaning of this item.
Item 26. Number of Holders of Securities
As of ^ December 31, 1996:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock - Founders Discovery Fund ^ 14,065
Common Stock - Founders Passport Fund 4,695
Common Stock - Founders Frontier Fund 19,567 ^
Common Stock - Founders Special Fund ^ 19,194
Common Stock - Founders International Equity Fund ^ 959
Common Stock - Founders Worldwide Growth Fund ^ 11,940
Common Stock - Founders Growth Fund ^ 27,830
Common Stock - Founders Blue Chip Fund ^ 21,299
Common Stock - Founders Balanced Fund ^ 7,551
Common Stock - Founders Government Securities Fund ^ 1,439
Common Stock - Founders Money Market Fund ^ 8,143
Item 27. Indemnification
Indemnification provisions for officers, directors, employees, and agents
of the Registrant are set forth in Article XII of the bylaws of the
Registrant, which bylaws were filed on EDGAR as Exhibit 2 to the
Registrant's Post-Effective Amendment No. ^ 60. Section 12.01 of Article
XII of the bylaws provides that notwithstanding any provisions in Article
XII to the contrary, no officer, director, employee, and/or agent of the
Registrant shall be indemnified by the Registrant in violation of sections
17(h) and (i) of the Investment Company Act of 1940, as amended.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Reference is made to information under ^"The Funds^ and ^ Their
Management" and "Founders' Investment Philosophy" in the Prospectus and
"Investment Adviser and Distributor" and "Directors and Officers" in the
Statement of Additional Information.
Item 29. Principal Underwriters
(a) Founders Asset Management, Inc. also serves as a sub-adviser
to certain portfolios of the following investment companies:
American Skandia Trust
NASL Series Trust
North American Funds
New England Funds Trust I
Ohio National Fund, Inc.^
(b) The directors and officers of Founders Asset Management, Inc.,
located at Founders Financial Center, 2930 East Third Avenue,
Denver, Colorado 80206, are as follows:
Name & Principal Positions & Offices Positions & Offices
Business Address With Underwriter With Registrant
B. K. Borgen Chairman, Chief Executive President and Director
Officer, Chief Investment
Officer and Director
Jonathan F. Zeschin President and Chief Director
Operating Officer
David L. Ray Vice President, Assistant Vice President^
Secretary and Treasurer and Treasurer
Michael K. Haines Senior Vice President N/A
Michael W. Gerding Vice President N/A
Gregory P. Contillo Senior Vice President N/A
James P. Rankin Vice President N/A
Edward F. Keely Vice President N/A
<PAGE>
Kenneth R.
Christoffersen Vice President and ^ Secretary
^ General Counsel
Linda M. Ripley Vice President N/A
Brian F. Kelly Vice President N/A
David G. Kern Vice President N/A
Roberto Galindo, Jr. Assistant Vice President ^ Assistant Treasurer
Thomas Mauer Assistant Vice President N/A
^
(c) Not applicable.
Item 30. Location of Accounts and Records
Principal executive office of the Registrant, Founders Financial Center,
2930 East Third Avenue, Denver, Colorado 80206 (David L. Ray, Treasurer),
except records described in Rule 31a-1(b)(2)(iv) under the Investment
Company Act of 1940, which are in the possession of Investors Fiduciary
Trust Company, 127 West 10th Street, Kansas City, Missouri 64105.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
^
The Registrant hereby undertakes that the board of directors will call
such meetings of shareholders for action by shareholder vote, including
acting on the question of removal of a director or directors and to assist
in communications with other shareholders as required by Section 16(c) of
the Investment Company Act of 1940, as may be requested in writing by the
holders of at least 10% of the outstanding shares of the Registrant or any
of its portfolios, or as may be required by applicable law or the Fund's
Articles of Incorporation.
The Registrant shall furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant ^ has duly caused this Post-Effective
Amendment to its Registration Statement (File No. 2-17531) to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City and County of
Denver, State of Colorado, on the ^ 24 day of ^ February, 1997.
FOUNDERS FUNDS, INC.
ATTEST:
By: /s/ Bjorn K. Borgen
-------------------------
/s/ ^ Kenneth R. Christoffersen Bjorn K. Borgen, President
- --------------------------------------
^ Kenneth R. Christoffersen, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Bjorn K. Borgen President (Principal ^ February 24, ^ 1997
- ------------------- Executive Officer)
Bjorn K. Borgen
/s/ David L. Ray Vice President^ and February 24, ^ 1997
- ---------------- ^ Treasurer
David L. Ray (Principal Financial
and Accounting Officer)
/s/ John K. Langum* Chairman ^ February 24, ^ 1997
- -------------------
John K. Langum
/s/ William H. Baughn* Director ^ February 24, ^ 1997
- ----------------------
William H. Baughn
/s/ Bjorn K. Borgen Director ^ February 24, 1997
- -------------------
^ Bjorn K. Borgen
/s/ Alan S. Danson* Director February 24, 1997
- -------------------
Alan S. Danson
<PAGE>
/s/ Trygve E. Myhren* Director February 24, 1997
- ---------------------
Trygve E. Myhren
/s/ Jay A. Precourt* Director ^ February 24, ^ 1997
- --------------------
Jay A. Precourt
^/s/ Eugene H. Vaughan* Director ^ February 24, ^ 1997
- -----------------------
Eugene H. Vaughan
/s/ Jonathan F. Zeschin Director ^ February 24, ^ 1997
- -----------------------
Jonathan F. Zeschin
/s/ Bjorn K. Borgen ^ February 24, ^ 1997
- -------------------
By Bjorn K. Borgen
Attorney-in-Fact
*Original Powers of Attorney authorizing Bjorn K. Borgen, Edward F. O'Keefe and
David L. Ray, and each of them, to execute this Post-Effective Amendment to the
Registration Statement of the Registrant on behalf of the above-named directors
and officers of the Registrant (with the exception of ^ Messrs. Myhren and
Zeschin) were filed with Post-Effective Amendment No. 54. A Power of Attorney
authorizing Bjorn K. Borgen, Edward F. O'Keefe and David L. Ray, and each of
them, to execute this Post-Effective Amendment to the Registration Statement of
the Registrant on behalf of Trygve E. Myhren is being filed with this
Post-Effective Amendment No. 62.
<PAGE>
Exhibit Index
Exhibit Number Description
- -------------- -----------
^ 1(H) Articles Supplementary to the Articles of Incorporation
1(I) Articles Supplementary to the Articles of Incorporation
6(B) Form of Distribution and Shareholder Support Agreement
8(A) Custody Agreement dated January 3, 1994.
8(B) Proposed Fee Schedule effective August 1996.
11 Consent of Independent Accountants
15 Rule 12b-1 Distribution Plan, as amended December 6, 1996
16(B) Schedule for computation of performance data
17(A) Financial Data Schedule - Founders Discovery Fund
17(B) Financial Data Schedule - Founders Passport Fund
17(C) Financial Data Schedule - Founders Frontier Fund
17(D) Financial Data Schedule - Founders Special Fund
17(E) Financial Data Schedule - Founders International Equity Fund
17(F) Financial Data Schedule - Founders Worldwide Growth Fund
17(G) Financial Data Schedule -^ Founders Growth Fund
^ 17(H) Financial Data Schedule - Founders Blue Chip Fund
^ 17(I) Financial Data Schedule - Founders Balanced Fund
^ 17(J) Financial Data Schedule - Founders Government Securities Fund
^ 17(K) Financial Data Schedule - ^ Founders Money Market Fund
FOUNDERS FUNDS, INC.
ARTICLES SUPPLEMENTARY
FOUNDERS FUNDS, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
registered office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The aggregate number of shares of stock of all classes which the
Corporation has authority to issue is one billion (1,000,000,000) shares of the
Corporation's common stock ("Common Stock"). The Corporation's shares of Common
Stock have a par value of $0.01 per share. The aggregate par value of the
Corporation's one billion authorized shares of Common Stock is ten million
dollars ($10,000,000).
SECOND: The board of directors of the Corporation, by action taken at a
regularly scheduled board meeting held on March 4, 1996, reclassified and
reallocated shares of the Corporation's Common Stock among each of its series
effective March 4, 1996, as follows:
Previous Share Adjusted Share
Allocation Allocation
Fund (In Thousands) (In Thousands)
---- -------------- --------------
Discovery 40,000 40,000
Frontier 40,000 40,000
Passport 20,000 30,000
Special 150,000 150,000
International Equity 20,000 20,000
Worldwide Growth 20,000 40,000
Growth 100,000 125,000
Blue Chip 110,000 100,000
Balanced 30,000 35,000
Government Securities 30,000 20,000
Money Market 440,000 400,000
---------- ----------
TOTAL 1,000,000 1,000,000
========== ==========
THIRD: A description of the shares so reclassified with the powers,
preferences, and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof, are as follows:
(a) All shares of Common Stock shall have the following powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
<PAGE>
(1) All consideration received by the Corporation for the issue of
the shares of Common Stock, together with all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to the
class of shares of that series with respect to which such assets, payments or
funds were received by the Corporation for all purposes, subject only to the
rights of creditors, and shall be so handled in the records of the Corporation.
Such assets, income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and any assets
derived from any reinvestment of such proceeds, in whatever form the same may
be, are herein referred to as "assets belonging to" the class of each series of
shares.
(2) The assets belonging to the class of each series of shares shall
be charged with the liabilities, including the redemption of shares, in respect
of such class and shall also be charged with their share of the general
liabilities of the Corporation, in proportion to the net asset value of the
class of such series determined as hereinafter provided. The determination of
the board of directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the same to a
given class, and as to whether the same or general assets of the Corporation are
allocable to one or more classes.
(3) The net asset value per share of the class of each series shall
be determined in accordance with Article FIFTH, Paragraph (5) of the
Corporation's Articles of Incorporation, as amended, by separately computing the
assets belonging to such class less the liabilities applicable to that class,
allocating any general assets and general liabilities to that class, and
dividing the net result of the number of shares of common stock of that class
outstanding.
(4) Dividends or distributions on the class of each series of
shares, whether payable in stock or cash, shall be paid only out of earnings,
surplus or other lawfully available assets belonging to such class.
(5) In the event of the liquidation or dissolution of the
Corporation, stockholders of shares of each series shall be entitled to receive,
as a class, out of the assets of the Corporation available for distribution to
stockholders, but other than general assets, the assets belonging to such class.
The assets so distributable to the stockholders of any class shall be
distributed among such stockholders in proportion to the number of shares of
such class held by them and recorded in the records of the Corporation.
<PAGE>
(6) The provisions of Article FIFTH, Paragraphs (1) through (5) of
the Corporation's Articles of Incorporation, as amended, shall apply to the
holders of shares of each class as may be issued from time to time and the
assets belonging to such class.
(b) Except as otherwise may be provided in the Corporation's Articles of
Incorporation, the holders of shares of each series shall have the same powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof as the holders of any other
series of the Corporation's Common Shares, as that term is used in the
Corporation's Articles of Incorporation, as amended.
FOURTH: Shares of each series have been duly reclassified by the board of
directors pursuant to authority and power contained in the Articles of
Incorporation of the Corporation, as heretofore amended.
FIFTH: The Corporation is registered as an open-end
management investment company under the Investment Company Act of
1940.
SIXTH: The total number of shares of Common Stock that the Corporation has
authority to issue has been reclassified and reallocated as indicated herein by
the board of directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
IN WITNESS WHEREOF, FOUNDERS FUNDS, INC. has caused these presents to be
signed in its name and on its behalf by its duly authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation and
that, to the best of their knowledge, all matters and facts set forth therein
are true in all material respects under penalties of perjury.
FOUNDERS FUNDS, INC.
/s/ Bjorn K. Borgen
----------------------------
Bjorn K. Borgen, President
ATTEST:
/s/ David L. Ray
- ----------------------
David L. Ray, Secretary
FOUNDERS FUNDS, INC.
ARTICLES SUPPLEMENTARY
FOUNDERS FUNDS, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
registered office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The aggregate number of shares of stock of all classes which the
Corporation shall have authority to issue is hereby increased to two billion
(2,000,000,000) shares of the Corporation's common stock ("Common Stock"). Prior
to this increase in the Corporation's authorized aggregate number of shares of
Common Stock, the Corporation was authorized to issue one billion
(1,000,000,000) shares of Common Stock of all classes. Before and after this
increase in the Corporation's authorized aggregate number of shares of Common
Stock, the Corporation's shares of Common Stock had and will have a par value of
$0.01 per share. The aggregate par value of the Corporation's one billion
authorized shares of Common Stock was ten million dollars ($10,000,000). The
aggregate par value of the Corporation's two billion authorized shares of Common
Stock is twenty million dollars ($20,000,000)
SECOND: The board of directors of the Corporation, by unanimous written
consent effective October 18, 1996, reclassified and reallocated shares of the
Corporation's Common Stock among each of its series effective October 18, 1996,
as follows:
Additional
Previous Share Share Adjusted Share
Fund Allocation Allocation Allocation
---- ---------- ---------- ----------
Discovery 40,000,000 60,000,000 100,000,000
Frontier 40,000,000 60,000,000 100,000,000
Passport 30,000,000 70,000,000 100,000,000
Special 150,000,000 30,000,000 180,000,000
International 20,000,000 80,000,000 100,000,000
Equity
Worldwide 40,000,000 60,000,000 100,000,000
Growth
Growth 125,000,000 75,000,000 200,000,000
Blue Chip 100,000,000 100,000,000 200,000,000
Balanced 35,000,000 65,000,000 100,000,000
Government 20,000,000 -0- 20,000,000
Securities
Money Market 400,000,000 400,000,000 800,000,000
-------------- -------------- --------------
TOTAL 1,000,000,000 1,000,000,000 2,000,000,000
<PAGE>
THIRD: A description of the shares so reclassified with the powers,
preferences, and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof, are as follows:
(a) All shares of Common Stock shall have the following powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
(1) All consideration received by the Corporation for the issue of
the shares of Common Stock, together with all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to the
class of shares of that series with respect to which such assets, payments or
funds were received by the Corporation for all purposes, subject only to the
rights of creditors, and shall be so handled in the records of the Corporation.
Such assets, income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and any assets
derived from any reinvestment of such proceeds, in whatever form the same may
be, are herein referred to as "assets belonging to" the class of each series of
shares.
(2) The assets belonging to the class of each series of shares shall
be charged with the liabilities, including the redemption of shares, in respect
of such class and shall also be charged with its share of the general
liabilities of the Corporation, in proportion to the net asset value of the
class of such series determined as hereinafter provided. The determination of
the board of directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the same to a
given class, and as to whether the same or general assets of the Corporation are
allocable to one or more classes.
(3) The net asset value per share of the class of each series shall
be determined in accordance with Article FIFTH, Paragraph (5) of the
Corporation's Articles of Incorporation, as amended, by separately computing the
assets belonging to such class less the liabilities applicable to that class,
allocating any general assets and general liabilities to that class, and
dividing the net result of the number of shares of common stock of that class
outstanding.
<PAGE>
(4) Dividends or distributions on the class of each series of
shares, whether payable in stock or cash, shall be paid only out of earnings,
surplus or other lawfully available assets belonging to such class.
(5) In the event of the liquidation or dissolution of the
Corporation, stockholders of shares of each series shall be entitled to receive,
as a class, out of the assets of the Corporation available for distribution to
stockholders, but other than general assets, the assets belonging to such class.
The assets so distributable to the stockholders of any class shall be
distributed among such stockholders in proportion to the number of shares of
such class held by them and recorded in the records of the Corporation.
(6) The provisions of Article FIFTH, Paragraphs (1) through (5) of
the Corporation's Articles of Incorporation, as amended, shall apply to the
holders of shares of each class as may be issued from time to time and the
assets belonging to such class.
(b) Except as otherwise may be provided in the Corporation's Articles of
Incorporation, the holders of shares of each series shall have the same powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof as the holders of any other
series of the Corporation's Common Shares, as that term is used in the
Corporation's Articles of Incorporation, as amended.
FOURTH: Shares of each series have been duly classified by the board of
directors pursuant to authority and power contained in the Articles of
Incorporation of the Corporation, as heretofore amended.
FIFTH: The Corporation is registered as an open-end
management investment company under the Investment Company Act of
1940.
SIXTH: The total number of shares of Common Stock that the Corporation has
authority to issue has been increased by the board of directors in accordance
with Section 2-105(c) of the Maryland General Corporation Law.
IN WITNESS WHEREOF, FOUNDERS FUNDS, INC. has caused these presents to be
signed in its name and on its behalf by its duly authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation and
that, to the best of their knowledge, all matters and facts set forth therein
are true in all material respects under penalties of perjury.
FOUNDERS FUNDS, INC.
/s/ Bjorn K. Borgen
---------------------------
Bjorn K. Borgen, President
ATTEST:
/s/ Kenneth R. Christoffersen
- --------------------------------
Kenneth R. Christoffersen
Secretary
Founders Asset Management, Inc.
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
RE: Distribution and Shareholder Support Agreement for Founders Funds, Inc.
Ladies and Gentlemen:
We understand that the separate series mutual funds of Founders Funds, Inc.
listed on Attachment A to this Agreement have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which includes provision for payments to selected
brokers for their distribution efforts and their shareholder support and
assistance to the funds. Such funds, together with any other mutual funds
managed by Founders Asset Management, Inc. ("Founders" or "you") which hereafter
may enter into a similar Plan, are hereinafter referred to collectively as the
"Funds".
We desire to enter into an agreement with you as the Funds' Distributor for the
sale and distribution of the shares of the Funds (the "Shares"). Upon acceptance
of this Agreement by you, we understand that we may offer and sell Shares
subject, however, to all of the terms and conditions hereof and to your right,
without notice, to suspend or terminate the sale of such Shares.
1. We understand that the Shares will be offered and sold at the current
offering price in effect at the time the order for such securities is
confirmed and accepted by you. All purchase requests and applications
submitted by us are subject to acceptance or rejection in your sole
discretion and, if accepted, each purchase will be deemed to have been
consummated at your office. In the event of a difference between verbal
and written price confirmations, written confirmations shall be considered
final.
2. We certify (a) that we are a member of the National Association of
Securities Dealers, Inc. ("NASD") and agree to maintain membership in the
NASD or (b) in the alternative that we are a foreign dealer not eligible
for membership in the NASD. In either case, we agree to abide by all
federal and state laws, rules and regulations applicable to our activities
under this Agreement including, but not limited to, the rules and
regulations of the Securities and Exchange Commission and the NASD which
are binding upon underwriters and dealers in the distribution of the
securities of open-end investment companies including, without limitation,
Section 2830 of the NASD Conduct Rules, all of which are incorporated
herein as if set forth in full. We agree that we will not sell Shares or
offer Shares for sale in any state or jurisdiction where they are not then
registered or qualified for sale.
<PAGE>
3. We will offer and sell Shares only in accordance with the terms and
conditions of the Funds' then current Prospectus and we will make no
representations not included either in said Prospectus or in any
authorized supplemental material supplied by you. We will exercise due
care and diligence, act in good faith and use our best efforts in the
development and promotion of sales of Shares, and agree to be responsible
for the proper instruction and training of all sales personnel employed by
us, in order that the Shares will be offered in accordance with the terms
and conditions of this Agreement and all applicable laws, rules and
regulations. We agree to hold you and the Funds harmless and indemnify
each of you in the event that we, or any of our sales representatives,
should violate any law, rule or regulation, or any provisions of this
Agreement, which violation may result in liability to you and/or the
Funds. In the event you determine to refund any amounts paid by any
investor by reason of any such violation on our part, we shall return to
you any service fees previously paid by you to us with respect to the
assets for which the refund is made. All expenses which we incur in
connection with our activities under this Agreement shall be borne by us.
4. In our offering and sale of Shares, we will disclose to investors our
entitlement to receive service fees from you in accordance with this
Agreement.
5. We will provide continuous support and assistance to investors in the
Funds whose Shares have been sold through us, for such period (a) as the
investors retain their Shares and (b) service fees with respect to such
Shares are paid to us. Such support and assistance may include, but will
not necessarily be limited to: (i) providing assistance to investors in
effecting transactions in their Shares, such as exchanges, transfers,
changes in dividend options and shareholder information alterations; (ii)
providing responses to written or telephonic inquiries made by investors
with respect to their Shares; (iii) assisting investors in the purchase of
additional Shares in existing accounts, in opening new accounts, or in
redeeming Shares; (iv) assisting investors in contacting your personnel in
instances in which direct assistance from you would be helpful in
expeditiously accomplishing the investor's request; (v) providing
retirement planning presentations to potential or current participants in
employee retirement programs and plans; (vi) if Shares are registered in
our name or in the name of our nominee, performing sub-accounting,
establishing and maintaining shareholder accounts and records and
providing periodic statements showing a shareholder's account balance and
activity; and (vii) providing such other forms of support and assistance
as we are reasonably able to furnish or as you reasonably may request. In
the event that we perform the services described in clause (vi) above, and
the aggregate accounts we maintain for shareholders do not balance with
the accounts maintained by you, we shall be liable to the shareholders for
any shortfall.
<PAGE>
6. We understand and agree that the service fee relative to any sales and
maintenance of Shares made by us will be in an amount as set forth in the
Service Fee Payment Schedule included on Attachment A, and that we shall
have no right to receive any continuing maintenance fees, other fees or
commissions on Shares sold by us other than as set forth in that Schedule.
Subject to the provisions of Attachment A, our right to receive service
fees will commence on the date of this Agreement, and will apply to all
Shares that were sold by us that are then outstanding.
7. We understand that service fees are subject to change or termination by
you from time to time, upon 30 days' written notice, and that any orders
placed after the effective date of change shall be subject to the rates in
effect at the time of receipt of the payment by you. Such 30-day period
may be waived at your sole option in the event such change increases the
service fee due us.
8. Payment for purchases of Shares made from us shall be made to you and
received by you within three business days after the acceptance of our
order or such shorter time as may be required by law. If such payment is
not so received, we understand that you reserve the right, without notice,
forthwith to cancel the sale or, at your option, to sell the Shares
ordered by us back to the Funds, in which latter case we may be held
responsible for any loss suffered by you or the Funds resulting from our
failure to make the aforesaid payment. We will forward promptly to you any
purchase orders and/or payments received by us from investors. If we
effect a telephone redemption or telephone exchange of any Shares on
behalf of any of our customers, we hereby indemnify you, the Funds and any
agent appointed by you for this purpose against any loss, injury, damage,
expense or liability which results from acting or relying on our telephone
instructions or information. In no event shall we withhold placing with
you orders received from our customers so as to profit ourselves as a
result of such withholding.
9. We agree to purchase Shares only from you or from our customers. If we
purchase Shares from you, we agree that all such purchases shall be made
only to cover orders received by us from our customers, or for our own
bona fide investment. If we purchase Shares from our customers, we agree
to pay such customers not less than the applicable repurchase price as
established by the then current Prospectus of the Funds.
10. We understand and agree that if any Shares sold by us under the terms of
this Agreement are redeemed by the Funds (including redemptions resulting
from an exchange for Shares of another mutual fund distributed by you, in
accordance with the then current Prospectus for the Funds), repurchased by
you for the Funds, or tendered to the Funds for redemption within seven
(7) business days after your confirmation to us of our original purchase
order for such Shares, we shall pay forthwith to you the full amount of
the service fee allowed to us on the original sale, provided you notify us
of such repurchase or redemption within ten (10) days of the date upon
which written redemption requests and, if applicable, Share certificates
are delivered to you or to the Funds.
<PAGE>
11. (a) You hereby represent and warrant to us as follows:
(i) You have the corporate power and the authority to enter into and
perform all of your duties and obligations under this Agreement;
(ii) This Agreement constitutes your legal, valid and binding
obligation, enforceable against you in accordance with its terms;
(iii) No consent or authorization of, filing with, or other act by or
in respect of any governmental authority is required in
connection with the execution, delivery, performance, validity or
enforceability of this Agreement;
(iv) The execution, performance and delivery of this Agreement by you
will not result in your violating any law, rule or regulation or
breaching or otherwise impairing any of your contractual
obligations; and
(v) The Funds are each registered as investment companies under the
1940 Act and the Shares sold by the Funds are, and will be,
registered under the Securities Act of 1933, as amended.
(b) We hereby represent and warrant to you as follows:
(i) We have the corporate power and the authority to enter into and
perform all of our duties and obligations under this Agreement;
(ii) This Agreement constitutes our legal, valid and binding
obligation and is enforceable against us in accordance with its
terms;
(iii) No consent or authorization of, filing with, or other act by or
in respect of any governmental authority is required in
connection with the execution, delivery, performance, validity or
enforceability of this Agreement;
(iv) The execution, performance and delivery of this Agreement by us
will not result in our violating any law, rule or regulation or
breaching or otherwise impairing any of our contractual
obligations; and
(v) We have obtained, and will maintain in effect, all registrations
under federal and state laws, rules and regulations that are
necessary to enable us to perform our obligations under this
Agreement.
<PAGE>
12. Your obligations to us under this Agreement are subject to all the
provisions of any distributorship agreements entered into between you and
the Funds. We understand and agree that in performing our services covered
by this Agreement we are acting as principal, and you are in no way
responsible for the manner of our performance or for any of our acts or
omissions in connection therewith. Nothing in this Agreement shall be
construed to constitute us or any of our agents, employees or
representatives as your agent, partner or employee, or the agent or
employee of the Funds.
13. We may terminate this Agreement by notice in writing to you, which
termination shall become effective on the earlier of thirty (30) days
after the date of mailing such notice to you, or receipt of written
notification from you of termination prior to the thirtieth day. We agree
that you have and reserve the right, in your sole discretion and without
notice (and without the payment of any penalty), to suspend sales of
Shares, or to withdraw entirely the offering of Shares or, in your sole
discretion, to modify, amend, cancel or terminate this Agreement, with or
without cause, upon written notice to us of such modification, amendment,
cancellation or termination, which shall be effective on the date stated
in such notice. Without limiting the foregoing, any provision hereof to
the contrary notwithstanding, our expulsion from the NASD will
automatically terminate this Agreement without notice. Your failure to
terminate for any cause shall not constitute a waiver of your right to
terminate at a later date for any such cause or for no cause. All notices
hereunder shall be in writing and sent to the respective parties at the
addresses listed herein, unless changed by notice given in accordance with
this Agreement.
14. In the event that you, in your sole discretion, determine that any
active trading or market timing activities of our customers are
potentially harmful to you or the Funds, you may limit the size of
purchase orders placed by such customers or prohibit such customers from
investing in some or all of the Funds.
15. We will notify you promptly in writing in the event that any of our
customers who has invested in the Funds ceases to be our client.
<PAGE>
16. This Agreement shall become effective as of the date when it is executed
and dated by you below, shall embody the entire agreement and
understanding between you and us, and shall supersede any prior agreements
or understandings between you and us regarding the Funds. This Agreement
and all the rights and obligations of the parties hereunder shall be
governed by and construed under the laws of the State of Colorado. This
Agreement is not assignable or transferable by either party without the
prior written consent of the other, except that you may assign or transfer
this Agreement to any successor firm or corporation which becomes the
Distributor of the Funds.
Dealer Firm ________________________ Accepted:
(Name)
____________________________________ Founders Asset Management, Inc.
(Address) 2930 East Third Avenue
____________________________________ Denver, Colorado 80206
By: ________________________________ By: ________________________________
(Signature) (Signature)
____________________________________ ____________________________________
(Name) (Title) (Name) (Title)
Date: __ day of _______, 19___
<PAGE>
ATTACHMENT A
TO
DISTRIBUTION AND SHAREHOLDER SUPPORT AGREEMENT
FOR FOUNDERS FUNDS, INC.
Participating Funds
-------------------
The following series mutual funds of Founders Funds, Inc. are
included in this Agreement:
Founders Discovery Fund
Founders Frontier Fund
Founders Passport Fund
Founders Special Fund
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund
Founders Blue Chip Fund
Founders Balanced Fund
Founders Government Securities Fund
Service Fee Payment Schedule
----------------------------
Service Fee: Subject to minimum investment and payment requirements, service
fees will be paid at the annual rate of 0.25% of the average of
the aggregate net asset value of outstanding Shares of Founders
Funds, Inc. sold by the Dealer, measured on each day during each
calendar quarter, payable within 30 days following the end of
each calendar quarter.
All payments to us shall be remitted to the following address:
----------------------------------------
----------------------------------------
----------------------------------------
Minimum
Investment: Payment of quarterly service fees will commence at such time as
the Dealer shall have been credited with $1 million in sales of
Shares.
Minimum
Payments: Quarterly payments of service fees of less than $1,000 may be
accrued and paid within 30 days following the end of each
calendar quarter in which such payments cumulatively equal or
exceed $1,000.
CUSTODY AGREEMENT
THIS AGREEMENT made the 3rd day of January, 1994, by and between INVESTORS
FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of the state
of Missouri, having its trust office located at 127 West 10th Street, Kansas
City, Missouri 64105 ("Custodian"), and FOUNDERS FUNDS, INC., a Maryland
corporation, having its principal office and place of business at Founders
Financial Center, 2930 East Third Avenue, Denver, Colorado 80206 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
custodian of the securities and monies of Fund's investment portfolio; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN.
-------------------------
Fund hereby constitutes and appoints Custodian as custodian of the
securities and monies at any time owned by the Fund.
2. REPRESENTATIONS AND WARRANTIES.
-------------------------------
A. Fund hereby represents, warrants and acknowledges to Custodian:
1. That it is a corporation or trust (as specified above) duly
organized and existing and in good standing under the laws
of its state of organization, and that it is registered under
the Investment Company Act of 1940 (the "1940 Act"); and
2. That it has the requisite power and authority under applicable
law, its articles of incorporation and its bylaws to enter
into this Agreement; that it has taken all requisite action
necessary to appoint Custodian as custodian for the Fund; that
this Agreement has been duly executed and delivered by Fund;
and that this Agreement constitutes a legal, valid and binding
obligation of Fund, enforceable in accordance with its terms.
<PAGE>
B. Custodian hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in
good standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under applicable
law, its charter and its bylaws to enter into and perform
this Agreement; that this Agreement has been duly executed
and delivered by Custodian; and that this Agreement
constitutes a legal, valid and binding obligation of
Custodian, enforceable in accordance with its terms.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
-----------------------------------------
A. Delivery of Assets
------------------
Except as permitted by the 1940 Act, Fund will deliver or cause to
be delivered to Custodian on the effective date of this Agreement,
or as soon thereafter as practicable, and from time to time
thereafter, all portfolio securities acquired by it and monies then
owned by it or from time to time coming into its possession during
the time this Agreement shall continue in effect. Custodian shall
have no responsibility or liability whatsoever for or on account of
securities or monies not so delivered. All securities so delivered
to Custodian (other than bearer securities) shall be registered in
the name of Fund or its nominee, or of a nominee of Custodian, or
shall be properly endorsed and in form for transfer satisfactory to
Custodian.
B. Delivery of Accounts and Records
--------------------------------
Fund shall turn over or cause to be turned over to Custodian all of
the Fund's relevant accounts and records previously maintained.
Custodian shall be entitled to rely conclusively on the completeness
and correctness of the accounts and records turned over to it, and
Fund shall indemnify and hold Custodian harmless of and from any and
all expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other deficiency
of such accounts and records or in the failure of Fund to provide,
or to provide in a timely manner, any accounts, records or
information needed by the Custodian to perform its functions
hereunder.
<PAGE>
C. Delivery of Assets to Third Parties
-----------------------------------
Custodian will receive delivery of and keep safely the assets of
Fund delivered to it from time to time segregated in a separate
account, and if Fund is comprised of more than one portfolio of
investment securities (each a "Portfolio") Custodian shall keep the
assets of each Portfolio segregated in a separate account. Custodian
will not deliver, assign, pledge or hypothecate any such assets to
any person except as permitted by the provisions of this Agreement
or any agreement executed by it according to the terms of Section
3.S. of this Agreement. Upon delivery of any such assets to a
subcustodian pursuant to Section 3.S. of this Agreement, Custodian
will create and maintain records identifying those assets which have
been delivered to the subcustodian as belonging to the Fund, by
Portfolio if applicable. The Custodian is responsible for the
safekeeping of the securities and monies of Fund only until they
have been transmitted to and received by other persons as permitted
under the terms of this Agreement, except for securities and monies
transmitted to subcustodians appointed under Section 3.S. of this
Agreement, for which Custodian remains responsible to the extent
provided in Section 3.S. hereof. Custodian may participate directly
or indirectly through a subcustodian in the Depository Trust Company
(DTC), Treasury/Federal Reserve Book Entry System (Fed System),
Participant Trust Company (PTC) or other depository approved by the
Fund (as such entities are defined at 17 CFR Section 270.17f-4(b))
(each a "Depository" and collectively, the "Depositories").
D. Registration of Securities
--------------------------
Custodian will hold stocks and other registerable portfolio
securities of Fund registered in the name of Fund or in the name of
any nominee of Custodian for whose fidelity and liability Custodian
will be fully responsible, or in "street name," with or without any
indication of fiduciary capacity. Unless otherwise instructed,
Custodian will register all such portfolio securities in the name of
its authorized nominee. If, however, the Fund directs the Custodian
to maintain securities in "street name", notwithstanding anything
contained herein to the
<PAGE>
contrary, the Custodian shall be obligated only to utilize its best
efforts to timely collect income due the Fund on such securities and
to notify the Fund of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange
offers. All securities, and the ownership thereof by Fund, which are
held by Custodian hereunder, however, shall at all times be
identifiable on the records of the Custodian. The Fund agrees to
hold Custodian and its nominee harmless for any liability as a
shareholder of record of securities held in custody.
E. Exchange of Securities
----------------------
Upon receipt of instructions as defined herein in Section 4.A,
Custodian will exchange, or cause to be exchanged, portfolio
securities held by it for the account of Fund for other securities
or cash issued or paid in connection with any reorganization,
recapitalization, merger, consolidation, split-up of shares, change
of par value, conversion or otherwise, and will deposit any such
securities in accordance with the terms of any reorganization or
protective plan. Without instructions, Custodian is authorized to
exchange securities held by it in temporary form for securities in
definitive form, to effect an exchange of shares when the par value
of the stock is changed, and, upon receiving payment therefor, to
surrender bonds or other securities held by it at maturity or when
advised of earlier call for redemption, except that Custodian shall
receive instructions prior to surrendering any convertible security.
F. Purchases of Investments of the Fund
------------------------------------
Fund will, on each business day on which a purchase of securities
shall be made by it, deliver to Custodian instructions which shall
specify with respect to each such purchase:
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
3. The number of shares or the principal amount purchased, and
accrued interest, if any;
4. The trade date;
<PAGE>
5. The settlement date;
6. The purchase price per unit and the brokerage commission,
taxes and other expenses payable in connection with the
purchase;
7. The total amount payable upon such purchase; and
8. The name of the person from whom or the broker or dealer
through whom the purchase was made.
In accordance with such instructions, Custodian will pay for out of
monies held for the account of Fund, but only insofar as such monies
are available for such purpose, and receive the portfolio securities
so purchased by or for the account of Fund, except that Custodian
may in its sole discretion advance funds to the Fund which may
result in an overdraft because the monies held by the Custodian on
behalf of the Fund are insufficient to pay the total amount payable
upon such purchase. Such payment will be made only upon receipt by
Custodian of the securities so purchased in form for transfer
satisfactory to Custodian.
G. Sales and Deliveries of Investments of the Fund - Other than Options
--------------------------------------------------------------------
and Futures
------------
Fund will, on each business day on which a sale of investment
securities (other than options and futures) of Fund has been made,
deliver to Custodian instructions specifying with respect to each
such sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares or principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be
delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
<PAGE>
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or
cause to be delivered the securities thus designated as sold for the
account of Fund to the broker or other person specified in the
instructions relating to such sale, such delivery to be made only
upon receipt of payment therefor in such form as is satisfactory to
Custodian, with the understanding that Custodian may deliver or
cause to be delivered securities for payment in accordance with the
customs prevailing among dealers in securities.
H. Purchases or Sales of Options and Futures
-----------------------------------------
Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase or sale:
1. If applicable, the name of the Portfolio making such purchase
or sale;
2. Security Options
a The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom
the sale or purchase was made.
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
<PAGE>
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising,
expiring or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through
whom the sale or purchase was made, or other applicable
settlement instructions.
4. Security Index Futures Contracts
a. The last trading date specified in the contract and,
when available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
instructions, and if not already in the possession of
Custodian, Fund shall deliver a substantially complete
and executed custodial safekeeping account and
procedural agreement which shall be incorporated by
reference into this Custody Agreement); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
5. Options on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
<PAGE>
e. The exercise price;
f. Whether the transaction involves an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
----------------------------
If specifically allowed for in the prospectus of Fund, and subject
to such additional terms and conditions as Custodian may require:
1. Upon receipt of instructions, Custodian will release or cause
to be released securities held in custody to the pledgee
designated in such instructions by way of pledge or
hypothecation to secure any loan incurred by Fund; provided,
however, that the securities shall be released only upon
payment to Custodian of the monies borrowed, except that in
cases where additional collateral is required to secure a
borrowing already made, further securities may be released
or caused to be released for that purpose upon receipt of
instructions. Upon receipt of instructions, Custodian will
pay, but only from funds available for such purpose, any such
loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes
evidencing such loan.
2. Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated in such
instructions; provided, however, that the securities will be
released only upon deposit with Custodian of full cash
collateral as specified in such instructions, and that Fund
will retain the right to any dividends, interest or
distribution on such loaned securities. Upon receipt of
instructions and the loaned securities, Custodian will release
the cash collateral to the borrower.
J. Routine Matters
---------------
Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution,
purchase, transfer, or other
<PAGE>
dealings with securities or other property of Fund except as may be
otherwise provided in this Agreement or directed from time to time
by the Fund in writing.
K. Deposit Accounts
----------------
Custodian will open and maintain one or more special purpose deposit
accounts in the name of Custodian ("Accounts"), subject only to
draft or order by Custodian upon receipt of instructions. All monies
received by Custodian from or for the account of Fund shall be
deposited in said Accounts. Barring events not in the control of the
Custodian such as strikes, lockouts or labor disputes, riots, war or
equipment or transmission failure or damage, fire, flood, earthquake
or other natural disaster, action or inaction of governmental
authority or other causes beyond its control, at 9:00 a.m., Kansas
City time, on the second business day after deposit of any check
into an Account, Custodian agrees to make Fed Funds available to the
Fund in the amount of the check. Deposits made by Federal Reserve
wire will be available to the Fund immediately and ACH wires will be
available to the Fund on the next business day. Income earned on the
portfolio securities will be credited to the Fund based on the
schedule attached as Exhibit A. The Custodian will be entitled to
reverse any credited amounts where credits have been made and monies
are not finally collected. If monies are collected after such
reversal, the Custodian will credit the Fund in that amount.
Custodian may open and maintain Accounts in its own banking
department, or in such other banks or trust companies as may be
designated by it or by Fund in writing, all such Accounts, however,
to be in the name of Custodian and subject only to its draft or
order. Funds received and held for the account of different
Portfolios shall be maintained in separate Accounts established for
each Portfolio.
L. Income and other Payments to Fund
---------------------------------
Custodian will:
1. Collect, claim and receive and deposit for the account of Fund
all income and other payments which become due and payable on
or after the effective date of this Agreement with respect to
the securities deposited under this Agreement, and credit the
account of Fund in accordance with
<PAGE>
the schedule attached hereto as Exhibit A. If, for any reason,
the Fund is credited with income that is not subsequently
collected, Custodian may reverse that credited amount.
2. Execute ownership and other certificates and affidavits for
all federal, state and local tax purposes in connection with
the collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income and
other payments, including but not limited to the
presentation for payment of:
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be called,
redeemed, retired or otherwise become payable and
regarding which the Custodian has actual knowledge,
or should reasonably be expected to have knowledge;
and
b. the endorsement for collection, in the name of Fund, of
all checks, drafts or other negotiable instruments.
Custodian, however, will not be required to institute suit or take
other extraordinary action to enforce collection except upon receipt
of instructions and upon being indemnified to its satisfaction
against the costs and expenses of such suit or other actions.
Custodian will receive, claim and collect all stock dividends,
rights and other similar items and will deal with the same pursuant
to instructions. Unless prior instructions have been received to the
contrary, Custodian will, without further instructions, sell any
rights held for the account of Fund on the last trade date prior to
the date of expiration of such rights.
M. Payment of Dividends and other Distributions
--------------------------------------------
On the declaration of any dividend or other distribution on the
shares of capital stock of Fund ("Fund Shares") by the Board of
Directors of Fund, Fund shall deliver to Custodian instructions with
respect thereto. On the date specified in
<PAGE>
such instructions for the payment of such dividend or other
distribution, Custodian will pay out of the monies held for the
account of Fund, insofar as the same shall be available for such
purposes, and credit to the account of the Dividend Disbursing Agent
for Fund, such amount as may be necessary to pay the amount per
share payable in cash on Fund Shares issued and outstanding on the
record date established by such resolution.
N. Shares of Fund Purchased by Fund
--------------------------------
Whenever any Fund Shares are repurchased or redeemed by Fund, Fund
or its agent shall advise Custodian of the aggregate dollar amount
to be paid for such shares and shall confirm such advice in writing.
Upon receipt of such advice, Custodian shall charge such aggregate
dollar amount to the account of Fund and either deposit the same in
the account maintained for the purpose of paying for the repurchase
or redemption of Fund Shares or deliver the same in accordance with
such advice. Custodian shall not have any duty or responsibility to
determine that Fund Shares have been removed from the proper
shareholder account or accounts or that the proper number of Fund
Shares have been canceled and removed from the shareholder records.
O. Shares of Fund Purchased from Fund
----------------------------------
Whenever Fund Shares are purchased from Fund, Fund will deposit or
cause to be deposited with Custodian the amount received for such
shares. Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added to
the proper shareholder account or accounts or that the proper number
of such shares have been added to the shareholder records.
P. Proxies and Notices
-------------------
Custodian will promptly deliver or mail or have delivered or mailed
to Fund all proxies properly signed, all notices of meetings, all
proxy statements and other notices, requests or announcements
affecting or relating to securities held by Custodian for Fund and
will, upon receipt of instructions, execute and deliver or cause its
nominee to execute and deliver or mail or have delivered or mailed
such proxies or other authorizations as may be required. Except as
provided by this
<PAGE>
Agreement or pursuant to instructions hereafter received by
Custodian, neither it nor its nominee will exercise any power
inherent in any such securities, including any power to vote the
same, or execute any proxy, power of attorney, or other similar
instrument voting any of such securities, or give any consent,
approval or waiver with respect thereto, or take any other similar
action.
Q. Disbursements
-------------
Custodian will pay or cause to be paid, insofar as funds are
available for the purpose, bills, statements and other obligations
of Fund (including but not limited to obligations in connection with
the conversion, exchange or surrender of securities owned by Fund,
interest charges, dividend disbursements, taxes, management fees,
custodian fees, legal fees, auditors' fees, transfer agents' fees,
brokerage commissions, compensation to personnel, and other
operating expenses of Fund) pursuant to instructions of Fund setting
forth the name of the person to whom payment is to be made, the
amount of the payment, and the purpose of the payment.
R. Daily Statement of Accounts
---------------------------
Custodian will, within a reasonable time, render to Fund a detailed
statement of the amounts received or paid and of securities received
or delivered for the account of Fund during each business day.
Custodian will render a detailed statement of the securities and
monies held for Fund under this Agreement twice each month, one as
of the fifteenth (or the last business day of Custodian prior
thereto) of the month and one as of Custodian's last business day of
the month, and Custodian will maintain such books and records as are
necessary to enable it to do so. Custodian will permit such persons
as are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or will provide
reasonable confirmation of the contents of such records, and if
demanded, Custodian will permit federal and state regulatory
agencies to examine the securities, books and records. Upon the
written instructions of Fund or as demanded by federal or state
regulatory agencies, Custodian will instruct any subcustodian to
permit such persons as are authorized by Fund, including Fund's
<PAGE>
independent public accountants, reasonable access to such records or
to provide reasonable confirmation of the contents of such records,
and to permit such agencies to examine the books, records and
securities held by such subcustodian which relate to Fund.
S. Appointment of Subcustodian
---------------------------
1. Notwithstanding any other provisions of this Agreement, all or
any of the monies or securities of Fund may be held in
Custodian's own custody or in the custody of one or more
other banks or trust companies acting as subcustodians as may
be selected by Custodian. Any such subcustodian selected by the
Custodian must have the qualifications required for a custodian
under the 1940 Act, as amended. It is understood that Custodian
initially intends to appoint United Missouri Bank N.A. (UMB)
and United Missouri Trust Company of New York (UMTCNY) as
subcustodians. Custodian shall be responsible to the Fund for
any loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of UMB, UMTCNY and any
other subcustodians selected and appointed by Custodian (except
subcustodian appointed at the request of Fund and as provided
in Subsection 2 below) to the same extent Custodian would be
responsible to the Fund under Section 5. of this Agreement if
it committed the act or omission itself. Upon request of the
Fund, Custodian shall be willing to contract with other
subcustodians reasonably acceptable to the Custodian for
purposes of (i) effecting third-party repurchase transactions
with banks, brokers, dealers, or other entities through the use
of a common custodian or subcustodian, or (ii) providing
depository and clearing agency services with respect to
certain variable rate demand note securities, or (iii) for
other reasonable purposes specified by Fund; provided, however,
that the Custodian shall be responsible to the Fund for any
loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of any such
subcustodian only to the same extent such subcustodian
is responsible to the Custodian. The Fund shall
<PAGE>
be entitled to review the Custodian's contracts with any such
subcustodians appointed at the request of Fund. Custodian
shall be responsible to the Fund for any loss, damage or
expense suffered or incurred by the Fund resulting from the
actions or omissions of any Depository only to the same extent
such Depository is responsible to Custodian.
2. Notwithstanding any other provisions of this Agreement, Fund's
foreign securities (as defined in Rule 17f-5(c)(1) under the
1940 Act) and Fund's cash or cash equivalents, in amounts
deemed by the Fund to be reasonably necessary to effect Fund's
foreign securities transactions, may be held in the custody of
one or more banks or trust companies acting as subcustodians,
and thereafter, pursuant to a written contract or contracts as
approved by Fund's Board of Directors, may be transferred to
accounts maintained by any such subcustodian with eligible
foreign custodians, as defined in Rule 17f-5(c)(2). Custodian
shall be responsible to the Fund for any loss, damage or
expense suffered or incurred by the Fund resulting from the
actions or omissions of any foreign subcustodians or a
domestic subcustodian contracting with such foreign
subcustodians only to the same extent such domestic
subcustodian is responsible to the Custodian.
T. Accounts and Records Property of Fund
-------------------------------------
Custodian acknowledges that all of the accounts and records
maintained by Custodian pursuant to this Agreement are the property
of Fund, and will be made available to Fund for inspection or
reproduction within a reasonable period of time, upon demand.
Custodian will assist Fund's independent auditors, or upon approval
of Fund, or upon demand, any regulatory body, in any requested
review of Fund's accounts and records but shall be reimbursed by
Fund for all expenses and employee time invested in any such review
outside of routine and normal periodic reviews. Upon receipt from
Fund of the necessary information or instructions, Custodian will
supply information from the books and records it maintains for Fund
that Fund needs for tax returns, questionnaires, periodic
<PAGE>
reports to shareholders and such other reports and information
requests as Fund and Custodian shall agree upon from time to time.
U. Adoption of Procedures
----------------------
Custodian and Fund may from time to time adopt procedures as they
agree upon, and Custodian may conclusively assume that no procedure
approved or directed by Fund or its accountants or other advisors
conflicts with or violates any requirements of its prospectus,
articles of incorporation, bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which Fund may be
bound. Fund will be responsible to notify Custodian of any changes
in statutes, regulations, rules, requirements or policies which
might necessitate changes in Custodian's responsibilities or
procedures.
V. Overdrafts
----------
If Custodian shall in its sole discretion advance funds to the
account of the Fund which results in an overdraft in any Account
because the monies held therein by Custodian on behalf of the Fund
are insufficient to pay the total amount payable upon a purchase of
securities as specified in Fund's instructions or for some other
reason, the amount of the overdraft shall be payable by the Fund to
Custodian upon demand together with the overdraft charge set forth
on the then-current Fee Schedule from the date advanced until the
date of payment. Fund hereby grants Custodian a lien on and security
interest in the assets of the Fund to secure the full amount of any
outstanding overdraft and related overdraft charges.
4. INSTRUCTIONS.
-------------
A. The term "instructions", as used herein, means written (including
telecopied or telexed) or oral instructions which Custodian reasonably
believes were given by a designated representative of Fund. Fund shall
deliver to Custodian, prior to delivery of any assets to Custodian and
thereafter from time to time as changes therein are necessary, written
instructions naming one or more designated representatives to give
instructions in the name and on behalf of Fund, which instructions may
be received and accepted by Custodian as conclusive evidence of the
authority of any designated representative to act for Fund and may be
<PAGE>
considered to be in full force and effect (and Custodian will be
fully protected in acting in reliance thereon) until receipt by
Custodian of notice to the contrary. Unless such written
instructions delegating authority to any person to give instructions
specifically limit such authority to specific matters or require
that the approval of anyone else will first have been obtained,
Custodian will be under no obligation to inquire into the right of
such person, acting alone, to give any instructions whatsoever which
Custodian may receive from such person. If Fund fails to provide
Custodian any such instructions naming designated representatives,
any instructions received by Custodian from a person reasonably
believed to be an appropriate representative of Fund shall
constitute valid and proper instructions hereunder.
B. No later than the next business day immediately following each oral
instruction, Fund will send Custodian written confirmation of such
oral instruction. At Custodian's sole discretion, Custodian may
record on tape, or otherwise, any oral instruction whether given in
person or via telephone, each such recording identifying the
parties, the date and the time of the beginning and ending of such
oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
-------------------------------------
A. Custodian shall at all times use reasonable care and due diligence and
act in good faith in performing its duties under this Agreement.
Custodian shall not be responsible for, and the Fund shall indemnify
and hold Custodian harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability which may be asserted against Custodian, incurred by
Custodian or for which Custodian may be held to be liable, arising out
of or attributable to:
1. All actions taken by Custodian pursuant to this Agreement or any
instructions provided to it hereunder, provided that Custodian
has acted in good faith and with due diligence and reasonable
care; and
2. The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay
or reimburse
<PAGE>
Custodian under this indemnification provision), the Fund's
negligence or willful misconduct, or the failure of any
representation or warranty of the Fund hereunder to be and
remain true and correct in all respects at all times.
B. Custodian may request and obtain at the expense of Fund the advice
and opinion of counsel for Fund or of its own counsel with respect
to questions or matters of law, and it shall be without liability to
Fund for any action taken or omitted by it in good faith, in
conformity with such advice or opinion. If Custodian reasonably
believes that it could not prudently act according to the
instructions of the Fund or the Fund's accountants or counsel, it
may in its discretion, with notice to the Fund, not act according to
such instructions.
C. Custodian may rely upon the advice and statements of Fund, Fund's
accountants and officers or other authorized individuals, and other
persons believed by it in good faith to be expert in matters upon
which they are consulted, and Custodian shall not be liable for any
actions taken, in good faith, upon such advice and statements,
provided, however, that in the case of such advice and statements of
such other persons, Custodian shall maintain compliance with the
terms of this Agreement.
D. If Fund requests Custodian in any capacity to take any action which
involves the payment of money of Custodian, or which might make it
or its nominee liable for payment of its monies or in any other way,
Custodian shall be indemnified and held harmless by Fund against any
liability on account of such action; provided, however, that nothing
herein shall obligate Custodian to take any such action except in
its sole discretion.
E. Custodian shall be protected in acting as custodian hereunder upon
any instructions, advice, notice, request, consent, certificate or
other instrument or paper appearing to it to be genuine and to have
been properly executed and shall be entitled to receive upon request
as conclusive proof of any fact or matter required to be ascertained
from Fund hereunder a certificate signed by an officer or designated
representative of Fund.
<PAGE>
F. Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any securities purchased by or
for Fund, the legality of the purchase of any securities or
foreign currency positions or evidence of ownership required
by Fund to be received by Custodian, or the propriety of the
decision to purchase or amount paid therefor;
2. The legality of the sale of any securities or foreign currency
positions by or for Fund, or the propriety of the amount for
which the same are sold;
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any Fund
Shares, or the propriety of the amount to be paid therefor; or
5. The legality of the declaration of any dividend by Fund, or
the legality of the issue of any Fund Shares in payment of any
stock dividend.
G. Custodian shall not be liable for, or considered to be Custodian of,
any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the
payment of money to be received by it on behalf of Fund until
Custodian actually receives such money; provided, however, that it
shall advise Fund promptly if it fails to receive any such money in
the ordinary course of business and shall cooperate with Fund toward
the end that such money shall be received.
H. Except as provided in Section 3.S., Custodian shall not be
responsible for loss occasioned by the acts, neglects, defaults or
insolvency of any broker, bank, trust company, or any other person
with whom Custodian may deal.
I. Custodian shall not be responsible or liable for the failure or
delay in performance of its obligations under this Agreement, or
those of any entity for which it is responsible hereunder, arising
out of or caused, directly or indirectly, by circumstances beyond
the affected entity's reasonable control, including, without
limitation: any interruption, loss or malfunction of any utility,
transportation, computer (hardware or software) or communication
service; inability to obtain
<PAGE>
labor, material, equipment or transportation, or a delay in mails;
governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornados, acts of God or public enemy,
revolutions, or insurrection; or any other cause, contingency,
circumstance or delay not subject to the control of and which
prevents or hinders the performance hereunder of Custodian or any
entity for which it is responsible hereunder.
J. IN NO EVENT AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY TO THIS
AGREEMENT BE LIABLE TO ANYONE, INCLUDING, WITHOUT LIMITATION TO THE
OTHER PARTY, FOR CONSEQUENTIAL DAMAGES FOR ANY ACT OR FAILURE TO ACT
UNDER ANY PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF THIS
POSSIBILITY THEREOF.
6. COMPENSATION.
-------------
In consideration for its services hereunder, Fund will pay to
Custodian such compensation as shall be set forth in a separate fee
schedule to be agreed to by Fund and Custodian from time to time. A
copy of the initial fee schedule is attached hereto and incorporated
herein by reference. Custodian shall also be entitled to receive, and
Fund agrees to pay to Custodian, on demand, reimbursement for
Custodian's cash disbursements and reasonable out-of-pocket costs and
expenses, including attorney's fees, incurred by Custodian in
connection with the performance of services hereunder. Custodian may
charge such compensation against monies held by it for the account of
Fund. Custodian will also be entitled to charge against any monies
held by it for the account of Fund the amount of any loss, damage,
liability, advance, overdraft or expense for which it shall be
entitled to reimbursement from Fund, including but not limited to fees
and expenses due to Custodian for other services provided to the Fund
by Custodian. Custodian will be entitled to reimbursement by the Fund
for the losses, damages, liabilities, advances, overdrafts and
expenses of subcustodians only to the extent that (i) Custodian would
have been entitled to reimbursement hereunder if it had incurred the
same itself directly, and (ii) Custodian is obligated to reimburse the
subcustodian therefor.
<PAGE>
7. TERM AND TERMINATION.
---------------------
Either party to this Agreement may terminate the same by notice in
writing, delivered or mailed, postage prepaid, to the other party
hereto and received not less than ninety (90) days prior to the date
upon which such termination will take effect. Upon termination of this
Agreement, Fund will pay Custodian its fees and compensation due
hereunder and its reimbursable disbursements, costs and expenses paid
or incurred to such date and Fund shall designate a successor
custodian by notice in writing to Custodian by the termination date.
In the event no written order designating a successor custodian has
been delivered to Custodian on or before the date when such
termination becomes effective, then Custodian may, at its option,
deliver the securities, funds and properties of Fund to a bank or
trust company at the selection of Custodian, and meeting the
qualifications for custodian set forth in the 1940 Act and having not
less than Five Million Dollars ($5,000,000) aggregate capital, surplus
and undivided profits, as shown by its last published report, or apply
to a court of competent jurisdiction for the appointment of a
successor custodian or other proper relief, or take any other lawful
action under the circumstances; provided, however, that Fund shall
reimburse Custodian for its costs and expenses, including reasonable
attorney's fees, incurred in connection therewith. Custodian will,
upon termination of this Agreement and payment of all sums due to
Custodian from Fund hereunder or otherwise, deliver to the successor
custodian so specified or appointed, or as specified by the court, at
Custodian's office, all securities then held by Custodian hereunder,
duly endorsed and in form for transfer, and all funds and other
properties of Fund deposited with or held by Custodian hereunder, and
Custodian will co-operate in effecting changes in book-entries at all
Depositories. Upon delivery to a successor custodian or as specified
by the court, Custodian will have no further obligations under this
Agreement. Thereafter such successor will be the successor custodian
under this Agreement and will be entitled to reasonable compensation
for its services. In the event that securities, funds and other
properties remain in the possession of the Custodian after the date of
termination hereof owing to failure of the Fund to appoint a successor
custodian, the Custodian shall be entitled to compensation as provided
in the then-current fee schedule hereunder for its services during
such period as the Custodian retains possession of such securities,
funds and other properties, and the provisions of this Agreement
relating to the duties and obligations of the Custodian shall remain
in full force and effect.
<PAGE>
8. NOTICES.
--------
Notices, requests, instructions and other writings addressed to Fund
at Founders Financial Center, 2930 East Third Avenue, Denver Colorado
80206, or at such other address as Fund may have designated to
Custodian in writing, will be deemed to have been properly given to
Fund hereunder; and notices, requests, instructions and other writings
addressed to Custodian at its offices at 127 West 10th Street, Kansas
City, Missouri 64105, Attention: Custody Department, or to such other
address as it may have designated to Fund in writing, will be deemed
to have been properly given to Custodian hereunder.
9. MULTIPLE PORTFOLIOS.
--------------------
If Fund is comprised of more than one Portfolio:
A. Each Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by
this Agreement, every reference herein to the Fund shall be deemed
to relate solely to the particular Portfolio to which such
transaction relates. Under no circumstances shall the rights,
obligations or remedies with respect to a particular Portfolio
constitute a right, obligation or remedy applicable to any other
Portfolio. The use of this single document to memorialize the
separate agreement of each Portfolio is understood to be for
clerical convenience only and shall not constitute any basis for
joining the Portfolios for any reason.
B. Additional Portfolios may be added to this Agreement, provided that
Custodian consents to such addition. Rates or charges for each
additional Portfolio shall be as agreed upon by Custodian and Fund
in writing.
10. MISCELLANEOUS.
--------------
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of laws
principles thereof.
<PAGE>
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties and the indemnifications extended
hereunder are intended to and shall continue after and survive the
expiration, termination or cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and
executed by each party hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions of this Agreement or to enforce any rights
resulting from any breach of any of the terms or conditions of this
Agreement, including the payment of damages, shall not be construed
as a continuing or permanent waiver of any such terms, conditions,
rights or privileges, but the same shall continue and remain in full
force and effect as if no such forbearance or waiver had occurred.
No waiver, release or discharge of any party's rights hereunder
shall be effective unless contained in a written instrument signed
by the party sought to be charged.
F. The captions in the Agreement are included for convenience of
reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
H. If any part, term or provision of this Agreement is determined by
the courts or any regulatory authority to be illegal, in conflict
with any law or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the rights
and obligations of the parties shall be construed and enforced as if
the Agreement did not contain the particular part, term or provision
held to be illegal or invalid.
<PAGE>
I. This Agreement may not be assigned by either party hereto without
the prior written consent of the other party.
J. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between
Custodian and Fund.
K. Except as specifically provided herein, this Agreement does not in
any way affect any other agreements entered into among the parties
hereto and any actions taken or omitted by either party hereunder
shall not affect any rights or obligations of the other party
hereunder. This Agreement cancels and supersedes all previous
custody agreements by and between Fund (and its various
predecessors) and Custodian; provided, however, that all duties and
liabilities of the parties thereunder with respect to any act, error
or omission which occurred prior to the effective date hereof shall
survive the execution hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Joseph F. Smith
-----------------------------
Title: EVP
-----------------------------
FOUNDERS FUNDS, INC.
By: /s/ David L. Ray
-----------------------------
Title: Vice President
-----------------------------
<PAGE>
EXHIBIT A
- ---------
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
<TABLE>
<CAPTION>
========================================================================================================================
TRANSACTION DTC PHYSICAL FED
- ------------------------------------------------------------------------------------------------------------------------
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
Tender Reorgs. As Received C As Received C N/A
Dividends Paydate C Paydate C N/A
Floating Rate Int. Paydate C Paydate C N/A
Floating Rate Int. N/A As Rate Received C N/A
(No Rate)
Mtg. Backed P&I Paydate C Paydate + 1 Bus. C Paydate F
Day
Fixed Rate Int. Paydate C Paydate C Paydate F
Euroclear N/A C Paydate C
========================================================================================================================
Legend
<FN>
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
</FN>
</TABLE>
INVESTORS FIDUCIARY TRUST COMPANY
FOUNDERS ASSET MANAGEMENT, INC.
PROPOSED FEE SCHEDULE
EFFECTIVE AUGUST, 1996
I. SECURITY CUSTODY
A. Asset-Based Fee on a total relationship basis, Domestic Securities
------------------------------------------------------------------
.65/100 of 1 % (.65 basis points) on the first $1 billion in assets
.55/100 of 1 % (.55 basis points) on the next $1 billion in assets
.50/100 of 1 % (.50 basis points) on the remaining assets
Transaction Fee, per transaction:
Physical Delivery - $15.00
Depository Eligible - $6.00
Participant Trust Company (PTC) Eligible - $6.00
PTC Asset-backed Security Paydown - $10.00
Other Asset-backed Security Paydown - $10.00
Federal Funds Wire Received or Delivered - $4.50
B. Foreign Securities
------------------
See the attached Global Fee Exhibit
C. Balance Credits
---------------
Custody:
IFTC will offset fees with balance credits calculated at 85% of
the bank credit rate (see below) applied to average custody
collected cash balances for the month. Balance credits can be
used to offset fees for all direct fee services provided by IFTC.
Any credits in excess of fees will be carried forward from month
to month through the end of the calendar year. For calculation
purposes, IFTC uses an actual/actual basis.
Note: The bank credit rate is the equivalent to the lesser of:
- The average 91-day Treasury Bill discount rate for the month; or
- The average Federal Funds rate for the month less 50 basis points.
D. Overdraft Charges
-----------------
Overdrafts will be calculated at the Prime rate (as published in the
Wall Street Journal) and charged on a daily basis.
<PAGE>
II. BANK OPERATIONS
A. Item Charges
------------
Account Maintenance $60.00 per account/month
Checks Cleared $0.17 per check
Deposited Items *
Pre-encoded $0.085
Unencoded $0.125
Federal Reserve Check Chg $0.08
Internal Transfers $1.00 per transfer
Microfilming Checks $0.015
Return Items $1.15 per item
Check Copies $3.00 per check
NSCC Settlement $200.00 per month (out of pocket)
ACH Item Fee $0.10 per item
ACH File Fee $15.00 per file
Wires In/Out $4.50 per wire
Stop Payments $15.00 per check
Signature Verification $0.40 per check
Returning Checks to
Shareholders** $0.10 per check
Overdraft Charges Prime rate per Wall Street Journal
B. Balance Credits
---------------
Transfer Agency:
IFTC will offset fees with balance credits on transfer agency
balances calculated at 50% of the bank credit rate (see below)
applied to average collected cash balances for the month. Balance
credits will be applied on a fund by fund basis and can be used
to offset fees. Any credits in excess of fees will be carried
forward from month to month through the end of the calendar year.
For calculation purposes, IFTC uses an actual/actual basis.
Note: The bank credit rate is the equivalent to the lesser of:
- The average 91-day Treasury Bill discount rate for the month OR
- The average Federal Funds rate for the month less 50 basis points.
* Additional per item fees will normally be imposed for clearing
through the Federal Reserve System or a direct send to a
commercial bank, and for transportation.
** Plus Postage.
<PAGE>
III. NOTES TO THE ABOVE FEE SCHEDULE
A. Asset based fees will be billed monthly at 1/12th of the annual
stated rate based on monthly average net assets. Annual maintenance
fees are payable monthly at 1/12th of the annual stated rate.
B. The above schedule does not include out-of-pocket expenses that
would be incurred by IFTC on the client's behalf. Examples of out-
of-pocket expenses include but are not limited to forms, postage,
magnetic tapes, printing, proxy processing, microfilm, microfiche,
back-up recovery, pricing services, overnight mailing services,
foreign registration and script fees, telephone line and long
distance charges, magnetic tapes, printing, ACH bank charges, NSCC
charges, proxy processing, etc. IFTC bills out-of- pocket expenses
separately from service fees.
C. The fees stated above are exclusive of terminal equipment required
in the client's location(s) and communication line costs.
D. Any fees or out-of-pocket expenses not paid within 30 days of the
date of the original invoice may be charged a late payment fee of 1%
per month until payment of the fees are received by IFTC.
E. The above fee schedule is applicable for selections made and
communicated within 90 days of the date of this proposal. The above
fees, except for those indicated by an "*", are guaranteed for a two
year period, subject to an annual increase thereafter in an amount
equal to the annual percentage change in the Consumer Price Index
(CPI) for all urban consumers in the Kansas City, Missouri-Kansas
Standard Metropolitan Statistical Area. All items marked by an "*"
are subject to change with 60 day notice subject to negotiation.
F. All Transfer Agency Demand Deposit Account balances will receive
earnings based on the preceding formula stated in Section II - Part
B (Balance Credits). All services for Bank operations will be billed
directly to the fund.
G. We will back value the credit earned and bank service charges from
January 1, 1996 to present, upon receipt of this signed agreement.
H. IFTC agrees to cap bank operations' charges so that the charge for
services will not exceed the earnings credit.
/s/ Stephen R. Hilliard /s/ David L. Ray
- --------------------------------- ------------------------------
Investors Fiduciary Trust Company Founders Asset Management, Inc.
9/4/96 8/29/96
- --------------------------------- ------------------------------
Date Date
<PAGE>
Appendix l
Founders Proposed
Global Custody Fees
I. Country Based Charges:
================================================================================
Market Asset Transaction Market Asset Transaction
Charge Charge Charge Charge
================================================================================
Argentina 40 $100 Malaysia 12 $50
Australia 8 $35 Mexico 15 $75
Austria 10 $50 Morocco 40 $100
Bangladesh 40 $100 Netherlands 7 $35
Belgium 10 $50 New Zealand 10 $50
Brazil 40 $100 Norway 10 $50
Canada 5 $35 Pakistan 40 $100
Cedel 5 $25 Peru 40 $100
Chile 40 $100 Philippines 40 $100
Colombia 40 $100 Poland 40 $100
Czech Republic 40 $100 Portugal 40 $100
Denmark 10 $50 Shanghai (China) 40 $100
Egypt 50 $150 Shenzhen (China) 40 $100
ECU* 5 $35 Singapore 10 $50
Finland 10 $50 South Africa 15 $75
France 8 $35 South Korea 15 $75
Germany 7 $35 Spain 15 $75
Greece 40 $100 Sri Lanka 40 $100
Hong Kong 10 $50 Sweden 10 $50
Hungary 40 $100 Switzerland 8 $35
India 40 $100 Taiwan 40 $100
Indonesia 40 $100 Thailand 15 $75
Ireland 10 $50 Turkey 40 $100
Israel 40 $100 United Kingdom 5 $35
Italy 10 $50 Uruguay 40 $100
Japan 5 $35 Venezuela 40 $100
Jordan 40 $100
Luxembourg 10 $50
================================================================================
NOTE: Any country not listed above will be negotiated at time of investment.
Out of Pocket Expenses: As incurred (e.g. stamp taxes, registration costs,
script fees, special transportation costs, etc.).
* ECU = European Currency Unit.
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 62 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated January 31, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
Report to Shareholders of Founders Funds, Inc., which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants" and "Financial Statements" in the Statement
of Additional Information.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Denver, Colorado
February 21, 1997
FOUNDERS FUNDS, INC.
RULE 12b-1 DISTRIBUTION PLAN
1. The Plan. Founders Funds, Inc. (the "Company") is registered as an
open-end management investment company under the Investment Company Act of 1940
(the "Act") and is authorized to issue shares of capital stock in separate
series, with each series representing interests in a separate portfolio of
securities and other assets. Pursuant to Section 12(b) of the Act and the rules
and regulations thereunder as the same may be issued or amended from time to
time, and specifically pursuant to Rule 12b-1 (the "Rule"), the Company, on
behalf of those of the Company's series of shares designated on Exhibit A
attached hereto and incorporated herein by this reference (each, a "Fund"), has
adopted this Distribution Plan (the "Plan"). The Plan is designed to comply with
the requirements of the Rule.
2. Authorized Payments. In addition to the expenses described in Section 8
below, while the Plan is in effect, each Fund is authorized to reimburse
Founders Asset Management, Inc. ("Founders") for out-of-pocket costs and
expenses actually incurred over a rolling twelve-month period for the
distribution of the shares of the Fund issued by the Company, but only to the
extent such expenses do not exceed an annual rate of 0.25 of 1 percent of the
Fund's average daily net assets or such lesser amount as a majority of the Board
of Directors of the Company (the "Board of Directors"), including a majority of
the Independent Directors (as defined herein), may determine. A majority of the
Board of Directors who are not interested persons of the Company and have no
direct or indirect financial interest in the operation of the Plan ("Independent
Directors") may from time to time reduce the amount of such expenses or may
suspend the operation of this Section 2 for such period or periods as they may
determine. Reimbursement contemplated under this Section shall be paid monthly
upon receipt by the Fund of a written expense report detailing the expenses
qualifying for such reimbursement and the purposes thereof. Expenses permitted
to be paid by each Fund pursuant to this Section shall include and be limited to
the following:
(a) payments to any securities dealer, financial institution or other
person (other than Founders) for their assistance with respect to
the distribution of the Fund's shares, and payments to any
financial intermediary for providing administrative and accounting
services with respect to the Fund's shareholders, provided each
recipient of such payment has entered into a written agreement with
Founders, the form of which in the opinion of legal counsel to
Founders (and, if the Fund is a party to such agreement, legal
counsel to the Fund), complies with, and is not in contravention of,
the Plan; and
(b) expenses of promoting the sale of shares of the Fund, including
preparation, printing and mailing of prospectuses, reports to
shareholders of the Funds, sales literature and other promotional
material to prospective
-1-
<PAGE>
investors; direct mail solicitation; television, radio, newspaper,
magazine and other advertising; public relations; compensation of
sales personnel and persons who render shareholder support services;
and such other expenses as may be approved from time to time by the
Board of Directors, including a majority of the Independent
Directors, and as may be permitted by applicable statute, rule or
regulation. Payments by the Fund hereunder, for any month, may be
made only with respect to expenditures incurred by Founders during
the rolling twelve-month period in which that month falls. Any
expenditures incurred in excess of the limitation described above of
0.25 of 1 percent of the Fund's average daily net assets in any one
fiscal year are not reimbursable.
3. Approval and Continuance. The Plan shall not take effect with respect
to each Fund until it has been approved by a majority of the Board of Directors
and by a majority of the Independent Directors, by votes cast in person at a
meeting called for the purpose of voting on the Plan and by a vote of at least a
majority of the outstanding voting securities of the Fund. The Plan shall
continue in effect with respect to each Fund for so long as such continuance is
specifically approved at least annually by a majority of the Board of Directors
and a majority of the Independent Directors, by votes cast at a meeting called
for the purpose of voting on such continuance.
4. Reports. Any person authorized to direct the disposition of moneys paid
or payable pursuant to the Plan shall furnish at least quarterly to the Board of
Directors, and the Board of Directors shall review, a written report as to the
amounts expended during each quarter and the purposes for which such amounts
were expended, and such other information as the Board of Directors or the
Independent Directors may reasonably request from time to time.
5. Records. The Company shall preserve copies of the Plan and all reports
made pursuant to Section 4 above for a period of not less than six years from
the date of the Plan and reports and shall preserve the Plan and reports for the
first two years in an easily accessible place.
6. Selection and Nomination of Directors. While the Plan is in effect, the
selection and nomination of those Directors who are not interested persons of
the Company shall be committed to the discretion of the Independent Directors.
7. Expense Limitation. Whether or not any expenditure under the Plan is
subject to a state expense limitation shall depend upon the nature of the
expenditure and the terms of the state law or regulation imposing the
limitation. Any expenditure subject to such limitation shall be included in the
applicable Fund's total expenses for purposes of determining compliance with
such limitation.
-2-
<PAGE>
8. Other Expenses of the Funds and Founders. To the extent that any
payments made by the Company on behalf of a Fund pursuant to its investment
advisory agreement with Founders are considered to be "primarily intended to
result in the sale of shares" of the Fund within the meaning of the Rule, such
payments when made by the Company pursuant to the investment advisory agreement
are authorized under the Plan. Any distribution expenses relating to the sale of
shares of the Fund incurred by Founders are in addition to distribution expenses
incurred by the Fund pursuant to Section 2 above. To the extent that any
management fee paid by the Fund pursuant to its investment advisory agreement
with Founders might be considered to be indirectly financing any activity which
is "primarily intended to result in the sale of shares" of the Fund within the
meaning of the Rule, the payment of such management fee is authorized under the
Plan. Adoption of the Plan shall not be deemed to mean that any payments made by
the Fund and authorized by the Plan pursuant to this Section 8 constitute
distribution expenses within the meaning of the Rule, or that payment of
distribution expenses by Founders constitutes the indirect payment of
distribution expenses by the Fund.
9. Amendment and Termination. The Plan may not be amended to increase
materially the amount of distribution expenses to be paid by a Fund as described
in Section 2 above without the approval of a majority of the outstanding voting
securities of the Fund. All material amendments to the Plan must be approved by
a majority of the Board of Directors and a majority of the Independent
Directors, by votes cast in person at a meeting called for the purpose of voting
on such amendment. Amendments required to conform the Plan to changes in the
Rule shall not be deemed to be material amendments.
The Plan may be terminated by a Fund at any time by the vote of a majority
of the Independent Directors or by the vote of a majority of the outstanding
voting securities of the Fund. Upon termination, the Fund will not reimburse
Founders for any expenses incurred by Founders subsequent to the date of
termination which otherwise would have been reimbursed under the Plan. The Fund
will, however, reimburse Founders for any such expenses incurred prior to the
date of termination, but only to the extent that such expenses do not exceed
0.25 of 1 percent of the Fund's average daily net assets in the calendar year of
termination (or such lesser amount as may have been determined prior to
termination by the Board of Directors, including the Independent Directors, in
accordance with Section 2 of the Plan).
10. Definitions. As used in the Plan, the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the respective meaning specified in the Act and the rules
and regulations thereunder.
Amended December 6, 1996.
-3-
<PAGE>
EXHIBIT A
TO
FOUNDERS FUNDS, INC.
RULE 12b-1 DISTRIBUTION PLAN
Founders Discovery Fund
Founders Frontier Fund
Founders Passport Fund
Founders Special Fund
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund
Founders Blue Chip Fund
Founders Balanced Fund
Founders Government Securities Fund
Exhibit 16(B) - Schedule showing computation of yield performance quotations in
response to Item 22 (unaudited).
- --------------------------------------------------------------------------------
30-day yield for December 1996
- --------------------------------------------------------------------------------
(I) Founders Government Securities Fund
-----------------------------------
(A) Total Income $ 75,516.46
(B) Total Expenses $ 16,380.04
(C) Average Shares 1,684,073.80
(D) Offering Price 12/31/96 $ 9.04
Formula:
(A-B)
Yield = 2[((-----)+1)^6 -1]
(C*D)
(2*((((75516.46-16380.04)/(1684073.8*9.04))+1)^6)-1) = 4.7068%
Yield = 4.71%
- --------------------------------------------------------------------------------
(II) Founders Balanced Fund
----------------------
(A) Total Income $ 1,314,959.95
(B) Total Expenses $ 365,316.82
(C) Average Shares 36,154,728.08
(D) Offering Price 12/31/96 $ 10.61
Formula:
(A-B)
Yield = 2[((-----)+1)^6 -1]
(C*D)
(2*((((1314959.95-365316.82)/(36154728.08*10.61))+1)^6)-1) = 2.9892%
Yield = 2.99%
- --------------------------------------------------------------------------------
[ARTICLE] 6
[SERIES]
[NUMBER] 8
[NAME] FOUNDERS DISCOVERY FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 201754
[INVESTMENTS-AT-VALUE] 251414
[RECEIVABLES] 1511
[ASSETS-OTHER] 1214
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 254139
[PAYABLE-FOR-SECURITIES] 2679
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 3966
[TOTAL-LIABILITIES] 6645
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 190379
[SHARES-COMMON-STOCK] 10219
[SHARES-COMMON-PRIOR] 9980
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 7455
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 49660
[NET-ASSETS] 247494
[DIVIDEND-INCOME] 72
[INTEREST-INCOME] 1691
[OTHER-INCOME] (1)
[EXPENSES-NET] 3824
[NET-INVESTMENT-INCOME] (2062)
[REALIZED-GAINS-CURRENT] 28931
[APPREC-INCREASE-CURRENT] 12543
[NET-CHANGE-FROM-OPS] 39412
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 18990
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 9601
[NUMBER-OF-SHARES-REDEEMED] 10129
[SHARES-REINVESTED] 767
[NET-CHANGE-IN-ASSETS] 10449
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2406
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3862
[AVERAGE-NET-ASSETS] 242280
[PER-SHARE-NAV-BEGIN] 21.70
[PER-SHARE-NII] (0.20)
[PER-SHARE-GAIN-APPREC] 4.72
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 2.00
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 24.22
[EXPENSE-RATIO] 1.58
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 10
[NAME] FOUNDERS PASSPORT FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 158394
[INVESTMENTS-AT-VALUE] 178322
[RECEIVABLES] 576
[ASSETS-OTHER] 4
[OTHER-ITEMS-ASSETS] 3261
[TOTAL-ASSETS] 182163
[PAYABLE-FOR-SECURITIES] 2597
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1645
[TOTAL-LIABILITIES] 4242
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 156922
[SHARES-COMMON-STOCK] 12784
[SHARES-COMMON-PRIOR] 4273
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 1071
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 19928
[NET-ASSETS] 177921
[DIVIDEND-INCOME] 1572
[INTEREST-INCOME] 1234
[OTHER-INCOME] (157)
[EXPENSES-NET] 2114
[NET-INVESTMENT-INCOME] 535
[REALIZED-GAINS-CURRENT] 3872
[APPREC-INCREASE-CURRENT] 15369
[NET-CHANGE-FROM-OPS] 19776
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 308
[DISTRIBUTIONS-OF-GAINS] 1080
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 16459
[NUMBER-OF-SHARES-REDEEMED] 8046
[SHARES-REINVESTED] 98
[NET-CHANGE-IN-ASSETS] 109611
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1344
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2141
[AVERAGE-NET-ASSETS] 134354
[PER-SHARE-NAV-BEGIN] 11.68
[PER-SHARE-NII] 0.04
[PER-SHARE-GAIN-APPREC] 2.30
[PER-SHARE-DIVIDEND] 0.02
[PER-SHARE-DISTRIBUTIONS] 0.09
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.91
[EXPENSE-RATIO] 1.57
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 1
[NAME] FOUNDERS FRONTIER FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 263972
[INVESTMENTS-AT-VALUE] 345438
[RECEIVABLES] 5977
[ASSETS-OTHER] 1370
[OTHER-ITEMS-ASSETS] 7
[TOTAL-ASSETS] 352792
[PAYABLE-FOR-SECURITIES] 325
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1606
[TOTAL-LIABILITIES] 1931
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 258025
[SHARES-COMMON-STOCK] 10852
[SHARES-COMMON-PRIOR] 10674
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 11370
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 81466
[NET-ASSETS] 350861
[DIVIDEND-INCOME] 1225
[INTEREST-INCOME] 2425
[OTHER-INCOME] (6)
[EXPENSES-NET] 5305
[NET-INVESTMENT-INCOME] (1661)
[REALIZED-GAINS-CURRENT] 42019
[APPREC-INCREASE-CURRENT] 4816
[NET-CHANGE-FROM-OPS] 45174
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 30511
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3958
[NUMBER-OF-SHARES-REDEEMED] 4748
[SHARES-REINVESTED] 968
[NET-CHANGE-IN-ASSETS] 4478
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3298
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5368
[AVERAGE-NET-ASSETS] 349726
[PER-SHARE-NAV-BEGIN] 31.08
[PER-SHARE-NII] (0.15)
[PER-SHARE-GAIN-APPREC] 4.46
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 3.05
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 32.34
[EXPENSE-RATIO] 1.52
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 6
[NAME] FOUNDERS SPECIAL FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 317396
[INVESTMENTS-AT-VALUE] 367418
[RECEIVABLES] 2483
[ASSETS-OTHER] 5
[OTHER-ITEMS-ASSETS] 895
[TOTAL-ASSETS] 370801
[PAYABLE-FOR-SECURITIES] 5574
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1392
[TOTAL-LIABILITIES] 6966
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 311172
[SHARES-COMMON-STOCK] 47497
[SHARES-COMMON-PRIOR] 55172
[ACCUMULATED-NII-CURRENT] (48)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2689
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 50022
[NET-ASSETS] 363835
[DIVIDEND-INCOME] 1379
[INTEREST-INCOME] 2620
[OTHER-INCOME] (21)
[EXPENSES-NET] 5022
[NET-INVESTMENT-INCOME] (1044)
[REALIZED-GAINS-CURRENT] 25194
[APPREC-INCREASE-CURRENT] 28967
[NET-CHANGE-FROM-OPS] 53117
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 20770
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 15920
[NUMBER-OF-SHARES-REDEEMED] 26226
[SHARES-REINVESTED] 2631
[NET-CHANGE-IN-ASSETS] (57266)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2840
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5090
[AVERAGE-NET-ASSETS] 373545
[PER-SHARE-NAV-BEGIN] 7.05
[PER-SHARE-NII] (0.02)
[PER-SHARE-GAIN-APPREC] 1.09
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0.46
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.66
[EXPENSE-RATIO] 1.34
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 12
[NAME] FOUNDERS INTERNATIONAL EQUITY FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 9349
[INVESTMENTS-AT-VALUE] 10338
[RECEIVABLES] 117
[ASSETS-OTHER] 300
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 10755
[PAYABLE-FOR-SECURITIES] 581
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 55
[TOTAL-LIABILITIES] 636
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 9081
[SHARES-COMMON-STOCK] 853
[SHARES-COMMON-PRIOR] 77
[ACCUMULATED-NII-CURRENT] (2)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 51
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 989
[NET-ASSETS] 10119
[DIVIDEND-INCOME] 84
[INTEREST-INCOME] 49
[OTHER-INCOME] (9)
[EXPENSES-NET] 134
[NET-INVESTMENT-INCOME] (10)
[REALIZED-GAINS-CURRENT] 59
[APPREC-INCREASE-CURRENT] 989
[NET-CHANGE-FROM-OPS] 1038
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1051
[NUMBER-OF-SHARES-REDEEMED] 275
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 8314
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 69
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 174
[AVERAGE-NET-ASSETS] 6885
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] (0.01)
[PER-SHARE-GAIN-APPREC] 1.87
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.86
[EXPENSE-RATIO] 2.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 9
[NAME] FOUNDERS WORLDWIDE GROWTH FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 282797
[INVESTMENTS-AT-VALUE] 340014
[RECEIVABLES] 2579
[ASSETS-OTHER] 1598
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 344188
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 2109
[TOTAL-LIABILITIES] 2109
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 286659
[SHARES-COMMON-STOCK] 15701
[SHARES-COMMON-PRIOR] 11503
[ACCUMULATED-NII-CURRENT] 1
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1798)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 57217
[NET-ASSETS] 342079
[DIVIDEND-INCOME] 3873
[INTEREST-INCOME] 2915
[OTHER-INCOME] (374)
[EXPENSES-NET] 4823
[NET-INVESTMENT-INCOME] 1591
[REALIZED-GAINS-CURRENT] 9143
[APPREC-INCREASE-CURRENT] 27216
[NET-CHANGE-FROM-OPS] 37950
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1143
[DISTRIBUTIONS-OF-GAINS] 11387
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10382
[NUMBER-OF-SHARES-REDEEMED] 6721
[SHARES-REINVESTED] 537
[NET-CHANGE-IN-ASSETS] 88064
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3023
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 4877
[AVERAGE-NET-ASSETS] 315558
[PER-SHARE-NAV-BEGIN] 19.87
[PER-SHARE-NII] 0.10
[PER-SHARE-GAIN-APPREC] 2.64
[PER-SHARE-DIVIDEND] 0.07
[PER-SHARE-DISTRIBUTIONS] 0.75
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 21.79
[EXPENSE-RATIO] 1.53
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 4
[NAME] FOUNDERS GROWTH FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 876237
[INVESTMENTS-AT-VALUE] 1016460
[RECEIVABLES] 106332
[ASSETS-OTHER] 7120
[OTHER-ITEMS-ASSETS] 18
[TOTAL-ASSETS] 1129930
[PAYABLE-FOR-SECURITIES] 6398
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 5209
[TOTAL-LIABILITIES] 11607
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 975859
[SHARES-COMMON-STOCK] 70476
[SHARES-COMMON-PRIOR] 44397
[ACCUMULATED-NII-CURRENT] 227
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2014
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 140223
[NET-ASSETS] 1118323
[DIVIDEND-INCOME] 4523
[INTEREST-INCOME] 6350
[OTHER-INCOME] (43)
[EXPENSES-NET] 9585
[NET-INVESTMENT-INCOME] 1245
[REALIZED-GAINS-CURRENT] 79638
[APPREC-INCREASE-CURRENT] 25598
[NET-CHANGE-FROM-OPS] 106481
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1034
[DISTRIBUTIONS-OF-GAINS] 77512
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 52751
[NUMBER-OF-SHARES-REDEEMED] 31481
[SHARES-REINVESTED] 4809
[NET-CHANGE-IN-ASSETS] 434461
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5729
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 9715
[AVERAGE-NET-ASSETS] 808234
[PER-SHARE-NAV-BEGIN] 14.77
[PER-SHARE-NII] 0.02
[PER-SHARE-GAIN-APPREC] 2.40
[PER-SHARE-DIVIDEND] 0.02
[PER-SHARE-DISTRIBUTIONS] 1.30
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 15.87
[EXPENSE-RATIO] 1.19
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 3
[NAME] FOUNDERS BLUE CHIP FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 488637
[INVESTMENTS-AT-VALUE] 540364
[RECEIVABLES] 8763
[ASSETS-OTHER] 3
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 549135
[PAYABLE-FOR-SECURITIES] 9472
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 3797
[TOTAL-LIABILITIES] 13269
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 465983
[SHARES-COMMON-STOCK] 74078
[SHARES-COMMON-PRIOR] 56048
[ACCUMULATED-NII-CURRENT] (13)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 18886
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 51010
[NET-ASSETS] 535866
[DIVIDEND-INCOME] 7120
[INTEREST-INCOME] 4691
[OTHER-INCOME] (68)
[EXPENSES-NET] 5293
[NET-INVESTMENT-INCOME] 6450
[REALIZED-GAINS-CURRENT] 83574
[APPREC-INCREASE-CURRENT] 5927
[NET-CHANGE-FROM-OPS] 95951
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 6304
[DISTRIBUTIONS-OF-GAINS] 64011
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 27721
[NUMBER-OF-SHARES-REDEEMED] 18585
[SHARES-REINVESTED] 8894
[NET-CHANGE-IN-ASSETS] 135030
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2892
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5373
[AVERAGE-NET-ASSETS] 461792
[PER-SHARE-NAV-BEGIN] 6.69
[PER-SHARE-NII] 0.09
[PER-SHARE-GAIN-APPREC] 1.52
[PER-SHARE-DIVIDEND] 0.09
[PER-SHARE-DISTRIBUTIONS] 0.98
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.23
[EXPENSE-RATIO] 1.15
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 5
[NAME] FOUNDERS BALANCED FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 371450
[INVESTMENTS-AT-VALUE] 389221
[RECEIVABLES] 12392
[ASSETS-OTHER] 1899
[OTHER-ITEMS-ASSETS] 4
[TOTAL-ASSETS] 403516
[PAYABLE-FOR-SECURITIES] 7539
[SENIOR-LONG-TERM-DEBT] 1081
[OTHER-ITEMS-LIABILITIES] 0
[TOTAL-LIABILITIES] 8620
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 369513
[SHARES-COMMON-STOCK] 37196
[SHARES-COMMON-PRIOR] 13609
[ACCUMULATED-NII-CURRENT] 186
[OVERDISTRIBUTION-NII] 7422
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 17775
[NET-ASSETS] 394896
[DIVIDEND-INCOME] 4388
[INTEREST-INCOME] 5665
[OTHER-INCOME] (32)
[EXPENSES-NET] 2623
[NET-INVESTMENT-INCOME] 7398
[REALIZED-GAINS-CURRENT] 24264
[APPREC-INCREASE-CURRENT] 7811
[NET-CHANGE-FROM-OPS] 39473
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 7112
[DISTRIBUTIONS-OF-GAINS] 16854
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 30655
[NUMBER-OF-SHARES-REDEEMED] 9216
[SHARES-REINVESTED] 2148
[NET-CHANGE-IN-ASSETS] 249043
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1538
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2623
[AVERAGE-NET-ASSETS] 239220
[PER-SHARE-NAV-BEGIN] 9.58
[PER-SHARE-NII] 0.28
[PER-SHARE-GAIN-APPREC] 1.50
[PER-SHARE-DIVIDEND] 0.27
[PER-SHARE-DISTRIBUTIONS] 0.48
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.61
[EXPENSE-RATIO] 1.12
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 7
[NAME] FOUNDERS GOVERNMENT SECURITIES FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 15328
[INVESTMENTS-AT-VALUE] 15389
[RECEIVABLES] 403
[ASSETS-OTHER] 171
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 15963
[PAYABLE-FOR-SECURITIES] 543
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 230
[TOTAL-LIABILITIES] 773
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 18446
[SHARES-COMMON-STOCK] 1679
[SHARES-COMMON-PRIOR] 2181
[ACCUMULATED-NII-CURRENT] 5
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (3322)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 61
[NET-ASSETS] 15190
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1136
[OTHER-INCOME] 0
[EXPENSES-NET] 227
[NET-INVESTMENT-INCOME] 909
[REALIZED-GAINS-CURRENT] (97)
[APPREC-INCREASE-CURRENT] (459)
[NET-CHANGE-FROM-OPS] 353
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (904)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1895
[NUMBER-OF-SHARES-REDEEMED] 2478
[SHARES-REINVESTED] 91
[NET-CHANGE-IN-ASSETS] (4522)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 117
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 232
[AVERAGE-NET-ASSETS] 17977
[PER-SHARE-NAV-BEGIN] 9.29
[PER-SHARE-NII] 3.20
[PER-SHARE-GAIN-APPREC] (2.99)
[PER-SHARE-DIVIDEND] 0.46
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.04
[EXPENSE-RATIO] 1.26
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 2
[NAME] FOUNDERS MONEY MARKET FUND
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 107323
[INVESTMENTS-AT-VALUE] 107323
[RECEIVABLES] 2833
[ASSETS-OTHER] 1008
[OTHER-ITEMS-ASSETS] 2
[TOTAL-ASSETS] 111166
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1300
[TOTAL-LIABILITIES] 1300
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 109829
[SHARES-COMMON-STOCK] 109829
[SHARES-COMMON-PRIOR] 125640
[ACCUMULATED-NII-CURRENT] 37
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 109866
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 8241
[OTHER-INCOME] 0
[EXPENSES-NET] 1303
[NET-INVESTMENT-INCOME] 6938
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 6938
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 6913
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 440366
[NUMBER-OF-SHARES-REDEEMED] 462525
[SHARES-REINVESTED] 6354
[NET-CHANGE-IN-ASSETS] (15805)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 758
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1331
[AVERAGE-NET-ASSETS] 151493
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0.05
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.86
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints
Bjorn K. Borgen, David L. Ray, and Edward F. O'Keefe, or any one
of them, as his attorney-in-fact to execute and to file such
post-effective amendments to the Registration Statement of the
hereinafter described entity as such attorney-in-fact, or any one
of them, may deem appropriate:
Registrant Registration Number (1)
- ------------------------------ -----------------------
Founders Funds, Inc. 1933 Act: 2-17531
1940 Act: 811-1018
(1) References are to the Securities Act of 1933, as amended
("1933 Act") and to the Investment Company Act of 1940, as
amended ("1940 Act")
This Power of Attorney, which shall not be affected by the
disability of the undersigned, is executed and effective as of
the 12th day of February, 1997.
/s/ Trygve E. Myhren
[NOTARY SEAL] -------------------------------
Trygve Myhren
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Trygve
Myhren, director of the above-referenced Registrant, this 12th day
of February, 1997.
/s/ Heather T. Nordstrom
-------------------------------
Notary Public
My commission expires: 1/9/99
