1997 SEMIANNUAL REPORT
For the Six Months Ended June 30, 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
Founders Funds
Growth, Plain and Simple.
<PAGE>
TABLE OF CONTENTS
About this Report....................... 3
A Message From the Chairman............. 4
Founders Discovery Fund................. 6
Statement of Investments............ 9
Founders Passport Fund.................. 12
Statement of Investments............ 15
Founders Frontier Fund.................. 18
Statement of Investments............ 21
Founders Special Fund................... 24
Statement of Investments............ 27
Founders International Equity Fund...... 30
Statement of Investments............ 33
Founders Worldwide Growth Fund.......... 36
Statement of Investments............ 39
Founders Growth Fund.................... 42
Statement of Investments............ 45
Founders Blue Chip Fund................. 48
Statement of Investments............ 51
Founders Balanced Fund.................. 55
Statement of Investments............ 58
Founders Government Securities
Fund.................................. 62
Statement of Investments............ 63
Founders Money Market Fund
Statement of Investments............ 64
Statements of Assets and Liabilities.... 66
Statements of Operations................ 68
Statements of Changes in Net Assets..... 70
Financial Highlights.................... 74
Notes................................... 78
<PAGE>
ABOUT THIS REPORT
HISTORICAL RETURNS
All total returns mentioned in this report account for both the change in a
Fund's per-share price and reinvestment of any dividends or capital gain
distributions made by that Fund. If your account is set up to pay out Fund
distributions rather than reinvest them, your return may differ from the figures
listed here.
The comparative indexes included with each Fund's performance chart are meant
to provide a basis for judging a Fund's performance against its peer group
and/or a specific securities market index (provided by Lipper Analytical
Services, Inc. and Morgan Stanley Capital International (MSCI)). Each index
presented accounts for both change in security price and reinvestment of any
dividends or coupon payments. The Lipper indexes reflect the expenses of
managing the mutual funds included in each index. The securities indexes are
unmanaged groups of securities; they do not reflect the costs of managing a
mutual fund. An investor may not invest in any of these indexes.
Past performance is no guarantee of future results. Actual total return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
GUIDE TO UNDERSTANDING FOREIGN
HOLDINGS OF THE FOUNDERS FUNDS
The following abbreviations are used throughout the Statements of Investments to
indicate the country of origin of non-U.S. holdings:
AR Argentina
AU Australia
BR Brazil
CA Canada
CH Chile
DE Denmark
FI Finland
FR France
GE Germany
HK Hong Kong
IN India
ID Indonesia
IS Israel
IT Italy
JA Japan
KO Korea
MA Malaysia
MX Mexico
NE Netherlands
NZ New Zealand
NW Norway
PA Panama
PH Philippines
PO Portugal
SI Singapore
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
VZ Venezuela
3
<PAGE>
A MESSAGE FROM THE CHAIRMAN
BJORN K. BORGEN, CHAIRMAN
DEAR FELLOW SHAREHOLDER:
If someone asked me to pick the period in the history of the market when
investors were most happy and prosperous, I might choose the period that elapsed
from June 1994 to the present. For that three-year period (ended June 30, 1997),
the Standard & Poor's 500 Index grew by an incredible average of 28.83% per
year, substantially faster than the historical long-term average for
large-company stocks.
There's no question that it's been an incredible period. I'm sure if you took
a look back at analysts' predictions, few would match what's actually happened.
Take the past six months: While many had expected weakness in equities,
large-capitalization stocks (as measured by the Standard & Poor's 500 Index, a
commonly used market benchmark) actually proved very strong, advancing 20.54%
for the six-month period ended June 30, 1997.
TOUGH QUESTIONS
It's times like these that bring out the pessimist in all of us. With so much
good fortune at our backs, how much more can we hope for down the road? After
all, history has shown that the market has averaged one negative year for every
3 1/2 positive years. Large-caps haven't posted a calendar-year decline since
1990.
But despite the fact that some form of market correction may be lurking around
the corner, cash flows into the stock market have been stronger than ever. This
is difficult to understand from a psychological perspective: On the whole,
people tend to avoid risk, choosing more often to follow a path that is certain
over one that is risky.
One possible conclusion is that some investors are turning their backs on
their risk-averse pasts, and are growing convinced that future market
performance is assured. This fundamental shift in opinion wouldn't be too
surprising in a market that's turned a lot of investment wisdom on its head.
LARGE-CAP DOMINANCE
But while large-cap stocks posted impressive gains over the past six months,
events made it clear that a positive result was anything but assured. The
nation's economic growth seemed moderate, but investors worried that
4
<PAGE>
the Federal Reserve might raise interest rates as a precautionary measure. The
S&P 500 Index even spent some time in negative territory.
Investors, seeking shelter from a possible approaching storm, moved their
assets into the stocks of large companies, which led to increasing prices, in
some cases, prices we believe were overvalued.
At the same time, small-cap stocks were adversely affected by investors'
overweighting in large caps. As the first half of the year moved ahead, however,
investors began to find value in small-caps. By mid-year, small caps had begun a
recovery, while the performance of large companies went on to post solid
earnings growth.
LOOKING FORWARD
So what do we see for the remainder of the year? The future is keeping its
secrets well. This much, at least, is clear: that economic growth in the U.S.
appears to be moderate, and that inflationary pressures, especially on wages,
appear to be low.
This does not, however, rule out further action by the Federal Reserve, though
they have been pressured by Congress to keep rates at current levels unless more
concrete evidence of inflation emerges. We'll all be watching them.
STAY FOCUSED ON THE LONG TERM
Have we seen a new kind of stock market emerge in 1997? With valuations at
sky-high levels and investors still buying, it looks like the market may have
thrown off some of the old rules. I think that, despite these short-term
happenings, the market's character (and its potential) are defined OVER THE LONG
TERM. That's something that will remain constant.
While we believe that today's market is strong, we also realize that it's
cyclical and likes to throw curves. That's why now may be a good time to
reevaluate your investment strategy, to make sure your time horizon is
reasonable, to see that your portfolio is in line with your goals. If you do so
now, it may help you sleep more soundly if and when a downturn arrives.
Founders believes in its bottom-up, growth-oriented strategy, and we will
stick to it going forward. We continue to feel that the best road to long-term
appreciation is to find companies that may see growth on their own merits,
rather than being pawns of the market, companies with the fundamental strengths
they need to produce earnings growth in any market climate.
I wish you all the best for the coming months.
Sincerely,
/s/ BJORN K. BORGEN
Bjorn K. Borgen
Chairman, Chief Executive Officer,
and Chief Investment Officer
Founders Asset Management, Inc.
5
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FOUNDERS DISCOVERY FUND
FOUNDERS DISCOVERY FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year 5 Year Since Inception
------ ------ ---------------
1.73% 15.57% 17.98%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Russell Lipper Small Consumer
Discovery 2000 Company Growth Price
Fund Index Fund Index Index
---------- ---------- ---------- ----------
12/31/89 ....... $ 10,000 $ 10,000 $ 10,000 $ 10,000
06/30/90 ....... $ 11,780 $ 10,146 $ 10,361 $ 10,301
06/30/91 ....... $ 13,577 $ 10,281 $ 10,539 $ 10,785
06/30/92 ....... $ 16,761 $ 11,776 $ 11,862 $ 11,119
06/30/93 ....... $ 21,240 $ 14,838 $ 14,847 $ 11,452
06/30/94 ....... $ 19,610 $ 15,482 $ 15,181 $ 11,736
06/30/95 ....... $ 25,447 $ 18,596 $ 19,123 $ 12,094
06/30/96 ....... $ 33,975 $ 23,038 $ 24,870 $ 12,427
06/30/97 ....... $ 34,562 $ 26,800 $ 26,449 $ 12,713
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER ROBERT AMMANN
HOW DID THE FUND PERFORM IN THE OPENING HALF OF 1997?
The year so far has seen a generally negative market for small-company stocks,
especially in the growth category, which lagged larger issues. Through this
difficult period, Founders Discovery Fund posted a 0.33% total return for the
six months ended
June 30, 1997.
WHAT FACTORS AFFECTED THE PERFORMANCE OF THE FUND AND THE SMALL-COMPANY
MARKETPLACE?
I think it's clear that caution was investors' overriding sentiment over the
past six months. In the past, interest-rate hikes have hurt the market overall,
so many investors looked to the stocks of larger companies for a greater measure
of stability and liquidity.
This trend had a double influence on the stock market. First, since they were
out of favor, small-company stocks as a whole saw large selloffs, and the demand
they needed to get out of their slump didn't begin to materialize until late in
the second quarter.
Second, large-company market indexes, especially the Standard & Poor's 500
Index,
6
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soared as investor assets flowed into index funds. This was an interesting
cycle: as these indexes (and therefore the funds that tracked them) kept
performing, they attracted new investors whose cash flow helped them rise even
further. The result was that, despite positive returns for small-company indexes
such as the Russell 2000, a glaring gap formed between large- and small-cap
performance.
TOP 10 HOLDINGS
---------------
1. J.P. Food Service, Inc. 2.90%
2. Doubletree Corporation 2.72%
3. Wolverine World Wide, Inc. 2.49%
4. Digital Microwave Corporation 2.48%
5. Cinar Films, Inc. Class B 2.38%
6. REMEC, Inc. 2.33%
7. Multicare Companies, Inc. 2.16%
8. ResMed, Inc. 2.09%
9. DT Industries, Inc. 2.04%
10. P Com, Inc. 2.02%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
WHAT ARE THE FUND'S GROWTH OBJECTIVES?
Our goal is to deliver capital appreciation to our investors by investing in
relatively undiscovered companies that possess the fundamental strengths
necessary to post rapid growth in earnings per share. Of course, such growth
rarely happens overnight -- it can often take years to develop -- and small-cap
investing entails unique risks. That's why it's important for investors in the
Fund to have a long time horizon, to be able to weather the ups and downs in
pursuit of the long-term opportunity.
WHAT STOCKS OR PORTFOLIO ACTIVITIES WERE SIGNIFICANT THROUGH THE FIRST HALF?
One of the first things I did when I took over the Fund was to substantially cut
Discovery's exposure to what I call "concept stocks." These are firms with
little or no near-term earnings prospects and which tend to trade primarily on
news or other unanticipated events. In this market, we feel that companies with
current, visible earnings would be better for the Fund's health.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $226.7 million
NAV ON JUNE 30, 1997: $24.30
EXPENSE RATIO: 1.59%
INCEPTION DATE: 12/31/89
Some of the bright spots for the half included DT Industries, Inc. (a
manufacturer and designer of industrial automation systems), which has
consistently hit its earnings targets. When we met with the company, I was
particularly impressed with its able management team and its effective
acquisition strategy. If its
7
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FOUNDERS DISCOVERY FUND (CONTINUED)
fundamentals remain strong, we believe its potential will continue for some time
to come.
Another holding we are pleased with is Fairfield Communities, a developer of
timeshares. While there's been a lot of attention paid to the potential of this
industry recently, our first impression of Fairfield was as a fundamentally
strong firm, not as just a random player in a promising area. The company's
timeshare business has seen robust growth, and we feel that it will continue to
thrive as Americans -- especially the Baby Boomers on the threshold of
retirement -- start to spend more money on leisure.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Consumer 33.6%
Technology 23.6%
Healthcare 14.6%
Cash & Equivalents 14.1%
Capital Goods 5.6%
Transportation 3.8%
Financial 2.5%
Energy 1.8%
Telecom Services 0.4%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF THE YEAR?
Certainly, investors are not as concerned about interest-rate hikes as they were
at the beginning of the year. If that continues, we may see increased interest
as investors rediscover the appreciation potential of the small-capitalization
area, and as investors see how inexpensive these stocks are compared to those in
the blue-chip realm. If not, there may still be some volatile months ahead.
But we're not the kind of Fund that waits for other people to find the best
opportunities: Wherever the market goes, we'll be doing whatever legwork it
takes to seek the best potential the small-company marketplace has to offer.
/s/ ROBERT AMMANN
Robert Ammann, CFA
Portfolio Manager
8
<PAGE>
FOUNDERS DISCOVERY FUND STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
SHARES MARKET VALUE
------ ------------
COMMON STOCKS (DOMESTIC)-77.2%
APPAREL-4.1%
96,400 Kenneth Cole Productions, Inc.
Class A* $1,572,525
115,000 North Face, Inc.* 2,070,000
185,755 Wolverine World Wide, Inc. 5,642,308
----------
9,284,833
----------
BUSINESS SERVICES-5.8%
25,000 JLK Direct Distribution, Inc.* 640,625
78,500 Metzler Group, Inc.* 2,512,000
170,000 Protection One, Inc.* 2,295,000
65,000 RWD Technologies, Inc.* 1,121,250
125,000 United States Rental, Inc.* 3,164,063
325,000 Warrentech Corporation* 3,371,875
----------
13,104,813
----------
COMPUTER EQUIPMENT-1.5%
45,800 Microtouch Systems, Inc.* 1,053,400
57,875 Radisys Corporation* 2,264,359
----------
3,317,759
----------
CONSUMER SERVICES-0.4%
90,000 Peapod, Inc.* 1,012,500
----------
ENVIRONMENTAL SERVICES-1.6%
90,000 United Waste Systems, Inc.* 3,678,750
----------
FOOD & BEVERAGES-4.8%
229,100 J.P. Food Service, Inc.* 6,572,306
100,000 Nuco2, Inc. 1,650,000
105,000 Richfood Holdings, Inc. 2,730,000
----------
10,952,306
----------
HEALTHCARE SERVICES-11.8%
90,325 Advance Paradigm, Inc.* 1,648,431
80,000 American Medserv Corporation* 1,040,000
91,925 Henry Schein, Inc.* 2,815,203
178,500 Multicare Companies, Inc.* 4,886,438
173,000 Orthodontic Centers of America, Inc.* 3,146,438
136,350 Parexel International Corporation* 4,260,938
54,000 Pediatrix Medical Group, Inc.* 2,473,875
140,000 Rural/Metro Corporation* 4,060,000
72,200 Sunrise Assisted Living, Inc.* 2,527,000
----------
26,858,323
----------
INSURANCE-1.0%
45,975 Executive Risk, Inc.* $2,390,700
----------
LEISURE & ENTERTAINMENT-9.7%
150,000 Doubletree Corporation* 6,159,375
29,025 Equity Marketing, Inc.* 682,088
132,300 Fairfield Communities, Inc.* 4,448,588
150,000 Servico, Inc.* 2,231,250
130,000 Signature Resorts, Inc.* 4,485,000
145,000 Silverleaf Resorts, Inc.* 2,229,375
82,500 Ticketmaster Group, Inc.* 1,371,563
23,375 Vistana, Inc.* 350,625
----------
21,957,864
----------
MANUFACTURING-2.6%
70,000 Ballantyne of Omaha, Inc.* 1,260,000
130,000 DT Industries, Inc. 4,615,000
----------
5,875,000
----------
MEDICAL SUPPLIES &
EQUIPMENT-3.5%
55,000 Heartport, Inc.* 965,938
88,000 Perclose, Inc.* 2,156,000
201,450 ResMed, Inc.* 4,734,075
----------
7,856,013
----------
OIL SERVICES-1.2%
47,050 National Oilwell, Inc.* 2,705,375
----------
PHARMACEUTICALS-0.3%
18,050 Watson Pharmaceuticals, Inc.* 760,356
----------
PUBLISHING & BROADCASTING-2.5%
97,500 International Family Entertainment,
Inc. Class B* 3,351,563
54,450 SFX Broadcasting, Inc. Class A 2,286,900
----------
5,638,463
----------
RESTAURANTS-1.1%
92,675 Dave and Busters, Inc.* 2,479,056
----------
RETAIL-4.1%
24,500 Linens 'N Things, Inc.* 725,813
74,525 Men's Wearhouse, Inc.* 2,347,538
95,000 Proffitt's, Inc.* 4,156,250
78,000 Rental Service Corporation* 2,047,500
----------
9,277,101
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
9
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FOUNDERS DISCOVERY FUND
SHARES MARKET VALUE
------ ------------
SEMICONDUCTORS & EQUIPMENT-4.1%
64,450 Brooks Automation, Inc.* $ 1,240,663
59,525 Micro Linear Corporation* 610,131
111,000 Semtech Corporation* 4,023,750
36,725 Speedfam International, Inc.* 1,317,509
65,662 Vitesse Semiconductor Corporation* 2,142,223
-----------
9,334,276
-----------
SOFTWARE-6.4%
63,375 CSG Systems International, Inc.* 1,956,703
85,750 Documentum, Inc.* 2,111,594
200,000 Edify Corporation* 2,925,000
219,775 Geoworks, Inc.* 1,277,442
237,075 Premenos Technology Corporation* 2,015,138
75,565 Scopus Technology, Inc.* 1,681,321
44,050 Sterling Commerce, Inc.* 1,448,144
22,000 Veritas Software Corporation* 1,100,000
-----------
14,515,342
-----------
TELECOMMUNICATION SERVICES-0.4%
100,100 Cellular Technical Services
Company, Inc.* 913,413
-----------
TELECOMMUNICATIONS EQUIPMENT-8.3%
192,325 Digital Microwave Corporation* 5,625,506
139,725 P Com, Inc.* 4,575,994
232,500 REMEC, Inc.* 5,289,375
96,000 Sawtek, Inc.* 3,216,000
-----------
18,706,875
-----------
TRANSPORTATION-2.0%
105,000 Mark VII, Inc.* 3,360,000
42,000 Swift Transportation Company* 1,239,000
-----------
4,599,000
-----------
TOTAL COMMON STOCKS
(DOMESTIC)-77.2%
(COST-$126,047,984) 175,218,118
-----------
COMMON STOCKS (FOREIGN)-8.9%
OIL SERVICES-0.6%
53,200 Stolt Comex Seaway SA (UK)* $1,343,300
----------
PHARMACEUTICALS-0.8%
400,200 Ethical Holdings Limited Sponsored
ADR (UK)* 1,750,875
----------
PUBLISHING & BROADCASTING-2.4%
172,500 Cinar Films, Inc. Class B (CA)* 5,390,625
----------
SOFTWARE-1.2%
190,000 JBA Holdings PLC (UK)* 2,767,508
----------
TELECOMMUNICATION SERVICES-1.7%
120,000 Cellular Communications International
(IT)* 3,930,000
----------
TELECOMMUNICATIONS EQUIPMENT-2.2%
95,000 MAS Technologies Limited ADR (NZ)* 1,413,125
102,000 Teledata Communication
Inc. (IS)* 3,468,000
----------
4,881,125
----------
TOTAL COMMON STOCKS
(FOREIGN)-8.9%
(COST-$15,850,864) 20,063,433
----------
10
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
PRINCIPAL AMOUNT MARKET VALUE
---------------- ------------
CONVERTIBLE BONDS (DOMESTIC)-0.0%
MEDICAL SUPPLIES & EQUIPMENT-0.0%
$1,783 Surgical Laser Technologies
Convertible Subordinated Note 8.0%
Due 7/30/99 $0
----------
TOTAL CONVERTIBLE BONDS
(DOMESTIC)-0.0%
(COST-$0) 0
----------
PRINCIPAL AMOUNT AMORTIZED COST
---------------- --------------
CORPORATE SHORT-TERM NOTES-13.5%
$4,500,000 Ciesco LP 5.53% 07/01/97 $ 4,500,000
5,000,000 Ford Motor Credit Company 5.58%
07/01/97 5,000,000
7,400,000 General Electric Company 5.55%
07/02/97 7,398,859
6,500,000 Household Finance Corporation 5.57%
07/07/97 6,493,966
7,100,000 Prudential Funding Corporation 5.53%
07/03/97 7,097,819
-----------
TOTAL CORPORATE SHORT-TERM NOTES-13.5%
(AMORTIZED COST-$30,490,644) 30,490,644
-----------
TOTAL INVESTMENTS-99.6%
(COST-$172,389,492) 225,772,195
OTHER ASSETS & LIABILITIES-0.4% 890,207
-----------
NET ASSETS-100.0% $226,662,402
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
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FOUNDERS PASSPORT FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year Since Inception
------ ---------------
11.33% 12.28%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
MSCI World
Founders ex U.S. Consumer
Passport Fund Index Price Index
------------- ----- -----------
11/93 ............ $10,000 $10,000 $10,000
06/94 ............ $ 9,680 $11,574 $10,151
06/95 ............ $10,592 $11,837 $10,460
06/96 ............ $13,671 $13,417 $10,748
06/97 ............ $15,219 $15,232 $10,995
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER MICHAEL GERDING
HOW DID THE FUND PERFORM OVER THE COURSE OF THE FIRST HALF?
While the U.S. equity market handily outpaced most markets overseas, many
international exchanges saw excellent growth of their own. In this environment,
Founders Passport Fund was able to benefit from what we believe are some of the
world's best small-cap investment opportunities. For the six-month period ended
June 30, 1997, the Fund gained 7.98%.
WHAT WERE THE PREDOMINANT FACTORS IMPACTING INTERNATIONAL SMALL-CAP STOCKS
DURING THE HALF?
Economic growth around the world followed a familiar pattern throughout 1997:
slow but steady. This is, of course, much better than the slumps many overseas
markets have been in for some time. In addition, while domestic investors were
concerned about the possibility of higher U.S. interest rates, rates overseas
have actually declined, and global markets responded positively.
These are very positive trends, but they go deeper than the country level--we
have seen
12
<PAGE>
steady and promising revenue growth from select COMPANIES around the world,
particularly in Europe.
TOP 10 HOLDINGS
---------------
1. Marschollek,
Lautenschlaeger und Partner
AG non-voting preferred 2.75%
2. JBA Holdings PLC 2.56%
3. Rofin Sinar Technologies, Inc. 2.26%
4. JD Wetherspoon PLC 2.22%
5. Hunter Douglas NV 2.17%
6. Noritsu Koki Company 2.02%
7. Porsche AG non-voting preferred 1.89%
8. Gulf Canada Resources Limited 1.81%
9. Salomon SA 1.80%
10. Pizza Express PLC 1.74%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
In addition, the U.S. dollar continues to play an important role. While it has
been generally weak for more than a decade, the dollar showed signs of
surprising strength during the half, primarily against the German mark and the
Japanese yen. This means that goods produced in these countries can be sold more
cheaply in the U.S. This was a boon to larger firms that collect a substantial
amount of their revenue in dollars. However, small firms as a group have not
done as well as their large-cap counterparts.
WHAT ARE PASSPORT FUND'S INVESTMENT OBJECTIVES?
The Fund seeks to provide its investors with capital appreciation by investing
in the most promising opportunities we can find in the international
small-company marketplace. While this is an exciting area to explore, because
small-cap investing overseas involves a unique combination of risks, the Fund is
best suited for investors with long time horizons.
WHICH OF THE FUND'S HOLDINGS HAVE BEST MET ITS INVESTMENT OBJECTIVES?
Two of the holdings that we've been impressed with over the past six months are
Germany's Porsche and Spain's TelePizza.
PORTFOLIO AT A GLANCE
---------------------
TOTAL ASSETS: $208.0 million
NAV ON JUNE 30, 1997: $15.02
EXPENSE RATIO: 1.59%
INCEPTION DATE: 11/16/93
Although it's known around the world, Porsche is still a small auto
manufacturer -- its market capitalization was $1.4 billion near the end of the
half -- compared to the U.S. Big Three of Ford, Chrysler, and General Motors.
But Porsche has certainly acted like a large, mature firm. The company is quite
strong fundamentally and has excellent long-term growth prospects: the
introduction of its new Boxster model went superbly, sales of its flagship 911
have accelerated, a new 916 model is planned for European release later this
year, and Porsche is engaged in a strategic alliance with Valmet to increase
production capacity.
13
<PAGE>
FOUNDERS PASSPORT FUND (CONTINUED)
TelePizza has been another profitable holding. As the leading pizza delivery
company of Spain (where the bulk of the market is for delivery), the company has
grown remarkably, showing 40% growth in locations over the past year. In Spain,
pizza consumption is just a fraction of what it is in the U.S. But that fraction
is growing, and the firm stands to benefit from any upward trends.
PORTFOLIO COMPOSITION
---------------------
United Kingdom 22.4%
Germany 11.0%
France 7.4%
Japan 6.4%
Netherlands 5.0%
Indonesia 4.1%
Hong Kong 4.0%
Norway 3.7%
Italy 3.6%
Finland 3.3%
Canada 2.9%
Mexico 2.2%
Other 14.7%
Cash & Equivalents 9.3%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHAT DO YOU SEE AHEAD FOR THE INTERNATIONAL SMALL-COMPANY MARKETPLACE?
Looking ahead, I think that the rest of 1997 will be much like the first half,
with economies around the world continuing their slow and steady growth. Most of
the major events--such as the Hong Kong handover to the Chinese and the British
election--are behind us. While I am still concerned about some regions,
generally corporate earnings for small companies have been good.
One of the most compelling aspects for investing in this area is that, in many
countries, the market for small-capitalization companies is still maturing. Many
of the best opportunities we are finding are in markets such as the United
Kingdom, Germany, and France. As we go forward, we will continue to scour these
countries and the rest of the world for fundamentally strong companies with the
potential for rapid earnings growth.
/s/ MICHAEL GERDING, CFA
Michael Gerding, CFA
Portfolio Manager
14
<PAGE>
FOUNDERS PASSPORT FUND STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
SHARES MARKET VALUE
- ------ ------------
PREFERRED STOCKS (FOREIGN)-4.6%
AUTOMOTIVE-1.9%
2,950 Porsche AG non-voting preferred (GE) $ 3,927,690
-----------
FINANCIAL SERVICES-2.7%
24,000 Marschollek, Lautenschlaeger und
Partner AG non-voting preferred (GE) 5,715,925
-----------
TOTAL PREFERRED STOCKS (FOREIGN)-4.6%
(COST-$5,006,893) (9,643,615)
-----------
COMMON STOCKS (FOREIGN)-86.1%
AIRLINES-0.6%
48,575 Ryanair Holdings PLC ADR (UK)* 1,305,453
-----------
AUTO PARTS & EQUIPMENT-1.0%
21,800 Sylea (FR) 2,086,835
-----------
BANKING-1.5%
79,325 Banco de A. Edwards Sponsored
ADR representing Series A (CH) 1,655,909
1,200,000 Bank Tiara (ID) 1,431,215
-----------
3,087,124
-----------
BASIC INDUSTRY-0.9%
609,500 Perusahaan Perkebu (ID) 1,930,146
-----------
BIOTECHNOLOGY-1.2%
631,150 British Biotechnology (UK)* 2,395,176
-----------
BUILDING MATERIALS-2.2%
52,950 Hunter Douglas NV (NE) 4,513,168
-----------
BUSINESS SERVICES-4.1%
8,450 Altran Technologies SA (FR) $ 2,763,460
110,725 Asia Satellite Telecom Holdings
Sponsored ADR (HK) 3,335,591
731,150 Avis Europe PLC 144A (UK)*+ 1,661,151
47,175 BTG PLC (UK) 495,463
-----------
8,255,665
-----------
CAPITAL GOODS-2.0%
85,200 Noritsu Koki Company (JA) 4,206,838
-----------
COMPUTER EQUIPMENT-2.2%
123,800 Creative Technology
Limited (SI)* 2,073,650
374,000 Psion PLC (UK) 2,430,875
-----------
4,504,525
-----------
COMPUTER NETWORKING-0.8%
17 Net One Systems Company Limited (JA) 1,567,334
-----------
CONSTRUCTION-1.5%
56,000 IHC Caland NV (NE) 3,066,810
-----------
CONSUMER PRODUCTS-6.1%
50,625 Amer Group Limited (FI)* 911,293
73,700 Industrie Natuzzi SPA ADR (IT) 1,888,563
48,975 Salomon SA (FR) 3,736,678
72,475 Skis Rossignol (FR) 1,524,592
6,800,000 Solid Group, Inc. (PH) 1,108,584
17,875 ST Dupont (FR)* 481,059
1,623,000 Vtech Holdings Limited (HK) 3,058,628
-----------
12,709,397
-----------
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FOUNDERS PASSPORT FUND
SHARES MARKET VALUE
- ------ ------------
ELECTRONICS-2.8%
4,000,000 Elec and Eltek International Holdings
(HK) $ 1,174,618
247,300 Rofin Sinar Technologies,
Inc. (GE)* 4,698,700
----------
5,873,318
----------
ENVIRONMENTAL SERVICES-0.9%
93,275 Tomra Systems ASA (NW) 1,911,190
----------
FINANCIAL SERVICES-1.0%
50,250 Banco Latinoamericano de
Exportaciones, SA Class E (PA) 2,167,031
----------
FOOD & BEVERAGES-2.7%
115,825 Compania Cervecerias Unidas SA
Sponsored ADR (CH) 2,533,672
45,950 Raision Tehtaat Class V (FI) 3,158,167
----------
5,691,839
----------
INSURANCE-1.8%
1,040,000 Lippo Life Insurance (ID) 1,229,693
397,000 Malaysian Assurance Alliance BHD (MA) 2,312,164
39,700 Malaysian Assurance Alliance BHD
Class A (MA) 231,216
----------
3,773,073
----------
LEISURE & ENTERTAINMENT-2.4%
2,000,000 AAPC Limited (AU) 1,318,550
2,651,285 Grupo Posadas SA de CV
Series A (MX)* 1,599,870
554,000 Village Roadshow
Limited (AU) 2,000,509
----------
4,918,929
----------
MACHINERY-4.8%
242,000 First Tractor Company Limited Class H
(HK)* 159,309
64,125 Konecranes International Corporation
(FI) 2,814,774
128,000 Kverneland ASA (NW) 3,479,449
326,500 PT United Tractors (ID) 1,208,513
79,000 Turbon International (GE) 2,402,869
----------
10,064,914
----------
OIL & GAS-4.6%
130,000 British Borneo Petroleum (UK) $ 3,067,160
349,100 Carin Energy PLC (UK)* 2,818,134
453,300 Gulf Canada Resources
Limited (CA)* 3,768,056
----------
9,653,350
----------
OIL SERVICES-1.2%
49,000 Petroleum Geological Services
Sponsored ADR (NW)* 2,394,875
----------
PACKAGING-1.7%
15,550 Schmalbach Lubeca AG (GE) 3,489,268
----------
PHARMACEUTICALS-2.5%
146,975 Medeva PLC ADR (UK) 2,516,947
35,700 Schwarz Pharma AG (GE) 2,694,146
----------
5,211,093
----------
PUBLISHING & BROADCASTING-4.6%
287,925 Capital Radio PLC (UK) 2,576,344
70,750 Cinar Films, Inc. Class B (CA)* 2,210,938
315,025 Flextech PLC (UK)* 3,371,523
105,000 Multicanal Participacoes SA Sponsored
ADR (BR)* 1,417,500
----------
9,576,305
----------
RESTAURANTS-7.7%
77,000 Doutor Coffee Company
Limited (JA) 3,129,865
203,400 J D Wetherspoon PLC (UK) 4,612,725
345,900 Pizza Express PLC (UK) 3,621,357
288,975 Regent Inns PLC (UK) 1,370,804
57,450 Tele Pizza (SP)* 3,359,421
----------
16,094,172
----------
16
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
RETAIL-7.9%
22,275 Beter Bed Holdings (NE) $ 488,861
512,000 Bulgari SPA (IT) 2,894,763
322,000 DFS Furniture Company (UK) 3,012,051
13,465 Guilbert SA (FR) 1,906,247
147,000 Laox Company Limited (JA) 2,068,251
235,000 Next PLC (UK) 2,654,774
1,333,500 PT Matahari Putra
Prima (ID) 2,687,291
2,073,000 Sa Sa International Holdings Limited
(HK)* 675,641
-----------
16,387,879
-----------
SOFTWARE-8.4%
33,200 Baan Company NV (NE)* 2,284,575
40,000 Dassault Systems (FR) 2,841,132
73,500 Enator AB (SW)* 1,311,770
23,000 Fuji Soft ABC, Inc. (JA) 1,004,981
365,000 JBA Holdings PLC (UK) 5,316,503
146,075 Misys PLC (UK) 3,312,703
54,000 Nippon Systems Development Company
(JA) 1,288,299
-----------
17,359,963
-----------
TELECOMMUNICATION SERVICES-3.5%
82,400 Cellular Communications
International, Inc. (IT)* 2,698,600
158,075 Grupo Iusacell Sponsored ADR
representing ten Class L shares (MX)* 2,904,628
140,000 Netcom Systems AB
Class B (SW) 1,973,540
-----------
7,576,768
-----------
TRANSPORTATION-3.5%
3,236,600 International Container Terminal &
Services (PH) 1,656,586
30,000 Koebenhavns Lufthavne (DE) 3,186,994
141,775 Tranz Rail Holdings Limited Sponsored
ADR (NZ) 2,392,453
-----------
7,236,033
-----------
TOTAL COMMON STOCKS
(FOREIGN)-86.1%
(COST-$146,456,617) 179,008,471
-----------
PRINCIPAL VALUE AMORTIZED COST
- --------------- --------------
CORPORATE SHORT-TERM NOTES-10.1%
$8,000,000 American Express Credit Corporation
5.50% 07/01/97 $ 8,000,000
4,300,000 Ford Motor Credit Company 5.75%
07/03/97 4,298,626
8,700,000 Merrill Lynch & Company 5.56%
07/02/97 8,698,656
-----------
TOTAL CORPORATE
SHORT-TERM NOTES-10.1%
(AMORTIZED COST-$20,997,282) 20,997,282
-----------
TOTAL INVESTMENTS-100.8%
(COST-$172,518,435) 209,649,368
OTHER ASSETS &
LIABILITIES-(0.8%) (1,627,875)
-----------
NET ASSETS-100.0% $208,021,493
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
FOUNDERS FRONTIER FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
5.03% 16.25% 16.73% 18.49%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Small Company Consumer
Frontier Russell 2000 Growth Fund Index Price Index
-------- ------------ ----------------- -----------
6/87 ....... $10,000 $10,000 $10,000 $10,000
6/88 ....... $11,864 $ 9,390 $ 9,822 $10,393
6/89 ....... $15,601 $10,592 $11,053 $10,930
6/90 ....... $17,978 $10,906 $12,086 $11,441
6/91 ....... $19,630 $11,050 $12,294 $11,979
6/92 ....... $22,125 $12,657 $13,837 $12,350
6/93 ....... $26,830 $15,949 $17,320 $12,719
6/94 ....... $26,555 $16,641 $17,709 $13,035
6/95 ....... $34,424 $19,988 $22,308 $13,433
6/96 ....... $44,719 $24,763 $29,012 $13,803
6/97 ....... $46,968 $28,806 $30,854 $14,120
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER MICHAEL HAINES
HOW DID THE FUND PERFORM THIS HALF?
The small-capitalization marketplace as a whole had a difficult first half as
investors migrated to larger, more liquid issues. The Fund gained 1.61% for the
six-month period ended June 30, 1997.
WHAT PRESSURES DID THE FUND AND THE SMALL-CAP MARKET FACE?
The main theme we've seen in this market has been interest rates. Most investors
feared that, if the economy continued to surge, the Federal Reserve would raise
rates to try to keep a lid on inflationary pressures.
As interest-rate hikes have historically made investors cautious, many chose
to shift their assets to large-company stocks, which are generally considered to
be less risky. Because this meant that assets were flowing out of small-company
funds (and therefore out of small-company stocks), we saw persistent weakness in
Frontier's marketplace.
18
<PAGE>
Because cash flows into large-cap and index funds served to boost the
performance of large-cap stocks and depress that of small-caps, a broad
valuation gap was created. In some cases, investors were paying more for the
earnings potential of a large company than they would pay for the similar
earnings potential of a small company. However, investors may be beginning to
appreciate this gap--small-caps experienced a rally in the second quarter of
this year, as it became more apparent that the Fed would not raise short-term
interest rates.
TOP 10 HOLDINGS
---------------
1. Watson Pharmaceuticals, Inc. 3.71%
2. Reinsurance Group of America,
Inc. 2.88%
3. Reliastar Financial Corporation 2.68%
4. CDW Computer Center, Inc. 2.65%
5. Healthcare Compare Corporation 2.56%
6. J.P. Food Service, Inc. 2.34%
7. Fred Meyer, Inc. 2.25%
8. Healthcare & Retirement
Corporation 2.21%
9. Frontier Insurance Group, Inc. 2.13%
10. Omnicare, Inc. 2.09%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
WHAT IS THE INVESTMENT OBJECTIVE OF FOUNDERS FRONTIER FUND?
Frontier Fund pursues capital appreciation by investing in the stocks of
promising small and medium-sized companies between $200 million-$1.5 billion in
annual revenues or market capitalization. We feel that stocks in this area may
have superior long-term growth prospects compared to those of many
larger-capitalization companies.
However, while their potential may be greater, there is also the chance of
higher risk and more short-term volatility. Investors in this Fund should have
the kind of long-term outlook that may help them weather any short-run price
fluctuations.
WHAT INVESTMENTS OR PORTFOLIO MOVES HELPED YOU PURSUE THIS OBJECTIVE DURING THE
HALF?
We continued to concentrate on high-quality companies whose fundamentals
indicate the potential for rapid earnings growth. One long-term holding that we
have been very pleased with is Healthcare Compare Corp., which is the only truly
national preferred-provider organization (PPO) in the U.S. Its management is
both talented and committed, and they are following what I feel is an excellent
long-term growth plan. Moreover, Healthcare Compare offers an outstanding
product: a nationwide network of doctors that provides "one-stop shopping" for
the health insurance plans of large, multi-regional companies.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $245.5 million
NAV ON JUNE 30, 1997: $32.86
EXPENSE RATIO: 1.53%
INCEPTION DATE: 1/22/87
19
<PAGE>
FOUNDERS FRONTIER FUND (CONTINUED)
Another long-term holding that continues to perform admirably for us is J.P.
Food Service, Inc., which distributes food to restaurants. One of the most
distinctive things about this company is that, while most of their competition
comes from divisions of larger organizations, J.P. Food Service is entirely
devoted to the distribution business, which gives the management great focus.
And this has paid off: their low-margin, high-volume business has been
steadily accumulating market share for years.
On a broader note, I had reduced our exposure to select technology firms.
However, the technology area still provides us with some of the best small-cap
opportunities, so we will continue to invest in those firms that demonstrate the
strengths that may lead to promising and continued earnings growth.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Consumer 35.2%
Healthcare 21.9%
Technology 12.1%
Financial 8.7%
Capital Goods 6.3%
Cash & Equivalents 4.7%
Energy 3.9%
Telecom Services 2.9%
Basic Materials 2.6%
Transportation 1.7%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHAT DO YOU EXPECT FROM THE SMALL-COMPANY MARKET GOING FORWARD?
Outflows of cash from small-company funds put great pressure on those funds
earlier in the year; however, there is some evidence (primarily the
second-quarter rally in the small-cap market) that this trend may be reversing.
But while stable interest rates and low inflation provide a positive backdrop
for equities in general, there remains a fear of interest-rate hikes. As long as
this is the case, it is likely that volatility in small-caps will continue--this
is a possibility that Frontier investors should consider. But whatever happens
in the market, I intend to stay the course and focus on those high-quality small
and medium-sized companies that I feel have good prpspects for rapid earnings
growth.
/s/ MICHAEL HAINES
Michael Haines
Portfolio Manager
20
<PAGE>
FOUNDERS FRONTIER FUND STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (DOMESTIC)-82.6%
APPAREL-2.6%
191,000 Designer Holdings Limited* $1,945,813
40,000 Jones Apparel Group, Inc.* 1,910,000
79,475 Warnaco Group, Inc. Class A 2,533,266
----------
6,389,079
----------
BUSINESS SERVICES-7.1%
80,000 Affiliated Computer Services, Inc.
Class A* 2,240,000
122,950 CDW Computer Center, Inc.* 6,516,350
142,512 Sylvan Learning Systems, Inc.* 4,827,594
148,450 Teletech Holdings, Inc.* 3,887,534
----------
17,471,478
----------
CHEMICALS-2.6%
209,575 Crompton & Knowles Corporation 4,663,044
51,775 OM Group, Inc. 1,715,047
----------
6,378,091
----------
COMPUTER NETWORKING-1.0%
172,625 Network General Corporation* 2,557,008
----------
CONSUMER PRODUCTS-1.7%
109,025 Rexall Sundown, Inc.* 4,251,975
----------
DIVERSIFIED-0.8%
50,000 Harsco Corporation 2,025,000
----------
ELECTRONICS-2.6%
66,775 Berg Electronics Corporation* 2,399,727
63,100 Sanmina Corporation* 3,943,750
----------
6,343,477
----------
ENVIRONMENTAL SERVICES-2.4%
110,000 United Waste Systems, Inc.* 4,496,250
35,000 USA Waste Services, Inc.* 1,351,875
----------
5,848,125
----------
FINANCIAL SERVICES-1.8%
95,650 BA Merchant Services, Inc.* 1,823,328
90,950 First USA Paymentech, Inc.* 2,631,866
----------
4,455,194
----------
FOOD & BEVERAGES-2.4%
200,600 J.P. Food Service, Inc.* $ 5,754,713
----------
HEALTHCARE SERVICES-14.5%
86,350 Covance, Inc.* 1,667,634
62,425 FPA Medical Management, Inc.* 1,474,791
162,500 Health Care & Retirement Corporation* 5,423,438
102,500 Health Management Associates, Inc.
Class A* 2,921,250
120,000 Healthcare Compare Corporation* 6,285,000
105,000 Henry Schein, Inc.* 3,215,625
73,275 NCS Healthcare, Inc.* 2,234,888
163,550 Omnicare, Inc. 5,131,381
180,700 Orthodontic Centers of
America, Inc.* 3,286,481
48,000 Pediatrix Medical Group, Inc.* 2,199,000
100,000 Transition Systems, Inc.* 1,818,750
----------
35,658,238
----------
INSURANCE-7.7%
80,567 Frontier Insurance Group, Inc. 5,216,713
123,050 Reinsurance Group of
America, Inc. 7,075,375
90,000 Reliastar Financial Corporation 6,581,250
----------
18,873,338
----------
LEISURE & ENTERTAINMENT-4.9%
57,375 Doubletree Corporation* 2,355,961
130,000 Interstate Hotels Company* 3,826,875
101,850 Midway Games, Inc.* 2,177,044
102,900 Signature Resorts, Inc.* 3,550,050
----------
11,909,930
----------
OFFICE SUPPLIES & EQUIPMENT-3.3%
177,675 American Pad & Paper Company* 2,998,266
75,000 U.S. Office Products Company* 2,278,125
150,000 Viking Office Products, Inc.* 2,831,250
----------
8,107,641
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
FOUNDERS FRONTIER FUND
SHARES MARKET VALUE
- ------ ------------
OIL & GAS-0.8%
67,250 United Meridian Corporation* $ 2,017,500
----------
OIL SERVICES-2.0%
90,950 Global Industries Limited* 2,114,588
52,500 Hanover Compressor Company* 1,023,750
75,000 Pride Petroleum Services, Inc.* 1,800,000
----------
4,938,338
----------
PHARMACEUTICALS-5.7%
75,000 Jones Medical Industries, Inc. 3,562,500
24,000 R.P. Scherer Corporation 1,239,000
216,000 Watson Pharmaceuticals, Inc.* 9,099,000
----------
13,900,500
----------
PUBLISHING & BROADCASTING-1.1%
44,200 Univision Communications, Inc.* 1,729,325
41,350 World Color Press, Inc.* 982,063
----------
2,711,388
----------
RETAIL-7.0%
101,250 Claire's Stores, Inc. 1,771,875
82,813 Consolidated Stores Corporation* 2,877,734
106,650 Fred Meyer, Inc.* 5,512,472
128,550 The Gymboree Corporation* 3,077,166
197,325 Sports Authority, Inc.* 3,835,505
----------
17,074,752
----------
SEMICONDUCTORS & EQUIPMENT-0.4%
20,000 DuPont Photomasks, Inc.* 1,078,750
----------
SOFTWARE-5.0%
47,450 Avant! Corporation* $ 1,530,263
75,000 Cognos, Inc.* 2,334,375
55,275 Documentum, Inc.* 1,361,147
110,000 Sterling Commerce, Inc.* 3,616,250
30,750 Veritas Software Corporation* 1,537,500
50,000 Wind River Systems, Inc.* 1,918,750
-----------
12,298,285
-----------
TELECOMMUNICATION SERVICES-2.9%
100,000 ACC Corporation* 3,087,500
79,550 Telco Communications Group, Inc.* 2,565,488
100,400 Tel-Save Holdings, Inc.* 1,518,550
-----------
7,171,538
-----------
TELECOMMUNICATIONS EQUIPMENT-0.6%
65,000 Aspect Telecommunications
Corporation* 1,430,000
-----------
TRANSPORTATION-1.7%
48,000 Swift Transportation Company* 1,416,000
105,000 US Freightways Corporation 2,703,750
-----------
4,119,750
-----------
TOTAL COMMON STOCKS
(DOMESTIC)-82.6%
(COST-$150,486,208) 202,764,088
-----------
22
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (FOREIGN)-12.8%
BUILDING MATERIALS-1.7%
50,000 Hunter Douglas NV (NE) $ 4,261,726
----------
CONSTRUCTION-2.0%
90,000 IHC Caland NV (NE) 4,927,314
----------
CONSUMER PRODUCTS-1.4%
62,000 Industrie Natuzzi SPA ADR (IT) 1,588,750
82,000 Skis Rossignol (FR) 1,722,981
----------
3,311,731
----------
ELECTRONICS-1.5%
85,000 Hoya Corporation (JA) 3,788,966
----------
FINANCIAL SERVICES-1.0%
56,000 Banco Latinoamericano de
Exportaciones, SA Class E (PA) 2,415,000
----------
LEISURE & ENTERTAINMENT-0.4%
280,000 Village Roadshow Limited (AU) 1,011,088
----------
OIL SERVICES-1.5%
73,000 Petroleum Geological Services
Sporsored ADR (NW)* 3,567,875
----------
PUBLISHING & BROADCASTING-1.7%
380,000 Flextech PLC (UK)* 4,066,911
----------
RETAIL-1.6%
350,000 Next PLC (UK) 3,953,917
----------
TOTAL COMMON STOCKS
(FOREIGN)-12.8%
(COST-$23,930,706) 31,304,528
----------
PRINCIPAL VALUE AMORTIZED COST
CORPORATE SHORT-TERM NOTES-4.4% --------------
$5,100,000 American Express Credit Corporation
6.00% 07/02/97 $ 5,099,150
5,700,000 Ford Motor Credit Company 5.58%
07/01/97 5,700,000
-----------
TOTAL CORPORATE
SHORT-TERM NOTES-4.4%
(AMORTIZED COST-$10,799,150) 10,799,150
-----------
TOTAL INVESTMENTS-99.8%
(COST-$185,216,064) 244,867,766
OTHER ASSETS &
LIABILITIES-0.2% 593,035
-----------
NET ASSETS-100.0% $245,460,801
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
FOUNDERS SPECIAL FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year 5 Year 10 Years Since Inception
------ ------ -------- ---------------
14.42% 15.33% 13.98% 16.27%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Capital
Appreciation Consumer
Special Fund Index S&P 500 Index Price Index
------- ---------- ------------- -----------
6/87 ....... $10,000 $10,000 $10,000 $10,000
6/88 ....... $ 9,275 $ 9,256 $ 9,308 $10,393
6/89 ....... $11,828 $10,810 $11,216 $10,930
6/90 ....... $12,986 $12,182 $13,061 $11,441
6/91 ....... $15,311 $12,732 $14,021 $11,979
6/92 ....... $18,138 $14,342 $15,901 $12,350
6/93 ....... $21,946 $17,065 $18,055 $12,719
6/94 ....... $21,505 $17,241 $18,318 $13,035
6/95 ....... $27,862 $21,308 $23,091 $13,433
6/96 ....... $32,343 $26,407 $29,090 $13,803
6/97 ....... $37,007 $30,354 $39,170 $14,120
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGERS MICHAEL HAINES AND DOUGLAS LOEFFLER
HOW DID SPECIAL FUND PERFORM DURING THE FIRST HALF?
During the first half, the Fund benefited from the same factors that helped the
stock market: low inflation, good economic growth, and better-than-expected
corporate earnings. For the six-month period ended June 30, 1997, Special Fund
gained 10.18%.
HOW DOES THE FUND PURSUE ITS GROWTH OBJECTIVES?
We pursue capital appreciation by building a portfolio based on three of
Founders' core disciplines: small- to mid-capitalization, large-capitalization,
and international stocks. Because investors often pursue the potential of these
three areas through three different funds, Special may serve as a core portfolio
holding for long-term investors.
WHAT WERE THE MOST SIGNIFICANT MARKET IMPACTS ON SPECIAL FUND?
Because of its diversified approach, the Fund was exposed to several market
dynamics during the period. As a result, we posted positive performance, though
we still under-performed the large-company marketplace.
First, it was feared that the Federal Reserve would raise short-term interest
rates to slow the economy's growth. These hikes historically have had a negative
impact on
24
<PAGE>
the markets, so investors chose to move their assets out of small companies and
into large-capitalization stocks, which have tended to be more resilient during
market downturns. This wholesale move left the small-cap market generally weak.
TOP 10 HOLDINGS
---------------
1. Data General Corporation 2.48%
2. Tellabs, Inc. 2.40%
3. Fred Meyer, Inc. 2.27%
4. Dynatech Corporation 2.18%
5. Associates First Capital
Corporation Class A 2.13%
6. Motorola, Inc. 1.95%
7. Signature Resorts, Inc. 1.80%
8. ASM Lithography Holding NV 1.78%
9. Eli Lilly & Company 1.71%
10. CDW Computer Center, Inc. 1.66%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
Second, while large-capitalization stocks were favored, much of this interest
was focused on the largest 10% of the stocks in the Standard & Poor's 500 Index.
Because Special Fund invested in a much broader range of large-company stocks
during the half, we were not able to fully reap this benefit.
Finally, international stocks on the whole provided a lift for the Fund.
Economies around the world are recovering, though slowly; and many of our
holdings within these markets showed strong growth in both revenues and
earnings.
WHAT STOCKS OR PORTFOLIO THEMES HAVE HELPED YOU PURSUE THE FUND'S OBJECTIVES?
As always, the Fund concentrates on finding companies whose fundamental
strengths may indicate the potential for growth in earnings and, therefore,
appreciation in stock price. However, in the current market we have begun
looking for another characteristic: the ability to withstand a modest market
reversal.
PORTFOLIO AT A GLANCE
---------------------
TOTAL ASSETS: $325.6 million
NAV ON JUNE 30, 1997: $8.44
EXPENSE RATIO: 1.36%
INCEPTION DATE: 9/8/61
One long-term holding that continues to meet our expectations is Tellabs,
Inc., a telecommunications equipment company. When we came across this company
many years ago (it was first part of Founders Frontier Fund's portfolio), it was
one of a select group of companies that was taking advantage of global growth in
the telecommunications industry. Today, in addition to being led by a management
team with a bright vision for the future, Tellabs is in a position to take
advantage of global telecom deregulation, a feature which we believe may make
the stock more resilient in the face of a downturn in domestic equity markets.
25
<PAGE>
FOUNDERS SPECIAL FUND (CONTINUED)
Another holding we are pleased with is Fred Meyer, which operates a chain of
superstores featuring groceries, general merchandise, and apparel. While this
concept has been tried by many, few have had Fred Meyer's success in all three
areas. The management is very important to this firm: they're very experienced,
they've made key acquisitions and they've shown how well they can deal with
adversity (having recently pulled the company through a strike). Fred Meyer also
has exposure to markets in the Northwest, a very vital area of the country for
retailers.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Technology 27.2%
Consumer 25.6%
Cash & Equivalents 17.4%
Healthcare 9.7%
Capital Goods 6.2%
Financial 4.4%
Energy 3.9%
Transportation 3.1%
Telecom Services 1.6%
Basic Materials 0.9%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHAT ARE THE PROSPECTS FOR THE REMAINDER OF THE YEAR?
All areas of the market -- including small-capitalization stocks -- stand to
benefit from a continuation of the positive economic trends we've seen: low
inflation, healthy economic growth, and stable interest rates. An unsung hero in
this market was better-than-expected corporate earnings, which we are watching
carefully. At this point, we feel that an earnings slowdown may be the greatest
risk to the market's continued rise.
Because we feel that the market may still have some surprises in store as we
move through the rest of 1997, we will remain vigilant for signs of such a
slowdown. But at the same time, it's more important than ever for us to continue
to focus on our primary mission: finding promising growth companies from the
small- to mid-cap, large-cap, and international segments of the equity
marketplace.
/s/ MICHAEL HAINES
Michael Haines
/s/ DOUGLAS LOEFFLER
Douglas Loeffler, CFA
Co-Lead Portfolio Managers
26
<PAGE>
FOUNDERS SPECIAL FUND STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
SHARES MARKET VALUE
- ------ ------------
PREFERRED STOCKS (FOREIGN)-1.4%
SOFTWARE-1.4%
22,600 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG non-voting
preferred (GE) $ 4,694,987
----------
TOTAL PREFERRED STOCKS
(FOREIGN)-1.4%
(COST-$3,654,509) 4,694,987
----------
COMMON STOCKS (DOMESTIC)-59.6%
AIRLINES-1.5%
190,525 Southwest Airlines Company 4,929,834
----------
APPAREL-0.2%
24,975 Polo Ralph Lauren Corporation
Class A* 683,691
----------
BANKING-1.5%
26,200 BankAmerica Corporation 1,691,538
33,750 First Union Corporation 3,121,875
----------
4,813,413
----------
BIOTECHNOLOGY-0.3%
76,000 Bio Technology General Corporation* 1,026,000
----------
BUSINESS SERVICES-5.0%
101,800 CDW Computer Center, Inc.* 5,395,400
100,000 Fiserv, Inc.* 4,462,500
122,000 Teletech Holdings, Inc.* 3,194,875
131,425 United States Rental, Inc.* 3,326,695
----------
16,379,470
----------
COMPUTER EQUIPMENT-2.5%
310,000 Data General Corporation* 8,060,000
----------
CONSUMER PRODUCTS-1.3%
18,300 The Clorox Company $2,415,600
27,150 Colgate-Palmolive Company 1,771,538
----------
4,187,138
----------
ENVIRONMENTAL SERVICES-2.7%
100,000 United Waste Systems, Inc.* 4,087,500
120,000 USA Waste Services, Inc.* 4,635,000
----------
8,722,500
----------
FINANCIAL SERVICES-3.0%
125,000 Associates First Capital Corporation
Class A 6,937,500
100,000 Nationwide Financial
Services, Inc. 2,656,250
----------
9,593,750
----------
HEALTHCARE SERVICES-3.1%
114,350 Covance, Inc.* 2,208,384
100,000 Healthcare Compare Corporation* 5,237,500
85,000 NCS Healthcare, Inc.* 2,592,500
----------
10,038,384
----------
LEISURE & ENTERTAINMENT-5.5%
225,000 La Quinta Inns, Inc. 4,921,875
171,275 Midway Games, Inc.* 3,661,003
101,475 Regal Cinemas, Inc.* 3,323,306
170,000 Signature Resorts, Inc.* 5,865,000
----------
17,771,184
----------
MANUFACTURING-0.4%
50,000 United States Filter
Corporation* 1,362,500
----------
MEDICAL SUPPLIES & EQUIPMENT-1.3%
105,000 Sybron International Corporation* 4,186,875
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
FOUNDERS SPECIAL FUND
SHARES MARKET VALUE
- ------ ------------
OFFICE SUPPLIES & EQUIPMENT-1.6%
175,000 U.S. Office Products Company* $ 5,315,625
----------
OIL SERVICES-0.9%
120,000 Global Industries Limited* 2,790,000
----------
PHARMACEUTICALS-2.4%
28,000 Bristol-Myers Squibb Company 2,268,000
51,000 Eli Lily & Company 5,574,938
----------
7,842,938
----------
PUBLISHING & BROADCASTING-1.5%
193,000 Cox Radio, Inc.* 4,945,625
----------
RETAIL-5.9%
150,000 Autozone, Inc.* 3,534,375
35,000 CVS Corporation 1,793,750
138,275 Claire's Stores, Inc. 2,419,813
143,025 Fred Meyer, Inc.* 7,392,605
150,000 General Nutrition Companies, Inc.* 4,181,250
----------
19,321,793
----------
SEMICONDUCTORS & EQUIPMENT-4.9%
42,650 Altera Corporation* 2,153,825
12,075 Intel Corporation 1,709,367
59,150 Maxim Integrated Products, Inc.* 3,356,763
54,000 Texas Instruments, Inc. 4,539,375
87,600 Xilinx, Inc.* 4,292,400
----------
16,051,730
----------
SOFTWARE-2.3%
49,000 BMC Software, Inc.* 2,713,375
39,000 Microsoft Corporation* 4,931,063
----------
7,644,438
----------
TELECOMMUNICATIONS EQUIPMENT-10.2%
250,000 Allen Telecom, Inc.* $ 5,187,500
198,700 Dynatech Corporation* 7,103,525
83,500 Motorola, Inc. 6,346,000
123,100 P Com, Inc.* 4,031,525
81,000 Sawtek, Inc.* 2,713,500
140,000 Tellabs, Inc.* 7,805,000
-----------
33,187,050
-----------
TRANSPORTATION-1.6%
200,000 US Freightways Corporation 5,150,000
-----------
TOTAL COMMON STOCKS
(DOMESTIC)-59.6%
(COST-$155,181,876) 194,003,938
-----------
COMMON STOCKS (FOREIGN)-21.7%
ADVERTISING-1.1%
900,000 WPP Group (UK) 3,692,980
-----------
BASIC INDUSTRY-0.9%
1,300,000 PT Semen Gresik (ID) 2,913,839
-----------
CONSUMER PRODUCTS-1.5%
48,000 Gucci Group NV (FR) 3,090,000
126,600 Tag Heuer International SA (SZ)* 1,906,913
-----------
4,996,913
-----------
ELECTRONICS-1.2%
44,000 Sony Corporation (JA) 3,842,185
-----------
FOOD & BEVERAGES-0.8%
50,000 Quilmes Industrial SA ADR
representing one non-voting preferred
share (AR) 581,250
200,000 Quilmes Industrial SA Registered (AR) 2,050,000
-----------
2,631,250
-----------
28
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
MACHINERY-1.5%
340,000 ABB AB Series A (SW) $ 4,770,896
---------
OFFICE SUPPLIES & EQUIPMENT-1.0%
25,500 OCE Van Der Grinten NV (NE) 3,295,361
---------
OIL & GAS-3.0%
430,000 Gulf Canada Resources Limited (CA)* 3,574,575
124,500 Saga Petroleum ASA Class A (NW) 2,363,913
126,000 YPF Sociedad Anonima Sponsored ADR
representing one Class D share (AR) 3,874,500
---------
9,812,788
---------
PHARMACEUTICALS-2.6%
3,100 Novartis AG Registered (SZ) 4,963,255
400 Roche Holding AG Dividend Right
Certificate (SZ) 3,623,224
---------
8,586,479
---------
PUBLISHING & BROADCASTING-1.8%
375,000 Carlton Communications PLC (UK) 3,167,739
115,500 Ver Ned Uitgeversbedr Ver Bezit NV
(NE) 2,558,412
---------
5,726,151
---------
SEMICONDUCTORS & EQUIPMENT-1.8%
100,000 ASM Lithography Holding
NV (NE)* 5,792,885
---------
SOFTWARE-1.3%
110 NTT Data Corporation (JA) 4,258,882
---------
TELECOMMUNICATION SERVICES-1.6%
250 DDI Corporation (JA) $ 1,848,604
322,258 SK Telecom Limited
Sponsored ADR (KO) 3,242,721
----------
5,091,325
----------
TELECOMMUNICATIONS EQUIPMENT-1.6%
71,000 Nokia Corporation
Sponsored ADR (FI) 5,236,250
----------
TOTAL COMMON STOCKS
(FOREIGN)-21.7%
(COST-$61,655,830)
70,648,184
----------
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-17.1%
$13,600,000 American Express Credit Corporation
5.56% 07/03/97 $ 13,595,799
13,900,000 Ciesco LP 5.53% 07/01/97 13,900,000
10,600,000 Ford Motor Credit Company 5.51%
07/02/97 10,598,378
14,500,000 Household Finance Corporation 5.57%
07/07/97 14,486,539
3,000,000 Merrill Lynch & Company, Inc. 5.56%
07/02/97 2,999,537
-----------
TOTAL CORPORATE SHORT-TERM NOTES-17.1%
(AMORTIZED COST-$55,580,253) 55,580,253
-----------
TOTAL INVESTMENTS-99.8%
(COST-$276,072,468) 324,927,362
OTHER ASSETS & LIABILITIES-0.2%
718,582
-----------
NET ASSETS-100.0% $325,645,944
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year Since Inception
------ ---------------
20.51% 24.01%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
MSCI World
International ex U.S. Consumer
Equity Index Price Index
------ ----- -----------
12/95 ........... $10,000 $10,000 $10,000
06/96 ........... $11,460 $10,469 $10,208
12/96 ........... $11,860 $10,687 $10,332
03/97 ........... $12,291 $10,521 $10,443
06/97 ........... $13,810 $11,886 $10,443
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER DOUGLAS LOEFFLER
HOW DID THE FUND PERFORM OVER THE PAST SIX MONTHS?
On the whole, international markets saw good performance during the first half,
with many rising to record levels. Founders International Equity Fund had a
similarly good half, gaining 16.44% for the six-month period ended June 30,
1997. In comparison, its benchmark, the Morgan Stanley Capital International
World ex U.S. Index, rose only 11.22% for the same period.
WHAT FACTORS IN THE INTERNATIONAL MARKETPLACE IMPACTED THE FUND'S PERFORMANCE?
As I expected, international economies saw positive, though slow, growth
throughout the period, and I attribute much of the performance in foreign
markets to the climate of lower interest rates that we've seen outside of the
U.S. But while economic growth has been slow, market performance has been more
encouraging. Many nations -- including the United Kingdom, France, and
Germany -- saw their equity markets hit new highs during the first half of the
year.
30
<PAGE>
The U.S. dollar also put its stamp on equity performance during the half.
While it's been a generally lethargic currency for more than a decade, we saw it
make a surprising run in the first half, gaining strength against currencies
such as the Japanese yen and the German deutschemark. Therefore, goods produced
in these countries can be sold cheaper in domestic markets. Thanks to this
factor, we have seen good revenue and earnings growth in large, export-driven
firms with markets in America.
TOP 10 HOLDINGS
---------------
1. Novartis AG Registered 2.55%
2. Nokia Corporation Sponsored ADR 2.15%
3. ASM Lithography Holding NV 2.07%
4. Volkswagen AG non-voting
preferred 2.05%
5. Telecomunicacoes Brasileiras
Sponsored ADR 2.01%
6. JBA Holdings PLC 1.83%
7. Sony Corporation 1.74%
8. Schmalbach Lubeca AG 1.71%
9. Petroleum Geological Services
Sponsored ADR 1.68%
10. PT United Tractors 1.59%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
International Equity Fund pursues long-term growth of capital by investing in
companies with the potential for strong growth in corporate earnings, wherever
they may be located abroad. While there are unique risks associated with
international investing, I think this Fund may be an excellent option for those
investors who are looking to diversify their portfolios overseas.
WHAT SECURITIES MET OR EXCEEDED YOUR EXPECTATIONS DURING THE HALF?
The firms I pursue generally have a potential for earnings growth that is higher
than their own historical averages, higher than their industry groups, or higher
than those of their local economies. Many of our holdings exhibiting these
criteria have done more than simply meet expectations.
One is JBA Holdings, a small British software developer we've owned for some
time. They're in what's been a tightly competitive business; but despite that,
JBA has consistently grabbed market share, and they may grow earnings by more
than 40% this year alone. That's impressive when you consider that they're up
against some of the giants in their industry, including companies such as Oracle
and Germany's SAP.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $15.1 million
NAV ON JUNE 30, 1997: $13.81
EXPENSE RATIO: 2.00%
INCEPTION DATE: 12/29/95
Another long-term holding we have been pleased with is Rofin Sinar. It's a
German firm that builds equipment to generate lasers. In today's high-tech
world, their products are in great demand from manufacturers of products ranging
from medical devices to
31
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND (CONTINUED)
CD players. This company has seen its net income rise 50% this year and its
sales go up 26% for the first half of its fiscal year. We're always pleased with
numbers like that.
PORTFOLIO COMPOSITION
---------------------
United Kingdom 13.4%
Germany 9.1%
Japan 7.6%
Netherlands 7.6%
France 6.6%
Switzerland 6.5%
Indonesia 4.4%
Italy 3.9%
Hong Kong 3.6%
Norway 3.6%
Argentina 3.5%
Finland 3.2%
Sweden 2.5%
Other 9.7%
Cash & Equivalents 14.8%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHERE DO YOU SEE INTERNATIONAL MARKETS HEADED FOR THE REMAINDER OF THE YEAR?
Many economies around the world seem to be awakening: the U.K. seems more
vibrant than it has been for years, Japan's economy is showing signs of
improvement, and vital economies are emerging in Brazil and Argentina. And with
global interest rates either staying stable or trending downward, firms with
strong fundamentals may have great opportunities in front of them.
Economic growth in Pacific Rim countries on the other hand continues to
decelerate, which is depressing their markets despite the fact that they're
posting numbers that are still twice as high as many developed nations. And the
positive markets in Europe, which have provided the Fund with so much potential
recently, are now much more highly valued, making good opportunities harder to
find. Given these conditions, our dedication to researching a company's
fundamental strengths may be more important than ever in the months to come.
/s/ DOUGLAS LOEFFLER
Douglas Loeffler, CFA
Portfolio Manager
32
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
SHARES MARKET VALUE
- ------ ------------
PREFERRED STOCKS (FOREIGN)-3.6%
AUTOMOTIVE-2.1%
550 Volkswagen AG non-voting preferred
(GE) $ 309,297
---------
SOFTWARE-1.5%
1,100 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG
non-voting preferred (GE) 228,522
---------
TOTAL PREFERRED STOCKS
(FOREIGN)-3.6%
(COST-$359,559) 537,819
---------
COMMON STOCKS (FOREIGN)-81.6%
ADVERTISING-1.0%
35,000 WPP Group (UK) 143,617
---------
AIRLINES-1.3%
1,650 British Airways ADS (UK) 189,647
---------
BANKING-1.7%
4,650 Banco de A. Edwards Sponsored ADR
representing Series A (CH) 97,069
5,000 HSBC Holdings PLC (HK) 150,377
625 Kookmin Bank (KO)* 11,859
---------
259,305
---------
BASIC INDUSTRY-0.6%
38,000 PT Semen Gresik (ID) 85,174
---------
BUSINESS SERVICES-2.9%
500 Altran Technologies SA (FR) 163,518
48,275 Avis Europe PLC 144A (UK)*+ 109,679
5,975 Vedior NV BDR 144A (NE)*+ 158,272
---------
431,469
---------
CAPITAL GOODS-1.0%
3,000 Noritsu Koki Company (JA) 148,125
---------
CHEMICALS-1.5%
3,975 Imperial Chemical Industries PLC ADR
(UK) $ 226,078
---------
COMPUTER EQUIPMENT-1.1%
10,150 Creative Technology Limited (SI)* 170,013
---------
CONSUMER PRODUCTS-6.2%
1,150 Christian Dior (FR) 189,921
3,300 Gucci Group NV (FR) 212,438
748,000 Solid Group, Inc. (PH) 121,967
14,500 Tag Heuer International SA (SZ)* 218,406
105,400 Vtech Holdings Limited (HK) 198,632
---------
941,364
---------
DIVERSIFIED-0.1%
11,000 Magnum Corporation BHD (MA) 16,560
---------
ELECTRONICS-4.3%
4,000 Hoya Corporation (JA) 178,300
11,050 Rofin Sinar Technologies, Inc. (GE)* 209,950
3,000 Sony Corporation (JA) 261,955
---------
650,205
---------
FINANCIAL SERVICES-2.1%
2,800 Banco Latinoamericano de
Exportaciones SA Class E (PA) 120,750
110,000 Credito Italiano SPA (IT) 201,058
---------
321,808
---------
FOOD & BEVERAGES-2.0%
150 Nestle SA Registered (SZ) 198,169
9,000 Quilmes Industrial SA ADR
representing one non-voting preferred
share (AR) 104,625
---------
302,794
---------
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND
SHARES MARKET VALUE
- ------ ------------
INSURANCE-0.7%
20,000 Norwich Union PLC
144A (UK)*+ $ 106,358
---------
LEISURE & ENTERTAINMENT-2.1%
60,000 Ladbroke Group PLC (UK) 234,700
20,900 Village Roadshow Limited (AU) 75,470
---------
310,170
---------
MACHINERY-6.5%
16,000 ABB AB Series A (SW) 224,513
18,000 First Tractor Company Limited Class H
(HK)* 11,849
3,700 Konecranes International Corporation
(FI) 162,412
4,825 Kverneland ASA (NW) 131,159
475 Mannesmann AG (GE) 211,807
65,000 PT United Tractors (ID) 240,592
---------
982,332
---------
OFFICE SUPPLIES & EQUIPMENT-1.5%
1,700 OCE Van Der Grinten NV (NE) 219,691
---------
OIL & GAS-3.6%
5,400 Gulf Canada Resources
Limited (CA)* 44,888
8,200 Saga Petroleum ASA Class A (NW)* 155,690
1,850 Total SA Sponsored ADR (FR) 93,656
8,000 YPF Sociedad Anonima Sponsored ADR
representing one Class D share (AR) 246,000
---------
540,234
---------
OIL SERVICES-1.7%
5,200 Petroleum Geological Services
Sponsored ADR (NW)* 254,150
---------
PACKAGING-1.7%
1,150 Schmalbach Lubeca AG (GE) 258,049
---------
PHARMACEUTICALS-4.7%
240 Novartis AG Registered (SZ) $ 384,252
20 Roche Holding AG Dividend
Right Certificate (SZ) 181,161
2,000 Schwarz Pharma AG (GE) 150,925
---------
716,338
---------
PUBLISHING & BROADCASTING-3.5%
21,000 Carlton Communications PLC (UK) 177,391
500 Pathe SA (FR) 99,294
8,250 Ver Ned Uitgeversbedr Ver
Bezit NV (NE) 182,743
600 Wolters Kluwer NV (NE) 73,190
---------
532,618
---------
RESTAURANTS-1.2%
8,025 J D Wetherspoon PLC (UK) 181,993
---------
RETAIL-6.1%
26,800 Bulgari SPA (IT) 151,523
20,600 Dixons Group PLC (UK) 160,123
575 Guilbert SA (FR) 81,462
5,000 Laox Company Limited (JA) 70,384
18,400 Next PLC (UK) 207,862
74,000 PT Matahari Putra Prima (ID) 149,126
300,000 Sa Sa International Holdings Limited
(HK)* 97,777
---------
918,257
---------
SEMICONDUCTORS & EQUIPMENT-3.1%
5,350 ASM Lithography Holding NV (NE) 311,972
2,000 SGS-Thomson Microelectronics NV (FR)* 160,000
---------
471,972
---------
SOFTWARE-6.0%
3,000 Baan Company NV (NE)* 206,438
19,000 JBA Holdings PLC (UK) 276,715
6,000 Konami Company (JA) 224,452
5 NTT Data Corporation (JA) 193,610
---------
901,215
---------
34
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
TELECOMMUNICATION SERVICES-9.5%
7,000 Cellular Communications
International, Inc. (IT)* $ 229,250
4,000 Compania Anonima Nacional Telefonos
Sponsored ADR representing seven
Class D shares (VZ) 172,500
10 DDI Corporation (JA) 73,944
11,250 Netcom Systems AB Class B (SW)* 158,588
10,759 SK Telecom Limited Sponsored ADR (KO) 108,262
2,600 Telecel Comunicacoes Pessoais 144A
(PO)* 215,939
2,000 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 303,500
5,000 Telefonica de Argentina SA ADR
representing ten Class B ordinary
shares (AR) 173,125
----------
1,435,108
----------
TELECOMMUNICATIONS EQUIPMENT-3.4%
4,400 Nokia Corporation Sponsored ADR (FI) 324,500
6,425 Perusahaan Perseroan Persero
Indonesian Satellite Corporation
Sponsored ADR (ID) 192,348
----------
516,848
----------
UTILITIES-0.5%
181,200 Beijing Datang Power Generation
Company 144A (HK)* 83,616
----------
TOTAL COMMON STOCKS
(FOREIGN)-81.6%
(COST-$10,795,684) 12,315,108
----------
CORPORATE SHORT-TERM NOTES-10.6%
$476,000 American Express Credit Corporation
5.50% 07/01/97 $ 476,000
585,000 Ford Motor Credit Company 5.58%
07/02/97 584,909
540,000 Household Finance Corporation 5.58%
07/03/97 539,833
----------
TOTAL CORPORATE SHORT-TERM NOTES-10.6%
(AMORTIZED COST-$1,600,742) 1,600,742
----------
TOTAL INVESTMENTS-95.8%
(COST-$12,755,985) 14,453,669
OTHER ASSETS & LIABILITIES-4.2% 631,249
----------
NET ASSETS-100.0% $15,084,918
==========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year 5 Year Since Inception
------ ------ ---------------
13.26% 14.91% 14.84%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders MSCI Lipper Consumer
Worldwide World Global Price
Growth Fund Index Fund Index Index
---------- ---------- ---------- ----------
12/31/89 ....... $ 10,000 $ 10,000 $ 10,000 $ 10,000
06/30/90 ....... $ 11,050 $ 9,257 $ 10,316 $ 10,301
06/28/91 ....... $ 11,797 $ 9,386 $ 9,732 $ 10,785
06/30/92 ....... $ 14,090 $ 9,496 $ 11,032 $ 11,119
06/30/93 ....... $ 15,082 $ 10,806 $ 12,106 $ 11,452
06/30/94 ....... $ 17,701 $ 11,845 $ 14,024 $ 11,736
06/30/95 ....... $ 20,742 $ 13,076 $ 15,220 $ 12,094
06/30/96 ....... $ 24,922 $ 15,404 $ 17,849 $ 12,427
06/30/97 ....... $ 28,226 $ 18,927 $ 21,515 $ 12,713
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER MICHAEL GERDING
HOW DID WORLDWIDE GROWTH FUND PERFORM DURING THE FIRST HALF?
Because it is a global fund, we have the world to choose from when selecting
equities for Worldwide Growth. This was a benefit during the first half of 1997,
when we were able to take advantage of investment opportunities from both the
surging U.S. market and also from select overseas markets. For the six-month
period ended June 30, 1997, the Fund returned 10.69%.
WHAT WERE THE PRINCIPAL FACTORS AFFECTING GLOBAL MARKETS?
As in the U.S., interest rates were the center of attention around the world,
but with a twist: while domestic investors had to face the possibility of higher
short-term rates, many investors overseas had the advantage of rates in DECLINE.
Because easier credit helps foster business expansion, many economies around the
world experienced slow but steady growth, and many equity markets were pulled
out of the slumps they had been in.
36
<PAGE>
The U.S. dollar continues to be a key player on the world stage, and the
subject of great debate across the globe. For more than the past 10 years, it's
been very weak, and since this makes goods imported into the U.S. more
expensive, it's generally been negative for companies that export to this
country.
TOP 10 HOLDINGS
---------------
1. Volkswagen AG non-voting
preferred 2.75%
2. Telecomunicacoes Brasileiras
Sponsored ADR 2.55%
3. Marschollek, Lautenschlaeger und
Partner AG non-voting preferred 2.52%
4. Sony Corporation 2.51%
5. Ladbroke Group PLC 2.25%
6. YPF Sociedad Anonima Sponsored
ADR representing one Class D
share 2.09%
7. OCE Van Der Grinten NV 2.05%
8. ASM Lithography Holding NV 1.97%
9. Hoya Corporation 1.92%
10. ABB AB Series A 1.87%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
However, we saw a sharp reversal in this trend during the half as the dollar
gained strength against some of the world's major currencies, including the
Japanese yen and the German deutschemark. Thanks to this rally, several overseas
exporters received welcome earnings boosts. This did have a negative effect on
prices of shares owned in the Fund translated back into U.S. dollars.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
Founders Worldwide Growth seeks long-term growth of capital by pursuing
investment opportunities in markets throughout the world, including the United
States. Moreover, we look for the best companies available, wherever they may be
located. While international investing entails unique risks, this Fund may be an
option for investors who want to take advantage of opportunities from around the
world, but who aren't interested in funds where some country allocation or index
formula is behind the manager's choices.
PORTFOLIO AT A GLANCE
---------------------
TOTAL ASSETS: $347.4 million
NAV ON JUNE 30, 1997: $24.12
EXPENSE RATIO: 1.55%
INCEPTION DATE: 12/31/89
WHICH SECURITIES WERE YOU MOST PLEASED WITH DURING THE HALF?
While many of our holdings performed well, there are two that I am particularly
happy with. First, we have seen good returns from Telebras, Brazil's state-owned
telephone company and one of the more attractive telecom issues we have found
around the world. Telebras stands to benefit from continued economic growth in
Brazil and the expansion of telecommunication there.
37
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND (CONTINUED)
Another stock that has done well for us is ASM Lithography, based in the
Netherlands. This company's earnings have been driven by its new product for the
semiconductor industry.
PORTFOLIO COMPOSITION
---------------------
United States 17.5%
United Kingdom 10.8%
Germany 9.8%
Netherlands 9.4%
Japan 9.0%
France 6.7%
Switzerland 6.2%
Argentina 4.1%
Brazil 2.6%
Italy 2.0%
Sweden 1.9%
Other 10.5%
Cash & Equivalents 9.5%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHAT IS YOUR OUTLOOK FOR MARKETS AROUND THE WORLD?
We continue to see low inflation and moderate economic growth in the U.S. and
generally improving conditions overseas. Japan is coming out of its funk, and
Latin America finally seems to be emerging from the peso crisis of a few years
back. I'm encouraged by these factors, and I believe that the potential exists
for stronger equities worldwide.
However, there are some areas of concern: for example, some Pacific Rim
economies are seeing slowing economic growth, though at rates still more than
twice those of the U.S. In addition, as a result of strong performance in
Europe, valuations are becoming less attractive. But regardless of the
macroeconomic atmosphere overseas, we believe that companies with strong
fundamentals will continue to outperform. We remain dedicated to finding them
for the Fund.
/s/ MICHAEL GERDING
Michael Gerding, CFA
Portfolio Manager
38
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
SHARES MARKET VALUE
- ------ ------------
PREFERRED STOCKS (FOREIGN)-6.9%
AUTOMOTIVE-2.8%
17,000 Volkswagen AG
non-voting preferred (GE) $ 9,560,071
----------
FINANCIAL SERVICES-2.5%
36,825 Marschollek, Lautenschlaeger und
Partner AG non-voting preferred (GE) 8,770,373
----------
SOFTWARE-1.6%
27,000 Systeme, Anwendungen, Produkte in der
Datenverabeitung AG
non-voting preferred (GE) 5,609,063
----------
TOTAL PREFERRED STOCKS (FOREIGN)-6.9%
(COST-$11,264,886)
23,939,507
----------
COMMON STOCKS (DOMESTIC)-17.5%
APPAREL-2.4%
26,025 Polo Ralph Lauren Corporation
Class A* 712,434
85,150 Warnaco Group, Inc.
Class A 2,714,156
161,655 Wolverine World Wide, Inc. 4,910,271
----------
8,336,861
----------
AUTO PARTS & EQUIPMENT-0.7%
64,475 Autoliv, Inc. 2,522,584
----------
BUSINESS SERVICES-1.7%
131,825 Manpower, Inc. 5,866,213
----------
CHEMICALS-0.6%
73,975 Morton International, Inc. 2,233,120
----------
COMPUTER EQUIPMENT-0.4%
39,325 Radisys Corporation* $ 1,538,591
----------
ELECTRONICS-2.1%
66,450 Emerson Electric Company 3,658,903
43,600 The Perkin-Elmer Corporation 3,468,925
----------
7,127,828
----------
FOOD & BEVERAGES-0.2%
22,250 Pepsico, Inc. 835,766
----------
HEALTHCARE SERVICES-4.3%
115,475 Columbia/HCA Healthcare Corporation 4,539,611
89,800 Phycor, Inc.* 3,086,875
115,050 Quorum Health Group, Inc.* 4,084,275
106,300 Rural/Metro Corporation* 3,082,700
----------
14,793,461
----------
OIL & GAS-2.2%
121,575 Apache Corporation 3,951,188
85,825 The Williams Companies, Inc. 3,754,844
----------
7,706,032
----------
RETAIL-0.8%
143,675 Sports Authority, Inc.* 2,792,683
----------
TELECOMMUNICATION SERVICES-1.4%
14,875 Nynex Corporation 857,172
128,950 WorldCom, Inc.* 4,118,341
----------
4,975,513
----------
TELECOMMUNICATIONS EQUIPMENT-0.7%
53,650 Digital Microwave Corporation* 1,569,263
12,225 Motorola, Inc. 929,100
----------
2,498,363
----------
TOTAL COMMON STOCKS
(DOMESTIC)-17.5%
(COST-$48,863,178) 61,227,015
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (FOREIGN)-66.1%
ADVERTISING-1.2%
1,000,000 WPP Group (UK) $ 4,103,311
----------
AIRLINES-1.0%
29,975 British Airways ADS (UK) 3,445,252
----------
AUTOMOTIVE-0.4%
96,000 Tata Engineering and Locomotive
Company GDR representing one ordinary
share (IN)* 1,476,000
----------
BANKING-4.0%
61,700 Banco de A. Edwards Sponsored ADR
representing Series A (CH) 1,287,988
48,000 Credit Suisse Group (SZ) 6,173,443
215,000 HSBC Holdings PLC (HK) 6,466,207
----------
13,927,638
----------
BASIC INDUSTRY-0.9%
1,450,000 PT Semen Gresik (ID) 3,250,051
----------
BUSINESS SERVICES-1.1%
142,025 Vedior NV BDR 144A (NE)*` 3,762,108
----------
CHEMICALS-2.3%
63,750 Imperial Chemical Industries
PLC ADR (UK) 3,625,781
60,000 Potash Corporation of Saskatchewan,
Inc. (CA) 4,503,750
----------
8,129,531
----------
CONSUMER PRODUCTS-4.1%
28,025 Christian Dior (FR) 4,622,564
69,450 Gucci Group NV (FR) 4,470,844
88,250 Industrie Natuzzi SPA ADR (IT) 2,261,406
182,875 Tag Heuer International
SA (SZ)* 2,754,555
----------
14,109,369
----------
DIVERSIFIED-0.1%
268,750 Magnum Corporation BHD (MA) 404,583
----------
ELECTRONICS-4.4%
150,000 Hoya Corporation (JA) 6,686,340
100,000 Sony Corporation (JA) 8,731,930
----------
15,418,270
----------
FINANCIAL SERVICES-2.1%
60,650 Banco Latinoamericano de
Exportaciones SA
Class E (PA) $ 2,615,531
2,644,000 Credito Italiano SPA (IT) 4,832,701
----------
7,448,232
----------
FOOD & BEVERAGES-1.2%
408,000 Gruma SA de CV Class B 144A (MX)* 1,897,794
73,010 Quilmes Industrial SA ADR
representing one non-voting preferred
share (AR) 848,741
122,020 Quilmes Industrial SA Registered (AR) 1,250,705
----------
3,997,240
----------
INSURANCE-0.7%
446,900 Norwich Union PLC
144A (UK)*+ 2,376,574
----------
LEISURE & ENTERTAINMENT-2.8%
2,000,375 Ladbroke Group PLC (UK) 7,824,671
33,711 Polygram NV ADR (NE) 1,814,073
----------
9,638,744
----------
MACHINERY-3.4%
464,000 ABB AB Series A (SW) 6,510,870
12,025 Mannesmann AG (GE) 5,362,051
----------
11,872,921
----------
OFFICE SUPPLIES & EQUIPMENT-2.1%
55,000 OCE Van Der Grinten NV (NE) 7,107,640
----------
OIL & GAS-3.6%
50,000 Repsol SA Sponsored
ADR (SP) 2,119,838
59,405 Total SA Sponsored
ADR (FR) 3,007,378
236,000 YPF Sociedad Anonima
Sponsored ADR
representing one Class D
share (AR) 7,257,000
----------
12,384,216
----------
40
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
OIL SERVICES-0.7%
48,000 Petroleum Geological Services
Sponsored ADR (NW)* $ 2,346,000
----------
PHARMACEUTICALS-4.8%
3,800 Novartis AG Registered (SZ) 6,083,993
700 Roche Holding AG Dividend Right
Certificate (SZ) 6,340,648
60,000 Schwarz Pharma AG (GE) 4,527,741
----------
16,952,382
----------
PUBLISHING & BROADCASTING-4.8%
686,175 Carlton Communications PLC (UK) 5,796,169
16,175 Pathe SA (FR) 3,212,159
230,250 Ver Ned Uitgeversbedr Ver Bezit NV
(NE) 5,100,215
21,300 Wolters Kluwer NV (NE) 2,598,224
----------
16,706,767
----------
RETAIL-3.8%
650,000 Dixons Group PLC (UK) 5,052,430
19,150 Guilbert SA (FR) 2,709,618
480,000 Next PLC (UK) 5,422,516
----------
13,184,564
----------
SEMICONDUCTORS & EQUIPMENT-3.5%
117,550 ASM Lithography Holding NV (NE)* 6,854,634
66,075 SGS-Thomson
Microelectronics NV (FR)* 5,286,000
----------
12,140,634
----------
SOFTWARE-5.4%
77,450 Baan Company NV (NE)* 5,329,528
166,000 Konami Company (JA) 6,209,913
150 NTT Data Corporation (JA) 5,807,465
28,200 Square Company Limited (JA) 1,393,506
----------
18,740,412
----------
TELECOMMUNICATION SERVICES-7.0%
97,625 Compania Anonima Nacional Telefonos
Sponsored ADR representing seven
Class D shares (VZ) $ 4,210,078
350 DDI Corporation (JA) 2,588,032
349,491 SK Telecom Limited Sponsored ADR (KO) 3,516,753
58,400 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 8,862,200
145,000 Telefonica de Argentina SA ADR
representing ten Class B
ordinary shares (AR) 5,020,625
----------
24,197,688
----------
UTILITIES-0.7%
5,180,000 Beijing Datang Power Generation
Company 144A (HK)*+ 2,390,347
-----------
TOTAL COMMON STOCKS
(FOREIGN)-66.1%
(COST-$177,575,037) 229,510,474
-----------
PRINCIPAL VALUE AMORTIZED COST
- --------------- --------------
CORPORATE SHORT-TERM NOTES-7.7%
$10,400,000 American Express Credit Corporation
6.00% 07/02/97 $ 10,398,267
16,200,000 Ford Motor Credit Company 5.58%
07/01/97 16,200,000
-----------
TOTAL CORPORATE
SHORT-TERM NOTES-7.7%
(AMORTIZED COST-$26,598,267) 26,598,267
-----------
TOTAL INVESTMENTS-98.2%
(COST-$264,301,368) 341,275,263
-----------
OTHER ASSETS & LIABILITIES-1.8% 6,101,714
-----------
NET ASSETS-100.0% $347,376,977
===========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
FOUNDERS GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year 5 Year 10 Years 20 Years
------ ------ -------- --------
22.45% 23.11% 15.55% 17.61%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Growth Consumer
Growth S&P 500 Index Fund Index Price Index
------ ------------- ---------- -----------
6/87 ....... $10,000 $10,000 $10,000 $10,000
6/88 ....... $ 8,893 $ 9,308 $ 9,537 $10,393
6/89 ....... $11,344 $11,216 $11,225 $10,930
6/90 ....... $12,720 $13,061 $12,705 $11,441
6/91 ....... $13,035 $14,021 $13,365 $11,979
6/92 ....... $15,009 $15,901 $15,214 $12,350
6/93 ....... $20,057 $18,055 $17,732 $12,719
6/94 ....... $19,474 $18,318 $18,032 $13,035
6/95 ....... $25,836 $23,091 $22,204 $13,433
6/96 ....... $34,663 $29,090 $26,790 $13,803
6/97 ....... $42,444 $39,170 $33,643 $14,120
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER EDWARD KEELY
HOW DID GROWTH FUND PERFORM OVER THE COURSE OF THE FIRST HALF?
The higher-capitalization end of the stock market saw strong appreciation during
the opening months of the year. In this environment, Founders Growth Fund
advanced by 18.27% for the six-month period ended June 30, 1997. The Fund only
slightly underperformed the Standard & Poor's 500 Index, a good proxy for the
broad stock market, which returned 20.54% for the period.
WHAT WERE THE PREDOMINANT FACTORS IN THE FUND'S MARKET?
Interest rates were the primary factor, without a doubt. As we saw throughout
the year, investors chose to move assets to the stocks of larger, more liquid
companies. The impetus for this move was fear of interest-rate hikes by the
Federal Reserve, which have historically been bad for the market in general. But
the Fed chose to raise rates only once (which surprised many market watchers),
and because of this, investors were
42
<PAGE>
left with increased confidence that economic growth and inflation were under
control, and that a hike probably wasn't to be expected in the immediate future.
TOP 10 HOLDINGS
---------------
1. Xilinx, Inc. 3.41%
2. Bristol-Myers Squibb Company 2.31%
3. Warner-Lambert Company 2.25%
4. Motorola, Inc. 2.18%
5. General Electric Company 2.17%
6. Smithkline Beecham PLC ADR Class A 1.99%
7. BankAmerica Corporation 1.80%
8. First Union Corporation 1.79%
9. Xerox Corporation 1.74%
10. Altera Corporation 1.47%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
For the past six months, investors poured money into large-capitalization
stocks, both directly and through large-cap and index mutual funds. At first,
these stocks were in demand because they were considered more likely to weather
a market downturn, given their financial conditions and consistent business.
However, many large companies have also been blessed with excellent revenue
and earnings growth, facts which helped continue to draw money to, and therefore
boost performance of, these issues. Regardless of the nature of the rise, Growth
Fund was in some measure the beneficiary of this trend.
WHAT IS THE FUND'S GROWTH STRATEGY?
Growth Fund looks to invest in the stocks of mid- to large-capitalization
companies whose fundamental strengths indicate the potential to post growth in
earnings per share. I think that the Fund may be appropriate for investors who
want access to this potential, but who also have the longer investment time
horizons necessary to see that potential unfold.
PORTFOLIO AT A GLANCE
---------------------
TOTAL ASSETS: $1.45 billion
NAV ON JUNE 30, 1997: $18.77
EXPENSE RATIO: 1.20%
INCEPTION DATE: 1/5/62
WHAT SECURITIES OR PORTFOLIO MOVEMENTS WERE KEY TO THE FUND'S PERFORMANCE?
I'd say that several securities in the portfolio performed up to and above our
expectations. One of my favorites is Warner-Lambert, a pharmaceutical and
consumer products company with a great product-development pipeline.
Warner-Lambert recently released a new cholesterol-reducing drug called Lipitor,
which has taken the medical world by storm and captured nearly 20% of its market
in just a few months. It's a great company with other new products and excellent
revenue potential.
43
<PAGE>
FOUNDERS GROWTH FUND (CONTINUED)
I'm also pleased with the performance of high-tech firm Motorola. For a long
time, I think it's been unfairly judged as uncompetitive. But times have
changed: Motorola has seen the recovery of its semiconductor division and
promising sales of its cellular phones. These factors, coupled with new
management at the helm and a greater emphasis on investor relations, give me
hope that the company will continue to excel in the future.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Technology 27.3%
Healthcare 17.9%
Consumer 17.8%
Financial 15.7%
Cash & Equivalents 10.8%
Capital Goods 5.1%
Energy 2.4%
Telecom Services 1.6%
Basic Materials 1.4%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHAT WILL YOU BE LOOKING FOR FROM THE MARKET OVER THE REMAINDER OF THE YEAR?
On the whole, I'd have to say that mid- and large-capitalization companies are
as profitable as they have ever been, and that the earnings growth rates we've
seen have been superb. Many businesses have enhanced their profitability through
cost-cutting and increases in efficiency. But that can be dangerous: if a
company has no more fat to cut, it may be vulnerable if the buying trends of its
consumers change.
Founders believes that the companies with the best long-term potential are
those with the fundamental strengths to see consistent growth in corporate
earnings. By searching for firms with dominant market positions, talented
management, and innovative products, we hope to find companies that may see
growth in almost any market condition.
/s/ EDWARD KEELY
Edward Keely, CFA
Portfolio Manager
44
<PAGE>
FOUNDERS GROWTH FUND STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (DOMESTIC)-78.1%
AEROSPACE-1.6%
111,000 Boeing Company $ 5,889,938
600,000 Gulfstream Aerospace Corporation* 17,700,000
----------
23,589,938
----------
BANKING-5.4%
403,900 BankAmerica Corporation 26,076,794
40,000 Bankers Trust New York Corporation 3,480,000
114,000 Citicorp 13,744,125
280,375 First Union Corporation 25,934,688
183,000 Mellon Bank Corporation 8,257,875
----------
77,493,482
----------
BUSINESS SERVICES-0.8%
264,950 Fiserv, Inc.* 11,823,394
----------
COMPUTER EQUIPMENT-2.0%
73,350 Compaq Computer Corporation* 7,287,488
210,000 Hewlett-Packard Company 11,760,000
230,000 Storage Technology Corporation* 10,235,000
----------
29,282,488
----------
COMPUTER NETWORKING-1.0%
150,000 3Com Coporation* 6,740,625
126,625 Cisco Systems, Inc.* 8,499,703
----------
15,240,328
----------
CONSUMER PRODUCTS-7.7%
89,850 The Clorox Company 11,860,200
728,225 Dial Corporation 11,378,516
150,000 Gillette Company 14,212,500
260,000 Maytag Corporation 6,792,500
390,000 Philip Morris Companies, Inc. 17,306,250
105,000 Proctor & Gamble Company 14,831,250
472,300 RJR Nabisco Holdings Corporation 15,585,900
500,000 Sunbeam Corporation 18,875,000
----------
110,842,116
----------
DIVERSIFIED-0.6%
220,000 Cognizant Corporation $ 8,910,000
----------
ELECTRONICS-2.2%
480,000 General Electric Company 31,380,000
----------
FINANCIAL SERVICES-4.8%
326,575 Associates First Capital Corporation
Class A 18,124,913
355,000 Federal National Mortgage Association 15,486,875
284,025 Great Western Financial Corporation 15,266,344
160,575 Student Loan Marketing Association 20,393,025
----------
69,271,157
----------
FOOD & BEVERAGES-3.7%
314,000 The Coca-Cola Company 21,195,000
721,200 Coca-Cola Enterprises, Inc. 16,587,600
430,000 Pepsico, Inc. 16,151,875
----------
53,934,475
----------
HEALTHCARE SERVICES-2.9%
417,675 Columbia/HCA Healthcare Corporation 16,419,848
325,000 Phycor, Inc.* 11,171,875
277,000 United Healthcare Corporation 14,404,000
----------
41,995,723
----------
INSURANCE-5.4%
208,000 Allstate Corporation 15,184,000
72,500 Cigna Corporation 12,868,750
280,000 Everest Reinsurance
Holdings, Inc. 11,095,000
140,000 Hartford Financial Services Group,
Inc. 11,585,000
139,000 Hartford Life, Inc. Class A* 5,212,500
118,550 Marsh & McLennan Companies, Inc. 8,461,506
164,900 The Progressive Corporation 14,346,300
----------
78,753,056
----------
MANUFACTURING-0.6%
192,000 Crane Company 8,028,000
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
FOUNDERS GROWTH FUND
SHARES MARKET VALUE
- ------ ------------
MEDICAL SUPPLIES & EQUIPMENT-3.4%
400,000 C.R. Bard, Inc. $ 14,525,000
196,000 Johnson & Johnson 12,617,500
75,000 Medtronic, Inc. 6,075,000
454,200 Stryker Corporation 15,897,000
------------
49,114,500
------------
OFFICE SUPPLIES & EQUIPMENT-1.7%
320,000 Xerox Corporation 25,240,000
------------
OIL & GAS-0.8%
120,000 Exxon Corporation 7,380,000
112,800 Tosco Corporation 3,376,950
------------
10,756,950
------------
OIL SERVICES-1.6%
39,800 Cooper Cameron Corporation* 1,860,650
178,000 Santa Fe International Corporation* 6,052,000
124,000 Schlumberger Limited 15,500,000
------------
23,412,650
------------
PAPER & FOREST PRODUCTS-0.7%
290,000 James River Corporation 10,730,000
------------
PHARMACEUTICALS-8.1%
227,000 American Home Products Corporation 17,365,500
412,000 Bristol-Myers Squibb Company 33,372,000
163,000 Eli Lilly & Company 17,817,938
161,000 Merck & Company 16,645,688
262,000 Warner-Lambert Company 32,553,500
------------
117,754,626
------------
PUBLISHING &
BROADCASTING-1.6%
125,000 Gannett Company, Inc. 12,343,750
214,500 Time Warner, Inc. 10,349,625
------------
22,693,375
------------
RETAIL-1.0%
218,750 Consolidated Stores Corporation $ 7,601,563
30,000 Nordstrom, Inc. 1,470,000
170,000 Wal-Mart Stores, Inc. 5,748,125
------------
14,819,688
------------
SEMICONDUCTORS &
EQUIPMENT-10.4%
420,550 Altera Corporation* 21,237,775
156,200 Atmel Corporation* 4,373,600
112,200 Intel Corporation 15,883,313
724,875 Lam Research Corporation* 26,865,680
293,925 Maxim Integrated
Products, Inc.* 16,680,244
517,375 National Semiconductor
Corporation* 15,844,609
1,006,750 Xilinx, Inc.* 49,330,750
------------
150,215,971
------------
SOFTWARE-3.2%
165,325 BMC Software, Inc.* 9,154,872
163,000 Microsoft Corporation* 20,609,313
299,125 PeopleSoft, Inc.* 15,778,844
------------
45,543,029
------------
SUPERMARKETS-0.9%
350,000 Albertson's, Inc. 12,775,000
------------
TELECOMMUNICATION SERVICES-0.2%
92,900 U.S. West, Inc. 3,501,169
------------
TELECOMMUNICATIONS EQUIPMENT-5.8%
320,000 Ascend Communication, Inc.* 12,560,000
255,000 Lucent Technologies, Inc. 18,375,938
415,075 Motorola, Inc. 31,545,700
375,725 Tellabs, Inc.* 20,946,669
------------
83,428,307
------------
TOTAL COMMON STOCKS
(DOMESTIC)-78.1%
(COST-$918,679,642) 1,130,529,422
------------
46
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
SHARES MARKET
- ------ ------
COMMON STOCKS (FOREIGN)-10.3%
AUTOMOTIVE-1.2%
22,800 Volkswagen AG (GE) $ 17,493,081
-----------
BUILDING MATERIALS-0.7%
125,000 Hunter Douglas NV (NE) 10,654,315
-----------
CHEMICALS-0.7%
165,000 Imperial Chemical Industries PLC ADR
(UK) 9,384,375
-----------
ELECTRONICS-0.7%
150,000 Philips Electronics NV ADR (NE) 10,781,250
-----------
OFFICE SUPPLIES & EQUIPMENT-0.5%
60,000 OCE Van Der Grinten
NV (NE) 7,753,790
-----------
PHARMACEUTICALS-3.3%
106,666 Astra AB Series A (SW) 1,986,460
10,800 Novartis AG Registered (SZ) 17,291,356
315,000 Smithkline Beecham PLC ADR Class A
(UK) 28,861,875
-----------
48,139,691
-----------
TELECOMMUNICATION SERVICES-1.4%
600 DDI Corporation (JA) 4,436,649
100,800 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 15,296,400
-----------
19,733,049
-----------
TELECOMMUNICATIONS EQUIPMENT-1.8%
197,825 Nokia Corporation Sponsored ADR (FI) 14,589,594
275,000 Telefonaktiebolaget LM Ericsson
Company ADR Class B (SW) 10,828,125
-----------
25,417,719
-----------
COMMON STOCKS
(FOREIGN)-10.3%
(COST-$107,384,803) 149,357,270
-----------
CORPORATE SHORT-TERM NOTES-9.5%
$41,600,000 American Express Credit
Corporation 5.50% 07/01/97 $ 41,600,000
47,500,000 Ford Motor Credit Company
5.75% 07/03/97 47,484,826
48,300,000 Merrill Lynch & Company, Inc.
5.56% 07/02/97 48,292,540
-------------
CORPORATE SHORT-TERM NOTES-9.5%
(AMORTIZED COST-$137,377,366) 137,377,366
-------------
TOTAL INVESTMENTS-97.9%
(COST-$1,163,441,811) 1,417,264,058
OTHER ASSETS & LIABILITIES-2.1%
30,171,795
-------------
NET ASSETS-100.0% $1,447,435,853
=============
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
FOUNDERS BLUE CHIP FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year 5 Year 10 Years 20 Years
------ ------ -------- --------
21.29% 17.77% 12.83% 13.64%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Growth
and Income Consumer
Blue Chip S&P 500 Index Fund Index Price Index
--------- ------------- ---------- -----------
6/87 ....... $10,000 $10,000 $10,000 $10,000
6/88 ....... $ 8,709 $ 9,308 $ 9,712 $10,393
6/89 ....... $10,991 $11,216 $11,470 $10,930
6/90 ....... $13,160 $13,061 $12,515 $11,441
6/91 ....... $13,779 $14,021 $13,252 $11,979
6/92 ....... $14,762 $15,901 $15,029 $12,350
6/93 ....... $16,772 $18,055 $17,487 $12,719
6/94 ....... $17,641 $18,318 $18,172 $13,035
6/95 ....... $21,264 $23,091 $21,711 $13,433
6/96 ....... $27,573 $29,090 $26,460 $13,803
6/97 ....... $33,444 $39,170 $34,135 $14,120
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER BRIAN KELLY
HOW DID THE BLUE CHIP FUND PERFORM DURING THE FIRST HALF OF 1997?
The opening months of the year were quite positive for large-capitalization
stocks in general, due to both strong earnings potential and a high degree of
investor interest in this area of the market. In this environment, the Fund
gained 13.42% for the six-month period ended June 30, 1997.
WHAT FACTORS IMPACTED THE FUND'S PERFORMANCE SO FAR THIS YEAR?
Like most market watchers, I felt that investor behavior over the past six
months followed a very familiar theme: people were concerned about short-term
interest rates, driving them to seek liquidity and relative stability in the
stocks of larger companies, such as those Blue Chip invests in. As this
48
<PAGE>
pattern unfurled, the increased demand for large-cap stocks drove prices upward.
I also saw a self-fulfilling quality in this activity. Because the cash flows
translated into performance for these larger issues, they drew more investor
attention, then more investor dollars, all of which brought about more
performance.
TOP 10 HOLDINGS
---------------
1. Novartis AG Registered 3.96%
2. Agrium, Inc. 3.42%
3. Glaxo Wellcome PLC ADR 3.05%
4. Nestle SA Registered 2.99%
5. RJR Nabisco Holdings Corporation 2.97%
6. Atlantic Richfield and Company 2.89%
7. Philip Morris Companies, Inc. 2.83%
8. U.S. West, Inc. 2.68%
9. General Electric Company 2.47%
10. Merck & Company 2.32%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
WHAT ARE THE FUND'S GROWTH OBJECTIVES?
Blue Chip Fund seeks long-term growth of capital and income by investing in the
stocks of large-capitalization companies with attractive dividend yields that we
feel possess the ability to post strong growth in earnings per share. It may be
an excellent choice for investors who want both dividend income and exposure to
fundamentally strong companies from the large-capitalization marketplace.
WHAT SECURITIES OR PORTFOLIO THEMES WERE MOST IMPORTANT TO THE FUND'S
PERFORMANCE?
During the first half, the Fund's exposure to equities helped it to take
advantage of the market's strength. While high valuations presented me with some
difficulty in finding new names, I found several firms with strong fundamentals
that appeared to be in continued demand by the market, despite their high
prices.
PORTFOLIO AT A GLANCE
---------------------
TOTAL ASSETS: $566.2 million
NAV ON JUNE 30, 1997: $8.20
EXPENSE RATIO: 1.16%
INCEPTION DATE: 7/5/38
While I pursued several new opportunities, many of our long-term holdings
continued to provide the Fund with growth. These included Nynex, a "Baby Bell"
that is engaged in a promising merger with Bell Atlantic, another provider of
local telephone service. This marriage will create one of the largest
local-service providers in the country, with a market that ranges
from the northern tip of New England to the Mid-Atlantic states.
Another holding we have been pleased with is Bristol-Myers Squibb, a
pharmaceutical firm. I met face to face with this company's management team and
was impressed with their vision for a consistent growth strategy. The company
has great fundamental strength and a market-beating
49
<PAGE>
FOUNDERS BLUE CHIP FUND (CONTINUED)
dividend yield, and just happens to be competitive in one of the healthiest and
most vibrant industries around.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Healthcare 20.5%
Consumer 13.2%
Energy 11.4%
Basic Materials 10.8%
Cash & Equivalents 13.4%
Technology 7.3%
Financial 7.0%
Telecom Services 6.6%
Capital Goods 4.8%
Utilities 3.2%
Transportation 1.8%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHAT DO YOU EXPECT FROM LARGE-CAPITALIZATION STOCKS FOR THE BALANCE OF THE YEAR?
We have seen little evidence of either inflationary pressures or an overheating
economy; therefore, we believe that it is unlikely that the Fed will choose to
raise interest rates in the near term. In addition, I think that, absent
declining cash flows into large-cap stocks, even a decline in earnings won't
deliver a crushing blow to the market.
However, the unprecedented valuation levels of the market give us a reason to
be cautious-- the market may yet respond negatively to a catalyst other than
interest rates, though only time will tell what this unanticipated event may be.
While we will be vigilant for shifts in the market, we will be equally
vigilant for the best long-term growth potential the large-cap market has to
offer. However, investors should realize that, given the market's incredible
run, that potential may not result in the stellar appreciation large-cap stocks
produced in the first half of the year.
/s/ BRIAN KELLY
Brian Kelly
Portfolio Manager
50
<PAGE>
FOUNDERS BLUE CHIP FUND STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (DOMESTIC)-61.4%
AEROSPACE-1.3%
47,400 Boeing Company $ 2,515,163
31,100 Lockheed Martin Corporation 3,220,794
16,800 Northrop Gruman Corporation 1,475,250
----------
7,211,207
----------
AGRICULTURE-0.7%
20,000 Archer Daniels Midland Company 470,000
44,200 Pioneer Hi-Bred International, Inc. 3,536,000
----------
4,006,000
----------
AUTO PARTS & EQUIPMENT-0.4%
53,600 Echlin, Inc. 1,929,600
----------
BANKING-0.6%
79,550 Mellon Bank Corporation 3,589,694
----------
BIOTECHNOLOGY-0.3%
28,400 Amgen, Inc.* 1,648,975
----------
CHEMICALS-4.1%
179,200 Arco Chemical Company 8,523,200
32,200 The Dow Chemical Company 2,805,425
69,350 E.I. du Pont de Nemours
and Company 4,360,381
37,425 IMC Global, Inc. 1,309,875
147,000 Millenium Chemical, Inc. 3,344,250
66,775 Monsanto Company 2,875,498
----------
23,218,629
----------
COMPUTER EQUIPMENT-1.3%
107,300 Hewlett-Packard Company 6,008,800
30,700 Sun Microsystems, Inc.* 1,141,656
----------
7,150,456
----------
COMPUTER NETWORKING-0.6%
36,300 3Com Corporation* $1,631,231
27,000 Cisco Systems, Inc.* 1,812,375
----------
3,443,606
----------
CONSUMER PRODUCTS-7.1%
23,700 Gillette Company 2,245,575
101,600 Kimberly Clark Corporation 5,054,600
361,200 Philip Morris Companies, Inc. 16,028,250
509,300 RJR Nabisco Holdings Corporation 16,806,900
----------
40,135,325
----------
ELECTRONICS-2.8%
15,600 Coherent, Inc.* 695,175
213,800 General Electric Company 13,977,175
29,250 General Signal Corporation 1,276,031
----------
15,948,381
----------
FINANCIAL SERVICES-0.5%
7,700 American Express Company 573,650
48,900 Federal National Mortgage Association 2,133,263
----------
2,706,913
----------
FOOD & BEVERAGES-3.5%
42,400 Anheuser-Busch Companies, Inc. 1,778,150
33,400 CPC International, Inc. 3,083,238
144,000 The Coca-Cola Company 9,720,000
96,400 Pepsico, Inc. 3,621,025
33,700 The Quaker Oats Company 1,512,288
----------
19,714,701
----------
HEALTHCARE SERVICES-1.5%
27,000 Alza Corporation* 783,000
109,400 Columbia/HCA Healthcare Corporation 4,300,788
61,300 EXEL Limited 3,233,575
----------
8,317,363
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
FOUNDERS BLUE CHIP FUND
SHARES MARKET VALUE
- ------ ------------
INSURANCE-5.3%
24,600 Allstate Corporation $ 1,795,800
27,000 Chubb Corporation 1,805,625
18,500 General Re Corporation 3,367,000
40,400 Lincoln National Corporation 2,600,750
32,600 Marsh & McLennan Companies, Inc. 2,326,825
11,000 Mid Ocean Limited 576,813
26,000 Nac Re Corporation 1,257,750
84,375 Safeco Corporation 3,939,258
42,200 Travelers Group, Inc. 2,661,238
144,000 Travelers Property Casualty
Corporation Class A 5,742,000
67,500 W. R. Berkley Corporation 3,923,438
----------
29,996,497
----------
MANUFACTURING-0.8%
23,500 Allied Signal, Inc. 1,974,000
53,000 Cooper Industries, Inc. 2,636,750
----------
4,610,750
----------
MEDICAL SUPPLIES & EQUIPMENT-2.8%
62,600 Baxter International, Inc. 3,270,850
38,100 Becton, Dickinson and Company 1,928,813
30,300 Biomet, Inc. 564,338
124,625 Johnson & Johnson 8,022,734
61,100 United States Surgical Corporation 2,275,975
----------
16,062,710
----------
OIL & GAS-9.3%
21,300 Amoco Corporation $ 1,851,769
232,100 Atlantic Richfield and Company 16,363,050
36,300 Chevron Corporation 2,683,931
67,000 Enron Corporation 2,734,438
51,525 Equitable Resources, Inc. 1,462,022
78,000 Exxon Corporation 4,797,000
16,600 Kerr-McGee Corporation 1,052,025
56,000 Mobil Corporation 3,913,000
57,900 Occidental Petroleum Corporation 1,451,119
155,300 Phillips Petroleum Company 6,794,375
134,600 Questar Corporation 5,434,475
37,900 Texaco, Inc. 4,121,625
----------
52,658,829
----------
OIL SERVICES-0.1%
18,600 Tidewater, Inc. 818,400
----------
PHARMACEUTICALS-8.0%
72,400 Abbott Laboratories 4,832,700
90,800 American Home Products Corporation 6,946,200
141,200 Bristol-Myers Squibb Company 11,437,200
194,500 Mallinckrodt, Inc. 7,391,000
126,800 Merck & Company 13,123,800
31,200 Schering Plough Corporation 1,493,700
----------
45,224,600
----------
SEMICONDUCTORS & EQUIPMENT-0.9%
35,220 Intel Corporation 4,985,831
----------
SUPERMARKETS-0.4%
60,000 Albertson's, Inc. 2,190,000
----------
52
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
TELECOMMUNICATION SERVICES-6.6%
40,600 Ameritech Corporation $ 2,758,263
347,400 Cincinnati Bell, Inc. 10,943,100
100,300 Nynex Corporation 5,779,788
73,600 Southern New England
Telecommunications Corporation 2,861,200
402,300 U.S. West, Inc. 15,161,681
-----------
37,504,032
-----------
TELECOMMUNICATIONS EQUIPMENT-1.0%
50,400 Andrew Corporation* 1,411,200
27,400 Lucent Technologies, Inc. 1,974,513
33,000 Motorola, Inc. 2,508,000
-----------
5,893,713
-----------
UTILITIES-1.5%
172,509 Duke Energy Corporation 8,269,650
-----------
TOTAL COMMON STOCKS
(DOMESTIC)-61.4%
(COST-$300,800,178) 347,235,862
-----------
COMMON STOCKS (FOREIGN)-25.3%
CHEMICALS-6.0%
1,691,900 Agrium, Inc. (CA) 19,380,458
158,500 Imperial Chemical Industries PLC ADR
(UK) 9,014,688
74,825 Potash Corporation of Saskatchewan,
Inc. (CA) 5,616,552
-----------
34,011,698
-----------
ELECTRONICS-0.7%
58,500 Philips Electronics NV
ADR (NE) 4,204,688
-----------
FOOD & BEVERAGES-3.0%
12,800 Nestle SA Registered (SZ) 16,910,425
-----------
LEISURE & ENTERTAINMENT-1.0%
407,200 Granada Group (UK) $ 5,354,303
-----------
OFFICE SUPPLIES & EQUIPMENT-0.2%
61,600 Moore Corporation (CA) 1,214,585
-----------
OIL & GAS-4.1%
85,400 British Petroleum PLC
ADR (UK) 6,394,325
99,200 Imperial Oil Limited (CA) 5,087,640
768,000 Shell Canada Limited
Class A (CA) 11,691,192
-----------
23,173,157
-----------
PHARMACEUTICALS-8.5%
413,700 Glaxo Wellcome PLC ADR (UK) 17,297,831
14,000 Novartis AG Registered (SZ) 22,414,746
32,500 Smithkline Beecham PLC ADR Class A
(UK) 2,977,813
170,775 Zeneca Group PLC (UK) 5,644,126
-----------
48,334,516
-----------
TRANSPORTATION-1.8%
157,800 Canadian National Railway Company
(CA) 6,886,171
108,400 Canadian Pacific Limited (CA) 3,082,625
-----------
9,968,796
-----------
TOTAL COMMON STOCKS
(FOREIGN)-25.3%
(COST-$129,773,470) 143,172,168
-----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
FOUNDERS BLUE CHIP FUND STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
PRINCIPAL VALUE MARKET VALUE
- --------------- ------------
CORPORATE BONDS (DOMESTIC)-0.4%
TELECOMMUNICATION SERVICES-0.4%
$2,500,000 New York Telephone Company 5.875%
Due 09/01/03 $ 2,381,420
----------
TOTAL CORPORATE BONDS
(DOMESTIC)-0.4%
(COST-$2,409,993) 2,381,420
----------
U.S. GOVERNMENT SECURITIES-7.8%
U.S. TREASURY BONDS-1.3%
7,500,000 U.S. Treasury Bond 6.625%
Due 02/15/27 7,335,938
----------
U.S. TREASURY NOTES-6.5%
3,500,000 U.S. Treasury Note 6.375%
Due 05/15/00 3,513,125
8,000,000 U.S. Treasury Note 6.375%
Due 03/31/01 8,015,000
4,600,000 U.S. Treasury Note 6.25%
Due 04/30/01 4,588,500
12,200,000 U.S. Treasury Note 6.625%
Due 03/31/02 12,310,556
8,700,000 U.S. Treasury Note 6.25%
Due 02/15/07 8,509,688
----------
36,936,869
----------
TOTAL U.S. GOVERNMENT
SECURITIES-7.8%
(COST-$43,553,179) 44,272,807
----------
PRINCIPAL VALUE AMORTIZED COST
- --------------- --------------
CORPORATE SHORT-TERM NOTES-6.8%
$28,650,000 Merrill Lynch & Company, Inc.
5.80% 07/02/97 $ 28,645,384
10,000,000 Pepsico, Inc. 6.15% 07/01/97 10,000,000
-----------
TOTAL CORPORATE
SHORT-TERM NOTES-6.8%
(AMORTIZED COST-$38,645,384) 38,645,384
-----------
TOTAL INVESTMENTS-101.7%
(COST-$515,182,204) 575,707,641
OTHER ASSETS & LIABILITIES-(1.7%) (9,488,873)
------------
NET ASSETS-100.0% $566,218,768
============
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
FOUNDERS BALANCED FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year 5 Year 10 Years 20 Years
------ ------ -------- --------
18.80% 17.10% 12.17% 13.09%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Balanced Consumer
Balanced Fund Index S&P 500 Index Price Index
-------- ---------- ------------- -----------
6/87 ....... $10,000 $10,000 $10,000 $10,000
6/88 ....... $ 9,589 $ 9,711 $ 9,308 $10,393
6/89 ....... $11,511 $11,091 $11,216 $10,930
6/90 ....... $12,349 $12,176 $13,061 $11,441
6/91 ....... $12,801 $13,280 $14,021 $11,979
6/92 ....... $14,328 $15,154 $15,901 $12,350
6/93 ....... $17,011 $17,331 $18,055 $12,719
6/94 ....... $18,601 $17,472 $18,318 $13,035
6/95 ....... $20,943 $20,183 $23,091 $13,433
6/96 ....... $26,552 $23,176 $29,090 $13,803
6/97 ....... $31,544 $27,919 $39,170 $14,120
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER BRIAN KELLY
HOW DID THE FUND PERFORM IN THE FIRST HALF?
Investors during the opening half of the year put an emphasis on liquidity, to
the benefit of large-capitalization stocks. Aided by this atmosphere, Founders
Balanced Fund gained 10.88% for the six-month period ended June 30, 1997.
The Fund's first-half results also contributed to its strong long-term
performance record: according to Lipper Analytical Services, the Fund was ranked
#3 of 87 balanced funds for its five-year return through June 30, 1997, putting
it in the top 5% of its category. (The Fund was ranked #7 of 39 and #173 of 303
for the 10- and one-year periods, respectively.)
WHAT MARKET FACTORS IMPACTED THE FUND'S PERFORMANCE SO FAR THIS YEAR?
The story has been the same for some time: the market was moved primarily by
fear that the Federal Reserve would engineer increases in key short-term
interest rates. Equities have
55
<PAGE>
FOUNDERS BALANCED FUND (CONTINUED)
historically reacted negatively to such moves, so investors sought refuge in the
stocks of larger, more financially secure companies. This surge of demand for
large-cap companies helped drive their prices ever higher during the past six
months, a fact that helped some of the securities in our portfolio.
TOP 10 HOLDINGS
---------------
1. Novartis AG Registered 2.84%
2. RJR Nabisco Holdings Corporation 2.44%
3. Nestle SA Registered 2.29%
4. Agrium, Inc. 2.13%
5. Philip Morris Companies, Inc. 1,97%
6. Atlantic Richfield and Company 1.93%
7. Cincinnati Bell, Inc. 1.69%
8. U.S. West, Inc. 1.64%
9. Bristol-Myers Squibb Company 1.59%
10. General Electric Company 1.55%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
Although the Fed moved only once in the first half, the migration into
large-cap stocks created an interesting cycle: investments in these stocks
caused their prices to rise, which caused major market indexes (such as the
Standard & Poor's 500 Index, which represents 500 of the market's largest
companies) to go up, which drew new investor money to these stocks.
As this pattern continued, valuations on these securities grew quite high; in
some cases, to levels that I believe are not supported by corporate
fundamentals. Although it's still uncertain whether this will in itself hurt the
future progress of the market, I believe this is an area to watch going forward.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
I endeavor to provide Balanced Fund's investors with both current income and
capital appreciation by investing in a flexible portfolio of stocks, bonds, and
cash-equivalent securities. Because the Fund can change its composition based on
the dynamics of the market, it may be appropriate for investors who want access
to the potential of the stock market but want the stability of bonds.
PORTFOLIO AT A GLANCE
---------------------
TOTAL ASSETS: $818.1 million
NAV ON JUNE 30, 1997: $11.64
EXPENSE RATIO: 1.12%
INCEPTION DATE: 2/19/63
WHAT PORTFOLIO MOVEMENTS OR SECURITIES HAVE BEEN KEY TO THE FUND'S PERFORMANCE?
I believe my investors want me to be cautious. With valuations continuing their
upward climb, and because the Fund can shift its holdings in response to
changing market conditions (a characteristic I call being "consistently
flexible"), I felt it was prudent to increase the Fund's fixed-income component
and trim its equity exposure. I look for companies that are characterized by
strong fundamentals and high dividend rates,
56
<PAGE>
though steep valuations sometimes made this a difficult task.
But at the same time we were searching for new potential, we were pleased with
the performance of several of our longer-term equity holdings. One of these was
Nynex, a provider of local and long-distance telephone service. The company has
seen excellent growth in new lines recently and is making a determined expansion
effort, with the central focus being its promising merger with New England's
Bell Atlantic.
Another holding that's had excellent results is Bristol-Myers Squibb, one of
the world's pharmaceutical powerhouses. In addition to offering a competitive
yield and promising earnings potential, my meetings with management give me
reason to believe that they have the ability to steer the company toward more
growth in the future.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Treasury & Agency 27.5%
Healthcare 14.8%
Consumer 12.4%
Energy 7.9%
Basic Materials 7.8%
Financial 7.0%
Telecom Services 5.7%
Technology 5.7%
Cash & Equivalents 5.2%
Capital Goods 3.3%
Transportation 1.4%
Corporate Bonds 1.3%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHAT FACTORS DO YOU SEE AFFECTING THE LARGE-CAP MARKET GOING FORWARD?
While interest rates likely will continue to be the focal point for investors,
it looks as though the fundamentals of the market are quite strong: there seems
to be little inflationary pressure, and economic growth is healthy but not too
rapid. Valuations continue to concern us, however, although it is likely that
only determined Fed action, a dramatic slowdown in corporate earnings, or some
unanticipated event may reverse this trend.
While there may be a lot to look forward to yet, I think it may be wise to
keep a close eye on the broad market, watching for any event that may turn the
market around. At the same time, I will remain even more focused on the ability
of the securities in the Fund's portfolio to meet and exceed our long-term
expectations.
/s/ BRIAN KELLY
Brian Kelly
Portfolio Manager
57
<PAGE>
FOUNDERS BALANCED FUND
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (DOMESTIC)-43.0%
AEROSPACE-0.6%
37,800 Boeing Company $ 2,005,763
27,500 Lockheed Martin Corporation 2,847,969
----------
4,853,732
----------
AGRICULTURE-0.3%
32,400 Pioneer Hi-Bred International, Inc. 2,592,000
----------
AUTO PARTS & EQUIPMENT-0.2%
36,500 Echlin, Inc. 1,314,000
----------
BANKING-1.0%
120,000 Firstar Corporation 3,660,000
96,900 Mellon Bank Corporation 4,372,613
----------
8,032,613
----------
BIOTECHNOLOGY-0.3%
36,000 Amgen, Inc.* 2,090,250
----------
CHEMICALS-2.6%
120,000 Arco Chemical Company 5,707,500
32,900 The Dow Chemical Company 2,866,413
87,075 E.I. du Pont de Nemours and Company 5,474,841
38,100 IMC Global, Inc. 1,333,500
114,000 Millenium Chemical, Inc. 2,593,500
83,925 Monsanto Company 3,614,020
----------
21,589,774
----------
COMPUTER EQUIPMENT-0.9%
105,200 Hewlett-Packard Company 5,891,200
30,100 Sun Microsystems, Inc.* 1,119,344
----------
7,010,544
----------
COMPUTER NETWORKING-0.4%
35,200 3Com Corporation* 1,581,800
26,000 Cisco Systems, Inc.* 1,745,250
----------
3,327,050
----------
CONSUMER PRODUCTS-5.5%
47,950 Alberto-Culver Company 1,342,600
28,900 Gillette Company 2,738,275
94,000 Kimberly Clark Corporation 4,676,500
363,100 Philip Morris Companies, Inc. 16,112,563
606,000 RJR Nabisco Holdings Corporation 19,998,000
----------
44,867,938
----------
ELECTRONICS-2.2%
24,300 Belden, Inc. $ 827,719
27,825 Cable Design Technologies
Corporation* 819,098
194,000 General Electric Company 12,682,750
26,525 General Signal Corporation 1,157,153
80,000 Technitrol, Inc. 2,190,000
----------
17,676,720
----------
FINANCIAL SERVICES-0.3%
61,500 Federal National Mortgage Association 2,682,938
----------
FOOD & BEVERAGES-1.2%
41,800 Anheuser-Busch Companies, Inc. 1,752,988
23,600 CPC International, Inc. 2,178,575
116,400 Pepsico, Inc. 4,372,275
41,200 The Quaker Oats Company 1,848,850
----------
10,152,688
----------
HEALTHCARE SERVICES-0.6%
107,200 Columbia/HCA Healthcare Corporation 4,214,300
32,800 Sierra Health Services, Inc.* 1,025,000
----------
5,239,300
----------
INSURANCE-4.4%
30,100 Allstate Corporation 2,197,300
20,200 Chubb Corporation 1,350,875
17,500 General Re Corporation 3,185,000
39,600 Marsh & McLennan
Companies, Inc. 2,826,450
130,000 Mid Ocean Limited 6,816,875
34,100 Ohio Casualty Corporation 1,491,875
50,925 Safeco Corporation 2,377,561
48,000 TIG Holdings, Inc. 1,500,000
32,600 Travelers Group, Inc. 2,055,838
100,000 Travelers Property Casualty
Corporation Class A 3,987,500
63,900 USF&G Corporation 1,533,600
111,200 W. R. Berkley Corporation 6,463,500
----------
35,786,374
----------
MANUFACTURING-0.2%
22,200 Allied Signal, Inc. 1,864,800
----------
58
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
SHARES MARKET VALUE
- ------ ------------
MEDICAL SUPPLIES & EQUIPMENT-1.7%
55,700 Baxter International, Inc. $ 2,910,325
37,000 Becton, Dickinson and Company 1,873,125
152,500 BioLase Technology, Inc.* 533,750
120,200 Johnson & Johnson 7,737,875
62,300 Premier Laser Systems, Inc.
Class A* 689,194
----------
13,744,269
----------
OIL & GAS-6.8%
25,700 Amoco Corporation 2,234,294
224,300 Atlantic Richfield and
Company 15,813,150
44,300 Chevron Corporation 3,275,431
32,300 Enron Corporation 1,318,244
150,125 Equitable Resources, Inc. 4,259,797
102,600 Exxon Corporation 6,309,900
16,100 Kerr-McGee Corporation 1,020,338
56,000 Mobil Corporation 3,913,000
71,400 Occidental Petroleum Corporation 1,789,463
158,300 Phillips Petroleum Company 6,925,625
100,000 Questar Corporation 4,037,500
38,000 Texaco, Inc. 4,132,500
----------
55,029,242
----------
OIL SERVICES-0.1%
22,500 Tidewater, Inc. 990,000
----------
PHARMACEUTICALS-5.2%
59,400 Abbott Laboratories 3,964,950
54,200 American Home Products Corporation 4,146,300
160,800 Bristol-Myers Squibb Company 13,024,800
187,600 Mallinckrodt, Inc. 7,128,800
122,500 Merck & Company 12,678,750
30,400 Schering Plough Corporation 1,455,400
----------
42,399,000
----------
SEMICONDUCTORS & EQUIPMENT-0.6%
34,000 Intel Corporation $ 4,813,125
-----------
SUPERMARKETS-1.2%
60,000 Albertson's, Inc. 2,190,000
480,000 Ingles Market, Inc.
Class A 7,680,000
-----------
9,870,000
-----------
TELECOMMUNICATION SERVICES-5.0%
40,800 Ameritech Corporation 2,771,850
440,000 Cincinnati Bell, Inc. 13,860,000
150,400 Nynex Corporation 8,666,800
65,400 Southern New England
Telecommunications Corporation 2,542,425
355,800 U.S. West, Inc. 13,409,213
-----------
41,250,288
-----------
TELECOMMUNICATIONS EQUIPMENT-0.5%
24,100 Lucent Technologies, Inc. 1,736,706
32,000 Motorola, Inc. 2,432,000
-----------
4,168,706
-----------
UTILITIES-1.2%
211,970 Duke Energy Corporation 10,161,312
-----------
TOTAL COMMON STOCKS
(DOMESTIC)-43.0%
(COST-$319,386,736) 351,506,663
-----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
FOUNDERS BALANCED FUND
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (FOREIGN)-14.9%
CHEMICALS-3.9%
1,518,750 Agrium, Inc. (CA) $ 17,403,540
153,000 Imperial Chemical Industries
PLC ADR (UK) 8,701,912
73,335 Potash Corporation of Saskatchewan,
Inc. (CA) 5,504,708
----------
31,610,160
----------
ELECTRONICS-0.5%
61,000 Philips Electronics NV ADR (NE) 4,384,375
----------
FOOD & BEVERAGES-2.3%
14,200 Nestle SA Registered (SZ) 18,760,003
----------
INSURANCE-0.4%
684,500 Norwich Union PLC 144A (UK)* 3,640,109
----------
OFFICE SUPPLIES & EQUIPMENT-0.1%
60,000 Moore Corporation (CA) 1,182,995
----------
OIL & GAS-1.3%
93,300 British Petroleum PLC ADR (UK) 6,985,838
62,400 Imperial Oil Limited (CA) 3,200,290
----------
10,186,128
----------
PHARMACEUTICALS-5.2%
211,500 Glaxo Wellcome PLC ADR (UK) 8,843,344
14,500 Novartis AG Registered (SZ) 23,215,259
39,800 Smithkline Beecham PLC ADR Class A
(UK) 3,646,675
215,950 Zeneca Group PLC (UK) 7,137,148
----------
42,842,426
----------
TRANSPORTATION-1.2%
155,800 Canadian National Railway Company
(CA) $ 6,798,893
104,100 Canadian Pacific Limited (CA) 2,960,344
-----------
9,759,237
-----------
TOTAL COMMON STOCKS
(FOREIGN)-14.9%
(COST-$110,265,218) 122,365,433
-----------
PRINCIPAL AMOUNT MARKET VALUE
- ---------------- ------------
CORPORATE BONDS (DOMESTIC)-1.1%
BANKING-0.0%
$200,000 Mellon Bank Corporation
6.30% Due 6/01/00 $ 198,475
---------
TELECOMMUNICATION SERVICES-1.1%
4,000,000 New York Telephone Company
5.875% Due 09/01/03 3,810,272
5,180,000 Southern New England
Telecommunications Corporation 6.125%
Due 12/15/03 4,981,171
---------
8,791,443
---------
TOTAL CORPORATE BONDS
(DOMESTIC)-1.1%
(COST-$9,111,055) 8,989,918
---------
60
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
(CONTINUED)
PRINCIPAL AMOUNT MARKET VALUE
- ---------------- ------------
U.S. GOVERNMENT SECURITIES-24.2%
U.S. TREASURY BONDS-1.9%
$15,600,000 U.S. Treasury Bond 6.625%
Due 02/15/27 $ 15,258,750
------------
U.S. TREASURY NOTES-22.3%
850,000 U.S. Treasury Note 5.625%
Due 10/31/97 850,265
3,500,000 U.S. Treasury Note 5.875%
Due 04/30/98 3,503,280
6,100,000 U.S. Treasury Note 6.00%
Due 05/31/98 6,109,528
2,000,000 U.S. Treasury Note 6.25%
Due 06/30/98 2,008,750
3,450,000 U.S. Treasury Note 6.00%
Due 09/30/98 3,453,233
20,000,000 U.S. Treasury Note 5.75%
Due 12/31/98 19,937,500
2,000,000 U.S. Treasury Note 6.375%
Due 05/15/99 2,010,000
8,900,000 U.S. Treasury Note 6.75%
Due 04/30/00 9,016,813
10,000,000 U.S. Treasury Note 6.375%
Due 05/15/00 10,037,500
8,500,000 U.S. Treasury Note 6.125%
Due 07/31/00 8,473,438
7,000,000 U.S. Treasury Note 6.25%
Due 08/31/00 6,995,625
6,100,000 U.S. Treasury Note 6.25%
Due 02/28/02 6,065,688
12,700,000 U.S. Treasury Note 6.625%
Due 03/31/02 12,815,087
15,200,000 U.S. Treasury Note 6.625%
Due 04/30/02 15,337,742
9,000,000 U.S. Treasury Note 6.25%
Due 02/15/03 8,929,683
U.S. TREASURY NOTES-(CONTINUED)
$9,000,000 U.S. Treasury Note 6.50%
Due 08/15/05 $ 8,977,500
8,900,000 U.S. Treasury Note 6.875%
Due 05/15/06 9,083,563
10,700,000 U.S. Treasury Note 7.00%
Due 07/15/06 11,007,625
1,500,000 U.S. Treasury Note 6.50%
Due 10/15/06 1,493,438
37,100,000 U.S. Treasury Note 6.25%
Due 02/15/07 36,288,438
-----------
182,394,696
-----------
TOTAL U.S. GOVERNMENT
SECURITIES-24.2%
(COST-$194,855,059) 197,653,446
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-5.8%
$34,313,000 Merrill Lynch & Company 5.80%
07/02/97 $ 34,307,472
12,887,000 Pepsico, Inc. 6.15% 07/01/97 12,887,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES-5.8%
(AMORTIZED COST-$47,194,472) 47,194,472
-----------
TOTAL INVESTMENTS-89.0%
(COST-$680,812,540) 727,709,932
OTHER ASSETS & LIABILITIES-11.0% 90,342,926
-----------
NET ASSETS-100.0% $818,052,858
===========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/97*
1 Year 5 Year Since Inception
------ ------ ---------------
5.74% 4.00% 6.07%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lehman Bros. Lipper U.S.
Government U.S. Treasury Govt. Fund Consumer
Securities Comp. Index Index Price Index
---------- --------- ----- -----------
3/88 ....... $10,000 $10,000 $10,000 $10,000
6/88 ....... $10,134 $10,085 $10,156 $10,129
6/89 ....... $11,240 $11,327 $10,997 $10,652
6/90 ....... $11,629 $12,091 $11,893 $11,150
6/91 ....... $12,627 $13,304 $12,707 $11,674
6/92 ....... $14,254 $15,146 $13,279 $12,036
6/93 ....... $15,748 $17,114 $13,652 $12,396
6/94 ....... $15,055 $16,913 $14,040 $12,703
6/95 ....... $15,931 $18,925 $14,729 $13,091
6/96 ....... $16,416 $19,789 $15,480 $13,178
6/97 ....... $17,338 $21,208 $16,171 $13,761
MANAGEMENT OVERVIEW
A DISCUSSION WITH FIXED-INCOME MANAGER MARGARET DANUSER
HOW DID THE FUND PERFORM OVER THE FIRST HALF OF 1997?
While the U.S. equity market surged, the bond market continued to languish. For
the six-month period ended June 30, 1997, Founders Government Securities Fund,
which invests in government-issued, fixed-income securities, returned 2.00%.
WHAT WAS THE CHARACTER OF THE BOND MARKET DURING THE FIRST HALF?
For the past several years, fixed-income securities have been overshadowed by
the impressive acceleration in the U.S. stock market. Although bonds have
traditionally been a place of refuge for investors seeking stability and income,
many investors chose to pursue those goals through investments in the stocks of
large-capitalization companies.
Nevertheless, there have been increasing inflows into bond mutual funds, which
is perhaps a signal of renewed interest. Moreover, the bond market saw an
impressive rally in the second quarter, with the yield on the bellwether 30-year
Treasury
62
<PAGE>
bond (which is inversely related to its price) dropping to its lowest level of
the year.
WHAT SIGNIFICANT PORTFOLIO MOVES WERE MADE DURING THE HALF?
For most of the quarter, there appeared to be only a small spread in yield
between short- and long-term Treasuries. Therefore, I decided to reduce the
average weighted maturity of the portfolio somewhat, moving from 6.49 years at
the beginning of the year to 6.27 on June 30. We have also reduced our position
in cash somewhat to take advantage of opportunities in select Federal National
Mortgage Association (FNMA) mortgage pass-through securities.
/s/ MARGARET DANUSER
Margaret Danuser
Fixed-Income Manager
FOUNDERS GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
PRINCIPAL AMOUNT MARKET VALUE
- ---------------- ------------
U.S. GOVERNMENT SECURITIES-100.5%
FNMA POOLS-7.4%
$ 981,326 Federal National Mortgage Association
7.00% Due 03/01/12 Pool #373543 $ 979,687
----------
U.S. GOVERNMENT AGENCIES-38.3%
1,025,000 Federal Farm Credit Bank 6.55%
Due 08/19/03 1,021,130
1,000,000 Federal National Mortgage Association
6.70%, Due 08/10/01 1,003,396
$1,500,000 Federal National Mortgage Association
6.80%, Due 01/22/02 $ 1,500,000
1,500,000 Federal National Mortgage Association
7.50%, Due 01/22/07 1,501,403
----------
5,025,929
----------
U.S. TREASURY NOTES-54.8%
850,000 U.S. Treasury Note 5.875%
Due 11/15/99 844,421
1,000,000 U.S. Treasury Note 6.25%
Due 05/31/00 1,000,625
500,000 U.S. Treasury Note 6.50%
Due 05/31/01 502,813
1,500,000 U.S. Treasury Note 12.375%
Due 05/15/04 1,982,343
500,000 U.S. Treasury Note 6.875%
Due 05/15/06 510,313
350,000 U.S. Treasury Note 6.25%
Due 02/15/07 342,344
600,000 U.S. Treasury Note 6.625%
Due 05/15/07 604,875
1,000,000 U.S. Treasury Note 12.00%
Due 08/15/13 1,408,125
----------
7,195,859
----------
TOTAL U.S. GOVERNMENT SECURITIES-100.5%
(COST-$13,182,070)
13,201,475
----------
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-1.8%
$230,000 Merrill Lynch & Company
6.20% 07/01/97 $ 230,000
----------
TOTAL CORPORATE SHORT-TERM NOTES-1.8%
(AMORTIZED COST-$230,000) 230,000
----------
TOTAL INVESTMENTS-102.3%
(COST-$13,412,070) 13,431,475
OTHER ASSETS & LIABILITIES-(2.3%) (300,628)
----------
NET ASSETS-100.0% $13,130,847
==========
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
FOUNDERS MONEY MARKET FUND
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-93.5%
BANKING-0.8%
$1,200,000 Bankers Trust New York Corporation
5.40% 07/17/97 $ 1,197,120
----------
CAPTIVE FINANCE
AUTOMOTIVE-7.2%
5,000,000 Ford Motor Credit Company
5.52% 07/10/97 4,993,100
5,400,000 Toyota Motor Credit Corporation
5.51% 08/21/97 5,357,848
----------
10,350,948
----------
CAPTIVE FINANCE
DIVERSIFIED-3.6%
5,200,000 General Electric Capital Corporation
5.55% 07/15/97 5,188,777
----------
CAPTIVE FINANCE FOOD-4.8%
6,900,000 Nestle Capital Corporation
5.46% 07/28/97 6,871,745
----------
CAPTIVE FINANCE
INSURANCE-3.9%
5,600,000 Prudential Funding Corporation
5.53% 08/11/97 5,564,731
----------
CHEMICALS-5.9%
4,800,000 Air Products & Chemicals,
Inc. 5.53% 07/22/97 4,784,515
3,700,000 Akzo Nobel, Inc.
5.60% 07/07/97 3,696,546
----------
8,481,061
----------
CONSUMER PRODUCTS-4.4%
$6,300,000 Hasbro, Inc.
5.62% 07/18/97 $ 6,283,281
----------
ELECTRONICS-5.3%
6,500,000 Sharp Electronics Corporation
5.64% 07/11/97 6,489,817
1,100,000 Toshiba America, Inc.
5.72% 10/02/97 1,083,746
----------
7,573,563
----------
FINANCIAL SERVICES-24.1%
4,000,000 American Express Credit Corporation
5.52% 07/14/97 3,992,027
2,600,000 American Family Financial Services
5.53% 07/17/97 2,593,610
5,100,000 Associates Corporation NA
5.52% 07/02/97 5,099,218
4,100,000 Household Finance Corporation
5.53% 07/30/97 4,081,736
2,500,000 Household Finance Corporation
5.54% 07/31/97 2,488,458
6,300,000 Merrill Lynch & Company,
Inc. 5.53% 07/01/97 6,300,000
4,400,000 Morgan Stanley Group
5.62% 07/08/97 4,395,192
5,800,000 Paccar Financial Corporation
5.52% 07/21/97 5,782,213
----------
34,732,454
----------
64
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
FOOD & BEVERAGES-4.7%
$2,000,000 Golden Peanut Company
5.53% 08/04/97 $ 1,989,554
4,800,000 McCormick & Company
5.61% 07/29/97 4,779,056
----------
6,768,610
----------
HEALTHCARE SERVICES-3.0%
4,300,000 Becton Dickinson & Company
5.63% 08/01/97 4,279,153
----------
INVESTMENT COMPANIES-3.9%
5,600,000 Ciesco LP
5.53% 08/05/97 5,569,892
----------
PHOTOGRAPHY-4.2%
6,000,000 Eastman Kodak Company
5.51% 07/16/97 5,986,225
----------
SEMICONDUCTORS-2.2%
3,200,000 Motorola, Inc.
5.50% 07/24/97 3,188,756
----------
SUPERMARKETS-4.0%
5,800,000 Albertson's Inc.
5.50% 07/23/97 5,780,506
----------
TELECOMMUNICATION SERVICES-7.5%
4,200,000 American Telephone & Telegraph
Corporation
5.43% 07/03/97 4,198,733
6,600,000 Southwestern Bell Telephone Company
5.52% 07/09/97 6,591,904
----------
10,790,637
----------
UTILITIES-4.0%
$5,800,000 Southern California Edison
Company 5.50%, 07/28/97 $ 5,778,733
-----------
TOTAL CORPORATE SHORT-TERM NOTES-93.5%
(AMORTIZED COST-$134,386,192) 134,386,192
-----------
U.S. GOVERNMENT AGENCIES-7.5%
2,500,000 Federal Home Loan Mortgage
Corporation, 5.51% 07/31/97 2,488,521
3,500,000 Federal National Mortgage Association
5.60% 10/06/97 3,447,189
5,000,000 Federal National Mortgage Association
5.50% 11/26/97 4,886,944
-----------
TOTAL U.S. GOVERNMENT AGENCIES-7.5%
(AMORTIZED COST-$10,822,654) 10,822,654
-----------
TOTAL INVESTMENTS-101.0%
(AMORTIZED COST-$145,208,846) 145,208,846
OTHER ASSETS & LIABILITIES-(1.0%) (1,365,746)
-----------
NET ASSETS-100.0% $143,843,100
===========
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997 DISCOVERY PASSPORT FRONTIER
(In Thousands) FUND FUND FUND
--------- -------- --------
ASSETS
Investment securities, at market
(cost $172,389, $172,460, $185,216,
$276,072, $12,756, $264,301,
$1,163,442, $515,183, $680,813,
$13,412, $145,209, respectively)... $225,772 $209,649 $244,868
Cash................................. 2,032 515 593
Foreign currency (cost $1,652 and
$768 respectively)................. 0 1,651 0
Receivables:
Investment securities sold......... 2,947 0 1,266
Capital shares sold................ 2,060 397 710
Dividends and interest............. 17 221 169
Other assets......................... 0 61 27
--------- -------- --------
Total Assets..................... 232,828 212,494 247,633
--------- -------- --------
LIABILITIES
Payables:
Investment securities purchased.... 3,583 3,829 1,024
Capital shares redeemed............ 2,314 409 862
Advisory fee....................... 188 170 200
Shareholder servicing fees......... 29 11 34
Accounting fees.................... 5 4 5
Other.............................. 47 50 47
Dividends.......................... 0 0 0
--------- -------- --------
Total Liabilities................ 6,166 4,473 2,172
--------- -------- --------
Net Assets........................... $226,662 $208,021 $245,461
========= ======== ========
Capital shares:
Authorized (Par value $0.01 per
share)........................... 100,000 100,000 100,000
========= ======== ========
Outstanding........................ 9,329 13,854 7,469
========= ======== ========
Net Asset Value, Offering and
Redemption Price Per Share......... $24.30 $15.02 $32.86
========= ======== ========
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL WORLDWIDE
SPECIAL EQUITY GROWTH GROWTH
FUND FUND FUND FUND
ASSETS -------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Investment securities, at market
(cost $172,389, $172,460, $185,216,
$276,072, $12,756, $264,301,
$1,163,442, $515,183, $680,813,
$13,412, $145,209, respectively)... $324,927 $14,454 $341,275 $1,417,264
Cash................................. 855 42 992 3,525
Foreign currency (cost $1,652 and
$768 respectively)................. 0 0 757 0
Receivables:
Investment securities sold......... 2,625 811 7,240 27,378
Capital shares sold................ 45 90 1,747 18,455
Dividends and interest............. 82 21 582 1,266
Other assets......................... 26 15 246 53
-------- ------------- --------- ---------
Total Assets..................... 328,560 15,433 352,839 1,467,941
-------- ------------- --------- ---------
LIABILITIES
Payables:
Investment securities purchased.... 1,269 319 4,046 16,927
Capital shares redeemed............ 1,323 6 1,046 2,442
Advisory fee....................... 206 12 266 781
Shareholder servicing fees......... 38 3 24 60
Accounting fees.................... 6 0 7 28
Other.............................. 72 8 73 267
Dividends.......................... 0 0 0 0
-------- ------------- --------- ---------
Total Liabilities................ 2,914 348 5,462 20,505
-------- ------------- --------- ---------
Net Assets........................... $325,646 $15,085 $347,377 $1,447,436
Capital shares: ======== ============= ========= =========
Authorized (Par value $0.01 per
share)........................... 180,000 100,000 100,000 400,000
======== ============= ========= =========
Outstanding........................ 38,596 1,092 14,401 77,112
======== ============= ========= =========
Net Asset Value, Offering and
Redemption Price Per Share......... $8.44 $13.81 $24.12 $18.77
======== ============= ========= =========
GOVERNMENT MONEY
BLUE CHIP BALANCED SECURITIES MARKET
FUND FUND FUND FUND
ASSETS --------- -------- ---------- --------
Investment securities, at market
(cost $172,389, $172,460, $185,216,
$276,072, $12,756, $264,301,
$1,163,442, $515,183, $680,813,
$13,412, $145,209, respectively)... $575,708 $727,710 $ 13,431 $145,209
Cash................................. 1,528 1,707 4 135
Foreign currency (cost $1,652 and
$768 respectively)................. 0 0 0 0
Receivables:
Investment securities sold......... 1,609 1,139 603 0
Capital shares sold................ 271 102,279 59 1,081
Dividends and interest............. 1,456 4,029 253 0
Other assets......................... 105 105 0 0
--------- -------- ---------- --------
Total Assets..................... 580,677 836,969 14,350 146,425
--------- -------- ---------- --------
LIABILITIES
Payables:
Investment securities purchased.... 12,965 16,210 610 0
Capital shares redeemed............ 1,022 2,182 534 1,840
Advisory fee....................... 285 346 7 62
Shareholder servicing fees......... 47 18 3 19
Accounting fees.................... 11 14 0 3
Other.............................. 128 146 5 26
Dividends.......................... 0 0 60 632
--------- -------- ---------- --------
Total Liabilities................ 14,458 18,916 1,219 2,582
--------- -------- ---------- --------
Net Assets........................... $566,219 $818,053 $13,131 $143,843
Capital shares: ========= ======== ========== ========
Authorized (Par value $0.01 per
share)........................... 400,000 500,000 20,000 1,000,000
========= ======== ========== ========
Outstanding........................ 69,069 70,284 1,461 143,842
========= ======== ========== ========
Net Asset Value, Offering and
Redemption Price Per Share......... $8.20 $11.64 $8.99 $1.00
========= ======== ========== ========
</TABLE>
67
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30, 1997
(In Thousands)
DISCOVERY PASSPORT FRONTIER
FUND FUND FUND
--------- -------- --------
INVESTMENT INCOME
Income:
Dividends.......................... $ 35 $ 944 $ 522
Interest........................... 963 963 397
Foreign taxes withheld............. (2) (120) (41)
--------- -------- --------
Total Investment Income.......... 996 1,787 878
--------- -------- --------
Expenses:
Advisory fees...................... 1,122 986 1,306
Shareholder servicing fees......... 169 63 214
Accounting fees.................... 28 25 34
Distribution fees.................. 281 246 333
Transfer agency expenses........... 28 12 31
Registration fees.................. 22 54 20
Postage and mailing expenses....... 17 6 22
Custodian fees and expenses........ 12 86 22
Printing expenses.................. 26 10 33
Legal and audit fees............... 6 6 8
Directors' fees and expenses....... 9 7 11
Organization expenses.............. 0 1 0
Other expenses..................... 64 46 60
--------- -------- --------
Total Expenses................... 1,784 1,548 2,094
Earnings Credits................. (51) (28) (64)
Reimbursed Expenses.............. 0 0 0
--------- -------- --------
Net Expenses..................... 1,733 1,520 2,030
--------- -------- --------
Net Investment Income (Loss)....... (737) 267 (1,152)
--------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Gain (Loss) from
Security Transactions:
Proceeds from long-term securities
sold............................. 78,788 30,338 139,556
Proceeds from long-term U.S.
Government Obligations........... 0 0 0
Cost of securities sold............ 81,589 32,877 117,530
--------- -------- --------
Net Realized Gain (Loss) from
Security Transactions.......... (2,801) (2,539) 22,026
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. 0 (143) (7)
Net Change in Unrealized Appreciation
(Depreciation)..................... 3,723 17,261 (21,814)
--------- -------- --------
Net Realized and Unrealized Gain
(Loss) on Investments and
Foreign Currency Transactions... 922 14,579 205
--------- -------- --------
Net Increase (Decrease) in Net Assets
Resulting from Operations.......... $ 185 $ 14,846 $ (947)
========= ======== ========
Purchases of long-term securities.... $ 53,919 $ 58,926 $ 53,368
========= ======== ========
Purchases of long-term U.S.
Government Obligations............. $ 0 $ 0 $ 0
========= ======== ========
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL WORLDWIDE
SPECIAL EQUITY GROWTH GROWTH
FUND FUND FUND FUND
INVESTMENT INCOME --------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Income:
Dividends ......................... $ 891 $ 90 $ 2,453 $ 5,492
Interest .......................... 1,398 45 896 5,345
Foreign taxes withheld ............ (69) (10) (232) (144)
--------- ------------- --------- -----------
Total Investment Income ......... 2,220 125 3,117 10,693
--------- ------------- --------- -----------
Expenses:
Advisory fees ..................... 1,269 61 1,572 4,271
Shareholder servicing fees ........ 230 13 143 345
Accounting fees ................... 42 2 42 156
Distribution fees ................. 413 15 414 1,552
Transfer agency expenses .......... 35 5 33 117
Registration fees ................. 19 9 47 221
Postage and mailing expenses ...... 23 3 14 34
Custodian fees and expenses ....... 48 14 85 58
Printing expenses ................. 36 3 22 55
Legal and audit fees .............. 9 1 9 34
Directors' fees and expenses ...... 13 0 13 46
Organization expenses ............. 0 0 0 0
Other expenses .................... 93 10 83 290
--------- ------------- --------- -----------
Total Expenses .................. 2,230 136 2,477 7,179
Earnings Credits ................ (68) (7) (56) (151)
Reimbursed Expenses ............. 0 (14) 0 0
--------- ------------- --------- -----------
Net Expenses .................... 2,162 115 2,421 7,028
--------- ------------- --------- -----------
Net Investment Income (Loss) ...... 58 10 696 3,665
--------- ------------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Gain (Loss) from
Security Transactions:
Proceeds from long-term securities
sold ............................ 264,438 7,956 129,332 980,632
Proceeds from long-term U.S. ......
Government Obligations .......... 0 0 0 0
Cost of securities sold ........... 233,415 6,684 115,331 886,468
--------- ------------- --------- -----------
Net Realized Gain (Loss) from
Security Transactions ......... 31,023 1,272 14,001 94,164
Net Realized Gain (Loss) from Foreign
Currency Transactions ............. (131) (8) (326) (111)
Net Change in Unrealized Appreciation
(Depreciation) .................... (1,167) 709 19,757 113,599
--------- ------------- --------- -----------
Net Realized and Unrealized Gain
(Loss) on Investments and
Foreign Currency Transactions .. 29,725 1,973 33,432 207,652
--------- ------------- --------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations ......... $ 29,783 $ 1,983 $ 34,128 $ 211,317
========= ============= ========= ===========
Purchases of long-term securities ... $ 202,990 $ 9,490 $ 108,921 $ 1,136,904
========= ============= ========= ===========
Purchases of long-term U.S. .........
Government Obligations ............ $ 0 $ 0 $ 0 $ 0
========= ============= ========= ===========
BLUE GOVERNMENT MONEY
CHIP BALANCED SECURITIES MARKET
FUND FUND FUND FUND
INVESTMENT INCOME -------- -------- ---------- ------
Income:
Dividends.......................... $ 5,095 $ 4,378 $ 0 $ 0
Interest........................... 3,465 7,359 455 3,691
Foreign taxes withheld............. (198) (163) 0 0
-------- -------- ---------- ------
Total Investment Income.......... 8,362 11,574 455 3,691
-------- -------- ---------- ------
Expenses:
Advisory fees...................... 1,648 1,777 47 332
Shareholder servicing fees......... 265 99 17 106
Accounting fees.................... 67 73 2 17
Distribution fees.................. 665 724 4 0
Transfer agency expenses........... 44 87 2 8
Registration fees.................. 70 100 8 37
Postage and mailing expenses....... 26 10 2 3
Custodian fees and expenses........ 44 40 3 6
Printing expenses.................. 41 15 3 11
Legal and audit fees............... 16 15 1 3
Directors' fees and expenses....... 21 20 1 5
Organization expenses.............. 0 0 0 0
Other expenses..................... 133 152 6 41
-------- -------- ---------- ------
Total Expenses................... 3,040 3,112 96 569
Earnings Credits................. (89) (61) (9) (40)
Reimbursed Expenses.............. 0 0 0 0
-------- -------- ---------- ------
Net Expenses..................... 2,951 3,051 87 529
-------- -------- ---------- ------
Net Investment Income (Loss)....... 5,411 8,523 368 3,162
-------- -------- ---------- ------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Gain (Loss) from
Security Transactions:
Proceeds from long-term securities
sold............................. 566,831 382,040 0 0
Proceeds from long-term U.S.
Government Obligations........... 133,169 159,475 9,834 0
Cost of securities sold............ 647,110 516,818 9,890 0
-------- -------- ---------- ------
Net Realized Gain (Loss) from
Security Transactions.......... 52,890 24,697 (56) 0
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. (389) (265) 0 0
Net Change in Unrealized Appreciation
(Depreciation)..................... 9,515 29,122 (42) 0
-------- -------- ---------- ------
Net Realized and Unrealized Gain
(Loss) on Investments and
Foreign Currency Transactions... 62,016 53,554 (98) 0
-------- -------- ---------- ------
Net Increase (Decrease) in Net Assets
Resulting from Operations.......... $ 67,427 $ 62,077 $ 270 $3,162
======== ======== ========== ======
Purchases of long-term securities.... $552,050 $523,878 $ 0 $ 0
======== ======== ========== ======
Purchases of long-term U.S.
Government Obligations............. $123,103 $278,981 $ 11,479 $ 0
======== ======== ========== ======
</TABLE>
69
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
DISCOVERY PASSPORT
FUND FUND
----------------------- -----------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
(In Thousands) 06/30/97 12/31/96 06/30/97 12/31/96
----------- --------- ----------- ---------
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income (Loss) ........................ $ (737) $ (2,062) $ 267 $ 535
Net Realized Gain (Loss) from Security Transactions . (2,801) 28,935 (2,539) 4,104
Net Realized Gain (Loss) from Foreign Currency
Transactions ...................................... 0 (4) (143) (232)
Net Change in Unrealized Appreciation
(Depreciation) .................................... 3,723 12,543 17,261 15,369
--------- --------- --------- ---------
Net Increase (Decrease) in Net Assets Resulting
from Operations ................................. 185 39,412 14,846 19,776
--------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income ............................... 0 0 0 (308)
Net Realized Gains from Security Transactions ....... 0 (18,990) 0 (1,080)
--------- --------- --------- ---------
Net Decrease from Distributions ................... 0 (18,990) 0 (1,388)
--------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold ........................... 80,902 239,294 80,368 214,884
Reinvested Distributions ............................ 0 17,850 0 1,334
--------- --------- --------- ---------
80,902 257,144 80,368 216,218
Cost of Shares Redeemed ............................. (101,919) (246,695) (65,114) (106,607)
--------- --------- --------- ---------
Net Increase (Decrease) from Capital Share
Transactions .................................... (21,017) 10,449 15,254 109,611
--------- --------- --------- ---------
Net Increase (Decrease) in Net Assets ............. (20,832) 30,871 30,100 127,999
NET ASSETS
Beginning of period ............................... 247,494 216,623 177,921 49,922
--------- --------- --------- ---------
End of period ..................................... $ 226,662 $ 247,494 $ 208,021 $ 177,921
========= ========= ========= =========
Net Assets consist of:
Capital (par value and paid-in surplus) ............. $ 167,299 $ 190,379 $ 171,948 $ 156,922
Accumulated Undistributed (Distribution in excess of)
Net Investment Income ............................. (738) 0 648 0
Accumulated Undistributed Net Realized Gain (Loss)
from Security Transactions ........................ 6,718 7,455 (1,764) 1,071
Unrealized Appreciation on Investments .............. 53,383 49,660 37,189 19,928
--------- --------- --------- ---------
Total ............................................. $ 226,662 $ 247,494 $ 208,021 $ 177,921
========= ========= ========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
70
<PAGE>
<TABLE>
<CAPTION>
FRONTIER SPECIAL
FUND FUND
------------------------- -------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
06/30/97 12/31/96 06/30/97 12/31/96
OPERATIONS ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net Investment Income (Loss) ........................ $ (1,152) $ (1,661) $ 58 $ (1,044)
Net Realized Gain (Loss) from Security Transactions . 22,026 42,044 31,023 25,374
Net Realized Gain (Loss) from Foreign Currency
Transactions ...................................... (7) (25) (131) (180)
Net Change in Unrealized Appreciation
(Depreciation) .................................... (21,814) 4,816 (1,167) 28,967
----------- --------- ----------- ---------
Net Increase (Decrease) in Net Assets Resulting
from Operations ................................. (947) 45,174 29,783 53,117
----------- --------- ----------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income ............................... 0 0 0 0
Net Realized Gains from Security Transactions ....... 0 (30,511) 0 (20,770)
----------- --------- ----------- ---------
Net Decrease from Distributions ................... 0 (30,511) 0 (20,770)
----------- --------- ----------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold ........................... 35,673 130,929 20,623 120,997
Reinvested Distributions ............................ 0 29,845 0 19,816
----------- --------- ----------- ---------
35,673 160,774 20,623 140,813
Cost of Shares Redeemed ............................. (140,126) (156,296) (88,595) (198,079)
----------- --------- ----------- ---------
Net Increase (Decrease) from Capital Share
Transactions .................................... (104,453) 4,478 (67,972) (57,266)
----------- --------- ----------- ---------
Net Increase (Decrease) in Net Assets ............. (105,400) 19,141 (38,189) (24,919)
NET ASSETS
Beginning of period ............................... 350,861 331,720 363,835 388,754
----------- --------- ----------- ---------
End of period ..................................... $ 245,461 $ 350,861 $ 325,646 $ 363,835
=========== ========= =========== =========
Net Assets consist of:
Capital (par value and paid-in surplus) ............. $ 153,610 $ 258,025 $ 243,205 $ 311,172
Accumulated Undistributed (Distribution in excess of)
Net Investment Income ............................. (1,146) 0 (985) (48)
Accumulated Undistributed Net Realized Gain (Loss)
from Security Transactions ........................ 33,345 11,370 34,571 2,689
Unrealized Appreciation on Investments .............. 59,652 81,466 48,855 50,022
----------- --------- ----------- ---------
Total ............................................. $ 245,461 $ 350,861 $ 325,646 $ 363,835
=========== ========= =========== =========
INTERNATIONAL WORLDWIDE
EQUITY FUND GROWTH FUND
-------------------------- -------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
06/30/97 12/31/96 06/30/97 12/31/96
OPERATIONS ----------- ---------- ----------- ---------
Net Investment Income (Loss) ........................ $ 10 $ (10) $ 696 $ 1,591
Net Realized Gain (Loss) from Security Transactions . 1,272 75 14,001 9,552
Net Realized Gain (Loss) from Foreign Currency
Transactions ...................................... (8) (16) (326) (409)
Net Change in Unrealized Appreciation
(Depreciation) .................................... 709 989 19,757 27,216
----------- ---------- ----------- ---------
Net Increase (Decrease) in Net Assets Resulting
from Operations ................................. 1,983 1,038 34,128 37,950
----------- ---------- ----------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income ............................... 0 0 0 (1,143)
Net Realized Gains from Security Transactions ....... 0 0 0 (11,387)
----------- ---------- ----------- ---------
Net Decrease from Distributions ................... 0 0 0 (12,530)
----------- ---------- ----------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold ........................... 6,016 11,395 63,785 220,374
Reinvested Distributions ............................ 0 0 0 11,322
----------- ---------- ----------- ---------
6,016 11,395 63,785 231,696
Cost of Shares Redeemed ............................. (3,033) (3,081) (92,615) (143,632)
----------- ---------- ----------- ---------
Net Increase (Decrease) from Capital Share
Transactions .................................... 2,983 8,314 (28,830) 88,064
----------- ---------- ----------- ---------
Net Increase (Decrease) in Net Assets ............. 4,966 9,352 5,298 113,484
NET ASSETS
Beginning of period ............................... 10,119 767 342,079 228,595
----------- ---------- ----------- ---------
End of period ..................................... $15,085 $10,119 $ 347,377 $ 342,079
=========== ========== =========== =========
Net Assets consist of:
Capital (par value and paid-in surplus) ............. $12,066 $ 9,081 $ 257,827 $ 286,659
Accumulated Undistributed (Distribution in excess of)
Net Investment Income ............................. (2) (2) 1,145 1
Accumulated Undistributed Net Realized Gain (Loss)
from Security Transactions ........................ 1,323 51 11,431 (1,798)
Unrealized Appreciation on Investments .............. 1,698 989 76,974 57,217
----------- ---------- ----------- ---------
Total ............................................. $15,085 $ 10,119 $ 347,377 $ 342,079
=========== ========== =========== =========
</TABLE>
71
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
GROWTH BLUE CHIP
FUND FUND
------------------------ -----------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
(In Thousands) 06/30/97 12/31/96 06/30/97 12/31/96
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss)......... $ 3,665 $ 1,245 $ 5,411 $ 6,450
Net Realized Gain (Loss) from
Security Transactions.............. 94,164 79,708 52,890 83,776
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. (111) (70) (389) (202)
Net Change in Unrealized Appreciation
(Depreciation)..................... 113,599 25,598 9,515 5,927
----------- --------- ----------- --------
Net Increase (Decrease) in Net
Assets Resulting from
Operations....................... 211,317 106,481 67,427 95,951
----------- --------- ----------- --------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income................ 0 (1,034) 0 (6,304)
Net Realized Gains from Security
Transactions....................... 0 (77,512) 0 (64,011)
----------- --------- ----------- --------
Net Decrease from Distributions.... 0 (78,546) 0 (70,315)
----------- --------- ----------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold............ 394,005 856,521 42,379 211,850
Reinvested Distributions............. 0 74,765 0 63,797
----------- --------- ----------- --------
394,005 931,286 42,379 275,647
Cost of Shares Redeemed.............. (276,209) (496,825) (79,453) (140,617)
----------- --------- ----------- --------
Net Increase (Decrease) from
Capital Share Transactions....... 117,796 434,461 (37,074) 135,030
----------- --------- ----------- --------
Net Increase (Decrease) in Net
Assets........................... 329,113 462,396 30,353 160,666
NET ASSETS
Beginning of period................ 1,118,323 655,927 535,866 375,200
----------- --------- ----------- --------
End of period...................... $1,447,436 $1,118,323 $ 566,219 $535,866
=========== ========= =========== ========
Net Assets consist of:
Capital (par value and paid-in
surplus)........................... $1,093,086 $ 975,859 $ 424,786 $465,983
Accumulated Undistributed
(Distribution in excess of) Net
Investment Income.................. 4,530 227 9,681 (13)
Accumulated Undistributed Net
Realized Gain (Loss) from Security
Transactions....................... 95,998 2,014 71,227 18,886
Unrealized Appreciation on
Investments........................ 253,822 140,223 60,525 51,010
----------- --------- ----------- --------
Total.............................. $1,447,436 $1,118,323 $ 566,219 $535,866
=========== ========= =========== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
<TABLE>
<CAPTION>
BALANCED GOVERNMENT MONEY MARKET
FUND SECURITIES FUND FUND
------------------------ ------------------------ --------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
06/30/97 12/31/96 06/30/97 12/31/96 06/30/97 12/31/96
----------- -------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss)......... $ 8,523 $ 7,398 $ 368 $ 909 $ 3,162 $ 6,938
Net Realized Gain (Loss) from
Security Transactions.............. 24,697 24,365 (56) (97) 0 0
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. (265) (101) 0 0 0 0
Net Change in Unrealized Appreciation
(Depreciation)..................... 29,122 7,811 (42) (459) 0 0
----------- -------- ----------- -------- ----------- ----------
Net Increase (Decrease) in Net
Assets Resulting from
Operations....................... 62,077 39,473 270 353 3,162 6,938
----------- -------- ----------- -------- ----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income................ (7,012) (7,112) (367) (904) (3,190) (6,913)
Net Realized Gains from Security
Transactions....................... 0 (16,854) 0 0 0 0
----------- -------- ----------- -------- ----------- ----------
Net Decrease from Distributions.... (7,012) (23,966) (367) (904) (3,190) (6,913)
----------- -------- ----------- -------- ----------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold............ 452,324 323,317 3,343 17,018 157,699 440,366
Reinvested Distributions............. 6,751 22,653 338 823 3,016 6,354
----------- -------- ----------- -------- ----------- ----------
459,075 345,970 3,681 17,841 160,715 446,720
Cost of Shares Redeemed.............. (90,983) (96,927) (5,643) (22,363) (126,710) (462,525)
----------- -------- ----------- -------- ----------- ----------
Net Increase (Decrease) from
Capital Share Transactions....... 368,092 249,043 (1,962) (4,522) 34,005 (15,805)
----------- -------- ----------- -------- ----------- ----------
Net Increase (Decrease) in Net
Assets........................... 423,157 264,550 (2,059) (5,073) 33,977 (15,780)
NET ASSETS
Beginning of period................ 394,896 130,346 15,190 20,263 109,866 125,646
----------- -------- ----------- -------- ----------- ----------
End of period...................... $ 818,053 $394,896 $13,131 $15,190 $ 143,843 $109,866
=========== ======== =========== ======== =========== ==========
Net Assets consist of:
Capital (par value and paid-in
surplus)........................... $ 734,432 $369,513 $15,435 $18,446 $ 143,842 $109,829
Accumulated Undistributed
(Distribution in excess of) Net
Investment Income.................. 4,973 186 1,059 5 1 37
Accumulated Undistributed Net
Realized Gain (Loss) from Security
Transactions....................... 31,751 7,422 (3,382) (3,322) 0 0
Unrealized Appreciation on
Investments........................ 46,897 17,775 19 61 0 0
----------- -------- ----------- -------- ----------- ----------
Total.............................. $ 818,053 $394,896 $13,131 $15,190 $ 143,843 $109,866
=========== ======== =========== ======== =========== ==========
</TABLE>
73
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each period.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------- LESS DIVIDENDS AND
NET REALIZED DISTRIBUTIONS
NET & UNREALIZED ---------------------
NAV INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME OR ON INVESTMENT INVESTMENT REALIZED
OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME GAINS
--------- -------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
DISCOVERY FUND
Six months ended 06/30/97....... $ 24.22 (0.08) 0.16 0.08 0.00 0.00
Year ended 12/31/96............. 21.70 (0.20) 4.72 4.52 0.00 (2.00)
Year ended 12/31/95............. 19.88 (0.12) 6.29 6.17 0.00 (4.35)
Year ended 12/31/94............. 21.55 (0.12) (1.55) (1.67) 0.00 0.00
Year ended 12/31/93............. 19.93 (0.15) 2.29 2.14 0.00 (0.52)
Year ended 12/31/92............. 17.52 (0.03) 2.68 2.65 0.00 (0.24)
PASSPORT FUND
Six months ended 06/30/97....... $ 13.91 0.02 1.09 1.11 0.00 0.00
Year ended 12/31/96............. 11.68 0.04 2.30 2.34 (0.02) (0.09)
Year ended 12/31/95............. 9.42 0.04 2.26 2.30 (0.04) 0.00
Year ended 12/31/94............. 10.53 0.02 (1.11) (1.09) (0.02) 0.00
11/16/93 (inception) to 12/31/93 10.00 0.00 0.53 0.53 0.00 0.00
FRONTIER FUND
Six months ended 06/30/97....... $ 32.34 (0.15) 0.67 0.52 0.00 0.00
Year ended 12/31/96............. 31.08 (0.15) 4.46 4.31 0.00 (3.05)
Year ended 12/31/95............. 26.50 (0.02) 9.76 9.74 0.00 (5.16)
Year ended 12/31/94............. 27.94 (0.07) (0.72) (0.79) 0.00 (0.65)
Year ended 12/31/93............. 25.03 (0.12) 4.23 4.11 0.00 (1.20)
Year ended 12/31/92............. 24.21 (0.11) 2.24 2.13 0.00 (1.31)
SPECIAL FUND
Six months ended 06/30/97....... $7.66 (0.03) 0.81 0.78 0.00 0.00
Year ended 12/31/96............. 7.05 (0.02) 1.09 1.07 0.00 (0.46)
Year ended 12/31/95............. 7.01 0.00 1.79 1.79 0.00 (1.75)
Year ended 12/31/94............. 7.67 (0.02) (0.36) (0.38) 0.00 (0.28)
Year ended 12/31/93............. 7.76 (0.01) 1.25 1.24 0.00 (1.33)
Year ended 12/31/92............. 7.59 (0.01) 0.64 0.63 0.00 (0.46)
INTERNATIONAL EQUITY FUND
Six months ended 06/30/97....... $ 11.86 (0.01) 1.96 1.95 0.00 0.00
Year ended 12/31/96............. 10.00 (0.01) 1.87 1.86 0.00 0.00
12/29/95 (inception) to 12/31/95 10.00 0.00 0.00 0.00 0.00 0.00
WORLDWIDE GROWTH FUND
Six months ended 06/30/97....... $ 21.79 0.05 2.28 2.33 0.00 0.00
Year ended 12/31/96............. 19.87 0.10 2.64 2.74 (0.07) (0.75)
Year ended 12/31/95............. 17.09 0.09 3.43 3.52 (0.09) (0.65)
Year ended 12/31/94............. 17.94 (0.02) (0.37) (0.39) 0.00 (0.46)
Year ended 12/31/93............. 14.13 (0.02) 4.24 4.22 0.00 (0.41)
Year ended 12/31/92............. 13.92 0.00 0.21 0.21 0.00 0.00
</TABLE>
* The average commission per share is calculated by taking agency commissions
paid on equity securities trades and dividing by the number of shares traded.
# Net Expenses include the custodial credits shown as Earnings credits on the
Statements of Operations. These credits are earned on uninvested cash held at
the custodian. Gross Expenses are grossed up by the earned credits as
required by the SEC.
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
--------------------------------------------------------
NET ASSETS, NET GROSS
NAV END OF EXPENSES EXPENSES
TOTAL END TOTAL PERIOD TO AVERAGE TO AVERAGE
DISTRIBUTIONS OF PERIOD RETURN (THOUSANDS) NET ASSETS# NET ASSETS#
------------- --------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DISCOVERY FUND
Six months ended 06/30/97....... 0.00 $ 24.30 0.3% $226,662 1.54%** 1.59%**
Year ended 12/31/96............. (2.00) 24.22 21.2% 247,494 1.58% 1.59%
Year ended 12/31/95............. (4.35) 21.70 31.3% 216,623 1.58% 1.63%
Year ended 12/31/94............. 0.00 19.88 -7.8% 185,310 1.67% n/a
Year ended 12/31/93............. (0.52) 21.55 10.8% 226,069 1.65% n/a
Year ended 12/31/92............. (0.24) 19.93 15.2% 151,983 1.85% n/a
PASSPORT FUND
Six months ended 06/30/97....... 0.00 $ 15.02 8.0% $208,021 1.54%** 1.57%**
Year ended 12/31/96............. (0.11) 13.91 20.1% 177,921 1.57% 1.59%
Year ended 12/31/95............. (0.04) 11.68 24.4% 49,922 1.76% 1.84%
Year ended 12/31/94............. (0.02) 9.42 -10.4% 16,443 1.88% n/a
11/16/93 (inception) to 12/31/93 0.00 10.53 5.3% 18,567 1.70%** n/a
FRONTIER FUND
Six months ended 06/30/97....... 0.00 $ 32.86 1.6% $245,461 1.52%** 1.57%**
Year ended 12/31/96............. (3.05) 32.34 14.3% 350,861 1.52% 1.53%
Year ended 12/31/95............. (5.16) 31.08 37.0% 331,720 1.53% 1.57%
Year ended 12/31/94............. (0.65) 26.50 -2.8% 247,113 1.62% n/a
Year ended 12/31/93............. (1.20) 27.94 16.5% 254,248 1.66% n/a
Year ended 12/31/92............. (1.31) 25.03 8.9% 146,484 1.83% n/a
SPECIAL FUND
Six months ended 06/30/97....... 0.00 $8.44 10.2% $325,646 1.31%** 1.35%**
Year ended 12/31/96............. (0.46) 7.66 15.3% 363,835 1.34% 1.36%
Year ended 12/31/95............. (1.75) 7.05 25.7% 388,754 1.29% 1.35%
Year ended 12/31/94............. (0.28) 7.01 -4.9% 299,190 1.36% n/a
Year ended 12/31/93............. (1.33) 7.67 16.0% 432,710 1.33% n/a
Year ended 12/31/92............. (0.46) 7.76 8.3% 456,793 1.23% n/a
INTERNATIONAL EQUITY FUND
Six months ended 06/30/97....... 0.00 $ 13.81 16.4% $15,085 1.93%**+ 2.00%**+
Year ended 12/31/96............. 0.00 11.86 18.6% 10,119 1.94%+ 2.00%+
12/29/95 (inception) to 12/31/95 0.00 10.00 0.0% 767 n/a n/a
WORLDWIDE GROWTH FUND
Six months ended 06/30/97....... 0.00 $ 24.12 10.7% $347,377 1.46%** 1.50%**
Year ended 12/31/96............. (0.82) 21.79 14.0% 342,079 1.53% 1.55%
Year ended 12/31/95............. (0.74) 19.87 20.6% 228,595 1.56% 1.65%
Year ended 12/31/94............. (0.46) 17.09 -2.2% 104,044 1.66% n/a
Year ended 12/31/93............. (0.41) 17.94 29.9% 85,214 1.80% n/a
Year ended 12/31/92............. 0.00 14.13 1.5% 36,622 2.06% n/a
</TABLE>
TOTAL RETURN/RATIOS
-------------------------------------------
NET INVESTMENT
INCOME/(LOSS) PORTFOLIO AVERAGE
TO AVERAGE TURNOVER COMM.
NET ASSETS RATE PER SHARE*
------------------------------ ----------
DISCOVERY FUND
Six months ended 06/30/97....... -0.67%** 68% 0.0421
Year ended 12/31/96............. -0.85% 106% 0.0566
Year ended 12/31/95............. -0.60% 118% n/a
Year ended 12/31/94............. -0.62% 72% n/a
Year ended 12/31/93............. -0.97% 99% n/a
Year ended 12/31/92............. -0.67% 111% n/a
PASSPORT FUND
Six months ended 06/30/97....... 0.54%** 51% 0.0117
Year ended 12/31/96............. 0.40% 58% 0.0147
Year ended 12/31/95............. 0.60% 37% n/a
Year ended 12/31/94............. 0.12% 78% n/a
11/16/93 (inception) to 12/31/93 0.18%** 6% n/a
FRONTIER FUND
Six months ended 06/30/97....... -0.87%** 51% 0.0529
Year ended 12/31/96............. -0.47% 85% 0.0567
Year ended 12/31/95............. -0.07% 92% n/a
Year ended 12/31/94............. -0.25% 72% n/a
Year ended 12/31/93............. -0.75% 109% n/a
Year ended 12/31/92............. -0.58% 155% n/a
SPECIAL FUND
Six months ended 06/30/97....... 0.04%** 145% 0.0622
Year ended 12/31/96............. -0.28% 186% 0.0417
Year ended 12/31/95............. 0.00% 263% n/a
Year ended 12/31/94............. -0.27% 272% n/a
Year ended 12/31/93............. -0.14% 285% n/a
Year ended 12/31/92............. -0.05% 223% n/a
INTERNATIONAL EQUITY FUND
Six months ended 06/30/97....... 0.14%** 115% 0.0117
Year ended 12/31/96............. -0.15% 71% 0.0189
12/29/95 (inception) to 12/31/95 n/a n/a n/a
WORLDWIDE GROWTH FUND
Six months ended 06/30/97....... 0.42%** 80% 0.0370
Year ended 12/31/96............. 0.50% 72% 0.0247
Year ended 12/31/95............. 0.61% 54% n/a
Year ended 12/31/94............. -0.14% 87% n/a
Year ended 12/31/93............. -0.19% 117% n/a
Year ended 12/31/92............. 0.01% 152% n/a
+ Certain fees were waived by the management company. Had these fees not been
waived, the expense ratios for gross expenses for International Equity Fund
would have been 2.25% (1997) and 2.52% (1996), and the expense ratios for
net expenses for International Equity Fund would have been 2.12% (1997) and
2.46% (1997).
n/a Disclosure not applicable or not required in prior periods.
** Annualized
75
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each period.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------- LESS DIVIDENDS AND
NET REALIZED DISTRIBUTIONS
NET & UNREALIZED ---------------------
NAV INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME OR ON INVESTMENT INVESTMENT REALIZED
OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME GAINS
--------- -------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
GROWTH FUND
Six months ended 06/30/97..... $ 15.87 0.00 2.90 2.90 0.00 0.00
Year ended 12/31/96........... 14.77 0.02 2.40 2.42 (0.02) (1.30)
Year ended 12/31/95........... 11.63 0.02 5.27 5.29 (0.02) (2.13)
Year ended 12/31/94........... 12.38 (0.02) (0.39) (0.41) 0.00 (0.34)
Year ended 12/31/93........... 10.54 (0.01) 2.70 2.69 0.00 (0.85)
Year ended 12/31/92........... 11.22 0.01 0.48 0.49 (0.01) (1.16)
BLUE CHIP FUND
Six months ended 06/30/97..... $7.23 0.08 0.89 0.97 0.00 0.00
Year ended 12/31/96........... 6.69 0.09 1.52 1.61 (0.09) (0.98)
Year ended 12/31/95........... 6.16 0.09 1.70 1.79 (0.09) (1.17)
Year ended 12/31/94........... 6.49 0.06 (0.02) 0.04 (0.06) (0.31)
Year ended 12/31/93........... 6.91 0.04 0.96 1.00 (0.04) (1.38)
Year ended 12/31/92........... 7.67 0.08 (0.10) (0.02) (0.08) (0.66)
BALANCED FUND
Six months ended 06/30/97..... $ 10.61 0.14 1.01 1.15 (0.12) 0.00
Year ended 12/31/96........... 9.58 0.28 1.50 1.78 (0.27) (0.48)
Year ended 12/31/95........... 8.56 0.28 2.21 2.49 (0.28) (1.19)
Year ended 12/31/94........... 8.93 0.20 (0.37) (0.17) (0.20) 0.00
Year ended 12/31/93........... 8.30 0.22 1.58 1.80 (0.21) (0.96)
Year ended 12/31/92........... 8.19 0.27 0.21 0.48 (0.28) (0.09)
GOVERNMENT SECURITIES FUND
Six months ended 06/30/97..... $9.04 0.33 (0.15) 0.18 (0.23) 0.00
Year ended 12/31/96........... 9.29 3.20 (2.99) 0.21 (0.46) 0.00
Year ended 12/31/95........... 8.78 0.45 0.51 0.96 (0.45) 0.00
Year ended 12/31/94........... 10.02 0.52 (1.26) (0.74) (0.50) 0.00
Year ended 12/31/93........... 10.19 0.46 0.47 0.93 (0.46) (0.64)
Year ended 12/31/92........... 10.48 0.51 0.03 0.54 (0.51) (0.32)
MONEY MARKET FUND
Six months ended 06/30/97..... $1.00 0.02 0.00 0.02 (0.02) 0.00
Year ended 12/31/96........... 1.00 0.05 0.00 0.05 (0.05) 0.00
Year ended 12/31/95........... 1.00 0.05 0.00 0.05 (0.05) 0.00
Year ended 12/31/94........... 1.00 0.03 0.00 0.03 (0.03) 0.00
Year ended 12/31/93........... 1.00 0.02 0.00 0.02 (0.02) 0.00
Year ended 12/31/92........... 1.00 0.03 0.00 0.03 (0.03) 0.00
</TABLE>
* The average commission per share is calculated by taking agency commissions
paid on equity securities trades and dividing by the number of shares traded.
# Net Expenses include the custodial credits shown as Earnings credits on the
Statements of Operations. These credits are earned on uninvested cash held at
the custodian. Gross Expenses are grossed up by the earned credits as
required by the SEC.
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
---------------------------------------------------------
NET ASSETS, NET GROSS
NAV END OF EXPENSES EXPENSES
TOTAL END TOTAL PERIOD TO AVERAGE TO AVERAGE
DISTRIBUTIONS OF PERIOD RETURN (THOUSANDS) NET ASSETS# NET ASSETS#
GROWTH FUND ------------- --------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months ended 06/30/97..... 0.00 $ 18.77 18.3% $1,447,436 1.13%** 1.16%**
Year ended 12/31/96........... (1.32) 15.87 16.6% 1,118,323 1.19% 1.20%
Year ended 12/31/95........... (2.15) 14.77 45.6% 655,927 1.24% 1.28%
Year ended 12/31/94........... (0.34) 11.63 -3.4% 307,988 1.33% n/a
Year ended 12/31/93........... (0.85) 12.38 25.5% 343,423 1.32% n/a
Year ended 12/31/92........... (1.17) 10.54 4.3% 145,035 1.54% n/a
BLUE CHIP FUND
Six months ended 06/30/97..... 0.00 $8.20 13.4% $566,219 1.11%** 1.14%**
Year ended 12/31/96........... (1.07) 7.23 24.4% 535,866 1.15% 1.16%
Year ended 12/31/95........... (1.26) 6.69 29.1% 375,200 1.17% 1.22%
Year ended 12/31/94........... (0.37) 6.16 0.5% 311,051 1.21% n/a
Year ended 12/31/93........... (1.42) 6.49 14.5% 306,592 1.22% n/a
Year ended 12/31/92........... (0.74) 6.91 -0.3% 290,309 1.23% n/a
BALANCED FUND
Six months ended 06/30/97..... (0.12) $11.64 10.9% $818,053 1.05%** 1.07%**
Year ended 12/31/96........... (0.75) 10.61 18.8% 394,896 1.10% 1.12%
Year ended 12/31/95........... (1.47) 9.58 29.4% 130,346 1.19% 1.23%
Year ended 12/31/94........... (0.20) 8.56 -1.9% 95,226 1.26% n/a
Year ended 12/31/93........... (1.17) 8.93 21.9% 72,859 1.34% n/a
Year ended 12/31/92........... (0.37) 8.30 6.0% 31,538 1.88% n/a
GOVERNMENT SECURITIES FUND
Six months ended 06/30/97..... (0.23) $8.99 2.0% $13,131 1.21%** 1.33%**+
Year ended 12/31/96........... (0.46) 9.04 2.3% 15,190 1.26% 1.29%+
Year ended 12/31/95........... (0.45) 9.29 11.1% 20,263 1.30% 1.30%
Year ended 12/31/94........... (0.50) 8.78 -7.5% 21,323 1.34% n/a
Year ended 12/31/93........... (1.10) 10.02 9.3% 30,465 1.18% n/a
Year ended 12/31/92........... (0.83) 10.19 5.3% 25,047 1.18% n/a
MONEY MARKET FUND
Six months ended 06/30/97..... (0.02) $1.00 4.6% $143,843 0.80%** 0.86%**
Year ended 12/31/96........... (0.05) 1.00 4.5% 109,866 0.86% 0.88%
Year ended 12/31/95........... (0.05) 1.00 5.1% 125,646 0.89% 0.89%
Year ended 12/31/94........... (0.03) 1.00 3.4% 201,342 0.91% n/a
Year ended 12/31/93........... (0.02) 1.00 2.2% 142,399 0.95% n/a
Year ended 12/31/92........... (0.03) 1.00 2.8% 120,295 0.95% n/a
</TABLE>
TOTAL RETURN/RATIOS
-------------------------------------------
NET INVESTMENT
INCOME/(LOSS) PORTFOLIO AVERAGE
TO AVERAGE TURNOVER COMM.
NET ASSETS RATE PER SHARE*
GROWTH FUND ----------------------------- ----------
Six months ended 06/30/97..... 0.58%** 184% 0.0631
Year ended 12/31/96........... 0.15% 134% 0.0649
Year ended 12/31/95........... 0.12% 130% n/a
Year ended 12/31/94........... -0.17% 172% n/a
Year ended 12/31/93........... -0.15% 131% n/a
Year ended 12/31/92........... 0.06% 216% n/a
BLUE CHIP FUND
Six months ended 06/30/97..... 2.04%** 262% 0.0643
Year ended 12/31/96........... 1.40% 195% 0.0613
Year ended 12/31/95........... 1.19% 235% n/a
Year ended 12/31/94........... 0.88% 239% n/a
Year ended 12/31/93........... 0.57% 212% n/a
Year ended 12/31/92........... 1.13% 103% n/a
BALANCED FUND
Six months ended 06/30/97..... 2.94%** 188% 0.0662
Year ended 12/31/96........... 3.09% 146% 0.0588
Year ended 12/31/95........... 2.92% 286% n/a
Year ended 12/31/94........... 2.37% 258% n/a
Year ended 12/31/93........... 2.30% 251% n/a
Year ended 12/31/92........... 3.57% 96% n/a
GOVERNMENT SECURITIES FUND
Six months ended 06/30/97..... 5.10%** 202% n/a
Year ended 12/31/96........... 5.06% 166% n/a
Year ended 12/31/95........... 4.92% 141% n/a
Year ended 12/31/94........... 5.52% 379% n/a
Year ended 12/31/93........... 4.33% 429% n/a
Year ended 12/31/92........... 4.83% 204% n/a
MONEY MARKET FUND
Six months ended 06/30/97..... 4.76%** n/a n/a
Year ended 12/31/96........... 4.58% n/a n/a
Year ended 12/31/95........... 5.11% n/a n/a
Year ended 12/31/94........... 3.49% n/a n/a
Year ended 12/31/93........... 2.26% n/a n/a
Year ended 12/31/92........... 2.78% n/a n/a
+ Certain fees were waived by the management company. Had these fees not been
waived, the expense ratios for gross expenses for Government Securities Fund
would have been 1.52% (1997) and 1.49% (1996), and the expense ratios for
net expenses for Government Securities Fund would have been 1.41% (1997) and
1.46% (1996).
n/a Disclosure not applicable or not required in prior periods.
** Annualized
77
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
1. ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES
Founders Funds, Inc. (the "Funds") is a diversified open-end management
investment company registered under the Investment Company Act of 1940. Eleven
series of shares are currently issued: Discovery, Passport, Frontier, Special,
International Equity, Worldwide Growth, Growth, Blue Chip, Balanced, Government
Securities and Money Market Funds (individually a "Fund"). The following
significant accounting policies have been consistently followed by the Funds in
the preparation of their financial statements.
SECURITIES VALUATION--With the exception of Money Market Fund, market value of
investments is determined from closing quotations on national security exchanges
or at the last current bid price in the case of securities traded
over-the-counter or by quotes from dealers making a market for securities not
listed on an exchange or traded over-the-counter. In the event that the closing
price of a foreign security is not available in time to calculate a Fund's net
asset value on a particular day, the Fund's board of directors has authorized
the use of the market price for the security obtained from an approved pricing
service at an established time during the day which may be prior to the close of
regular trading in the security. London closing quotes for exchange rates are
used to convert foreign security values into U.S. dollars. Short-term
securities, with a maturity of less than 60 days, and all securities held by
Money Market Fund, are valued at amortized cost, which approximates market.
FOREIGN SECURITIES--Foreign securities may carry more risk than U.S.
securities; such as currency fluctuations, political stability, economic
stability and regulatory capabilities. All of the Funds may invest at least a
portion of their assets in foreign securities. In the event that a Fund executes
a foreign security transaction, the Fund will enter into a foreign currency
contract to settle the foreign security transaction. The resultant foreign
currency gain or loss from the contract is recorded as foreign currency gain or
loss and is presented as such in the Statements of Operations. Foreign currency
held at June 30, 1997 for settling foreign trades is listed on the Statements of
Assets and Liabilities.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Funds to comply with the special provisions of the
Internal Revenue Code applicable to regulated investment companies, and to make
distributions of income and capital gains sufficient to relieve them from all
income taxes. Each Fund is treated as a separate tax entity for federal income
tax purposes.
78
<PAGE>
INVESTMENT INCOME--Dividend income is recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded as soon as the Fund
is informed of the dividend if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and amortization of premiums.
DISTRIBUTIONS TO SHAREHOLDERS--Net investment income distributions and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are due to differing treatments for items such as deferral of wash
sales, foreign currency transactions, net operating losses and capital loss
carryforwards. For Government Securities and Money Market Funds, distributions
are declared daily and paid monthly from net investment income, and capital
gains (if any) are distributed annually. For Balanced Fund, distributions from
income are declared and distributed quarterly. All other Funds declare and
distribute dividends and capital gains (if any) annually. All distributions are
recorded on the ex-dividend date.
EXPENSES--Each of the Funds bears expenses incurred specifically on its behalf
and, in addition, each Fund bears a portion of general expenses based on the
relative net assets, or accounts of each Fund. The type of expense determines
the allocation method.
OPTIONS--Premiums received by the Funds upon writing call options are recorded
as an asset with a corresponding liability which is subsequently adjusted to the
current market value of the option. When an option expires, is exercised, or is
closed, the Funds realize a gain or loss, and the liability is eliminated. The
Funds continue to bear the risk of adverse movements in the price of the
underlying asset during the period of the option, although any potential loss
during the period would be reduced by the amount of the option premium received.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
OTHER--Security transactions and shareholder transactions are recorded on the
date the securities and/or shares are purchased or sold (trade date).
79
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
In accordance with the investment advisory agreements between the Funds and
Founders Asset Management, Inc. ("FAMI"), the Funds compensate FAMI for its
services as investment adviser by the payment of fees computed daily and paid
monthly at the annual rate equal to a percentage of the average daily net assets
of each Fund. For Discovery, Passport, Frontier, International Equity and
Worldwide Growth Funds, the fee is 1% of the first $250 million of net assets,
0.80% of the next $250 million of net assets, and 0.70% of net assets in excess
of $500 million. For Special and Growth Funds, the fee is 1% of the first $30
million of net assets, 0.75% of the next $270 million of net assets, 0.70% of
the next $200 million of net assets and 0.65% of net assets in excess of $500
million. For Blue Chip and Balanced Funds, the fee is 0.65% of the first $250
million of net assets, 0.60% of the next $250 million of net assets, 0.55% of
the next $250 of net assets and 0.50% of net assets in excess of $750 million.
For Money Market Fund, the fee is 0.50% of the first $250 million of net assets,
0.45% of the next $250 million of net assets, 0.40% of the next $250 million of
net assets, and 0.35% of the net assets in excess of $750 million. For
Government Securities Fund, the fee is 0.65% of the first $250 million of net
assets, and 0.50% of the net assets in excess of $250 million.
During the six months ended June 30, 1997, FAMI limited International Equity
Fund's expenses to 2.00% of average net assets. Effective July 1, 1997, FAMI has
committed to limit certain of International Equity Fund's expenses to 1.80% of
average net assets. For the six months ended June 30, 1997, $14,288 was
reimbursed to the Fund.
Investors Fiduciary Trust Company ("IFTC") is the designated shareholder
accounting, transfer and dividend disbursing agent for each Fund. With the
exception of out of pocket charges, the fees charged by IFTC are paid by FAMI.
The out of pocket charges from IFTC are paid by the Funds. IFTC also serves as
custodian for the Funds. The fees for the custody services are subject to
reduction by credits earned on the cash balances of each Fund held
at IFTC.
80
<PAGE>
The Funds have agreed to compensate FAMI for providing certain shareholder
servicing functions in addition to those currently provided by IFTC. The Funds
paid FAMI a monthly fee equal on an annual basis to $24.00 per shareholder
account of the Fund considered to be an open account at any time during a given
month. Effective June 1, 1997, the annual fee for providing these services was
changed to $26.00.
The Funds have also agreed to compensate FAMI for providing accounting
services, administration, compliance monitoring, regulatory and shareholder
reporting, as well as facilities, equipment and clerical help as shall be
necessary to provide these services to the Funds. The fee is computed at the
annual rate of 0.06% of the average daily net assets of the Funds up to $500
million and 0.02% of the average daily net assets of the Funds in excess of $500
million.
Discovery, Passport, Frontier, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced and Government Securities Funds each have
adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940. Each plan provides that the Fund may pay distribution expenses of
up to 0.25% each year on its average daily net assets. During the six months
ended June 30, 1997, Founders elected not to collect the full 0.25% from
Government Securities Fund, which resulted in the Fund paying 0.05% under the
plan.
Certain officers, directors, and shareholders of the Funds are also officers
and/or directors of FAMI.
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. WRITTEN CALL OPTIONS
During the six months ended June 30, 1997, Balanced and Blue Chip held covered
call options. A call option is a contract that entitles the holder to buy, at
his or her option, a specified number of units of a particular security at a
specified price at any time until the stated expiration date of the contract.
Written Call Options activity during the six months ended June 30, 1997:
<TABLE>
<CAPTION>
NO. OF NO. OF NO. OF NO. OF
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
BEGINNING OF PERIOD WRITTEN CLOSED END OF PERIOD
------------------- ------------------ ------------------- ------------------ REALIZED
FUND NUMBER PREMIUM NUMBER PREMIUM NUMBER PREMIUM NUMBER PREMIUM GAIN/(LOSS)
- -------------- ------- -------- ------ ------- ------ -------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Fund 608 $283,999 0 $ 0 608 $283,999 0 $ 0 $283,999
Balanced Fund 38 53,996 0 0 38 53,996 0 0 53,996
</TABLE>
82
<PAGE>
4. FEDERAL INCOME TAX
Net investment income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards.
Net capital loss carryovers and post-October 31 capital losses noted below, if
any, as of December 31, 1996, are available to offset future realized capital
gains and thereby reduce future taxable gains distributions. Post-October 31
foreign currency losses noted below, if any, will offset future net investment
income and thereby reduce future ordinary income distributions. The capital loss
carryover for the Government Securities Fund expires in the years 2002 through
2004. The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 1997 are below (in thousands). For Federal tax purposes,
the cost of investments owned at June 30, 1997 was the same as identified cost.
<TABLE>
<CAPTION>
POST- POST-
NET OCTOBER OCTOBER
CAPITAL CAPITAL CURRENCY FEDERAL NET
LOSS LOSS LOSS TAX UNREALIZED UNREALIZED APPRECIATION/
CARRYOVERS DEFERRAL DEFERRAL COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
---------- ------- -------- --------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Discovery Fund....................... $ 0 $ 0 $ 0 $ 172,389 $ 64,363 $(10,980) $ 53,383
Passport Fund........................ 0 0 0 172,460 42,276 (5,087) 37,189
Frontier Fund........................ 0 0 (33) 185,216 63,710 (4,058) 59,652
Special Fund......................... 0 0 (49) 276,072 54,002 (5,147) 48,855
International Equity Fund............ 0 0 (2) 12,756 1,978 (280) 1,698
Worldwide Growth Fund................ 0 (1,591) (41) 264,301 81,326 (4,352) 76,974
Growth Fund.......................... 0 0 (7) 1,163,442 256,448 (2,626) 253,822
Blue Chip Fund....................... 0 0 (15) 515,183 68,307 (7,782) 60,525
Balanced Fund........................ 0 0 (31) 680,813 54,326 (7,429) 46,897
Government Securities Fund........... (3,322) 0 0 13,412 44 (25) 19
Money Market Fund.................... 0 0 0 145,209 0 0 0
</TABLE>
83
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. FUND SHARE TRANSACTIONS
Transactions in shares of the Funds for the periods indicated were as follows
(in thousands):
<TABLE>
<CAPTION>
REINVESTED NET INCREASE
SOLD DISTRIBUTIONS REDEEMED (DECREASE)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Discovery Fund:
Six months ended 06/30/97................... 3,484 0 (4,374) (890)
Year ended 12/31/96......................... 9,601 767 (10,129) 239
Passport Fund:
Six months ended 06/30/97................... 5,599 0 (4,529) 1,070
Year ended 12/31/96......................... 16,459 98 (8,046) 8,511
Frontier Fund:
Six months ended 06/30/97................... 1,164 0 (4,547) (3,383)
Year ended 12/31/96......................... 3,958 968 (4,748) 178
Special Fund:
Six months ended 06/30/97................... 2,661 0 (11,562) (8,901)
Year ended 12/31/96......................... 15,920 2,631 (26,226) (7,675)
International Equity Fund:
Six months ended 06/30/96................... 482 0 (243) 239
Year ended 12/31/96......................... 1,051 0 (275) 776
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
REINVESTED NET INCREASE
SOLD DISTRIBUTIONS REDEEMED (DECREASE)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Worldwide Growth Fund:
Six months ended 06/30/97................... 2,830 0 (4,130) (1,300)
Year ended 12/31/96......................... 10,382 537 (6,721) 4,198
Growth Fund:
Six months ended 06/30/97................... 23,346 0 (16,710) 6,636
Year ended 12/31/96......................... 52,751 4,809 (31,481) 26,079
Blue Chip Fund:
Six months ended 06/30/97................... 5,613 0 (10,622) (5,009)
Year ended 12/31/96......................... 27,721 8,894 (18,585) 18,030
Balanced Fund:
Six months ended 06/30/97................... 40,791 597 (8,300) 33,088
Year ended 12/31/96......................... 30,655 2,148 (9,216) 23,587
Government Securities Fund:
Six months ended 06/30/97................... 376 38 (632) (218)
Year ended 12/31/96......................... 1,885 91 (2,476) (502)
Money Market Fund:
Six months ended 06/30/97................... 157,700 3,016 (126,709) 34,007
Year ended 12/31/96......................... 440,366 6,354 (462,525) (15,805)
</TABLE>
85
<PAGE>
[Logo]
Founders Funds
Founders Asset Management, Inc.
2930 East Third Avenue
Denver, CO 80206-5002
1-800-525-2440
WWW.FOUNDERS.COM
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
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus for Founders Funds, Inc., which
contains more complete information, including management fees and expenses.
Please read the prospectus carefully before you invest or send money.
(c) 1997 Founders Asset Management, Inc., Distributor. Founders Funds and the
Founders logo are registered trademarks of Founders Asset Management, Inc.
Date of first use: August 27, 1997
A-478-SAR
