FOUNDERS FUNDS INC, 497, 1998-05-01

FOUNDERS FUNDS INC
497, 1998-05-01

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PROSPECTUS
May 1, 1998

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

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

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

FIXED-INCOME FUND
Founders Government Securities Fund

MONEY MARKET FUND
Founders Money Market Fund

(LOGO)
Founders Funds
Growth. Plain and Simple.
<PAGE>
FOUNDERS FUNDS, INC.

PROSPECTUS
May 1, 1998

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

CAPITAL APPRECIATION

Founders Discovery Fund
Founders Passport Fund
Founders Frontier Fund
Founders Special Fund

LONG-TERM GROWTH OF CAPITAL AND INCOME

Founders Blue Chip Fund

CURRENT INCOME

Founders Government Securities Fund

LONG-TERM GROWTH OF CAPITAL

Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund

CURRENT INCOME AND CAPITAL APPRECIATION

Founders Balanced Fund

MAXIMUM CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL AND LIQUIDITY

Founders Money Market Fund

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

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

3
<PAGE>
CONTENTS
- -------------------------------------------------------------------------------

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

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

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

THE FUNDS AND THEIR MANAGEMENT..... 7

Founders' Investment
Philosophy.................. 7

Founders' Investment Management
Team........................ 8

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

Discovery Fund.............. 10

Passport Fund............... 12

Frontier Fund............... 14

Special Fund................ 16

International Equity Fund... 18

Worldwide Growth Fund....... 20

Growth Fund................. 22

Blue Chip Fund.............. 24

Balanced Fund............... 26

Government Securities Fund.. 28

Money Market Fund........... 30

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

GENERAL INFORMATION................ 39

Understanding Fund
Expenses.................... 39

Understanding Financial
Highlights.................. 39

Calculating Share Price........ 41

Dividends and Distributions.... 41

Dividend and Capital Gain
Distribution Options........ 41

Taxes.......................... 42

Founders' Services to the
Funds....................... 43

Distribution Plans............. 45

Distributor.................... 46

Computer Systems............... 47

Voting Rights.................. 47

Fund Performance
Information................. 47

INVESTING IN THE FOUNDERS FUNDS.... 48

CONDUCTING BUSINESS WITH
FOUNDERS......................... 50

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

4
<PAGE>
HOW TO CONTACT US
- -------------------------------------------------------------------------------

At Founders, you can do business with us the way that's easiest for you. To
request information, ask questions, or communicate transaction instructions, you
can:
o call us toll-free
o mail us your written instructions
o fax exchange requests
o find us on the Internet
o visit our Denver Investor Center

BY PHONE

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

Toll-free 24-hour FastLine (TM) automated phone service
1-800-947-FAST (3278)

BY MAIL

Founders Asset Management LLC
P.O. Box 173655
Denver, CO 80217-3655

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

BY FAX

Exchange requests may be sent by fax to (303) 394-4021.

ON THE WORLD WIDE WEB

Founders InvestorSITE at www.founders.com

BY E-MAIL

Send comments or questions
to us at "comments@ founders.com"

IN PERSON

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

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

5
<PAGE>
WELCOME TO FOUNDERS
- -------------------------------------------------------------------------------

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

INVESTMENT OBJECTIVES AND RISKS

The descriptions on the following pages may help you choose the Fund that best
fits your investment needs. These descriptions include each Fund's objective,
strategies, annual expenses, and financial highlights.
Depending on your investment goals and time horizon, you may want to pursue
your objectives by investing in more than one Fund. Please keep in mind that no
Fund can guarantee it will meet its investment objective.
Like all investments in securities, you risk losing money by investing in
the Funds. Several of the Funds invest in small- to medium-sized companies,
which involve greater risks than investments in larger companies.
All of the Funds can invest in foreign securities, which involve the risks
of investing overseas. Certain of the Funds may invest in Rule 144A securities,
which may be difficult to dispose of at the time desired or at a reasonable
price if institutional investors become disinterested in purchasing such
securities. These securities are described later in this prospectus.
The Funds' investments in debt securities are subject to market risk and
credit risk. In addition, the Funds may invest in mortgage-related securities,
which pose the risk that borrowers may prepay the underlying mortgages faster
than expected, which may adversely affect the instruments' average life and
yield.
While the Funds seek to limit these risks by diversifying their portfolios
among different companies in a variety of industries, they cannot eliminate
these risks.
For more information on the investment techniques the Funds use to pursue
their objectives, and their related risks, read the section entitled "Investment
Policies and Risks."

6
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
- -------------------------------------------------------------------------------

FOUNDERS' INVESTMENT PHILOSOPHY

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

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

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

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

7
<PAGE>
FOUNDERS' INVESTMENT MANAGEMENT TEAM

To facilitate day-to-day Fund management, we use a unique team-and-lead-manager
system for our Funds. The team is composed of several members of our Investment
Department, including lead portfolio managers, portfolio traders and research
analysts.
Each of these individuals brings ideas, information, knowledge, and
expertise to the table to help in the management of the Funds. Daily decisions
on security selection for each Fund rest with a lead portfolio manager assigned
to the Fund. Through participation in the team process, the manager uses the
input, research, and advice of the rest of the management team in making
purchase and sale decisions. The portfolio managers for each Fund are listed
under "The Funds and Their Management."

8
<PAGE>
FOUNDERS' FUND OFFERINGS

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

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

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

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

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

9
<PAGE>
FOUNDERS DISCOVERY FUND
- --------------------------------------------------------------------------------

[Graphic: INVESTMENT OBJECTIVE
Spacecraft] Capital appreciation

DISCOVERY FUND will nor-
mally invest at least 65% of its total assets in common stocks of
small, rapidly growing U.S. companies with market capitalizations or annual
revenues between $10-$500 million. Typically, these companies are not listed on
a national securities exchange, but trade on the over-the-counter market.
Although the Fund normally will invest in common stocks of U.S. companies, it
may invest up to 30% of its total assets in foreign securities. For more
information on the Fund's investment techniques and their related risks, see
"Investment Policies and Risks."

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

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

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

Management Fees 0.99%
12b-1 Fees (1) 0.25%
Other Expenses 0.30%
-----
Total Fund Operating Expenses 1.54%
=====

10 11
<PAGE>

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

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

1 Year 3 Years 5 Years 10 Years
- ------- -------- -------- ---------
$16 $49 $85 $185

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR
AND MAY BE HIGHER OR LOWER THAN THOSE SHOWN BELOW LEFT.

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.

You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants which appear in the
Funds' 1997 Annual Report to Shareholders, and which are incorporated in the
Statement of Additional Information (the "SAI") by reference. You can receive
both the Annual Report and the SAI without charge by contacting Founders at the
address or telephone number on the back cover of this prospectus.
<TABLE>
<CAPTION>
Years Ended December 31* 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $24.22 $21.70 $19.88 $21.55 $19.93 $17.52 $11.22 $10.00
--------- --------- --------- ---------- --------- ---------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.07 (0.20) (0.12) (0.12) (0.15) (0.03) (0.04) 0.10
Net Gains or Losses on Securities
(Both Realized and Unrealized) 2.69 4.72 6.29 (1.55) 2.29 2.68 7.02 1.22
--------- --------- --------- ---------- --------- ---------- ------- ---------
TOTAL FROM INVESTMENT OPERATIONS 2.76 4.52 6.17 (1.67) 2.14 2.65 6.98 1.32
--------- --------- --------- ---------- --------- ---------- ------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.10)
From Net Realized Gains (3.53) (2.00) (4.35) 0.00 (0.52) (0.24) (0.68) 0.00
--------- --------- --------- ---------- --------- ---------- ------- ---------
TOTAL DISTRIBUTIONS (3.53) (2.00) (4.35) 0.00 (0.52) (0.24) (0.68) (0.10)
--------- --------- --------- ---------- --------- ---------- ------- ---------
Net Asset Value - End of Period 23.45 $ 24.22 $ 21.70 $ 19.88 $ 21.55 $ 19.93 $ 17.52 $ 11.22
========= ========= ========= ========== ========= ========== ======= =========
TOTAL RETURN 12.0% 21.2% 31.3% (7.8%) 10.8% 15.2% 62.5% 13.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $ 246,281 $ 247,494 $ 216,623 $ 185,310 $ 226,069 $ 151,983 $47,678 $ 7,035
Net Expenses to Average Net Assets# 1.52% 1.58% 1.58% 1.67% 1.65% 1.85% 1.77 2.03%
Gross Expenses to Average Net Assets# 1.54% 1.59% 1.63% -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets (0.55%) (0.85%) (0.60) (0.62%) (0.97%) (0.67%) (0.55) 1.68%
Portfolio Turnover Rate 90% 106% 118% 72% 99% 111% 165 271%
Average Commission Rate Paid $ 0.0486 $ 0.0566 -- -- -- -- -- --
</TABLE>

* NO ACTIVITY IN INCEPTION YEAR OF 1989
# NET EXPENSES INCLUDE THE CUSTODIAL CREDITS SHOWN AS EARNINGS CTS 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.

10 11
<PAGE>
FOUNDERS PASSPORT FUND
- --------------------------------------------------------------------------------

[Graphic: INVESTMENT OBJECTIVE
Compass] Capital appreciation

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

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

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

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

Management Fees 1.00%
12b-1 Fees (1) 0.25%
Other Expenses 0.30%
-----
Total Fund Operating Expenses 1.55%
=====
12 13
<PAGE>

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

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

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
PERIOD OF 11/16/93
Years Ended December 31 1997 1996 1995 1994
(INCEPTION) -
12/31/93
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $13.91 $11.68 $9.42 $10.53 $10.00
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.02 0.04 0.04 0.02 0.00
Net Gains or Losses on Securities
(Both Realized and Unrealized) 0.22 2.30 2.26 (1.11) 0.53
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.24 2.34 2.30 (1.09) 0.53
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.03) (0.02) (0.04) (0.02) 0.00
From Net Realized Gains (0.48) (0.09) 0.00 0.00 0.00
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.51) (0.11) (0.04) (0.02) 0.00
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $13.64 $13.91 $11.68 $9.42 $10.53
========= ========= ========= ========= =========
TOTAL RETURN 1.7% 20.1% 24.4% (10.4%) 5.3%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $122,646 $177,921 $49,922 $16,443 $18,567
Net Expenses to Average Net Assets# 1.53% 1.57% 1.76% 1.88% 1.70%*
Gross Expenses to Average Net Assets# 1.55% 1.59% 1.84% -- --
Ratio of Net Investment Income to
Average Net Assets 0.20% 0.40% 0.60% 0.12% 0.18%*
Portfolio Turnover Rate 51% 58% 37% 78% 6.0%
Average Commission Rate Paid $0.0103 $0.0147 -- -- --
</TABLE>
* ANNUALIZED
# 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.

12 13
<PAGE>
FOUNDERS FRONTIER FUND
- --------------------------------------------------------------------------------

[Graphic: INVESTMENT OBJECTIVE
Spyglass] Capital appreciation

FRONTIER FUND will normally
invest at least 65% of its total assets in common stocks of small- and
medium-sized U.S. and foreign companies with market capitalizations or annual
revenues of $200 million-$1.5 billion. Often, these companies are not listed on
a national securities exchange but trade on the over-the-counter market.
While the Fund normally will be at least 50% invested in U.S. companies, and
have no more than 25% of its total assets invested in any one foreign country,
it also has the flexibility to be completely invested in U.S. or foreign
securities, depending on investment opportunities. The Fund also may invest in
large companies if, in our opinion, they represent better prospects for capital
appreciation. For more information on the Fund's investment techniques and their
related risks, see "Investment Policies and Risks."

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

(although a $6 fee will be assessed for wire redemptions).

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

Management Fees 0.99%
12b-1 Fees (1) 0.25%
Other Expenses 0.33%
-----
Total Fund Operating Expenses 1.57%
=====
14 15
<PAGE>

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

1 Year 3 Years 5 Years 10 Years
- ------- -------- -------- ---------
$16 $50 $86 $188

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.
You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants which appear in the
Funds' 1997 Annual Report to Shareholders, and which are incorporated in the
Statement of Additional Information (the "SAI") by reference. You can receive
both the Annual Report and the SAI without charge by contacting Founders at the
address or telephone number on the back cover of this prospectus.

<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $32.34 $31.08 $26.50 $27.94 $25.03 $24.21 $16.87 $18.49
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss] (0.15) (0.15) (0.02) (0.07) (0.12) (0.11) 0.01 0.15
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.90 4.46 9.76 (0.72) 4.23 2.24 8.27 (1.53)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.75 4.31 9.74 (0.79) 4.11 2.13 8.28 (1.38)
--------- --------- --------- --------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income 0.00 0.00 0.00 0.00 0.00 0.00 (0.01) (0.16)
From Net Realized Gains (6.10) (3.05) (5.16) (0.65) (1.20) (1.31) (0.93) (0.08)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (6.10) (3.05) (5.16) (0.65) (1.20) (1.31) (0.94) (0.24)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value - End of Period $27.99 $32.34 $31.08 $26.50 $27.94 $25.03 $24.21 $16.87
========= ========= ========= ========= ========= ========= ========= =========
TOTAL RETURN 6.2% 14.3% 37.0% (2.8%) 16.5% 8.9% 49.3% (7.5%)
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $222,104 $350,861 $331,720 $247,113 $254,248 $146,484 $103,209 $39,269
Net Expenses to Average Net Assets# 1.54% 1.52% 1.53% 1.62% 1.66% 1.83% 1.68% 1.71%
Gross Expenses to Average Net Assets# 1.57% 1.53% 1.57% -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets (0.91%) (0.47%) (0.07%) (0.25%) (0.75%) (0.58%) 0.05% 0.78%
Portfolio Turnover Rate 54% 85% 92% 72% 109% 155% 158% 207%
Average Commission Rate Paid $0.0527 $0.0567 -- -- -- -- -- --
</TABLE>

Years Ended December 31 1989 1988
PER SHARE DATA
Net Asset Value - Beginning of Period $13.45 $11.03
--------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss] 0.12 (0.06)
Net Gains or Losses on Securities
(Both Realized and Unrealized) 5.81 3.26
--------- ---------
TOTAL FROM INVESTMENT OPERATIONS 5.93 3.20
--------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.05) 0.00
From Net Realized Gains (0.84) (0.78)
--------- ---------
TOTAL DISTRIBUTIONS (0.89) (0.78)
--------- ---------
Net Asset Value - End of Period $18.49 $13.45
========= =========
TOTAL RETURN 44.3% 29.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $50,318 $8,771
Net Expenses to Average Net Assets # 1.46% 1.89%
Gross Expenses to Average Net Assets
# -- --
Ratio of Net Investment Income to
Average Net Assets 0.38% (0.43%)
Portfolio Turnover Rate 198% 312%
Average Commission Rate Paid -- --

# 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.

14 15
<PAGE>
FOUNDERS SPECIAL FUND
- --------------------------------------------------------------------------------

[Graphic: INVESTMENT OBJECTIVE
Compass Capital appreciation
Star]
SPECIAL FUND normally in-
vests at least 65% of its total assets in equity securities of domestic and
foreign issuers which we characterize as "growth" companies. We generally will
select securities for the Fund without regard to an issuer's market
capitalization. The Fund may invest up to 30% of its total assets in foreign
securities, with no more than 25% of its total assets invested in the securities
of any one foreign country. For more information on the Fund's investment
techniques and their related risks, see "Investment Policies and Risks."

PORTFOLIO MANAGER
Paul A. LaRocco, VICE PRESIDENT OF INVESTMENTS. Mr. LaRocco is a Chartered
Financial Analyst who became lead portfolio manager for Founders Special Fund in
March 1998.

Prior to joining Founders, Mr. LaRocco was a vice president and portfolio
manager with Oppenheimer Funds Inc. (1993-1998) and a securities analyst with
Columbus Circle Investors (1990-1993). Since April 1998, Mr. LaRocco also has
served as a portfolio manager for The Dreyfus Corporation. A graduate of the
University of California at Santa Barbara, Mr. LaRocco received an MBA with a
concentration in finance from the University of Chicago.

EXPENSES
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions).

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

Management Fees 0.77%
12b-1 Fees (1) 0.25%
Other Expenses 0.30%
-----
Total Fund Operating Expenses 1.32%
=====

16 17
<PAGE>
(1) LONG-TERM SHAREHOLDERS MAY, OVER TIME, INDIRECTLY PAY MORE IN 12b-1 FEES
THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED BY
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

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

1 Year 3 Years 5 Years 10 Years
- ------- -------- -------- ---------
$14 $42 $73 $160

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.

<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $7.66 $7.05 $7.01 $7.67 $7.76 $7.59 $5.03 $6.64
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.01 (0.02) 0.00 (0.02) (0.01) (0.01) 0.08 0.09
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.21 1.09 1.79 (0.36) 1.25 0.64 3.09 (0.79)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.22 1.07 1.79 (0.38) 1.24 0.63 3.17 (0.70)
--------- --------- --------- --------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS

From Net Investment Income 0.00 0.00 0.00 0.00 0.00 0.00 (0.04) (0.10)
From Net Realized Gains (1.16) (0.46) (1.75) (0.28) (1.33) (0.46) (0.57) (0.81)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (1.16) (0.46) (1.75) (0.28) (1.33) (0.46) (0.61) (0.91)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value - End of Period $7.72 $7.66 $7.05 $7.01 $7.67 $7.76 $7.59 $5.03
========= ========= ========= ========= ========= ========= ========= =========
TOTAL RETURN 16.4% 15.3% 25.7% (4.9%) 16.0% 8.3% 63.7% (10.4%)
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $320,186 $363,835 $388,754 $299,190 $432,710 $456,793 $226,154 $57,951
Net Expenses to Average Net Assets# 1.30% 1.34% 1.29% 1.36% 1.33% 1.23% 1.15% 1.20%
Gross Expenses to Average Net Assets# 1.32% 1.36% 1.35% -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets (0.05%) (0.28%) 0.00% (0.27%) (0.14%) (0.05%) 0.76% 1.54%
Portfolio Turnover Rate 110% 186% 263% 272% 285% 223% 102% 146%
Average Commission Rate Paid $0.0555 $0.0417 -- -- -- -- -- --
</TABLE>

Years Ended December 31 1989 1988
PER SHARE DATA
Net Asset Value - Beginning of Period $5.47 $5.14
--------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.16 0.03
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.97 0.65
--------- ---------
TOTAL FROM INVESTMENT OPERATIONS 2.13 0.68
--------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.15) (0.04)
From Net Realized Gains (0.81) (0.31)
--------- ---------
TOTAL DISTRIBUTIONS (0.96) (0.35)
--------- ---------
Net Asset Value - End of Period $6.64 $5.47
========= =========
TOTAL RETURN 39.2% 13.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $94,554 $62,990
Net Expenses to Average Net Assets # 1.06% 1.12%
Gross Expenses to Average Net Assets
# -- --
Ratio of Net Investment Income to
Average Net Assets 1.95% 0.59%
Portfolio Turnover Rate 151% 160%
Average Commission Rate Paid -- --

# NET EXPENSES INCLUDE THE CUSTODIAL CREDITS SHOWN AS EARNINGS CREDITS ON THE
STATEMENTS OF OPERATIONS.
THESE CREDITS ARE EARNED ON UNIVESTED CASH HELD AT THE CUSTODIAN. GROSS
EXPENSES ARE GROSSED UP BY THE EARNED CREDITS AS REQUIRED BY THE SEC.

16 17
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------

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

PORTFOLIO MANAGER
Douglas A. Loeffler, VICE PRESIDENT OF INVESTMENTS. Mr. Loeffler is a Chartered
Financial Analyst who has been lead portfolio manager for Founders International
Equity Fund since 1997. Mr. Loeffler also served as co-lead portfolio manager
for Founders Special Fund from 1997 until March 1998. Mr. Loeffler joined
Founders in 1995 as a senior international equities analyst and previously
served as assistant portfolio manager for Founders International Equity Fund.
Prior to joining Founders, he served for seven years with Scudder, Stevens &
Clark as an international equities analyst and as a quantitative analyst. A
graduate of Washington State University, Mr. Loeffler received an MBA in finance
from the University of Chicago.

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

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

Management Fees 1.00%
12b-1 Fees (1) 0.25%
Other Expenses (after expense
reimbursements) (2) 0.55%
-----
Total Fund Operating
Expenses (after expense
reimbursements) (2) 1.80%
=====
18 19
<PAGE>

(2) CERTAIN EXPENSES OF THE FUND ARE BEING REIMBURSED VOLUNTARILY BY FOUNDERS.
THE EXPENSE INFORMATION IN THE TABLE HAS BEEN RESTATED TO REFLECT THE CURRENT
EXPENSE LIMITATION. IN THE ABSENCE OF THIS EXPENSE LIMITATION, "OTHER
EXPENSES" AND "TOTAL FUND OPERATING EXPENSES" IN THE ABOVE TABLE WOULD BE
0.80% AND 2.05%, RESPECTIVELY.

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

1 Year 3 Years 5 Years 10 Years
- ------- -------- -------- ---------
$18 $57 $98 $213

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.
You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants which appear in the
Funds' 1997 Annual Report to Shareholders and which are incorporated in the
Statement of Additional Information (the "SAI") by reference. You can receive
both the Annual Report and the SAI without charge by contacting Founders at the
address or telephone number on the back cover of this prospectus.

PERIOD OF
12/29/95
(INCEPTION)-
Year Ended December 31 1997 1996 12/31/95
PER SHARE DATA
Net Asset Value - Beginning of Period $11.86 $10.00 $10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) (0.01) (0.01) 0.00
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.89 1.87 0.00
--------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.88 1.86 0.00
--------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income 0.00 0.00 0.00
From Net Realized Gains (1.69) 0.00 0.00
--------- --------- ---------
TOTAL DISTRIBUTIONS (1.69) 0.00 0.00
--------- --------- ---------
Net Asset Value - End of Period $12.05 $11.86 $10.00
========= ========= =========
TOTAL RETURN 16.1% 18.6% 0.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $15,740 $10,119 $ 767
Net Expenses to Average Net Assets*# 1.85% 1.94% n/a
Gross Expenses to Average Net Assets* 1.89% 2.00% n/a
Ratio of Net Investment Income to
Average Net Assets* (0.21%) (0.15%) n/a
Portfolio Turnover Rate 164% 71% n/a
Average Commission Rate Paid $0.0145 $0.0189 n/a

* IN THE ABSENCE OF VOLUNTARY EXPENSE REIMBURSEMENTS AND WAIVERS FROM
FOUNDERS, THE RATIOS OF NET EXPENSES TO AVERAGE NET ASSETS WOULD HAVE
BEEN 2.01% (1997) AND 2.46% (1996), THE RATIOS OF GROSS EXPENSES TO
AVERAGE NET ASSETS WOULD HAVE BEEN 2.05% (1997) AND 2.52% (1996), AND THE
RATIOS OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN
(0.37%) (1997) AND (0.67%) (1996).
# 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.

18 19
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
- --------------------------------------------------------------------------------

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

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

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

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

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

Management Fees 0.95%
12b-1 Fees (1) 0.25%
Other Expenses 0.27%
-----
Total Fund Operating Expenses 1.47%
=====
20 21
<PAGE>

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

1 Year 3 Years 5 Years 10 Years
- ------- -------- -------- ---------
$15 $47 $81 $177

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.
You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants which appear in the
Funds' 1997 Annual Report to Shareholders and which are incorporated in the
Statement of Additional Information (the "SAI") by reference. You can receive
both the Annual Report and the SAI without charge by contacting Founders at the
address or telephone number on the back cover of this prospectus.

<TABLE>
<CAPTION>
Years Ended December 31* 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $21.79 $19.87 $17.09 $17.94 $14.13 $13.92 $10.38 $10.00
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.02 0.10 0.09 (0.02) (0.02) 0.00 0.03 0.29
Net Gains or Losses on Securities
(Both Realized and Unrealized) 2.22 2.64 3.43 (0.37) 4.24 0.21 3.58 0.38
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 2.24 2.74 3.52 (0.39) 4.22 0.21 3.61 0.67
--------- --------- --------- --------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.04) (0.07) (0.09) 0.00 0.00 0.00 (0.03) (0.29)
From Net Realized Gains (2.88) (0.75) (0.65) (0.46) (0.41) 0.00 (0.04) 0.00
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (2.92) (0.82) (0.74) (0.46) (0.41) 0.00 (0.07) (0.29)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value - End of Period $21.11 $21.79 $19.87 $17.09 $17.94 $14.13 $13.92 $10.38
========= ========= ========= ========= ========= ========= ========= =========
TOTAL RETURN 10.6% 14.0% 20.6% (2.2%) 29.9% 1.5% 34.8% 6.7%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $308,877 $342,079 $228,595 $104,044 $85,214 $36,622 $20,305 $5,493
Net Expenses to Average Net Assets# 1.45% 1.53% 1.56% 1.66% 1.80% 2.06% 1.90% 2.10%
Gross Expenses to Average Net Assets# 1.47% 1.55% 1.65% -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets 0.18% 0.50% 0.61% (0.14%) (0.19%) 0.01% 0.38% 3.21%
Portfolio Turnover Rate 82% 72% 54% 87% 117% 152% 84% 170%
Average Commission Rate Paid $0.0277 $0.0247 -- -- -- -- -- --
</TABLE>

* NO ACTIVITY IN INCEPTION YEAR OF 1989
# NET EXPENSES INCLUDE THE CUSTODIAL CREDITS SHOWN AS EARNINGS CREDITS ON THE
STATEMENTS OF OPERATIONS. THESE CREDIT ARE EARNED ON UNINVESTED CASH HELD
AT THE CUSTODIAN. GROSS EXPENSES ARE GROSSED UP BY THE EARNED CREDITS AS
REQUIRED BY THE SEC.

20 21
<PAGE>
FOUNDERS GROWTH FUND
- --------------------------------------------------------------------------------

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

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

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

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

Management Fees 0.68%
12b-1 Fees (1) 0.25%
Other Expenses 0.19%
-----
Total Fund Operating Expenses 1.12%
=====

(1) LONG-TERM SHAREHOLDERS MAY, OVER TIME, INDIRECTLY PAY MORE IN 12bS-1 FEES
THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED BY
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

22 23
<PAGE>
IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL
INFORMATION - FOUNDERS' SERVICES TO THE FUNDS."

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

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.

<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $15.87 $14.77 $11.63 $12.38 $10.54 $11.22 $8.27 $9.41
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.07 0.02 0.02 (0.02) (0.01) 0.01 0.07 0.13
Net Gains or Losses on Securities
(Both Realized and Unrealized) 4.09 2.40 5.27 (0.39) 2.70 0.48 3.82 (1.13)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 4.16 2.42 5.29 (0.41) 2.69 0.49 3.89 (1.00)
--------- --------- --------- --------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.07) (0.02) (0.02) 0.00 0.00 (0.01) (0.07) (0.13)
From Net Realized Gains (2.68) (1.30) (2.13) (0.34) (0.85) (1.16) (0.87) (0.01)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (2.75) (1.32) (2.15) (0.34) (0.85) (1.17) (0.94) (0.14)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value - End of Period $17.28 $15.87 $14.77 $11.63 $12.38 $10.54 $11.22 $8.27
========= ========= ========= ========= ========= ========= ========= =========
TOTAL RETURN 26.6% 16.6% 45.6% (3.4%) 25.5% 4.3% 47.4% (10.6%)
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $1,757,449 $1,118,323 $655,927 $307,988 $343,423 $145,035 $140,726 $87,669
Net Expenses to Average Net Assets# 1.10% 1.19% 1.24% 1.33% 1.32% 1.54% 1.45% 1.45%
Gross Expenses to Average Net Assets# 1.12% 1.20% 1.28% -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets 0.48% 0.15% 0.12% (0.17%) (0.15%) 0.06% 0.65% 1.53%
Portfolio Turnover Rate 189% 134% 130% 172% 131% 216% 161% 178%
Average Commission Rate Paid $0.0615 $0.0649 -- -- -- -- -- --
</TABLE>

Years Ended December 31 1989 1988
PER SHARE DATA
Net Asset Value - Beginning of Period $7.61 $7.41
--------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.07 0.13
Net Gains or Losses on Securities
(Both Realized and Unrealized) 3.07 0.22

--------- ---------
TOTAL FROM INVESTMENT OPERATIONS 3.14 0.35
--------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.07) (0.15)
From Net Realized Gains (1.27) 0.00
--------- ---------
TOTAL DISTRIBUTIONS (1.34) (0.15)
--------- ---------
Net Asset Value - End of Period $9.41 $7.61
========= =========
TOTAL RETURN 41.7% 4.8%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $111,938 $53,023
Net Expenses to Average Net Assets# 1.28% 1.38%
Gross Expenses to Average Net Assets# -- --
Ratio of Net Investment Income to
Average Net Assets 0.77% 1.74%
Portfolio Turnover Rate 167% 179%
Average Commission Rate Paid -- --

22 23
<PAGE>
FOUNDERS BLUE CHIP FUND
- --------------------------------------------------------------------------------

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

BLUE CHIP FUND, a large-
capitalization fund, normally invests primarily in common stocks of large,
well-established, stable and mature companies of great financial strength,
commonly known as "blue chip" companies. These companies generally have long
records of profitability and dividend payments and a reputation for quality
management, products, and services.
The Fund normally invests at least 65%of its total assets in "blue chip"
stocks that:
o Are included in a widely recognized index of stock market performance, such
as the Dow Jones Industrial Average or the Standard & Poor's 500 Index
o Generally pay regular dividends
o Have a market capitalization of at least $1 billion.
The Fund may invest in non-dividend-pay-
ing companies if, in our opinion, they offer better prospects for capital
appreciation. The Fund may also invest up to 30% of its total
assets in foreign securities. For more information on the Fund's investment
techniques and their related risks, see "Investment Policies and Risks."

PORTFOLIO MANAGER
Brian F. Kelly, VICE PRESIDENT OF INVESTMENTS. Mr. Kelly joined Founders in 1996
as the lead portfolio manager of the Founders Blue Chip and Balanced Funds.
Prior to joining Founders, Mr. Kelly served as a portfolio manager for INVESCO
Trust Company (1993 -1996), and as a senior equity investment analyst for Sears
Investment Management Company (1986 -1993). A graduate of the University of
Notre Dame, Mr. Kelly received an MBA and JD from the
University of Iowa. He is also a Certified Public Accountant.

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

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

Management Fees 0.62%
12b-1 Fees (1) 0.25%
Other Expenses 0.24%
-----
Total Fund Operating Expenses 1.11%
=====
24 25
<PAGE>

1 Year 3 Years 5 Years 10 Years
- ------- -------- -------- ---------
$11 $35 $61 $136

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.
You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants which appear in the
Funds' 1997 Annual Report to Shareholders and which are incorporated in the
Statement of Additional Information (the "SAI") by reference. You can receive
both the Annual Report and the SAI without charge by contacting Founders at the
address or telephone number on the back cover of this prospectus.

<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $7.23 $6.69 $6.16 $6.49 $6.91 $7.67 $6.67 $7.32
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.13 0.09 0.09 0.06 0.04 0.08 0.11 0.17
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.25 1.52 1.70 (0.02) 0.96 (0.10) 1.74 (0.14)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.38 1.61 1.79 0.04 1.00 (0.02) 1.85 0.03
--------- --------- --------- --------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.13) (0.09) (0.09) (0.06) (0.04) (0.08) (0.11) (0.17)
From Net Realized Gains (1.56) (0.98) (1.17) (0.31) (1.38) (0.68) (0.74) (0.51)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (1.69) (1.07) (1.26) (0.37) (1.42) (0.74) (0.85) (0.68)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value - End of Period $6.92 $7.23 $6.69 $6.16 $6.49 $6.91 $7.67 $6.67
========= ========= ========= ========= ========= ========= ========= =========
TOTAL RETURN 19.4% 24.4% 29.1% 0.5% 14.5% (0.3%) 28.3% 0.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $543,168 $535,866 $375,200 $311,051 $306,592 $290,309 $290,155 $233,630
Net Expenses to Average Net Assets# 1.09% 1.15% 1.17% 1.21% 1.22% 1.23% 1.10% 1.07%
Gross Expenses to Average Net Assets# 1.11% 1.16% 1.22% -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets 1.84% 1.40% 1.19% 0.88% 0.57% 1.13% 1.52% 2.35%
Portfolio Turnover Rate 256% 195% 235% 239% 212% 103% 95% 82%
Average Commission Rate Paid $0.0597 $0.0613 -- -- -- -- -- --
</TABLE>

Years Ended December 31 1989 1988
PER SHARE DATA
Net Asset Value - Beginning of Period $6.31 $6.14
--------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.16 0.18
Net Gains or Losses on Securities
(Both Realized and Unrealized) 2.05 0.43
--------- ---------
TOTAL FROM INVESTMENT OPERATIONS 2.21 0.61
--------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.16) (0.19)
From Net Realized Gains (1.04) (0.25)
--------- ---------
TOTAL DISTRIBUTIONS (1.20) (0.44)
--------- ---------
Net Asset Value - End of Period $7.32 $6.31
========= =========
TOTAL RETURN 35.6% 10.1%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $232,468 $173,342
Net Expenses to Average Net Assets# 0.98% 1.00%
Gross Expenses to Average Net Assets# -- --
Ratio of Net Investment Income to
Average Net Assets 2.03% 2.81%
Portfolio Turnover Rate 64% 58%
Average Commission Rate Paid -- --

# 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 CUSTODIAl. GROSS EXPENSES ARE GROSSED UP BY THE EARNED CREDITS AS
REQUIRED BY THE SEC.

24 25
<PAGE>
FOUNDERS BALANCED FUND
- --------------------------------------------------------------------------------

[Graphic: INVESTMENT OBJECTIVE
Scale] Current income and capital appreciation

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

PORTFOLIO MANAGER
Brian F. Kelly, VICE PRESIDENT OF INVESTMENTS. Mr. Kelly joined Founders in 1996
as the lead portfolio manager of the Founders Blue Chip and Balanced Funds.
Prior to joining Founders, Mr. Kelly served as a portfolio manager for INVESCO
Trust Company (1993 -1996), and as a senior equity investment analyst for Sears
Investment Management Company (1986 -1993). A graduate of the University of
Notre Dame, Mr. Kelly received an MBA and JD from the University of Iowa. He
is also a Certified Public Accountant.

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

Management Fees 0.59%
12b-1 Fees (1) 0.25%
Other Expenses 0.17%
-----
Total Fund Operating Expenses 1.01%
=====
26 27
<PAGE>

1 Year 3 Years 5 Years 10 Years
- ------- -------- -------- ---------
$10 $32 $56 $124

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.
You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants which appear in the
Funds' 1997 Annual Report to Shareholders and which are incorporated in the
Statement of Additional Information (the "SAI") by reference. You can receive
both the Annual Report and the SAI without charge by contacting Founders at the
address or telephone number on the back cover of this prospectus.

<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $10.61 $9.58 $8.56 $8.93 $8.30 $8.19 $7.22 $7.97
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.29 0.28 0.28 0.20 0.22 0.27 0.31 0.35
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.48 1.50 2.21 (0.37) 1.58 0.21 1.30 (0.75)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.77 1.78 2.49 (0.17) 1.80 0.48 1.61 (0.40)
--------- --------- --------- --------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.30) (0.27) (0.28) (0.20) (0.21) (0.28) (0.31) (0.35)
From Net Realized Gains (0.73) (0.48) (1.19) 0.00 (0.96) (0.09) (0.33) 0.00
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (1.03) (0.75) (1.47) (0.20) (1.17) (0.37) (0.64) (0.35)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value - End of Period $11.35 $10.61 $9.58 $8.56 $8.93 $8.30 $8.19 $7.22
========= ========= ========= ========= ========= ========= ========= =========
TOTAL RETURN 16.9% 18.8% 29.4% (1.9%) 21.9% 6.0% 22.9% (5.0%)
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $942,690 $394,896 $130,346 $95,226 $72,859 $31,538 $18,790 $13,650
Net Expenses to Average Net Assets# 0.99% 1.10% 1.19% 1.26% 1.34% 1.88% 1.73% 1.65%
Gross Expenses to Average Net Assets# 1.01% 1.12% 1.23% -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets 2.77% 3.09% 2.92% 2.37% 2.30% 3.57% 4.01% 4.63%
Portfolio Turnover Rate 203% 146% 286% 258% 251% 96% 133% 103%
Average Commission Rate Paid $0.0596 $0.0588 -- -- -- -- -- --
</TABLE>

Years Ended December 31 1989 1988
PER SHARE DATA
Net Asset Value - Beginning of Period $6.89 $6.55
--------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.32 0.38
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.39 0.34
--------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.71 0.72
--------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.32) (0.38)
From Net Realized Gains (0.31) 0.00
--------- ---------
TOTAL DISTRIBUTIONS (0.63) (0.38)
--------- ---------
Net Asset Value - End of Period $7.97 $6.89
========= =========
TOTAL RETURN 25.3% 11.1%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $15,082 $12,636
Net Expenses to Average Net Assets# 1.52% 1.64%
Gross Expenses to Average Net Assets# -- --
Ratio of Net Investment Income to
Average Net Assets 4.19% 5.39%
Portfolio Turnover Rate 85% 182%
Average Commission Rate Paid -- --

# NET EXPENSES INCLUDE THE CUSTODIAL CREDITS SHOWN AS EARNINGS CREDITS ON THE
STATEMENTS OF OPERATIONS. THESE CREDITS ARE EARNED ON UNIVESTED CASH HELD AT
THE CUSTODIAN. GROSS EXPENSES ARE GROSSED UP BY THE EARNED CREDITS AS REQUIRED
BY THE SEC.

26 27
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------

[Graphic: INVESTMENT OBJECTIVE
Building Current income
with pillars]

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

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

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

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

Management Fees 0.65%
12b-1 Fees (after fee
waivers)(1)(2) 0.07%
Other Expenses 0.59%
-----
Total Fund Operating Expenses
(after fee waivers)(2) 1.31%
=====

28 29
<PAGE>

(1) LONG-TERM SHAREHOLDERS MAY, OVER TIME, INDIRECTLY PAY MORE IN 12B-1 FEES
THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED BY
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
(2) CERTAIN 12B-1 FEES OF THE FUND ARE BEING WAIVED VOLUNTARILY BY FOUNDERS. IF
THESE FEES WERE NOT WAIVED, "12B-1 FEES" AND "TOTAL FUND OPERATING EXPENSES"
IN THE ABOVE TABLE WOULD BE 0.25% AND 1.49%, RESPECTIVELY.
IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL
INFORMATION - FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
- ------- -------- -------- ---------
$13 $42 $72 $159

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.
You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants which appear in the
Funds' 1997 Annual Report to Shareholders and which are incorporated in the
Statement of Additional Information (the "SAI") by reference. You can receive
both the Annual Report and the SAI without charge by contacting Founders at the
address or telephone number on the back cover of this prospectus.

<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $9.04 $9.29 $8.78 $10.02 $10.19 $10.48 $9.85 $10.13
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.45 0.46** 0.45 0.52 0.46 0.51 0.60 0.69
Net Gains or Losses on Securities
(Both Realized and Unrealized) 0.24 (0.25)** 0.51 (1.26) 0.47 0.03 0.81 (0.28)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.69 0.21 0.96 (0.74) 0.93 0.54 1.41 0.41
--------- --------- --------- --------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS (0.45) (0.46) (0.45) (0.50) (0.46) (0.51) (0.60) (0.69)
From Net Realized Gains 0.00 0.00 0.00 0.00 (0.64) (0.32) (0.18) 0.00
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.45) (0.46) (0.45) (0.50) (1.10) (0.83) (0.78) (0.69)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value - End of Period $9.28 $9.04 $9.29 $8.78 $10.02 $10.19 $10.48 $9.85
========= ========= ========= ========= ========= ========= ========= =========
TOTAL RETURN 7.9% 2.3% 11.1% (7.5%) 9.3% 5.3% 14.9% 4.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $13,259 $15,190 $20,263 $21,323 $30,465 $25,047 $18,146 $7,424
Net Expenses to Average Net Assets*# 1.26% 1.26% 1.30% 1.34% 1.18% 1.18% 1.12% 1.03%
Gross Expenses to Average Net Assets*# 1.31% 1.29% 1.30% -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets * 4.99% 5.06% 4.92% 5.52% 4.33% 4.83% 5.89% 7.15%
Portfolio Turnover Rate 147% 166% 141% 379% 429% 204% 261% 103%
</TABLE>

PERIOD OF
3/1/88
(INCEPTION)-
Years Ended December 31 1989 12/31/88
PER SHARE DATA
Net Asset Value - Beginning of Period $9.68 $10.00
--------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.78 0.64
Net Gains or Losses on Securities
(Both Realized and Unrealized) 0.46 (0.32)
--------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.24 0.32
--------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS (0.79) (0.64)
From Net Realized Gains 0.00 0.00
--------- ---------
TOTAL DISTRIBUTIONS (0.79) (0.64)
--------- ---------
Net Asset Value - End of Period $10.13 $9.68
========= =========
TOTAL RETURN 13.3% 3.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $6,460 $4,392
Net Expenses to Average Net Assets*# 0.65% 0.26%+
Gross Expenses to Average Net Assets*# -- --
Ratio of Net Investment Income to
Average Net Assets * 7.90% 7.67%+
Portfolio Turnover Rate 195% 194%

* IN THE ABSENCE OF VOLUNTARY EXPENSE REIMBURSEMENTS AND WAIVERS FROM FOUNDERS,
THE RATIOS OF NET EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.44% (1997),
1.46% (1996), 1.45% (1995), 1.51% (1994),1.37% (1993), 1.43% (1992), 1.42%
(1991), 1.53% (1990), 1.48% (1989) AND 1.33% (1998). THE RATIOS OF GROSS
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.49% (1997), 1.49% (1996),
AND THE RATIOS OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN
4.81% (1997), 4.86% (1996), 4.77% (1995), 5.35% (1994), 4.14% (1993), 4.58%
(1992), 5.59% (1991), 6.65% (1990), 7.07% (1989) AND 6.60% (1988).
** RESTATED + ANNUALIZED
# 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.

28 29
<PAGE>
FOUNDERS MONEY MARKET FUND
- --------------------------------------------------------------------------------

[Graphic: INVESTMENT OBJECTIVE
Bag with Maximum current income consistent with the preservation of capital
a dollar and liquidity
sign]

MONEY MARKET FUND invests in high-quality money market instruments with minimal
credit risks and remaining maturities of 397 calendar days or less. The Fund
also may invest in certain foreign securities. Although no assurances can be
provided, the Fund will use its best efforts, under normal circumstances, to
maintain a constant net asset value of $1.00 per share. The Fund declares
dividends daily. For more information on the Fund's investment techniques and
their related risks, see "Investment Policies and Risks."

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

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

Management Fees 0.50%
12b-1 Fees N/A
Other Expenses 0.34%
-----
Total Fund Operating Expenses 0.84%
=====

30 31
<PAGE>
IF YOU WOULD LIKE MORE INFORMATION REGARDING THESE EXPENSES, PLEASE SEE
"GENERAL INFORMATION - UNDERSTANDING FUND EXPENSES" AND "GENERAL
INFORMATION - FOUNDERS' SERVICES TO THE FUNDS."

1 Year 3 Years 5 Years 10 Years
- ------- -------- -------- ---------
$9 $27 $47 $104

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR
TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE SHOWN BELOW LEFT.

FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following information for each of the two years ended December 31, 1997 has
been audited by Price Waterhouse LLP, independent accountants. Prior years'
information was audited by another independent accounting firm.
You should read this information in conjunction with the audited financial
statements and the related Report of Independent Accountants which appear in the
Funds' 1997 Annual Report to Shareholders and which are incorporated in the
Statement of Additional Information (the "SAI") by reference. You can receive
both the Annual Report and the SAI without charge by contacting Founders at the
address or telephone number on the back cover of this prospectus.

<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.05 0.05 0.05 0.03 0.02 0.03 0.05 0.07
Net Gains or Losses on Securities
(Both Realized and Unrealized) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.05 0.05 0.05 0.03 0.02 0.03 0.05 0.07
--------- --------- --------- --------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.05) (0.05) (0.05) (0.03) (0.02) (0.03) (0.05) (0.07)
From Net Realized Gains 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.05) (0.05) (0.05) (0.03) (0.02) (0.03) (0.05) (0.07)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value - End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
========= ========= ========= ========= ========= ========= ========= =========
TOTAL RETURN 4.7% 4.5% 5.1% 3.4% 2.2% 2.8% 5.1% 7.3%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $106,073 $109,866 $125,646 $201,342 $142,399 $120,295 $99,765 $125,440
Net Expenses to Average Net Assets#* 0.82% 0.86% 0.89% 0.91% 0.95% 0.95% 0.99% 0.94%
Gross Expenses to Average Net Assets# 0.84% 0.88% 0.89% -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets* 4.77% 4.58% 5.11% 3.49% 2.26% 2.78% 5.03% 7.26%
</TABLE>

Years Ended December 31 1989 1988
PER SHARE DATA
Net Asset Value - Beginning of Period $1.00 $1.00
--------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.08 0.07
Net Gains or Losses on Securities
(Both Realized and Unrealized) 0.00 0.00
--------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.08 0.07
--------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.08) (0.07)
From Net Realized Gains 0.00 0.00
--------- ---------
TOTAL DISTRIBUTIONS (0.08) (0.07)
--------- ---------
Net Asset Value - End of Period $1.00 $1.00
========= =========
TOTAL RETURN 8.1% 6.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $84,281 $54,168
Net Expenses to Average Net Assets#* 0.77% 0.80%
Gross Expenses to Average Net Assets# -- --
Ratio of Net Investment Income to
Average Net Assets* 8.22% 6.75%

* IN THE ABSENCE OF VOLUNTARY EXPENSE REIMBURSEMENTS AND WAIVERS FROM
FOUNDERS, THE RATIOS OF NET EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN
0.99% (1993), 1.01% (1992), 1.02% (1991), 0.79% (1989) AND 0.81%, (1988),
AND THE RATIOS OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN
2.22% (1993), 2.72% (1992), 5.00% (1991), 8.20% (1989), AND 6.74% (1988).
# 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.

30 31
<PAGE>

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

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

FOREIGN SECURITIES. All of the Funds may invest in foreign securities, subject
to the limitations described under "The Funds and Their Management." In
addition, Discovery, Passport, Frontier, Special, International Equity,
Worldwide Growth, Growth, Blue Chip, and Balanced Funds (the "Equity Funds")
may invest without limit in American Depositary Receipts and American Depositary
Shares (collectively, "ADRs"). ADRs are receipts representing shares of a
foreign corporation held by a U.S. bank that entitle the holder to all dividends
and capital gains on the underlying foreign shares. ADRs are denominated in U.S.
dollars and trade in the U.S. securities markets.
Money Market Fund's foreign investments are limited to dollar-denominated
obligations of foreign depository institutions or their U.S. branches, or
foreign branches of U.S. depository institutions. The Government Securities
Fund's foreign investments are limited to securities issued by foreign
governments and/or their agencies. Foreign investments of Money Market and
Government Securities Funds will be limited primarily to securities of issuers
from the major industrialized nations.
Investments in foreign securities involve different risks than U.S.
investments. These risks include:

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

o REGULATORY RISK. There may be less governmental supervision of foreign
stock exchanges, security brokers, and issuers of securities, and less

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public information about foreign companies. Also, accounting, auditing and
financial reporting standards are less uniform than in the United States.
Exchange control regulations or currency restrictions could prevent cash
from being brought back to the United States. The Funds may be subject to
withholding taxes and could experience difficulties in pursuing legal
remedies and collecting judgments.

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

o POLITICAL RISK. Foreign investments may be subject to the possibility of
expropriation or confiscatory taxation; limitations on the removal of funds
or other assets of the Fund; and political, economic or social instability.
ADRs are subject to some of the same risks as direct investments in foreign
securities, including the risk that material information about the issuer may
not be disclosed in the United States and the risk that currency fluctuations
may adversely affect the value of the ADR.
In addition, Passport, Worldwide Growth, and International Equity Funds may
invest in securities issued by companies located in countries not considered to
be major industrialized nations. Such countries are subject to more economic,
political and business risk than major industrialized nations, and the
securities issued by companies located there may be more volatile, less liquid
and more uncertain as to payments of dividends, interest and principal.
Passport, Worldwide Growth, and International Equity Funds also may include
securities created through the Brady Plan, a program under which heavily
indebted countries have restructured their bank debt into bonds.
Since Passport, Worldwide Growth, and International Equity Funds' assets are
invested primarily in foreign securities, and since substantially all of the
Funds' revenues are received in foreign currencies, the Funds' net asset values
will be affected by changes in currency exchange rates to a greater extent than
the other Funds. For example, the dollar equivalent of the Funds' net assets and
distributions will be affected adversely by a reduction in the value of a
particular foreign currency relative to the U.S. dollar. In contrast, in periods
during which the U.S. dollar generally declines, the returns on foreign
securities generally are enhanced. The Funds will pay dividends in dollars and
will incur currency conversion costs.
For more information, see the Statement of Additional Information.

FOREIGN CURRENCY TRANSACTIONS. All of the Funds except the Money Market Fund may
use forward foreign currency contracts ("forward contracts") in connection
with the purchase or sale of a specific security. A forward contract is an
agreement between contracting parties to exchange an amount of currency at some
future

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time at an agreed upon rate. The Funds may conduct their foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign exchange currency market, or on a forward basis to "lock in"
the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
U.S. dollar amount, of the amount of foreign currency involved in the underlying
transactions, we attempt to protect the Funds against losses due to adverse
exchange rate fluctuations during the period between the trade date and the date
on which such payments are made or received.
In addition, Discovery, Passport, Frontier, International Equity, and
Worldwide Growth Funds are each permitted to enter into forward contracts as a
hedge against fluctuations in foreign exchange rates during the time the Funds
hold foreign securities. When we believe that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar (or
sometimes against another currency), these Funds may enter into forward
contracts to sell, for a fixed-dollar or other currency amount, foreign currency
approximating the value of some or all of the Funds' portfolio securities
denominated in that currency. In addition, these Funds may engage in "proxy
hedging," i.e., entering into forward contracts to sell a different foreign
currency than the one in which the underlying investments are denominated, with
the expectation that the value of the hedged currency will correlate with the
value of the underlying currency. Under normal circumstances, we will consider
the possibility of changes in currency exchange rates as part of the Funds'
long-term investment strategies.
While we may trade forward contracts to reduce certain risks, trading in
these instruments itself entails other risks. If we are incorrect in our
forecast of currency prices, the Funds may experience poorer overall performance
by using the contracts than by not using them. In addition, some forward
contracts may not have a broad and liquid market, in which case we may not be
able to close them at a favorable price. For more information, see the Statement
of Additional Information.

FIXED-INCOME SECURITIES. The Equity Funds may invest in convertible securities,
preferred stocks, bonds, debentures, and other corporate obligations when we
believe that these investments offer opportunities for capital appreciation. For
Balanced Fund, we also consider current income in the selection of these
securities.
The Equity Funds may purchase convertible securities and preferred stocks
rated in medium and lower categories by Moody's or S&P (Ba or lower by Moody's
and BB or lower by S&P), but none rated lower than B. Securities rated B
generally are less desirable investments and are deemed speculative as far as
the issuer's capacity to pay interest and repay principal over a long period of
time. The Equity Funds also may invest in unrated convertible securities and
preferred stocks if we believe they are equivalent in quality to the rated
securities that the Funds may buy.
The Equity Funds will invest in bonds, debentures, and corporate
obligations--other than convertible

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securities and preferred stock--only if they are rated investment grade (Baa,
BBB or higher) at the time of purchase, although the Balanced Fund may invest up
to 5% of its total assets in lower-grade debt securities. Securities rated Baa
or BBB are considered by Moody's and S&P to be of low investment grade, and may
have speculative characteristics. Changes in economic conditions or other
circumstances are more likely to weaken the issuer's capacity to make principal
or interest payments on these securities than is the case with higher rated
securities. We will not invest more than 5% of a Fund's total assets in bonds,
debentures, convertible securities, and corporate obligations rated below
investment grade, either at the time we purchase them or as a result of a rating
reduction after purchase, or in unrated securities that we believe are
equivalent in quality to securities rated below investment grade. This 5%
limitation does not apply to preferred stocks.

Debt securities in which the Equity Funds or the other Funds may invest
generally are subject to both credit risk and market risk. CREDIT RISK relates
to the ability of the issuer to meet interest or principal payments, or both, as
they come due. MARKET RISK means that the market values of the debt securities
may be affected by interest rate changes. An increase in interest rates tends to
reduce the market values of debt securities, whereas a decline in interest rates
tends to increase their values. Although we limit the Funds' investments in debt
securities to those we believe are not highly speculative, investments in debt
securities rated BBB, Baa or lower, or which are unrated, may increase credit
and market risk.
The Statement of Additional Information includes more discussion of the
Funds' policies regarding investments in fixed-income securities and the
corporate bond rating categories.

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

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

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

35
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subject to repurchase agreements maturing in more than seven days. Securities
that are not readily marketable are those that, for whatever reason, cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the applicable Fund has valued the investment.
Investments in illiquid securities, which may include restricted securities,
involve certain risks to the extent that a Fund may be unable to dispose of such
a security at the time desired or at a reasonable price. In addition, in order
to resell a restricted security, a Fund might have to bear the expense and incur
the delays associated with effecting registration.
For more information, see the Statement of Additional Information.

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

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

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

GOVERNMENT SECURITIES. U.S. government obligations include Treasury bills,
notes and bonds; Government National Mortgage Association (GNMA) pass-through

36
<PAGE>

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

COMMERCIAL PAPER AND OTHER CASH SECURITIES. Commercial paper purchased by
Money Market Fund must be rated by at least two nationally recognized
statistical rating organizations (NRSROs), or by the only NRSRO that has rated
the security, in the highest short-term rating category, or comparable unrated
securities. For a list of NRSROs and a description of their ratings, see the
Statement of Additional Information.
A Fund may also acquire certificates of deposit and bankers' acceptances of
banks which meet criteria established by the Funds' board of directors. A
certificate of deposit is a short-term obligation of a bank. A banker's
acceptance is a time draft drawn by a borrower on a bank, usually relating to an
international commercial transaction.
WHEN-ISSUED SECURITIES. The Funds (except the Money Market Fund) may
purchase securities with settlement taking place in the future, and in
securities for which additional installments of the original issue price are
payable in the future. For more information concerning these types of
securities, see the Statement of Additional Information.
REPURCHASE AGREEMENTS. A repurchase agreement is a transaction under which a
Fund acquires a security

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

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

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

<PAGE>
GENERAL INFORMATION
- -------------------------------------------------------------------------------

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

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

o MANAGEMENT FEES: These fees compensate the Funds' investment manager,
Founders Asset Management LLC, for administering the Funds and selecting
the Funds' securities portfolios.
o 12B-1 FEES: These fees pay for a variety of promotional, marketing, sales,
and servicing activities associated with the distribution of Fund shares.
These activities include, but are not limited to:
o Preparing, printing, and mailing prospectuses, sales literature, and
other promotional materials to prospective investors
o Direct-mail solicitations
o Advertising
o Public relations
o Compensation of sales personnel, brokers,
financial planners, or others for their assistance
in selling and distributing the Funds' shares
o Payments to financial intermediaries for
shareholder support services
o OTHER EXPENSES: These include, but are not limited to, fees and expenses of
the Funds':
o Board of directors
o Custodian bank
o Legal counsel
o Independent accountants
o Fund accounting agent
o Transfer and shareholder servicing agents
o Registration of shares under applicable
laws
o Reports to shareholders

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

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

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<PAGE>
liabilities) by the number of outstanding Fund shares.

2. NET INVESTMENT INCOME OR (LOSS). The total per-share income received by the
Fund from dividends and interest on securities, taking into account the
undistributed net investment income from the prior year, minus Fund
expenses. In cases where expenses exceed such income, this amount is shown
as a loss.

o DIVIDENDS AND DISTRIBUTIONS - FROM NET INVESTMENT INCOME. The net
income per share paid by the Fund.

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

o DIVIDENDS AND DISTRIBUTIONS - FROM NET REALIZED GAINS. The per-share
amount the Fund paid to shareholders from REALIZED gains.

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>
your distribution checks in your account at the then-current net asset value and
to reinvest all the account's subsequent distributions in shares of that Fund.
No interest will accrue on amounts represented by uncashed distribution checks.
If your investment is in the form of a retirement plan, all dividends and
capital gain distributions must be reinvested in your account.

TAXES
Each of the Funds intends to qualify annually as a regulated investment company.
Generally, regulated investment companies are relieved of federal income tax on
the net investment income and net capital gains that they earn and distribute to
their shareholders. As described below, unless your account is not subject to
income taxes, you must include all dividends and capital gain distributions in
taxable income for federal, state and local income tax purposes. Dividends and
other distributions are taxable whether they are received in cash or reinvested
in the same or another Fund.
All dividends of net investment income from the Funds, such as dividends and
interest on their investments, will be taxable to you as ordinary income. A
portion of such dividends may qualify for the dividends-received deduction for
corporations, although distributions from Government Securities and Money Market
Funds generally are not expected to qualify.
In addition, the Funds realize capital gains and losses when they sell
securities for more or less than they paid. If total gains on sales exceed total
losses (including losses carried forward from prior years), the Fund has a net
realized capital gain. Net realized capital gains are divided into short-term
and long-term capital gains depending on how long the Fund held the security
that gave rise to the gains. The Funds' capital gain distributions consist of
long-term capital gains that are taxable at the applicable capital gains rates.
All distributions of short-term capital gains will be taxable to you as ordinary
income and included in your dividends.
Distributions from each Fund generally will be taxable to you in the tax
year in which they are received. However, generally, dividends declared by a
Fund in October, November, or December of any calendar year, with a record date
in such a month, and paid during the following January, will be treated as if
they were paid by the Fund and received by you on December 31 of the calendar
year in which they were declared.

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

You also may realize capital gains or losses when you sell Fund shares at
more or less than the price you originally paid. Likewise, exchanges from one
Fund to another represent a sale from one Fund and a purchase of another, and
may result in a gain or

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<PAGE>
loss that you will need to recognize on your tax return. Foreign shareholders
may be subject to federal income tax rules that differ from those described
above.
If you do not provide your Social Security or tax identification number when
you open your account, federal tax law requires the Fund to withhold 31% of all
dividends, capital gain distributions, redemptions and exchange proceeds. We
also may refuse to sell shares to anyone not furnishing these numbers, or may
take such other action as may be deemed necessary, including redeeming some or
all of the shareholder's shares. In addition, a shareholder's account may be
reduced by $50 to reimburse the Fund for the penalty imposed by the Internal
Revenue Service for failure to report the investor's taxpayer identification
number on information reports.
We advise you to consult your own tax adviser regarding the particular tax
consequences of an investment in a Fund.

FOUNDERS' SERVICES TO THE FUNDS
Founders Funds, Inc. is a no-load mutual fund, registered with the SEC as a
diversified, open-end management investment company. It was incorporated on June
19, 1987, under the laws of Maryland.
Founders serves as investment adviser to each of the Funds. Founders is a
90%-owned subsidiary of Mellon Bank, N.A., with the remaining 10% held by
certain Founders executives and portfolio managers. Mellon Bank is a
wholly-owned subsidiary of Mellon Bank Corporation, a publicly-owned multibank
holding company which provides a comprehensive range of financial products and
services in domestic and selected international markets. The affairs of the
Funds, including the services provided by Founders, are subject to the
supervision and general oversight of the Funds' board of directors.
CODE OF ETHICS. The Funds and Founders have adopted a strict code of ethics
which limits directors, officers, investment personnel, and other Founders
employees in investing in securities for their own accounts. The code of ethics,
which complies in all material respects with the recommendations set forth in
the Report of the Advisory Group on Personal Investing of the Investment Company
Institute, requires maintenance of the highest standards of integrity and
conduct. In engaging in personal business activities, personnel of Founders and
the Funds must act in the best interests of the Funds and their shareholders. We
carefully monitor compliance with the code of ethics by all personnel.
INVESTMENT ADVISORY SERVICES. Founders manages the investment of each Fund's
assets and provides certain related administrative services to each Fund. For
these services, each Fund pays Founders an investment advisory fee which, during
the most recent fiscal year, represented the following

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percentages of each Fund's average daily net assets:

Discovery Fund 0.99%
Passport Fund 1.00%
Frontier Fund 0.99%
Special Fund 0.77%
International Equity Fund 1.00%
Worldwide Growth Fund 0.95%
Growth Fund 0.68%
Blue Chip Fund 0.62%
Balanced Fund 0.59%
Government Securities Fund 0.65%
Money Market Fund 0.50%

FUND EXPENSES. Each investment advisory agreement between a Fund and
Founders provides that expenses relating to the Fund's operations which are not
expressly assumed by Founders shall be paid by the Fund, including the fees paid
to Founders, shareholder servicing costs, directors' fees and expenses, legal
and auditing fees, custodian fees, printing and supplies, taxes, registration
fees and distribution expenses. Each Fund's total expenses for 1997 (excluding
brokerage commissions) represented the following percentages of average daily
net assets:

Discovery Fund 1.54%
Passport Fund 1.55%
Frontier Fund 1.57%
Special Fund 1.32%
International Equity Fund 1.89%*
Worldwide Growth Fund 1.47%
Growth Fund 1.12%
Blue Chip Fund 1.11%
Balanced Fund 1.01%
Government Securities Fund 1.31%**
Money Market Fund 0.84%

* Prior to July 1, 1997 Founders voluntarily reimbursed certain expenses of the
International Equity Fund in excess of 2.00% of the Fund's average net assets
pursuant to a commitment to the Fund. Effective July 1, 1997, Founders is
voluntarily reimbursing certain expenses of the International Equity Fund to
the extent they exceed 1.80% of the Fund's average net assets. In the absence
of these expense limitations, the total expenses of the International Equity
Fund for the fiscal year ended December 31, 1997 would have been 2.05% of the
Fund's average daily net assets.
** Founders is voluntarily waiving certain 12b-1 fees of the Government
Securities Fund pursuant to a commitment to the Fund. Had these fees not been
waived, the total expenses of the Government Securities Fund for the fiscal
year ended December 31, 1997 would have been 1.49% of the Fund's average
daily net assets.
SHAREHOLDER AND TRANSFER AGENT SERVICES. In addition, the Funds have entered
into shareholder services agreements with Founders, pursuant to which Founders
provides certain shareholder-related and transfer agent services to the Funds.
For such services, the Funds pay Founders a monthly fee. Out of this fee,
Founders pays the fees charged the Funds by Investors

44
<PAGE>
Fiduciary Trust Company ("IFTC"), the Funds' transfer agent. Out-of-pocket
reimbursements are also paid by the Funds. In 1997, Founders received aggregate
shareholder services and transfer agent fees of $25.63 for each shareholder
account. Of this amount, $9.25 per shareholder account was paid to IFTC.
Effective June 1, 1997 the aggregate shareholder services and transfer agent fee
was increased to $26.00 per shareholder account per year. Shareholder services
and transfer agent fees charged by Founders and IFTC are not charged to each
shareholder's account, but are expenses of the Fund paid from the Fund's assets.
IFTC, located at 801 Pennsylvania, Kansas City, Missouri 64105, also serves as
the Funds' dividend disbursing agent, redemption agent, and custodian.
Registered broker/dealers, third-party administrators of tax-qualified
retirement plans, and other entities which establish omnibus accounts with the
Funds may provide sub-transfer agency, recordkeeping, or similar services to
participants in the omnibus accounts which reduce or eliminate the need for
identical services to be provided on behalf of the participants by IFTC and/or
Founders. In such cases, Founders is authorized to pay the entity a sub-transfer
agency or recordkeeping fee, and to be reimbursed for such payments by the Fund
based on the number of participants in the entity's omnibus account. Entities
receiving such fees may also receive 12b-1 fees. See "Distribution Plans."
OTHER ACCOUNTING AND ADMINISTRATIVE SERVICES. Founders also performs
portfolio accounting for the Funds which includes, among other duties,
calculating net asset value, monitoring compliance with regulatory requirements,
and reporting. The Funds pay Founders a fee equal to 0.06% of the first $500
million of the net assets of all Funds as a group, and 0.02% of the net assets
of all Funds as a group in excess of $500 million, allocated on a pro rata basis
among the Funds based on relative net assets, plus out-of-pocket reimbursement.
In 1997, Founders received aggregate portfolio accounting fees of $1,056,132.
SELECTION OF BROKERS. Subject to the policy of seeking the best execution of
orders at the most favorable prices, sales of shares of the Funds may be
considered as a factor in the selection of
brokerage firms to execute Fund portfolio transactions. The Statement of
Additional Information further explains the selection of brokerage firms.

DISTRIBUTION PLANS
Discovery, Passport, Frontier, Special, International Equity, Worldwide Growth,
Growth, Blue Chip, Balanced, and Government Securities Funds (the "12b-1
Funds") have adopted Distribution Plans pursuant to Rule 12b-1 under the 1940
Act. These Plans permit each of the 12b-1 Funds to use its assets to finance
certain activities relating to the distribution of its shares. Each Plan
provides that the Fund may pay distribution and related expenses of up to 0.25%
each year of its average daily net assets.
Expenses permitted to be paid by a 12b-1 Fund under its Plan include:
preparation, printing and mailing of

45
<PAGE>
prospectuses, reports to shareholders (such as semiannual and annual reports,
performance reports, and newsletters), sales literature and other promotional
material to prospective investors; direct mail solicitation; advertising; public
relations; compensation of sales personnel, brokers, financial planners, or
others for their assistance with respect to the distribution of the Fund's
shares, including compensation for such services to personnel of Founders or of
affiliates of Founders; providing payments to any financial intermediary for
shareholder support, administrative, and accounting services with respect to the
shareholders of the Fund; and such other expenses as may be approved from time
to time by the Funds' board of directors and as may be permitted by applicable
statute, rule or regulation. Payments made by a particular 12b-1 Fund under its
Plan may not be used to finance the distribution of shares of any other Fund. In
the event that an expenditure may benefit more than one Fund, it is allocated
among the applicable Funds on an equitable basis.
Plan payments may be made only to reimburse expenses incurred during a
rolling twelve-month period, subject to the annual limitation of 0.25% of
average daily net assets. Any reimbursable expenses incurred by the Funds'
distributor in excess of this limitation are not reimbursable and will be borne
by Founders. As of December 31, 1997, Founders had incurred the following
distribution-related expenses on behalf of the 12b-1 Funds, which had not been
reimbursed pursuant to the Plans:

% OF
NET
FUND AMOUNT ASSETS
- ------------------------------------- ---------- ------
Discovery............................ $ 102,022 0.04%
Passport............................. 289,524 0.24%
Frontier............................. 258,190 0.12%
Special.............................. 298,937 0.09%
International Equity................. 34,293 0.22%
Worldwide Growth..................... 145,233 0.05%
Growth............................... 976,763 0.06%
Blue Chip............................ 694,117 0.13%
Balanced............................. 155,892 0.02%
Total............................ $2,954,971

In no event will reimbursement of these expenses by any 12b-1 Fund within the
rolling twelve-month period described above increase the Fund's annual 12b-1
fees above 0.25% of its average daily net assets. The Funds' board of directors
reviews a quarterly written report of amounts expended under each Plan and the
purposes of the expenditures.

In addition, Founders may from time to time make additional payments from
its revenues to securities dealers and other financial institutions that provide
shareholder services, recordkeeping, and/or other administrative services to the
Funds.

DISTRIBUTOR
The Funds' distributor is Premier Mutual Fund Services, Inc. ("Premier"),
located at 60 State Street, Boston, Massachusetts 02109. Premier's ultimate
parent is Boston Institutional Group, Inc. All of the Funds' officers are
affliated with Premier or with affiliates of Premier.

46
<PAGE>

COMPUTER SYSTEMS
The investment management, shareholder, fund accounting and administrative
services provided to the Funds by Founders, and the services provided by the
Funds' distributor, transfer agent and custodian, depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or 1980, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and account
services. Founders, Premier and IFTC each have been actively working on
necessary changes to their own computer systems to deal with the year 2000, and
expect that their systems will be adapted before that date. However, there can
be no assurance that they will be successful or that interaction with other
noncomplying computer systems will not impair their services at that time.

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

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

<PAGE>
INVESTING IN THE FOUNDERS FUNDS
- -------------------------------------------------------------------------------

OPENING YOUR ACCOUNT

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

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

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

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

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

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

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

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

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

o ROTH CONTRIBUTION IRA. Any adult who has earned income below certain income
limits may contribute up to $2,000 (or 100% of compensation, whichever is
less) to a Roth Contribution IRA per tax year. If your spouse is not
employed, you can contribute up to $4,000 annually to two Roth Contribution
IRAs, as long as no more than $2,000 is contributed to a single account.
Contributions to a Roth IRA are NOT tax-deductible, but distributions,
including earnings, may be withdrawn tax-free
48 49

<PAGE>
after five years for qualified events such as retirement.

You may elect to have both traditional IRAs and Roth IRAs, provided that your
combined contributions do not exceed the $2,000 (or 100% of compensation,
whichever is less) annual limitation.

o ROTH CONVERSION IRA. Conversions/distributions from traditional IRAs to
Roth Conversion IRAs are taxable at the time of their conversion, but after
five years may then be distributed tax-free for qualified events such as
retirement. Only individuals with incomes below certain thresholds may
convert their traditional IRAs to Roth Conversion IRAs.

o SEP-IRA. Allows employers to make direct contributions to employees' IRAs
with minimal reporting and disclosure requirements. Call 1-800-934-GOLD
(4653) for instructions.
WE RECOMMEND THAT YOU CONSULT YOUR TAX ADVISER REGARDING THE PARTICULAR TAX
CONSEQUENCES OF THESE IRA OPTIONS.

Each year you will be charged a single $10.00 custodial fee for all IRA
accounts maintained under your Social Security number. This fee will be
waived if the aggregate value of your IRA accounts is $5,000 or more. This
fee may be changed upon 30 days' notice.

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

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

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

MINIMUM INITIAL INVESTMENTS

To open a Founders account, please enclose a check payable to "Founders Funds,
Inc." for one of the following amounts:

o $1,000 minimum for most regular accounts.

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

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

MINIMUM ADDITIONAL INVESTMENT

o $100 for mail, TeleTransfer and wire payments

o $50 for Automatic Investment Plan payments

48 49

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

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

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

50 51

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

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

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

50 51

<PAGE>
CONDUCTING BUSINESS WITH FOUNDERS (CONT'D)
- --------------------------------------------------------------------------------
HOW TO HOW TO
BY WIRE OPEN AN ACCOUNT ADD TO AN ACCOUNT
- --------------------------------------------------------------------------------
Complete and mail the Wire funds to:
proper application. Wire Investors Fiduciary
[Graphic: Tower with funds to: Trust Company
dollar sign above] Investors Fiduciary Trust ABA # 101003621
Company For Credit to Account
ABA # 101003621 # 751-842-0
For Credit to Account Please indicate the Fund
# 751-842-0 name and your account
Please indicate the Fund number, and indicate the
name and your account name(s) of the account
number, and indicate the owner(s).
name(s) of the account
owner(s).

THROUGH OUR WEBSITE
- --------------------------------------------------------------------------------
www.founders.com Download, complete and mail Not applicable.
a signed copy of the proper
[Graphic: Person at application.
computer terminal]

THROUGH AUTOMATIC
TRANSACTION PLANS
- --------------------------------------------------------------------------------
Automatic Investment Plan Automatic Investment
(AIP) allows you to make Plan (AIP) allows you to
[Graphic: A calendar] electronic purchases make electronic
directly from a checking or purchases directly from
savings account. The a checking or savings
minimum to open an account account. The minimum to
is $50 per month. open an account is $50
Once established, AIP per month.
purchases take place Once established, AIP
automatically on purchases take place
approximately the 5th automatically on
and/or 20th of the month. approximately the 5th
We charge no fee for AIP. and/or 20th of the
month. We charge no fee
for AIP.

FASTLINE
- --------------------------------------------------------------------------------
1-800-947-FAST (3278) Follow instructions Follow instructions
Automated telephone provided when you call to provided when you call
account access service open an account in a new to add to your account
Fund by exchange. via TeleTransfer.
[Graphic: Telephone]

52 53

<PAGE>
HOW TO HOW TO
BY WIRE SELL SHARES EXCHANGE SHARES
- --------------------------------------------------------------------------------
$6 fee; $1,000 minimum. Not applicable.
Monies are usually
received the business day
after the date you sell.
Unless otherwise
specified, we will deduct
the fee from your
redemption proceeds.

THROUGH OUR WEBSITE
- --------------------------------------------------------------------------------
www.founders.com Not applicable. You may exchange shares
using our website if you
have telephone exchange
privileges.

THROUGH AUTOMATIC
TRANSACTION PLANS
- --------------------------------------------------------------------------------
Systematic Withdrawal Plan Fund-to-Fund Investment
permits you to receive a Plan allows you to
fixed sum on a monthly, automatically exchange a
quarterly or annual basis fixed dollar amount from
from accounts with a value one Fund to purchase
of $5,000 or more. shares in another Fund.
Payments may be sent
electronically to your
bank or to you in check
form.

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

52 53

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

SELLING SHARES OF FOUNDERS FUNDS
o SHARES RECENTLY PURCHASED BY CHECK OR TELETRANSFER. Redemptions of shares
purchased by check (other than purchases by cashier's check) or
TeleTransfer will be placed on hold until your check has cleared (which may
take up to 15 days). During this time, you may make exchanges to another
Fund but may not receive the proceeds of redemption. Although payment may
be delayed, the price you receive for your redeemed shares will not be
affected.

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

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

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

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

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

You can have your signature guaranteed at a:
o bank
o broker/dealer
o credit union (if authorized under state law)
o securities exchange/association
o clearing agency
o savings association
Please note that a notary public cannot provide a signature guarantee.

REDEMPTION PROCEEDS
We can deliver redemption proceeds to you:
o BY CHECK. Checks are sent to the address of record. If you request that a
check be sent to another

54
<PAGE>
address, we require a signature guarantee. (See "Signature Guarantee.") If
you don't specify, we will deliver proceeds via check. No interest will
accrue on amounts represented by uncashed redemption checks.

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

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

OVERALL POLICIES REGARDING TRANSACTIONS
We cannot execute transaction requests that are not in good order. You will be
contacted in writing if this occurs. Call 1-800-525-2440 if you have any
questions about these procedures.
We cannot accept conditional transactions requesting that a transaction
occur on a specific date or at a specific share price. However, we reserve the
right to allow shareholders to exchange from the Money Market Fund to another
fund of their choice on a predetermined date, such as the day after
distributions are paid.

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

By signing a New Account Application or an IRA Application (unless
specifically declined on the Application), by providing other written (for
redemptions) or verbal (for exchanges) authorization, or by requesting Automatic
Investment Plan privileges, you agree to release the Funds, Founders, and their
agents from any and all liability for acts or omissions done in good faith under
the authorizations contained in the application, including their possibly
effecting unauthorized or fraudulent transactions.
As a result of your executing such a release, you bear the risk of loss from
an unauthorized or fraudulent transaction. However, if the Fund fails to employ
reasonable procedures to attempt to confirm that telephone instructions are
genuine, the Fund may be liable for any resulting losses. These procedures
include, but are not necessarily limited to, one or more of the following:
o requiring personal identification prior to acting upon instructions
o providing written confirmation of such transactions
o tape-recording telephone instructions

EXCESSIVE TRADING. To maintain competitive expense ratios and to avoid
disrupting the management of each Fund's portfolio, we reserve the right to
suspend or terminate the exchange privilege for any shareholder (including a
shareholder whose account is managed by an adviser) when the total exchanges out
of any one of the Funds exceed four in any 12-month period.

55
<PAGE>
We will provide written notification to any investor whose exchange privilege is
being revoked and will provide an effective date of revocation, which will not
be less than 15 calendar days after the notification date.

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

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

CERTIFICATES. The Funds do not issue share certificates. If you are selling
shares previously issued in certificate form, you need to include the
certificates along with your redemption/exchange request. If you have lost
your certificates, please call us.

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

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

ACCOUNT MINIMUMS. The Funds require you to maintain a minimum of $1,000 per
account ($500 for IRAs and UGMAs/UTMAs), unless you are investing under an
Automatic Investment Plan. If at any time, due to redemptions or exchanges, or
upon the discontinuance of an Automatic Investment Plan, the total value of your
account falls below this minimum, we may either charge a fee of $10, which will
be automatically deducted from your account, or close your account and mail the
proceeds to the address of record.
We will base the decision to levy the fee or close the account on our
determination of what is best for the Fund. We will give you at least 60 days'
written notice informing you that your account will be closed or that the $10
fee will be charged, so that you may make an additional investment to bring the
account up to the required minimum balance.

56
<PAGE>

WE RESERVE THE RIGHT TO:
o reject any investment or application
o cancel any purchase due to nonpayment
o modify the conditions of purchase at any time
o waive or lower investment minimums
o limit the amount that may be purchased
o perform a credit check on shareholders establishing a new account or
requesting checkwriting privileges.

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

24-HOUR ACCOUNT INFORMATION
o BY PHONE: 1-800-947-FAST (3278) FASTLINE, our automated telephone service,
enables you to access account information, conduct exchanges and purchases
and request duplicate statements and tax forms 24 hours a day with a Touch-
tone phone.
o BY ONLINE COMPUTER SERVICES: By visiting Founders InvestorSITE on the World
Wide Web, you can access the latest Fund performance returns, daily prices,
portfolio manager commentaries, news articles about the Funds, and much
more. Shareholders may access account transaction histories and account
balances, and conduct exchange transactions. Our address is
www.founders.com.

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

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

57
<PAGE>
STATEMENTS AND REPORTS
o CONFIRMATION STATEMENTS. We will send you a confirmation after each
transaction, except in certain retirement accounts and where the only
transaction is a dividend or capital gain reinvestment or an Automatic
Investment Plan purchase. In those cases, your quarterly account statement
serves as your confirmation.

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

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

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

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

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

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

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

58
<PAGE>
o CHECKWRITING
o Available on Government Securities and Money Market Funds.
o May be established with a minimum account balance of $1,000.
o There is no fee for this service.
o Minimum amount per check: $500
o Maximum amount per check: $250,000

o DIVIDEND AND LONG-TERM CAPITAL GAIN DISTRIBUTION OPTIONS. Either or both
may be paid in cash or reinvested. The payment method for short-term
capital gain distributions is the same as for dividends.

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

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

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

59
<PAGE>
GLOSSARY OF TERMS
- -------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>
EARNINGS: Corporate profits.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LONG-TERM CAPITAL GAINS: Capital gains that are realized by the sale of a
security that has been held for more than one year.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>

(LOGO)
Founders Funds

FOUNDERS ASSET MANAGEMENT LLC
Investment Adviser and Shareholder Servicing Agent

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

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

TOLL-FREE: 1-800-525-2440

WWW.FOUNDERS.COM

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

FUND DIRECTORS
Jay A. Precourt, Chairman
Eugene H. Vaughan, Jr., Vice Chairman
William H. Baughn
Bjorn K. Borgen
Alan S. Danson
Trygve E. Myhren

Founders Funds, the Founders logo and "Growth. Plain and Simple." are
registered trademarks of Founders Asset Management LLC.

<PAGE>
FOUNDERS
FUNDS, INC.
- --------------------------------------------------------------------------------

Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
TOLL FREE 1-800-525-2440

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1998

- --------------------------------------------------------------------------------

FOUNDERS ASSET MANAGEMENT LLC, INVESTMENT ADVISER

- --------------------------------------------------------------------------------

This Statement of Additional Information relates to the eleven investment
portfolios (the "Funds") of Founders Funds, Inc. (the "Company"). A prospectus
for the Funds dated May 1, 1998 provides the basic information you should know
before investing and may be obtained without charge from Founders Asset
Management LLC ("Founders") at the telephone number and address shown above.
This Statement of Additional Information, which is not a prospectus, contains
information in addition to and in more detail than in the prospectus. It is
intended to provide you with additional information regarding the activities and
operations of the Funds, and should be read in conjunction with the prospectus.

<PAGE>

TABLE OF CONTENTS

INVESTMENT OBJECTIVES AND POLICIES.............................................3
Options On Stock Indices and Stocks.........................................3
Futures Contracts...........................................................6
Options on Futures Contracts................................................9
Options on Foreign Currencies..............................................10
Risk Factors of Investing in Futures and Options...........................11
Foreign Securities and ADRs................................................12
Forward Contracts For Purchase or Sale of Foreign Currencies...............14
Illiquid Securities........................................................16
Rule 144A Securities.......................................................17
Fixed-Income Securities....................................................18
Foreign Bank Obligations...................................................19
Repurchase Agreements......................................................20
Convertible Securities.....................................................20
Mortgage-Related Securities................................................21
When-Issued Securities.....................................................25
Borrowing..................................................................25
Securities of Other Investment Companies...................................25
INVESTMENT RESTRICTIONS.......................................................26
DIRECTORS AND OFFICERS........................................................39
INVESTMENT ADVISER AND DISTRIBUTOR............................................44
Investment Adviser.........................................................44
Distributor................................................................49
Distribution Plans.........................................................49
SHAREHOLDER SERVICING.........................................................51
Fund Accounting and Administrative Services Agreement......................51
Shareholder Services Agreement.............................................51
Transfer Agency Agreement..................................................52
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER RATES.............................52
DETERMINATION OF NET ASSET VALUE..............................................57
YIELD AND PERFORMANCE INFORMATION.............................................59
REDEMPTION PAYMENTS...........................................................63
DIVIDENDS, DISTRIBUTIONS AND TAXES............................................64
ADDITIONAL INFORMATION........................................................68
Capital Stock..............................................................68
Code of Ethics.............................................................70
Purchases of Fund Shares by Founders Employees.............................71
Custodian..................................................................71
Independent Accountants....................................................71
Registration Statement.....................................................71
Financial Statements.......................................................71
APPENDIX......................................................................72
Ratings of Corporate Bonds.................................................72
Ratings of Commercial Paper................................................74
Ratings of Preferred Stock.................................................75

<PAGE>
3

INVESTMENT OBJECTIVES AND POLICIES

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

OPTIONS ON STOCK INDICES AND STOCKS

An option is a right to buy or sell a security at a specified price
within a limited period of time. All of the Funds other than the Special,
Growth, Government Securities, and Money Market Funds may write ("sell") covered
call options on any or all of their portfolio securities from time to time as
Founders shall deem appropriate; provided, however, that Balanced Fund may write
only covered call options on stocks. In addition, all of the Funds except the
Special, Balanced, Government Securities and Money Market Funds may purchase
options on securities. All Funds except Balanced, Money Market, and Government
Securities Funds may purchase put and call options on stock indices.

For the right to buy or sell the underlying instrument (e.g., individual
stocks or stock indices), the buyer pays a premium to the seller (the "writer"
of the option).
Options have standardized terms, including the exercise price and expiration
time. The current market value of a traded option is the last sales price or, in
the absence of a sale, the last offering price. The market value of an option
will usually reflect, among other factors, the market price of the underlying
security. When the market value of an option appreciates, the purchaser may
realize a gain by exercising the option and selling the underlying security, or
by selling the option on an exchange (provided that a liquid secondary market is
available). If the underlying security does not reach a price level that would
make exercise profitable, the option generally will expire without being
exercised and the writer will realize a gain in the amount of the premium.
However, the gain may be offset by a decline in the market value of the
underlying security. If an option is exercised, the proceeds of the sale of the
underlying security by the writer are increased by the amount of the premium and
the writer realizes a gain or loss from the sale of the security.

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

<PAGE>
4

loss on the transaction. However, because an increase in the market price of an
option generally reflects an increase in the market price of the underlying
security, any loss resulting from a closing purchase transaction is likely to be
offset in whole or in part by appreciation of the underlying security that the
writer continues to own.

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

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

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

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

As indicated, all Funds except the Balanced, Money Market and Government
Securities Funds may purchase options on stock indices. A stock index measures
the movement of a certain group of stocks by assigning relative values to the
stocks included in the index. Options on stock indices are similar to options on
securities. However, because options on stock indices do not involve the
delivery of an underlying security, the option represents the holder's right to
obtain from the writer in cash a fixed multiple of the amount by which the
exercise price exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the exercise date. The Funds
purchase put options on stock indices to protect the Funds' portfolios against
decline in value. The Funds purchase call options on stock indices to establish
a position in equities as a temporary substitute for purchasing individual
stocks that then may be acquired over the option period in a manner designed to
minimize adverse

<PAGE>
5

price movements. Purchasing put and call options on stock indices also permits
greater time for evaluation of investment alternatives. When Founders believes
that the trend of stock prices may be downward, particularly for a short period
of time, the purchase of put options on stock indices may eliminate the need to
sell less liquid stocks and possibly repurchase them later. The purpose of these
transactions is not to generate gain, but to "hedge" against possible loss.
Therefore, successful hedging activity will not produce net gain to the Funds.
Any gain in the price of a call option is likely to be offset by higher prices a
Fund must pay in rising markets, as cash reserves are invested. In declining
markets, any increase in the price of a put option is likely to be offset by
lower prices of stocks owned by a Fund.

Upon purchase by all Funds except Balanced, Money Market and Government
Securities Funds of a call on a stock index, the Funds pay a premium and have
the right during the call period to require the seller of such a call, upon
exercise of the call, to deliver to the Funds an amount of cash if the closing
level of the stock index upon which the call is based is above the exercise
price of the call. This amount of cash is equal to the difference between the
closing price of the index and the lesser exercise price of the call. Upon
purchase by the Funds of a put on a stock index, the Funds pay a premium and
have the right during the put period to require the seller of such a put, upon
exercise of the put, to deliver to the Funds an amount of cash if the closing
level of the stock index upon which the put is based is below the exercise price
of the put. This amount of cash is equal to the difference between the exercise
price of the put and the lesser closing level of the stock index. Buying stock
index options permits the Funds, if cash is deliverable to them during the
option period, either to sell the option or to require delivery of the cash. If
such cash is not so deliverable, and as a result the option is not exercised or
sold, the option becomes worthless at its expiration date.

The Funds may purchase only those put and call options that are listed
on a domestic exchange or quoted on the automatic quotation system of the
National Association of Securities Dealers, Inc. ("NASDAQ"). Options traded on
stock exchanges are either broadly based, such as the Standard & Poor's 500
Stock Index and 100 Stock Index, or involve stocks in a designated industry or
group of industries. The Funds may utilize either broadly based or market
segment indices in seeking a better correlation between the indices and the
Funds' portfolios.

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

The value of a stock index option depends upon movements in the level of
the stock index rather than the price of a particular stock. Whether a Fund will
realize a

<PAGE>
6

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

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

FUTURES CONTRACTS

All Funds except Money Market Fund may enter into futures contracts for
hedging purposes. U.S. futures contracts are traded on exchanges that have been
designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a futures commission merchant (an "FCM")
or brokerage firm that is a member of the relevant contract market. Although
futures contracts by their terms call for the delivery or acquisition of the
underlying commodities or a cash payment based on the value of the underlying
commodities, in most cases the contractual obligation is offset before the
delivery date of the contract by buying, in the case of a contractual obligation
to sell, or selling, in the case of a contractual obligation to buy, an
identical futures contract on a commodities exchange. Such a transaction cancels
the obligation to make or take delivery of the commodities.

The acquisition or sale of a futures contract could occur, for example,
if a Fund held or considered purchasing equity securities and sought to protect
itself from fluctuations in prices without buying or selling those securities.
For example, if prices were expected to decrease, a Fund could sell equity index
futures contracts, thereby hoping to offset a potential decline in the value of
equity securities in the portfolio by a corresponding increase in the value of
the futures contract position held by the Fund and thereby prevent the Fund's
net asset value from declining as much as it otherwise would have. A Fund also
could protect against potential price declines by selling portfolio securities
and investing in money market instruments. However, since the futures market is
more liquid than the cash market, the use of futures contracts as an

<PAGE>
7

investment technique would allow the Fund to maintain a defensive position
without having to sell portfolio securities.

Similarly, when prices of equity securities are expected to increase,
futures contracts could be bought to attempt to hedge against the possibility of
having to buy equity securities at higher prices. This technique is sometimes
known as an anticipatory hedge. Since the fluctuations in the value of futures
contracts should be similar to those of equity securities, a Fund could take
advantage of the potential rise in the value of equity securities without buying
them until the market had stabilized. At that time, the futures contracts could
be liquidated and the Fund could buy equity securities on the cash market.

The Funds may also enter into interest rate and foreign currency futures
contracts. Interest rate futures contracts currently are traded on a variety of
fixed-income securities, including long-term U.S. Treasury bonds, Treasury
notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, U.S. Treasury bills, bank certificates of deposit
and commercial paper. Foreign currency futures contracts currently are traded on
the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark
and on Eurodollar deposits.

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

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

The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is

<PAGE>
8

possible that the standardized futures contracts available to the Funds would
not match exactly a Fund's current or potential investments. A Fund might buy or
sell futures contracts based on underlying instruments with different
characteristics from the securities in which it would typically invest -- for
example, by hedging investments in portfolio securities with a futures contract
based on a broad index of securities -- which involves a risk that the futures
position might not correlate precisely with the performance of the Fund's
investments.

Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a Fund's
investments. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments, and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between a Fund's investments and its futures positions could also
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures contracts. A
Fund would be able to buy or sell futures contracts with a greater or lesser
value than the securities it wished to hedge or was considering purchasing in
order to attempt to compensate for differences in historical volatility between
the futures contract and the securities, although this might not be successful
in all cases. If price changes in the Fund's futures positions were poorly
correlated with its other investments, its futures positions could fail to
produce desired gains or result in losses that would not be offset by the gains
in the Fund's other investments.

A Fund will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of its
total assets after taking into account unrealized profits and losses on options
entered into. In the case of an option that is "in-the-money," the in-the-money
amount may be excluded in computing such 5%. In general a call option on a
future is "in-the-money" if the value of the future exceeds the exercise
("strike") price of the call; a put option on a future is "in-the-money" if the
value of the future that is the subject of the put is exceeded by the strike
price of the put. The Funds may use futures and options thereon solely for bona
fide hedging or for other non-speculative purposes. As to long positions that
are used as part of a Fund's portfolio strategies and are incidental to its
activities in the underlying cash market, the "underlying commodity value" of
the Fund's futures and options thereon must not exceed the sum of (i) cash set
aside in an identifiable manner, or short-term U.S. debt obligations or other
dollar-denominated high-quality, short-term money instruments so set aside, plus
sums deposited on margin; (ii) cash proceeds from existing investments due in 30
days; and (iii) accrued profits held at the futures commission merchant. The
"underlying commodity value" of a future is computed by multiplying the size of
the future by the daily settlement price of the future. For an option on a
future, that value is the underlying commodity value of the future underlying
the option.

<PAGE>
9

Unlike the situation in which a Fund purchases or sells a security, no
price is paid or received by a Fund upon the purchase or sale of a futures
contract. Instead, the Fund is required to deposit in a segregated asset account
an amount of cash or qualifying securities (currently U.S. Treasury bills),
currently in a minimum amount of $15,000. This is called "initial margin." Such
initial margin is in the nature of a performance bond or good faith deposit on
the contract. However, since losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Fund may be
required to make additional payments during the term of a contract to its
broker. Such payments would be required, for example, when, during the term of
an interest rate futures contract purchased by the Fund, there was a general
increase in interest rates, thereby making the Fund's portfolio securities less
valuable. In all instances involving the purchase of financial futures contracts
by a Fund, an amount of cash together with such other securities as permitted by
applicable regulatory authorities to be utilized for such purpose, at least
equal to the market value of the future contracts, will be deposited in a
segregated account with the Fund's custodian to collateralize the position. At
any time prior to the expiration of a futures contract, the Fund may elect to
close its position by taking an opposite position that will operate to terminate
the Fund's position in the futures contract.

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

OPTIONS ON FUTURES CONTRACTS

All Funds except Special, Balanced, Money Market and Government
Securities Funds may purchase put and call options on futures contracts. An
option on a futures contract provides the holder with the right to enter into a
"long" position in the underlying futures contract, in the case of a call
option, or a "short" position in the underlying futures contract, in the case of
a put option, at a fixed exercise price to a stated expiration date. Upon
exercise of the option by the holder, a contract market clearinghouse
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks

<PAGE>
10

associated with the trading of futures contracts, such as payment of variation
margin deposits.

A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.

An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearinghouse assigns exercise notices
on a random basis to those of its members that have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers that have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.

The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. See
"Options on Foreign Currencies" below. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying instrument, ownership of the option may or may not
be less risky than ownership of the futures contract or the underlying
instrument. As with the purchase of futures contracts, when a Fund is not fully
invested it could buy a call option on a futures contract to hedge against a
market advance.

The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund would be able to buy a put option on a futures contract to hedge
the Fund's portfolio against the risk of falling prices.

The amount of risk a Fund would assume, if it bought an option on a
futures contract, would be the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above, the
purchase of an option also entails the risk that changes in the value of the
underlying futures contract will not fully be reflected in the value of the
options bought.

OPTIONS ON FOREIGN CURRENCIES

All of the Funds except Special, Balanced, Money Market and Government
Securities Funds may buy and sell options on foreign currencies for hedging
purposes in a manner similar to that in which futures on foreign currencies
would be utilized. For example, a decline in the U.S. dollar value of a foreign
currency in which portfolio

<PAGE>
11

securities are denominated would reduce the U.S. dollar value of such
securities, even if their value in the foreign currency remained constant. In
order to protect against such diminutions in the value of portfolio securities,
a Fund could buy put options on the foreign currency. If the value of the
currency declines, the Fund would have the right to sell such currency for a
fixed amount in U.S. dollars and would thereby offset, in whole or in part, the
adverse effect on its portfolio that otherwise would have resulted. Conversely,
when a rise is projected in the U.S. dollar value of a currency in which
securities to be acquired are denominated, thereby increasing the cost of such
securities, the Fund could buy call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates.

Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities, and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices, or prohibitions on exercise.

RISK FACTORS OF INVESTING IN FUTURES AND OPTIONS

The successful use of the investment practices described above with
respect to futures contracts, options on futures contracts, and options on
securities indices, securities, and foreign currencies draws upon skills and
experience that are different from those needed to select the other instruments
in which the Funds invest. All such practices entail risks and can be highly
volatile. Should interest or exchange rates or the prices of securities or
financial indices move in an unexpected manner, the Funds

<PAGE>
12

may not achieve the desired benefits of futures and options or may realize
losses and thus be in a worse position than if such strategies had not been
used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to options
on currencies and negotiated or over-the-counter instruments, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
In addition, the correlation between movements in the price of the securities
and currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.

A Fund's ability to dispose of its positions in the foregoing
instruments will depend on the availability of liquid markets in the
instruments. Markets in a number of the instruments are relatively new and still
developing and it is impossible to predict the amount of trading interest that
may exist in those instruments in the future. Particular risks exist with
respect to the use of each of the foregoing instruments and could result in such
adverse consequences to the Funds as the possible loss of the entire premium
paid for an option bought by a Fund, the inability of a Fund, as the writer of a
covered call option, to benefit from the appreciation of the underlying
securities above the exercise price of the option, and the possible need to
defer closing out positions in certain instruments to avoid adverse tax
consequences. As a result, no assurance can be given that the Funds will be able
to use those instruments effectively for the purposes set forth above.

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

FOREIGN SECURITIES AND ADRS

The term "foreign securities" refers to securities of issuers, wherever
organized, that, in the judgment of Founders, have their principal business
activities outside of the United States. The determination of whether an
issuer's principal activities are outside of the United States will be based on
the location of the issuer's assets, personnel, sales, and earnings, and
specifically on whether more than 50% of the issuer's assets are located, or
more than 50% of the issuer's gross income is earned, outside of the United
States, or on whether the issuer's sole or principal stock exchange listing is
outside of the United States. Foreign securities typically will be traded on the
applicable country's

<PAGE>
13

principal stock exchange but may also be traded on regional exchanges or
over-the- counter. In addition, foreign securities may trade in the U.S.
securities markets.

Investments in foreign countries involve certain risks that are not
typically associated with U.S. investments. There may be less publicly available
information about foreign companies comparable to reports and ratings published
about U.S. companies. Foreign companies are not generally subject to uniform
accounting, auditing, and financial reporting standards and requirements
comparable to those applicable to U.S. companies. There also may be less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the United States.

Foreign stock markets may have substantially less volume than the New
York Stock Exchange, and securities of some foreign companies may be less liquid
and may be more volatile than securities of comparable U.S. companies. Brokerage
commissions and other transaction costs on foreign securities exchanges
generally are higher than in the United States.

Because investment in foreign companies will usually involve currencies
of foreign countries, and because a Fund may temporarily hold funds in bank
deposits in foreign currencies during the course of investment programs, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversion between various currencies. A change in the value of any foreign
currency relative to the U.S. dollar, when the Fund holds that foreign currency
or a security denominated in that foreign currency, will cause a corresponding
change in the dollar value of the Fund assets denominated or traded in that
country. Moreover, there is the possibility of expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of the Fund,
political, economic or social instability or diplomatic developments that could
affect U.S.investments in foreign countries.

Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes, thus reducing the net return on such
investments compared with U.S. investments. The operating expense ratio of a
Fund that invests in foreign securities can be expected to be higher than that
of a fund which invests exclusively in domestic securities, since the expenses
of the Fund, such as foreign custodial costs, are higher. In addition, the Fund
incurs costs in converting assets from one currency to another.

In addition, Passport, Worldwide Growth, and International Equity Funds
may invest in securities issued by companies located in countries not considered
to be major industrialized nations. Such countries are subject to more economic,
political and business risk than major industrialized nations, and the
securities issued by companies located there are expected to be more volatile,
less liquid and more uncertain as to

<PAGE>
14

payments of dividends, interest and principal. Such countries may include (but
are not limited to) Argentina, Australia, Austria, Belgium, Bolivia, Brazil,
Chile, China, Colombia, Costa Rica, Croatia, Czech Republic, Denmark, Ecuador,
Egypt, Finland, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Italy,
Israel, Jordan, Malaysia, Mexico, Netherlands, New Zealand, Nigeria, North
Korea, Norway, Pakistan, Paraguay, Peru, Philippines, Poland, Portugal, Romania,
Singapore, Slovak Republic, South Africa, South Korea, Spain, Sri Lanka, Sweden,
Switzerland, Taiwan, Thailand, Turkey, Uruguay, Venezuela, Vietnam and the
countries of the former Soviet Union.

American Depositary Receipts and American Depositary Shares
(collectively, "ADRs") are receipts representing shares of a foreign corporation
held by a U.S. bank that entitle the holder to all dividends and capital gains
on the underlying foreign shares. ADRs are denominated in U.S. dollars and trade
in the U.S. securities markets. ADRs may be issued in sponsored or unsponsored
programs. In sponsored programs, the issuer makes arrangements to have its
securities traded in the form of ADRs; in unsponsored programs, the issuer may
not be directly involved in the creation of the program. Although the regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, the issuers of unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, such information may not be
reflected in the market value of the ADRs.

FORWARD CONTRACTS FOR PURCHASE OR SALE OF FOREIGN CURRENCIES

The Funds generally conduct their foreign currency exchange transactions
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
currency market. When a Fund purchases or sells a security denominated in a
foreign currency, it may enter into a forward foreign currency contract
("forward contract") for the purchase or sale, for a fixed amount of dollars, of
the amount of foreign currency involved in the underlying security transaction.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. In this manner, a Fund may obtain protection against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the foreign currency during the period between the date the security is
purchased or sold and the date upon which payment is made or received. Although
such contracts tend to minimize the risk of loss due to the decline in the value
of the hedged currency, at the same time they tend to limit any potential gain
that might result should the value of such currency increase. The Funds will not
speculate in forward contracts.

Forward contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Generally a forward contract has no deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the difference between
the prices at which

<PAGE>
15

they buy and sell various currencies. When Founders believes that the currency
of a particular foreign country may suffer a substantial decline against the
U.S. dollar (or sometimes against another currency), Discovery, Passport,
Frontier International Equity, and Worldwide Growth Funds may each enter into
forward contracts to sell, for a fixed-dollar or other currency amount, foreign
currency approximating the value of some or all of the Funds' portfolio
securities denominated in that currency. In addition, these Funds may engage in
"proxy hedging," i.e., entering into forward contracts to sell a different
foreign currency than the one in which the underlying investments are
denominated, with the expectation that the value of the hedged currency will
correlate with the value of the underlying currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible. The future value of such securities in foreign currencies
changes as a consequence of market movements in the value of those securities
between the date on which the contract is entered into and the date it expires.
Frontier Fund does not intend to sell such foreign currencies on a regular or
continuous basis, and will not do so if, as a result, the Fund will have more
than 15% of the value of its total assets committed to the consummation of such
foreign currency sales. Discovery, Passport, Frontier International Equity, and
Worldwide Growth Funds generally will not enter into forward contracts with a
term greater than one year. In addition, these Funds generally will not enter
into such forward contracts or maintain a net exposure to such contracts where
the fulfillment of the contracts would require the Funds to deliver an amount of
foreign currency or a proxy currency in excess of the value of the Funds'
portfolio securities or other assets denominated in the currency being hedged.
Under normal circumstances, consideration of the possibility of changes in
currency exchange rates will be incorporated into the Funds' long-term
investment strategies. Forward contracts may, from time to time, be considered
illiquid, in which case they would be subject to the respective Funds'
limitation on investing in illiquid securities, as discussed below.

At the consummation of a forward contract for delivery by Discovery,
Passport, Frontier International Equity, and Worldwide Growth Funds of a foreign
currency, those Funds may either make delivery of the foreign currency or
terminate its contractual obligation to deliver the foreign currency by
purchasing an offsetting contract obligating it to purchase, at the same
maturity date, the same amount of the foreign currency. If the Fund chooses to
make delivery of the foreign currency, it may be required to obtain such
currency through the sale of portfolio securities denominated in such currency
or through conversion of other Fund assets into such currency. It is impossible
to forecast the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver, and if a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.

<PAGE>
16

If Discovery, Passport, Frontier International Equity, or Worldwide
Growth Funds retain the portfolio security and engage in an offsetting
transaction, they will incur a gain or loss to the extent that there has been
movement in spot or forward contract prices. If any one of those Funds engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices decline during the
period between the Fund's entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer a
loss to the extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.

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

Dealings in forward contracts by Discovery, Passport, Frontier
International Equity, and Worldwide Growth Funds will be limited to the
transactions described above. Of course, those Funds are not required to enter
into such transactions with regard to their foreign currency-denominated
securities and will not do so unless deemed appropriate by Founders. It also
should be realized that this method of protecting the value of the Funds'
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange that can be achieved at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to the decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might result should the value of such
currency increase.

ILLIQUID SECURITIES

As discussed in the Prospectus, certain of the Funds may invest up to
15% of the value of their net assets, measured at the time of investment, in
investments that are not readily marketable. Subject to the overall 15%
limitation upon investments that are not readily marketable, certain of these
Funds may invest in restricted securities. Restricted securities are securities
that may not be resold to the public without registration under the Securities
Act of 1933 (the "1933 Act"). Restricted securities (other than liquid Rule 144A
securities, discussed below) and securities that are not readily marketable are
illiquid securities. Illiquid securities are securities that may be subject to
resale restrictions or that, due to their market or the nature of the security,

<PAGE>
17

have no readily available markets for their disposition. These limitations on
resale and marketability may have the effect of preventing a Fund from disposing
of such a security at the time desired or at a reasonable price. In addition, in
order to resell a restricted security, a Fund might have to bear the expense and
incur the delays associated with effecting registration. In purchasing illiquid
securities, no Fund intends to engage in underwriting activities, except to the
extent a Fund may be deemed to be a statutory underwriter under the 1933 Act in
disposing of such securities. Illiquid securities will be purchased for
investment purposes only and not for the purpose of exercising control or
management of other companies.

RULE 144A SECURITIES

In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend on an efficient institutional market in which such
unregistered securities can readily be resold or on an issuer's ability to honor
a demand for repayment. Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain institutions is not
dispositive of the liquidity of such investments.

Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Certain of the Funds may invest in Rule 144A
securities that, as disclosed in the Prospectus, are restricted securities that
may or may not be readily marketable. Rule 144A securities are readily
marketable if institutional markets for the securities develop pursuant to Rule
144A that provide both readily ascertainable values for the securities and the
ability to liquidate the securities when liquidation is deemed necessary or
advisable. However, an insufficient number of qualified institutional buyers
interested in purchasing a Rule 144A security held by one of the Funds could
affect adversely the marketability of the security. In such an instance, the
Fund might be unable to dispose of the security promptly or at reasonable
prices.

The board of directors of the Funds has delegated to Founders the
authority to determine that a liquid market exists for securities eligible for
resale pursuant to Rule 144A under the 1933 Act, or any successor to such rule,
and that such securities are not subject to the Funds' limitations on investing
in securities that are not readily marketable. Under guidelines established by
the directors, Founders will consider the following factors, among others, in
making this determination: (1) the unregistered nature of a Rule 144A security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers willing to purchase or sell the security and the number of additional
potential purchasers; (4) dealer undertakings to make a market in the security;
and (5) the nature of the security and the nature of market place trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of transfers). Founders is required to monitor the readily
marketable nature of each Rule 144A security on a basis no less frequently than
quarterly. The Funds'

<PAGE>
18

directors monitor the determinations of Founders quarterly. As indicated, Rule
144A securities will remain subject to certain Fund's limitations on investments
in restricted securities, those securities for which there are legal and
contractual restrictions on resale.

FIXED-INCOME SECURITIES

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

Investments in lower rated or unrated securities are generally
considered to be of high risk. Lower rated debt securities, commonly referred to
as junk bonds, are generally subject to two kinds of risk, credit risk and
market risk. Credit risk relates to the ability of the issuer to meet interest
or principal payments, or both, as they come due. The ratings given a security
by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P")
provide a generally useful guide as to such credit risk. The Appendix to this
Statement of Additional Information provides a description of such debt security
ratings. The lower the rating given a security by a rating service, the greater
the credit risk such rating service perceives to exist with respect to the
security. Increasing the amount of a Fund's assets invested in unrated or lower
grade securities, while intended to increase the yield produced by those assets,
will also increase the risk to which those assets are subject.

Market risk relates to the fact that the market values of debt
securities in which a Fund invests generally will be affected by changes in the
level of interest rates. An increase in interest rates will tend to reduce the
market values of such securities, whereas a decline in interest rates will tend
to increase their values. Medium and lower rated securities (Baa or BBB and
lower) and non-rated securities of comparable quality tend to be subject to
wider fluctuations in yields and market values than higher rated securities and
may have speculative characteristics. The Funds are not required to dispose of
debt securities whose ratings are downgraded below these ratings subsequent to a
Fund's purchase of the securities, unless such a disposition is necessary to
reduce a Fund's holdings of such securities to less than 5% of its total assets.
In order to

<PAGE>
19

decrease the risk in investing in debt securities, in no event will a Fund ever
invest in a debt security rated below B by Moody's or by S&P. Of course, relying
in part on ratings assigned by credit agencies in making investments will not
protect the Funds from the risk that the securities in which they invest will
decline in value, since credit ratings represent evaluations of the safety of
principal, dividend, and interest payments on preferred stocks and debt
securities, and not the market values of such securities, and such ratings may
not be changed on a timely basis to reflect subsequent events.

Because investment in medium and lower rated securities involves both
greater credit risk and market risk, achievement of the Funds' investment
objectives may be more dependent on the investment adviser's own credit analysis
than is the case for funds that do not invest in such securities. In addition,
the share price and yield of these Funds may fluctuate more than in the case of
funds investing in higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower rated securities experiencing increased financial stress, that
would adversely affect their ability to service their principal, dividend, and
interest obligations, meet projected business goals, and obtain additional
financing. In this regard, it should be noted that while the market for high
yield debt securities has been in existence for many years and from time to time
has experienced economic downturns in recent years, this market has involved a
significant increase in the use of high yield debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may not,
therefore, provide an accurate indication of future performance of the high
yield debt securities market, particularly during periods of economic recession.
Furthermore, expenses incurred in recovering an investment in a defaulted
security may adversely affect a Fund's net asset value. Finally, while the
Funds' investment adviser attempts to limit purchases of medium and lower rated
securities to securities having an established secondary market, the secondary
market for such securities may be less liquid than the market for higher quality
securities. The reduced liquidity of the secondary market for such securities
may adversely affect the market price of, and ability of a Fund to value,
particular securities at certain times, thereby making it difficult to make
specific valuation determinations. The Funds do not invest in any medium and
lower rated securities that present special tax consequences, such as zero
coupon bonds or pay-in-kind bonds.

The Funds' investment adviser seeks to reduce the overall risks
associated with the Funds' investments through diversification and consideration
of factors affecting the value of securities it considers relevant. No assurance
can be given, however, regarding the degree of success that will be achieved in
this regard or that the Funds will achieve their investment objectives.

FOREIGN BANK OBLIGATIONS

The obligations of foreign branches of U.S. depository institutions
purchased by the Funds may be general obligations of the parent depository
institution in addition to being an obligation of the issuing branch. These
obligations, and those of foreign

<PAGE>
20

depository institutions, may be limited by the terms of the specific obligation
and by governmental regulation. The payment of these obligations, both interest
and principal, also may be affected by governmental action in the country of
domicile of the institution or branch, such as imposition of currency controls
and interest limitations. In connection with these investments, a Fund will be
subject to the risks associated with the holding of portfolio securities
overseas, such as possible changes in investment or exchange control
regulations, expropriation, confiscatory taxation, or political or financial
instability.
Obligations of U.S. branches of foreign depository institutions may be
general obligations of the parent depository institution in addition to being an
obligation of the issuing branch, or may be limited by the terms of a specific
foreign regulation applicable to the depository institutions and by government
regulation (both domestic and foreign).

REPURCHASE AGREEMENTS

As discussed in the Funds' Prospectus, the Funds may enter into
repurchase agreements with respect to money market instruments eligible for
investment by the Funds with member banks of the Federal Reserve system,
registered broker-dealers, and registered government securities dealers. A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the collateral securities acquired
by a Fund (including accrued interest earned thereon) must have a total value at
least equal to the value of the repurchase agreement, and are held as collateral
by the Funds' custodian bank until the repurchase agreement is completed.
Repurchase agreements maturing in more than seven days are considered illiquid
and will be subject to each Fund's limitation with respect to illiquid
securities. For a further explanation, see "Investment Objectives and Policies -
Illiquid Securities."

None of the Funds has adopted any limits on the amounts of its total
assets that may be invested in repurchase agreements that mature in less than
seven days. Each of the Funds except Money Market Fund may invest up to 15% of
the market value of its net assets, measured at the time of purchase, in
securities that are not readily marketable, including repurchase agreements
maturing in more than seven days. Money Market Fund may enter into repurchase
agreements if, as a result thereof, no more than 10% of the market value of its
net assets would be subject to repurchase agreements maturing in more than seven
days.

CONVERTIBLE SECURITIES

All Funds except Government Securities and Money Market Funds may buy
securities convertible into common stock if, for example, the Fund's investment
adviser believes that a company's convertible securities are undervalued in the
market. Convertible securities eligible for purchase include convertible bonds,
convertible preferred stocks, and warrants. A warrant is an instrument issued by
a corporation that gives the holder the right to subscribe to a specific amount
of the corporation's capital

<PAGE>
21

stock at a set price for a specified period of time. Warrants do not represent
ownership of the securities, but only the right to buy the securities. The
prices of warrants do not necessarily move parallel to the prices of underlying
securities. Warrants may be considered speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of a
corporation issuing them. Warrant positions will not be used to increase the
leverage of a Fund; consequently, warrant positions are generally accompanied by
cash positions equivalent to the required exercise amount.

MORTGAGE-RELATED SECURITIES

Government Securities and Balanced Funds may invest in mortgage-related
securities, which are interests in pools of mortgage loans made to residential
home buyers, including mortgage loans made by savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage loans are
assembled as securities for sale to investors by various governmental and
government-related organizations (see "Mortgage Pass-Through Securities"). Other
Funds also may invest in such securities for temporary defensive purposes. The
Government Securities Fund also may invest in debt securities that are secured
with collateral consisting of mortgage-related securities (see "Collateralized
Mortgage Obligations"), and in other types of mortgage-related securities.

Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, that normally provide for
periodic payment of interest in fixed amounts with principal payments at
maturity or at specified call dates. Instead, these securities provide a monthly
payment that consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs that may be incurred.
Some mortgage-related securities (such as securities issued by the Government
National Mortgage Association ("GNMA")) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.

GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned U.S. government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA- insured or VA-guaranteed mortgages.

<PAGE>
22

Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government- sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/servicers that
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. government.

FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") that represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the U.S. government.

Mortgage-backed securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities, are not subject to a Fund's
industry concentration restrictions, by virtue of the exclusion from that test
available to all U.S. government securities. The assets underlying such
securities may be represented by a portfolio of first lien residential mortgages
(including both whole mortgage loans and mortgage participation interests) or
portfolios of mortgage pass-through securities issued or guaranteed by GNMA,
FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn
be insured or guaranteed by the Federal Housing Administration or the Department
of Veterans Affairs.

Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between
a mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.

CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class

<PAGE>
23

has been retired. An investor is partially guarded against a sooner than desired
return of principal because of the sequential payments.

In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begin to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.

FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates that are secured by the pledge of a pool
of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs, payments of
principal and interest on the CMOs are made semiannually, as opposed to monthly.
The amount of principal payable on each semiannual payment date is determined in
accordance with FHLMC's mandatory sinking fund schedule, that, in turn, is equal
to approximately 100% of FHA prepayment experience applied to the mortgage
collateral pool. All sinking fund payments in the CMOs are allocated to the
retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.

If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.

Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.

Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, which may adversely affect the investment's average life
and yield. Whether or not a

<PAGE>
24

mortgage loan is prepaid is almost entirely controlled by the borrower.
Borrowers are most likely to exercise prepayment options at the time when it is
least advantageous to investors, generally prepaying mortgages as interest rates
fall, and slowing payments as interest rates rise. Accordingly, amounts
available for reinvestment by a Fund are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Besides the effect
of prevailing interest rates, the rate of prepayment and refinancing of
mortgages may also be affected by home value appreciation, ease of the
refinancing process and local economic conditions.

Market risk reflects the risk that the price of the security may
fluctuate over time. The price of mortgage-backed securities may be particularly
sensitive to prevailing interest rates, the length of time the security is
expected to be outstanding, and the liquidity of the issue. In a period of
unstable interest rates, there may be decreased demand for certain types of
mortgage-backed securities, and a fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold. In addition, as a result of the uncertainty of
cash flows of lower tranche CMOs, the market prices of and yield on those
tranches generally are more volatile.

Credit risk reflects the risk that a Fund may not receive all or part of
its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. With respect to GNMA
certificates, although GNMA guarantees timely payment even if homeowners delay
or default, tracking the "pass-through" payments may, at times, be difficult.

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

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

<PAGE>
25

WHEN-ISSUED SECURITIES

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

BORROWING

If a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is repaid. Each Fund will attempt to minimize
such fluctuations by not
purchasing securities when borrowings are greater than 5% of the value of the
Fund's total assets. Interest on borrowings will reduce a Fund's income. See
"Investment Restrictions" below for each Fund's limitation on borrowing.

SECURITIES OF OTHER INVESTMENT COMPANIES

Each of the Funds may acquire securities of other investment companies
if they are acquired in connection with a plan of reorganization, merger or
consolidation. In addition, all of the Funds except the Money Market Fund may
purchase securities of other investment companies, although as of the date of
this Statement of Additional Information, no Fund intends to purchase such
securities during the coming year in excess of the following limitations: (a) no
more than 3% of the voting securities of any one investment company may be owned
in the aggregate by the Fund and all other Funds, (b) no more than 5% of the
value of the total assets of the Fund may be invested in any one investment
company, and (c) no more than 10% of the value of the total assets of the Fund
and all other Funds may be invested in the securities of all such investment
companies. Should a Fund purchase securities of other investment companies,
shareholders may incur additional management, advisory, and distribution fees.

<PAGE>
26

INVESTMENT RESTRICTIONS

Certain of the investment restrictions set forth below are fundamental
("Fundamental") policies of each Fund, i.e., they may not be changed with
respect to a Fund without approval of the holders of a majority, as defined in
the Investment Company Act of 1940 (the "1940 Act"), of the outstanding voting
securities of that Fund. Other investment practices that may be changed by the
Board of Directors without the approval of shareholders to the extent permitted
by applicable law, regulation or regulatory policy are considered
non-fundamental ("Non-Fundamental"). If a percentage restriction is adhered to
at the time of investment, a later increase or decrease in percentage beyond the
specified limit that results from a change in values or net assets will not be
considered a violation.

Subject to the preceding considerations, as a Fundamental or
Non-Fundamental restriction, each Fund may not:

Fundamental

1. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions.

2. Sell securities short. Special Fund may make short sales under
certain circumstances as described elsewhere in this Statement of Additional
Information under the Fund's Fundamental Policies.

3. Make loans to other persons; the purchase of a portion of an issue of
publicly distributed bonds, debentures or other securities is not considered the
making of a loan by a Fund. A Fund may also enter into repurchase agreements by
purchasing U.S. government securities with a simultaneous agreement with the
seller to repurchase them at the original purchase price plus accrued interest.

4. Underwrite the securities of other issuers.

5. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, including
limited partnership interests therein, except that a Fund may invest in
securities of issuers which invest in commodities, commodity futures, real
estate, real estate mortgage loans or other illiquid interests in real estate,
and in readily marketable interests in real estate investment trusts.

6. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry.

7. Issue any senior securities.

<PAGE>
27

Non-Fundamental

1. With the exception of Money Market Fund, invest more than 15% of the
market value of its net assets in securities which are not readily marketable,
including repurchase agreements maturing in over seven days. Money Market Fund
may invest up to 10% of its net assets in repurchase agreements maturing in over
seven days.

As a non-fundamental investment policy, in periods of uncertain market
and economic conditions, as determined by each Fund's investment adviser, each
Fund may depart from its basic investment objective and assume a defensive
position with all or a large portion of its assets temporarily invested in high
quality corporate bonds or notes and government issues, or held in cash.

In applying their restrictions on investments in any one industry, set
forth below, the Funds use industry classifications based, where applicable, on
Baseline, Bridge Information Systems, Reuters, the S&P Stock Guide published by
Standard & Poor's, information obtained from Bloomberg L.P. and Moody's
International, and/or the prospectus of the issuing company. Selection of an
appropriate industry classification resource will be made by Founders in the
exercise of its reasonable discretion.

The following is a list of each Fund's Fundamental and Non-Fundamental
investment restrictions, as indicated. As to each Fund, the Fund may not:

Discovery Fund

Fundamental

1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may enter into forward foreign
currency exchange contracts.

2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.

3. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.

<PAGE>
28

Non-Fundamental

1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

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

The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American Depositary Receipts that are traded in the United States on exchanges
or over-the-counter.

Passport Fund

Fundamental

3. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.

Non-Fundamental

1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

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

<PAGE>
29

Frontier Fund

Fundamental

3. Invest in restricted securities.

4. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.

Non-Fundamental

1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

The Fund may invest without limitation in U.S. or foreign securities,
although it normally will be at least 50% invested in U.S. companies, with no
more than 25% of its total assets invested in any one foreign country.

Special Fund

Fundamental

1. Sell securities short, except that the Fund may sell securities short
provided that at all times during which a short position is open it owns an
equal amount of such securities or by virtue of ownership of convertible or
exchangeable securities it has the right, without payment of further
consideration, to obtain through the conversion or exchange of such other
securities an equal amount of the securities sold short, and

<PAGE>
30

unless not more than 15% of the Fund's net assets (taken at market or other
current value) are held as collateral for such sales at any one time.*

2. Underwrite the securities of other issuers, except in those instances
where the Fund acquires restricted securities which it would not be free to sell
without registering and being deemed an underwriter for purposes of the
Securities Act of 1933.

3. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.

4. Participate in any joint trading account.

5. Purchase or sell puts, calls, straddles, spreads or combinations
thereof except that the Fund may purchase put and call options on stock indices
and enter into closing transactions with respect to such options.

6. Purchase more than 10% of any class of securities or purchase more
than 10% of the voting securities of any single issuer.

7. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years.

8. Purchase securities of other investment companies, except that the
Fund may purchase such securities in the open market where no commission or
profit to a sponsor or dealer other than the customary broker's commission
results from such purchase, and only if immediately thereafter (a) no more than
3% of the voting securities of any one investment company is owned in the
aggregate by the Fund and all other Funds, (b) no more than 5% of the value of
the total assets of the Fund would be invested in any one investment company,
and (c) no more than 10% of the value of the total assets of the Fund and all
other Funds would be invested in the securities of all such investment
companies. Should the Fund purchase securities of other investment companies,
shareholders may incur additional management, advisory, and distribution fees.
The Fund may acquire such securities if they are acquired in connection with a
purchase or acquisition in accordance with a plan of reorganization, merger or
consolidation.

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

<PAGE>
31

9. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.

10. Invest in companies for the purpose of exercising control or
management.

11. Issue any senior securities, except that the Fund may borrow from
banks so long as the requisite asset coverage has been provided.

12. Borrow from banks unless if immediately after such borrowing the
value of the assets of the Fund (including the amount borrowed) less its
liabilities (not including the borrowing) is at least three times the amount of
the borrowing. While borrowings are outstanding, no purchases of securities will
be made. Interest on borrowings will reduce a Fund's income.

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

Non-Fundamental

1. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.

International Equity Fund

Fundamental

2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the

<PAGE>
32

same industry, provided that this limitation does not apply to obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities.

3. Borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an aggregate amount not
exceeding 33-1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings that exceed
33-1/3% of the value of the Fund's total assets by reason of a decline in total
assets will be reduced within three days, not including Sundays and holidays, to
the extent necessary to comply with the 33-1/3% limitation. This restriction
shall not prohibit deposits of assets to margin or guarantee positions in
futures, options, or forward contracts, or the segregation of assets in
connection with such contracts.

Non-Fundamental

1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

Worldwide Growth Fund

Fundamental

2. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.

3. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.

<PAGE>
33

Non-Fundamental

1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

Growth Fund

Fundamental

1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.

2. Participate in any joint trading account.

3. Purchase more than 10% of any class of securities or purchase more
than 10% of the voting securities of any single issuer.

4. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years.

5. Purchase securities of other investment companies, except that the
Fund may purchase such securities in the open market where no commission or
profit to a sponsor or dealer other than the customary broker's commission
results from such purchase, and only if immediately thereafter (a) no more than
3% of the voting securities of any one investment company is owned in the
aggregate by the Fund and all other Funds, (b) no more than 5% of the value of
the total assets of the Fund would be invested in any one investment company,
and (c) no more than 10% of the value of the total assets of the Fund and all
other Funds would be invested in the securities of all such investment
companies. Should the Fund purchase securities of other investment companies,
shareholders may incur additional management, advisory, and distribution fees.
The Fund may acquire such securities if they are acquired in connection with a
purchase or acquisition in accordance with a plan of reorganization, merger or
consolidation.

<PAGE>
34

6. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.

7. Invest in companies for the purpose of exercising control or
management.

8. Pledge, mortgage or hypothecate its assets except to secure permitted
borrowings, and then only in an amount up to 15% of the value of the Fund's net
assets taken at the lower of cost or market value at the time of such
borrowings.

9. Redeem its shares in kind unless the proceeds of cash redemptions
exceed the lesser of $250,000 or 1% of the net asset value of the Fund during
any 90 day period for any one shareholder.

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

11. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.

Non-Fundamental

1. Sell puts, calls, straddles, spreads or combinations thereof.

Blue Chip Fund

Fundamental

<PAGE>
35

Fund may hedge a foreign securities transaction by entering into forward foreign
currency transactions.

2. Make any investment that would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.

3. Invest in restricted securities.

4. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.

Non-Fundamental

1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

Balanced Fund

Fundamental

1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.

2. Participate in any joint trading account.

3. Purchase or sell puts, calls, straddles, spreads or combinations
thereof except that the Fund may sell covered call options with respect to any
or all of its

<PAGE>
36

portfolio securities and enter into closing purchase transactions with respect
to such options.

4. Purchase more than 10% of any class of securities or purchase more
than 10% of the voting securities of any single issuer.

5. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years.

6. Purchase securities of other investment companies, except that the
Fund may purchase such securities in the open market where no commission or
profit to a sponsor or dealer other than the customary broker's commission
results from such purchase, and only if immediately thereafter (a) no more than
3% of the voting securities of any one investment company is owned in the
aggregate by the Fund and all other Funds, (b) no more than 5% of the value of
the total assets of the Fund would be invested in any one investment company,
and (c) no more than 10% of the value of the total assets of the Fund and all
other Funds would be invested in the securities of all such investment
companies. Should the Fund purchase securities of other investment companies,
shareholders may incur additional management, advisory, and distribution fees.
The Fund may acquire such securities if they are acquired in connection with a
purchase or acquisition in accordance with a plan of reorganization, merger or
consolidation.

7. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.

8. Invest in companies for the purpose of exercising control or
management.

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

10. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.

Non-Fundamental

1. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the

<PAGE>
37

same industry, provided that this limitation does not apply to obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities.

Government Securities Fund

Fundamental

1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.

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

4. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.

Non-Fundamental

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

2. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.

3. Invest more than 5% of the market value of its net assets in equity
securities.

<PAGE>
38

Money Market Fund

Fundamental

1. Make loans to other persons; the purchase of a portion of an issue of
publicly distributed bonds, debentures or other securities is not considered the
making of a loan by a Fund. The Fund may also enter into repurchase agreements
by purchasing money market instruments with a simultaneous agreement with the
seller to repurchase them at the original purchase price plus accrued interest.

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

3. Purchase more than 10% of any class of securities of a single issuer.

4. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that (i) this limitation does not
apply to obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities and (ii) this limitation does not apply to obligations of
domestic commercial banks.

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

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

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

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

<PAGE>
39

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

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

12. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.

DIRECTORS AND OFFICERS

The directors of the Company, their principal occupations for the last
five years and their affiliations, if any, with Founders, are as follows:

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

WILLIAM H. BAUGHN
555 Baseline Road
Boulder, Colorado
Director and Executive Committee Member
President Emeritus, University of Colorado. Dean Emeritus, Graduate
School of Business, University of Colorado. Born: August 27, 1918

BJORN K. BORGEN*
2930 E. Third Ave.
Denver, Colorado 80206.
Director and Executive Committee Member
Formerly (1971 to 1998), Chairman, Chief Executive Officer, Chief
Investment Officer, and Director of Founders. Born: September 22, 1937.

<PAGE>
40

ALAN S. DANSON
6400 S. Jamaica Circle
Englewood, Colorado
Director
Independent financial consultant. Senior Vice President, OptiMark
Technologies, Inc. (computerized securities trading services), and
President, D. H. Management, Inc. (general partner of limited
partnership with technology company holdings). Between March 1, 1992,
and June 30, 1993, Mr. Danson was President and Chief Executive
Officer of ACCI Securities, Inc., a wholly- owned subsidiary of
Acciones y Valores de Mexico, S.A. de C.V., a Mexican brokerage firm.
Mr. Danson was Director of International Relations of Acciones y
Valores between March 1, 1990, and February 28, 1992. Prior to joining
Acciones y Valores, Mr. Danson was President of Integrated Medical
Systems, Inc., a privately held company based in Golden, Colorado.
Born: June 15, 1939

TRYGVE E. MYHREN
280 Detroit Street, Suite 200
Denver, Colorado
Director
President, Myhren Media, Inc., Denver, Colorado, a firm that invests in
and advises media and communications companies. Director, Advanced
Marketing Services, Inc., LaJolla, California; Director, Peapod, Ltd.,
Evanston, Illinois; and Director, J.D. Edwards, Denver, Colorado.
Formerly, President of The Providence Journal Company, a diversified
media and communications company, Providence, Rhode Island, from 1990 to
1996; Chairman and Chief Executive Officer of American Television and
Communications Corporation, a cable television company, Denver,
Colorado, from 1981 to 1988; and Chairman, National Cable Television
Association, from 1986 to 1987. Mr. Myhren also serves on the boards of
the University of Denver and National Jewish Medical Center, both of
which are in Denver, Colorado. Born: January 3, 1937.

EUGENE H. VAUGHAN, JR., CFA
6300 Texas Commerce Tower
Houston, Texas
Vice Chairman and Director
President and Chief Executive Officer, Vaughan, Nelson, Scarborough &
McCullough, L.P., an investment counseling firm, Houston, Texas.
Founding Chairman and Governor, Association for Investment Management
and Research; Past Chairman and Trustee, Institute of Chartered
Financial Analysts; Past Chairman and Director, Financial Analysts
Federation; Trustee, Vanderbilt University. Born: October 5, 1933

*Indicates an interested director as defined in the 1940 Act, because of his
former status as a director and officer of the Funds' investment adviser.

<PAGE>
41

The officers of the Company and their principal occupations for the last
five years appear below. All of the Company's officers are affiliated with its
distributor, Premier Mutual Fund Services, Inc., or with affiliates of Premier.
None of the Company's officers is affiliated with Founders.

MARIE E. CONNOLLY
60 State Street
Boston, Massachusetts 02109
President and Treasurer
President, Funds Distributor Inc. (since 1992), an affiliate of Premier
Mutual Fund Services, Inc., the Funds' distributor; Treasurer, Funds
Distributor Inc. (July 1993 to April 1994); Chief Operating Officer,
Funds Distributor Inc. (since April 1994); Director, Funds Distributor
Inc. (since July 1992); President, Chief Executive Officer, Chief
Compliance Officer and Director, Premier Mutual Fund Services, Inc.
(since April 1994); Senior Vice President and Director of Financial
Administration, The Boston Company Advisors, Inc. (December 1988 to
May 1993). President and Treasurer (since September 1994), and Vice
President (March 1994 to September 1994) of the registered investment
companies in the Dreyfus family of funds. Born: August 1, 1957

MARGARET W. CHAMBERS
60 State Street
Boston, Massachusetts 02109
Secretary
Senior Vice President and General Counsel of Funds Distributor Inc.
(since April 1998). From August 1996 to March 1998, Ms. Chambers was
Vice President and Assistant General Counsel for Loomis, Sayles &
Company, L.P. From January 1986 to July 1996, she was an associate with
the law firm of Ropes & Gray. Secretary of the registered investment
companies in the Dreyfus family of funds (since April 1998). Born:
October 12, 1959.

DOUGLAS C. CONROY
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Secretary
Supervisor of Treasury Services and Administration of Funds Distributor
Inc. From April 1993 to January 1995, Mr. Conroy was a Senior Fund
Accountant for Investors Bank & Trust Company. From December 1991 to
March 1993, Mr. Conroy was employed as a fund accountant at The Boston
Company. Vice President and Assistant Secretary of the registered
investment companies in the Dreyfus family of funds (since July 1996).
Born: March 31, 1969.

<PAGE>
42

CHRISTOPHER J. KELLEY
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Secretary
Vice President and Senior Associate General Counsel of Funds Distributor
Inc. and Premier Mutual Fund Services, Inc. From April 1994 to July
1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. From
October 1992 to March 1994, Mr. Kelley was employed by Putnam
Investments in legal and compliance capacities. Vice President and
Assistant Secretary of the registered investment companies in the
Dreyfus family of funds (since January 1998). Born: December 24, 1964.

KATHLEEN K. MORRISEY
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Secretary
Manager of Treasury Operations of Funds Distributor Inc. From July 1994
to November 1995, Ms. Morrisey was a Fund Accountant II for Investors
Bank & Trust Company. Prior to that she was a finance student at
Stonehill College in North Easton, MA. Vice President and Assistant
Secretary of the registered investment companies in the Dreyfus family
of funds (since January 1998).
Born: July 5, 1972.

MARY A. NELSON
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Treasurer
Vice President and Manager of Treasury Services and Administration of
Funds Distributor, Inc. Vice President of Premier Mutual Fund Services,
Inc. From September 1989 to July 1994, Ms. Nelson was an Assistant Vice
President and Client Manager for The Boston Company. Vice President and
Assistant Treasurer of the registered investment companies in the
Dreyfus family of funds (since July 1996). Born: April 22, 1964.

MICHAEL S. PETRUCELLI
200 Park Avenue
New York, New York 10166
Vice President and Assistant Treasurer
Director of Strategic Client Initiatives for Funds Distributor Inc. From
December, 1989 through November, 1996 Mr. Petrucelli was employed with
GE Investment Services where he held various financial, business
development and compliance positions. He also served as treasurer of the
GE Funds and as Director of GE Investment Services. Vice President and
Assistant Treasurer of the registered investment companies in the
Dreyfus family of funds (since January 1997).
Born: May 18, 1961.

<PAGE>
43

JOSEPH F. TOWER, III
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Treasurer
Senior Vice President, Treasurer, Chief Financial Officer and Director
of Funds Distributor Inc. and Premier Mutual Fund Services, Inc. From
July 1988 to August 1994, Mr. Tower was employed by The Boston Company,
Inc., where he held various management positions in the Corporate
Finance and Treasury areas. Vice President and Assistant Treasurer of
the registered investment companies in the Dreyfus family of funds
(since January 1998). Born: June 13, 1962.

ELBA VASQUEZ
200 Park Avenue
New York, New York 10166
Vice President and Assistant Secretary
Assistant Vice President of Funds Distributor Inc. Ms. Vasquez has been
an employee since May 1996, as a Sales Associate in the distribution of
World Equity Benchmark Shares ("WEBS"). From March 1990 to May 1996, she
was employed by U.S. Trust Company of New York. As an officer of U.S.
Trust, she held various positions in the sales and marketing of their
proprietary family of mutual funds. Vice President and Assistant
Secretary of the registered investment companies in the Dreyfus family
of funds (since January 1998).
Born: December 14, 1961.

As of January 30, 1998, the Company's directors and officers as a group
owned less than 1% of the outstanding shares of each Fund, with the exception of
the Passport, International Equity and Money Market Funds, in which the
ownership interests of the group totaled 1.85%, 1.93%, and 8.05%, respectively.

The committees of the board of directors are the executive committee,
audit committee, portfolio transactions committee and valuation committee. The
Company also has a committee on directors, composed of all of the non-interested
("independent") directors and chaired by Mr. Precourt, which serves as a
nominating committee. So long as the plans of distribution pursuant to Rule
12b-1 under the 1940 Act of certain of the Company's Funds remain in effect, the
selection and nomination of the Company's independent directors will be a matter
left to the discretion of such independent directors. Except for certain powers
that, under applicable law, may only be exercised by the full board of
directors, the executive committee may exercise all powers and authority of the
board of directors in the management of the business of the Company.

<PAGE>
44

DIRECTOR COMPENSATION

The following table sets forth, for the fiscal year ended December 31,
1997, the compensation paid by the Company to its independent directors for
services rendered in their capacities as directors of the Company. The Company
has no plan or other arrangement pursuant to which any of the Company's
independent directors receive pension or retirement benefits. Therefore, none of
the Company's independent directors has estimated annual benefits to be paid by
the Company upon retirement.

Compensation Table

================================================================================
| Aggregate | Total compensation
| compensation | from Company (11
| from | Funds total) paid to
Name of Person, Position(1) | Company | directors(1)
- --------------------------------------------------------------------------------
Jay A. Precourt, Chairman and Director | $ 32,500 | $ 32,500
- --------------------------------------------------------------------------------
William H. Baughn, Director | $ 35,500 | $ 35,500
- --------------------------------------------------------------------------------
Alan S. Danson, Director | $ 32,500 | $ 32,500
- --------------------------------------------------------------------------------
Trygve E. Myhren, Director | $ 33,500 | $ 33,500
- --------------------------------------------------------------------------------
Eugene H. Vaughan, Jr., Vice Chairman
and Director | $ 33,500 | $ 33,500
- --------------------------------------------------------------------------------
John K. Langum, Former Chairman and
Director(2) | $ 39,250 | $ 39,250
- --------------------------------------------------------------------------------
TOTAL | $206,750 | $206,750
================================================================================

During 1997, Mr. Borgen, as an "interested person" of the Fund, received
compensation as an officer and employee of Founders Asset Management, Inc., and
did not receive any director's fees or other compensation from the Fund for his
service as a director.
- ---------------------------------------------------------------------

(1) The Chairman of the Board, the Chairmen of the Company's Audit and Portfolio
Transactions Committees, and the members of the Audit and Portfolio Transactions
Committees each receive compensation for serving in such capacities in addition
to the compensation paid to all independent directors.

(2) Dr. Langum retired as Chairman and a director of the Company effective
August 31, 1997, and died in 1998.

INVESTMENT ADVISER AND DISTRIBUTOR

INVESTMENT ADVISER

Founders Asset Management LLC ("Founders") serves as investment adviser to
the Funds. Founders is a 90%-owned subsidiary of Mellon Bank, N. A. ("Mellon"),
which is a wholly-owned subsidiary of Mellon Bank Corporation ("MBC"), a
publicly owned multibank holding company incorporated under Pennsylvania law in
1971 and

<PAGE>
45

registered under the Federal Bank Holding Company Act of 1956, as amended.
Mellon and MBC are located at One Mellon Bank Center, Pittsburgh, Pennsylvania
15258. MBC provides a comprehensive range of financial products and services in
domestic and selected international markets. MBC's banking subsidiaries are
located in Pennsylvania, Massachusetts, Delaware, Maryland, New Jersey, and
Florida, while other subsidiaries are located in key business centers throughout
the United States and abroad. MBC currently ranks among the nation's largest
bank holding companies based on market capitalization.

MBC's principal wholly-owned subsidiaries are Mellon, The Boston
Company, Inc., Mellon Bank (DE) National Association, Mellon Bank (MD) National
Association, and a number of companies known as Mellon Financial Services
Corporation. MBC also owns a federal savings bank headquartered in Pennsylvania,
Mellon Bank, F.S.B. The Dreyfus Corporation ("Dreyfus"), one of the nation's
largest mutual fund companies, is a wholly-owned subsidiary of Mellon. MBC's
banking subsidiaries engage in retail financial services, commercial banking,
trust and investment management services, residential real estate loan
financing, mortgage servicing, equipment leasing, mutual fund activities and
various securities-related activities. Through its subsidiaries, MBC managed
more than $300 billion in assets as of December 31, 1997. As of that date
various subsidiaries of MBC provided non-investment services, such as custodial
or administration services, for approximately $1.5 trillion in assets.

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

Special and Growth Funds

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

<PAGE>
46

Blue Chip and Balanced Funds

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

Money Market Fund

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

Government Securities Fund

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

Discovery, Passport, Frontier,
International Equity, and Worldwide Growth Funds

On Assets in But Not
Excess of Exceeding Annual Fee
------------ ------------ ----------
$ 0 $250,000,000 1.00%
250,000,000 500,000,000 0.80%
500,000,000 ---- 0.70%

The net assets of the Funds at the end of fiscal year 1997 were as
follows: Discovery Fund - $246,280,784; Passport Fund - $122,646,357; Frontier
Fund - $222,104,029; Special Fund - $320,186,087; International Equity Fund -
$15,740,213; Worldwide Growth Fund - $308,876,881; Growth Fund - $1,757,449,153;
Blue Chip

<PAGE>
47

Fund - $543,167,920; Balanced Fund - $942,690,417; Government Securities Fund -
$13,258,839; and Money Market Fund - $106,072,772.

The Funds pay all of their expenses not assumed by Founders, including
fees to directors not affiliated with Founders and expenses of all members of
the Board of Directors, of advisory boards or of committees of the Board of
Directors; compensation of the Company's custodian, transfer agent and other
agents; an allocated portion of premiums for insurance required or permitted to
be maintained under the 1940 Act; expenses of computing the Funds' daily per
share net asset value; legal and accounting expenses; brokerage commissions and
other transaction costs; interest; all federal, state and local taxes (including
stamp, excise, income and franchise taxes); cost of stock certificates; fees
payable under federal and state law to register or qualify the Funds' shares for
sale; an allocated portion of fees and expenses incurred in connection with
membership in investment company organizations and trade associations;
preparation of prospectuses (including typesetting) and printing and
distribution thereof to existing shareholders; expenses of local representation
in Maryland; and expenses of shareholder and directors meetings and of
preparing, printing and distributing reports to shareholders. The Company also
has the obligation for expenses, if any, incurred by it in connection with
litigation, proceedings or claims, and the legal obligation it may have to
indemnify its officers and directors with respect thereto.

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

During the fiscal years ended in 1997, 1996, and 1995, the gross
investment advisory fees paid by the Funds were as follows:

Discovery Fund. During the years ended December 31, 1997, 1996, and
1995, the Fund paid advisory fees of $2,426,658, $2,405,895, and $2,004,616,
respectively.

Passport Fund. During the years ended December 31, 1997, 1996, and 1995,
the Fund paid advisory fees of $1,808,142, $1,343,963, and $255,733,
respectively.

Frontier Fund. During the years ended December 31, 1997, 1996, and 1995,
the Fund paid advisory fees of $2,546,507, $3,298,000, and $2,832,693,
respectively.

Special Fund. During the years ended December 31, 1997, 1996, and 1995,
the Fund paid advisory fees of $2,576,530, $2,839,655, and $2,869,635,
respectively.

International Equity Fund. During the years ended December 31, 1997 and
1996, the Fund paid advisory fees of $142,381 and $68,791, respectively. Since
the Fund did not commence the public offering of its shares until December 29,
1995, the Fund paid no advisory fees in 1995.

<PAGE>
48

Worldwide Growth Fund. During the years ended December 31, 1997, 1996,
and 1995, respectively, the Fund paid advisory fees of $3,177,452, $3,022,945,
and $1,552,897, respectively.

Growth Fund. During the years ended December 31, 1997, 1996, and 1995,
the Fund paid advisory fees of $10,050,831, $5,728,768, and $3,564,924,
respectively.

Blue Chip Fund. During the years ended December 31, 1997, 1996, and
1995, the Fund paid advisory fees of $3,383,816, $2,891,784, and $2,195,095,
respectively.

Balanced Fund. During the years ended December 31, 1997, 1996, and 1995,
the Fund paid advisory fees of $4,489,769, $ 1,538,236, and $707,570,
respectively.

Government Securities Fund. During the years ended December 31, 1997,
1996, and 1995, the Fund paid advisory fees of $90,247, $116,875, and $139,194,
respectively.

Money Market Fund. For the years ended December 31, 1997, 1996, and
1995, the Fund paid advisory fees of $610,538, $757,666, and $705,221,
respectively.

The advisory agreement between Founders and the Company on behalf of
each of the Funds was approved by the shareholders of each Fund at a
shareholders' meeting of the Company held on February 17, 1998. The advisory
agreement was approved for an initial term ending May 31, 1999, and may be
continued from year to year thereafter either by the vote of a majority of the
entire board of directors or by the vote of a majority of the outstanding voting
securities of each Fund, and in either case, after review, by the vote of a
majority of the Company's directors who are not "interested persons" (as defined
in the 1940 Act) (the "Independent Directors") of the Company or Founders, cast
in person at a meeting called for the purpose of voting on such approval.

With respect to each Fund, the advisory agreement may be terminated
without penalty at any time by the Board of Directors of the Company or by vote
of a majority of the outstanding securities of the Fund on 60 days' written
notice to Founders or by Founders on 60 days' written notice to the Company. The
agreement will terminate automatically if it is assigned, as that term is
defined in the 1940 Act. The agreement provides that each Fund may use the word
"Founders" in its name and business only as long as the agreement remains in
effect. Finally, the agreement provides that Founders shall not be subject to
any liability in connection with matters to which the agreement relates in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.

Founders and its predecessor companies have been providing investment
management services since 1938. In addition to serving as adviser to the Funds,

<PAGE>
49

Founders serves as investment adviser or sub-adviser to various other mutual
funds and private accounts. The officers of Founders include Jonathan F.
Zeschin, President and Chief Executive Officer; Robert T. Ammann, Vice
President; Angelo Barr, Vice President and National Sales Manager; Kenneth R.
Christoffersen, Vice President and General Counsel; Gregory P. Contillo, Senior
Vice President and Chief Marketing Officer; Frank Gaffney, Vice President;
Roberto Galindo, Jr., Vice President; Laurine Garrity, Vice President; Michael
W. Gerding, Senior Vice President; Michael K. Haines, Senior Vice President;
Edward F. Keely, Senior Vice President; Brian F. Kelly, Vice President; Paul A.
LaRocco, Vice President; Douglas A. Loeffler, Vice President; James P. Rankin,
Vice President; David L. Ray, Senior Vice President and Treasurer; Linda M.
Ripley, Vice President; and Steven Shapiro, Vice President.

DISTRIBUTOR

The Company's shares are sold on a continuous basis at the net asset
value per share next calculated after receipt of a purchase order in proper
order. See "Determination of Net Asset Value." Effective April 1, 1998, Premier
Mutual Fund Services Inc. ("Premier") became the Funds' distributor. Prior to
April 1, 1998, Founders Asset Management, Inc., Founders' predecessor
corporation ("Old Founders"), acted as the Funds' distributor at no charge to
the Funds. Premier acts as agent of the Company in the sale of shares of the
Funds under an underwriting agreement approved by the Company's directors on
November 18, 1997 for an initial term ending May 31, 1999. Premier is required
to use its best efforts to promote the sale of shares of the Funds, but is not
obligated to sell any specific number of shares. Premier's compensation for
services rendered pursuant to the underwriting agreement is paid by Founders,
not the Funds. The provisions for the continuation, termination and assignment
of this agreement are identical to those described above with regard to the
investment advisory agreement, except that termination other than upon
assignment or mutual agreement requires six months notice by either party.

DISTRIBUTION PLANS

Pursuant to Distribution Plans adopted by Discovery Fund, Passport Fund,
Frontier Fund, Special Fund, International Equity Fund, Worldwide Growth Fund,
Growth Fund, Blue Chip Fund, Balanced Fund, and Government Securities Fund (the
"12b-1 Funds"), the 12b-1 Funds pay for distribution and related services at an
annual rate that may be less than, but that may not exceed, 0.25% of each Fund's
average daily net assets. These fees may be used to pay directly, or to
reimburse Premier for paying, expenses in connection with distribution of the
12b-1 Funds' shares and related activities as are described in the Funds'
prospectus. A report of the amounts expended pursuant to the Distribution Plans,
and the purposes for which such expenditures occurred, must be made to the Board
of Directors at least quarterly. During the fiscal year ended December 31, 1997,
Old Founders, the Funds' previous distributor, expended the following amounts in
marketing the shares of the 12b-1 Funds: advertising, $4,967,742; printing and
mailing of prospectuses to persons other than

<PAGE>
50

current shareholders, $1,246,608; payment of compensation to third parties for
distribution and shareholder support services, $5,987,527; and public relations
and trade shows, $469,491. Since Bjorn K. Borgen, a director of the Company,
formerly owned 100% of Old Founders' voting stock, he had an interest in the
transactions between the Company and Old Founders.

Each Fund's plan was last approved on May 30, 1997, at a meeting called
for such purpose by a unanimous vote of the directors of the Company, including
all of the directors who are neither "interested persons" of the Company nor
have any financial interest in the operation of the plan ("12b-1 Directors"). In
addition, the directors of the Company, including all of the 12b-1 Directors,
approved certain non-substantive amendments to the plan at a meeting held on
November 18, 1997.

Each Fund's plan provides that it shall continue in effect with respect
to each Fund for so long as such continuance is approved at least annually by
the vote of the board of directors of the Company cast in person at a meeting
called for the purpose of voting on such continuance. Each plan can be
terminated at any time with respect to any Fund, without penalty, if a majority
of the 12b-1 Directors or shareholders of such Fund vote to terminate the plan.
So long as any Fund's plan is in effect, the selection and nomination of persons
to serve as independent directors of the Company shall be committed to the
independent directors then in office at the time of such selection or
nomination. Each Fund's plan may not be amended to increase materially the
amount of any Fund's payments thereunder without approval of the shareholders of
that Fund, and all material amendments to the plan must be approved by the board
of directors of the Company, including a majority of the 12b-1 Directors.

The benefits that the 12b-1 Funds believe are reasonably likely to flow
to the Funds and their shareholders under the plans include, but are not limited
to: (1) enhanced marketing efforts which, if successful, may result in an
increase in net assets through the sale of additional shares, thereby providing
greater resources to pursue the 12b-1 Funds' investment objectives; (2)
increased name recognition for the 12b-1 Funds within the mutual fund industry,
which may help instill and maintain investor confidence; (3) positive cash flow
into the 12b-1 Funds, which assists in portfolio management; (4) the positive
effect which increased 12b-1 Fund assets could have on Founders' revenues could
allow Founders to have greater resources to make the financial commitments
necessary to continue to improve the quality and level of shareholder services,
and acquire and retain talented employees who desire to be associated with a
growing organization; and (5) increased Fund assets may result in reducing each
shareholder's share of certain expenses through economies of scale, such as by
exceeding breakpoints in the advisory fee schedules and allocating fixed
expenses over a larger asset base.

<PAGE>
51

SHAREHOLDER SERVICING

FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT

Founders performs administrative, accounting, and recordkeeping services
for the Funds pursuant to a Fund Accounting and Administrative Services
Agreement that was approved on November 18, 1997 by a vote cast in person by all
of the directors of the Company, including all of the directors who are not
"interested persons" of the Company or of Founders at a meeting called for such
purpose, for an initial term ending May 31, 1998. The Agreement may be continued
from year to year thereafter as long as each such continuance is specifically
approved by the board of directors of the Company, including a majority of the
directors who are not parties to the Agreement or interested persons (as defined
in the 1940 Act) of any such party, cast in person at a meeting for the purpose
of voting on such continuance. The Agreement may be terminated at any time
without penalty by the Company on ninety (90) days' written notice, or by
Founders upon ninety (90) days' written notice, and terminates automatically in
the event of its assignment unless the Company's board of directors approves
such assignment.

Pursuant to the Agreement, Founders maintains the portfolios, general
ledgers, and financial statements of the Funds; accumulates data from the Funds'
shareholder servicing and transfer agent, custodian, and manager and calculates
daily the net asset value of the Funds; monitors the data and transactions of
the custodian, transfer agent, shareholder servicing agent, and manager of the
Funds; monitors compliance with tax and federal securities rules and
regulations; provides reports and analyses of portfolio, transfer agent,
shareholder servicing agent, and custodial operations, performance and costs;
and reports on regulatory and other shareholder matters. The Funds pay a fee for
this service which is computed at an annual rate of 0.06 percent of the daily
net assets of the Funds from $0 to $500 million and at an annual rate of 0.02
percent of the daily net assets of the Funds in excess of $500 million, plus
reasonable out-of-pocket expenses. During the fiscal years ended December 31,
1997, 1996 and 1995, the Company paid Fund accounting and administrative
services fees of $1,056,132, $823,632, and $630,056, respectively.

SHAREHOLDER SERVICES AGREEMENT

Pursuant to a Shareholder Services Agreement, Founders performs certain
telephone, retirement plan, quality control, personnel training, shareholder
inquiry, shareholder account, and other shareholder-related and transfer agent
services for the Funds. The Agreement was approved on November 18, 1997 by a
vote cast in person by all of the directors of the Company, including all of the
directors who are not "interested persons" of the Company or Founders at a
meeting called for such purpose, for an initial term ending May 31, 1998. The
Agreement may be continued from year to year thereafter as long as such
continuance is specifically approved by the board of

<PAGE>
52

directors of the Company, including a majority of the directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such continuance. The Agreement may be terminated at any time without penalty by
the Company upon ninety (90) days' written notice to Founders or by Founders
upon one hundred eighty (180) days' written notice to the Company, and
terminates automatically in the event of an assignment unless the Company's
board of directors approves such assignment. The Funds pay to Founders a
prorated monthly fee for such services equal on an annual basis to $26 for each
shareholder account of the Funds considered to be an open account at any time
during the applicable month (the "shareholder servicing fee"). The fee provides
for the payment not only of services rendered and facilities furnished by
Founders pursuant to the Agreement, but also for services rendered and
facilities furnished by Investors Fiduciary Trust Company ("IFTC") and DST
Systems, Inc. ("DST") in performing transfer agent services and in providing
hardware and software system capabilities on behalf of the Funds. In addition to
the per account fee, Founders, IFTC, and DST are reimbursed for all reasonable
out-of-pocket expenses incurred in the performance of their respective services.
During the fiscal years ended December 31, 1997, 1996 and 1995, the Company paid
shareholder servicing fees of $3,353,527, $3,374,390, and $3,362,840,
respectively.

TRANSFER AGENCY AGREEMENT

The Company has entered into a Transfer Agent Agreement with IFTC,
pursuant to which IFTC provides certain transfer agent services to the Funds
which are not provided to the Funds by Founders. DST provides hardware and
software system capabilities to IFTC and to Founders, to assist IFTC and
Founders in providing transfer agency and related shareholder services to the
Funds. The Transfer Agent Agreement between the Company and IFTC was initially
approved on November 12, 1993, and will continue until terminated at any time
without penalty by either party upon six months' written notice. The Agreement
may not be assigned by either party without the prior written consent of the
other. Under the Agreement, the Funds pay to IFTC various transfer agency
transaction fees that, in 1997, were in the amount of $9.25 per shareholder
account. The fees to IFTC are paid on behalf of the Funds by Founders from the
shareholder servicing fee of $26 per account per annum received by Founders for
providing shareholder services to the Funds. See "Shareholder Services
Agreement," above.

BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER RATES

It is the policy of the Company, in effecting transactions in portfolio
securities, to seek the best execution of orders at the most favorable prices.
The determination of what may constitute best execution in a securities
transaction involves a number of judgmental considerations, including, without
limitation, the overall direct net economic result to a Fund (involving both
price paid or received and any commissions and other

<PAGE>
53

costs), the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute possibly difficult transactions for the
Fund in the future, and the financial strength and stability of the broker.

Because selection of executing brokers is not based solely on net
commissions, a Fund may pay an executing broker a commission higher than that
which might have been charged by another broker for that transaction. Founders
will not knowingly pay higher mark-ups on principal transactions to brokerage
firms as consideration for receipt of research services or products. While it is
not practicable for the Company to solicit competitive bids for commissions on
each portfolio transaction, consideration is regularly given to available
information concerning the level of commissions charged in comparable
transactions by various brokers. Transactions in over the counter securities are
normally placed with principal market makers, except in circumstances where, in
the opinion of Founders, better prices and execution are available elsewhere.

Subject to the policy of seeking best execution of orders at the most
favorable prices, a Fund may execute transactions with brokerage firms that
provide research services and products to Founders. The phrase "research
services and products" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, the availability
of securities or purchasers or sellers of securities,
the furnishing of analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts, and obtaining products such as third-party publications, computer
and electronic access equipment, software programs, and other information and
accessories that may assist Founders in furtherance of its investment advisory
responsibilities to the Company. Such services and products permit Founders to
supplement its own research and analysis activities, and provide it with
information from individuals and research staffs of many securities firms.
Generally, it is not possible to place a dollar value on the benefits derived
from specific research services and products. Founders may receive a benefit
from these research services and products that is not passed on to a Fund in the
form of a direct monetary benefit. If Founders determines that any research
product or service has a mixed use, such that it also serves functions that do
not assist in the investment decision-making process, Founders will allocate in
good faith the cost of such service or product accordingly. The portion of the
product or service that Founders determines will assist it in the investment
decision-making process may be paid for in brokerage commission dollars. The
non-research part must be paid for in hard dollars from Founders. Any such
allocation may create a conflict of interest for Founders.

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

<PAGE>
54

endeavors to direct sufficient commissions to them to ensure continued receipt
of research Founders believes is useful.

Research services and products may be useful to Founders in providing
investment advice to any of the Funds or clients it advises. Likewise,
information made available to Founders from brokers effecting securities
transactions for such other Funds and clients may be utilized on behalf of
another Fund. Thus, there may be no correlation between the amount of brokerage
commissions generated by a particular Fund or client and the indirect benefits
received by that Fund or client.

As described in greater detail below, a significant proportion of the
total commissions paid by the Funds for portfolio transactions during the year
ended December 31, 1997 was paid to brokers that provided research services to
Founders, and it is expected that, in the future, a majority of each Fund's
brokerage business will be placed with firms that provide such services.

Subject to the policy of seeking the best execution of orders at the
most favorable prices, sales of shares of the Funds may also be considered as a
factor in the selection of brokerage firms to execute Fund portfolio
transactions.

A Fund and one or more of the other Funds or clients to which Founders
serves as investment adviser may own the same securities from time to time. If
purchases or sales of securities for a Fund and other Funds or clients arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective Funds and clients in a manner
deemed equitable to all by the investment adviser. To the extent that
transactions on behalf of more than one client during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on the price and amount of the
security being purchased or sold for the Fund. However, the ability of the Fund
to participate in volume transactions may possibly produce better executions for
the Fund in some cases.

The staff of the Securities and Exchange Commission has been conducting
an investigation concerning possible violations of the federal securities laws
in connection with brokerage transactions Founders effected for certain of its
private account clients during the period 1992 through mid-1995. The Commission
has not yet made any determination as to whether any violations have occurred
and, if so, whether any action is appropriate. Founders currently is engaged in
discussions with the staff concerning the staff's possible recommendations to
the Commission.

Premier has been authorized by the directors of the 12b-1 Funds to apply
dollars generated from each Fund's Rule 12b-1 distribution plan to pay to
brokers and to other entities a fee for distribution, recordkeeping, accounting,
and shareholder-related services provided to investors purchasing shares of a
12b-1 Fund through various sales and/or shareholder servicing programs. These
fees are computed based on the average

<PAGE>
55

daily account balances of investments in each 12b-1 Fund made by the entity on
behalf of its customers. The directors of the 12b-1 Funds have further
authorized Founders to place a portion of the Funds' brokerage transactions with
certain of these entities which are broker-dealers if Founders reasonably
believes that the entity is able to provide the best execution of orders at the
most favorable prices. Commissions earned by the entity from executing portfolio
transactions on behalf of a specific 12b-1 Fund may be credited against the fee
charged to that Fund, on a basis that has resulted from negotiations between
Founders and the entity. Any 12b-1 fees that are not expended as a result of the
application of any such credit will not be used either to pay or to reimburse
Premier for other distribution expenses. These directed brokerage arrangements
have no adverse effect either on the level of brokerage commissions paid by the
Funds or on any Fund's expenses.

In addition, registered broker-dealers, third-party administrators of
tax-qualified retirement plans, and other entities that establish omnibus
investor accounts with the Funds may provide sub-transfer agency, recordkeeping,
or similar services to participants in the omnibus accounts. These services
reduce or eliminate the need for identical services to be provided on behalf of
the participants by Founders, the Funds' shareholder servicing agent, and/or by
IFTC, the Funds' transfer agent. In such instances, Founders is authorized to
pay the entity a sub-transfer agency or recordkeeping fee based on the number of
participants in the entity's omnibus account, from the shareholder servicing
fees applicable to each participant's account that are paid to Founders by the
Funds. If commissions are earned by a registered broker-dealer from executing
portfolio transactions on behalf of a specific Fund, the commissions may be
credited by the broker-dealer against the sub-transfer agency or recordkeeping
fee payable with respect to that Fund, on a basis that will have been negotiated
between the broker-dealer and Founders. In such instances, Founders will apply
any such credits to the shareholder servicing fee that it receives from the
applicable Fund. Thus, the Fund will pay a shareholder servicing fee to
Founders, and Founders will pay a sub-transfer agency or recordkeeping fee to
the broker-dealer only to the extent that the fee is not off-set by brokerage
credits. In the event that the shareholder servicing fee paid by a Fund to
Founders with respect to participants in omnibus accounts in that Fund exceeds
the sub-transfer agent or recordkeeping fee applicable to that Fund, Founders
may carry forward the excess and apply it to future sub-transfer agent or
recordkeeping fees applicable to that Fund that are charged by the
broker-dealer. Such a carry-forward may not go beyond a calendar year.

Decisions relating to purchases and sales of securities for a Fund,
selection of broker-dealers to execute transactions, and negotiation of
commission rates are made by Founders, subject to the general supervision of the
board of directors of the Company.

For the fiscal years ended 1997, 1996 and 1995, respectively, total
brokerage commissions paid by the Funds amounted to the following: Discovery
Fund - $232,098, $444,760, and $317,246; Passport Fund - $603,752, $648,019, and
$95,245; Frontier

<PAGE>
56

Fund - $387,555, $540,893, and $465,748; Special Fund - $1,018,305, $1,669,994,
and $2,194,333; Worldwide Growth Fund - $1,147,649, $1,031,931, and $350,484;
Growth Fund - $4,504,003, $2,090,847, and $1,187,642; Blue Chip Fund -
$2,577,069, $2,186,810, and $1,859,470; Balanced Fund - $2,721,066, $943,355,
and $535,439. For the fiscal years ended 1997 and 1996, International Equity
Fund paid total brokerage commissions of $115,405 and $48,594, respectively. For
the period from December 29, 1995 (the date upon which International Equity Fund
commenced the offering and sale of its shares to the public) through December
31, 1995, the Fund paid no brokerage commissions. The differences in the amounts
of brokerage commissions paid by the Funds during 1997 as compared to prior
years are primarily attributable to changes in the size of the Funds and
differences in portfolio turnover rates.

During the fiscal year ended December 31, 1997, brokers providing
research services received the following commissions on the following amounts of
portfolio transactions in which the provison of research was a factor in the
selection of the broker to execute the transaction:

Aggregate Amount of
Fund Commissions Paid Portfolio Transactions
---- ---------------- ----------------------
Discovery $65,123 $23,567,454
Passport $567,499 $149,502,610
Frontier $97,977 $36,685,589
Special $625,529 $255,635,927
International Equity $96,607 $28,354,239
Worldwide Growth $978,425 $349,128,988
Growth $2,169,381 $1,682,863,483
Blue Chip $821,085 $483,365,373
Balanced $724,784 $421,463,228

During the last three years no officer, director or affiliated person of
the Company or Founders executed any portfolio transactions for a Fund, or
received any commission arising out of such portfolio transactions.

At December 31, 1997, certain of the funds held securities of their
regular brokers or dealers as follows:

Fund Broker Value
---- ------ -----
Money Market Merrill Lynch $3,370,854
Prudential Funding Corp. $4,495,800

During the fiscal years ended 1997 and 1996, respectively, the portfolio
turnover rate for each of the Funds was as follows: Discovery Fund - 90% and
106%; Passport

<PAGE>
57

Fund - 51% and 58%; Frontier Fund - 54% and 85%; Special Fund - 110% and 186%;
International Equity Fund - 164% and 71%; Worldwide Growth Fund - 82% and 72%;
Growth Fund - 189% and 134%; Blue Chip Fund - 256% and 195%; Balanced Fund -
203% and 146%; and Government Securities Fund - 147% and 166%. A 100% portfolio
turnover rate would occur if all of the securities in the portfolio were
replaced during the period. Portfolio turnover rates for certain of the Funds
are higher than those of other mutual funds. Although each Fund purchases and
holds securities with the goal of meeting its investment objectives, portfolio
changes are made whenever Founders believes they are advisable, usually without
reference to the length of time that a security has been held. Certain of the
Funds may, therefore, engage in a significant number of short-term transactions.
Portfolio turnover rates may also increase as a result of the need for a Fund to
effect significant amounts of purchases or redemptions of portfolio securities
due to economic, market, or other factors that are not within Founders' control.
Balanced Fund does not anticipate any significant differences between the
portfolio turnover rates of the common stock portion of its investment
portfolios and the rate of turnover of the remainder of its securities holdings.
The lower portfolio turnover rate for the International Equity Fund in 1996 was
due to the fact that the Fund commenced active operations in that year, and
therefore had less trading activity during its start-up phase. Trading activity
has increased as the cash flows into the Fund and the size of the Fund have
increased.

DETERMINATION OF NET ASSET VALUE

The Company calculates net asset value per share, and therefore effects
sales, redemptions, and repurchases of its shares, once daily as of the close of
the New York Stock Exchange (the "Exchange") on each day the Exchange is open
for trading. The Exchange is not open for trading on the following holidays: New
Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Foreign Securities. Since regular trading in most foreign securities
markets is completed simultaneously with, or prior to, the close of regular
trading on the Exchange, closing prices for foreign securities usually are
available for purposes of computing each Fund's net asset value. However, in the
event that the closing price of a foreign security is not available in time to
calculate a Fund's net asset value on a particular day, the Company's board of
directors has authorized the use of the market price for the security obtained
from an approved pricing service at an established time during the day which may
be prior to the close of regular trading in the security. If events occur that
are known to Founders to have materially affected the value of foreign
securities that are not reflected in the value obtained through regular
procedures, the securities will be valued at fair market value as determined in
good faith by the Board of Directors. All foreign currencies are converted into
U.S. dollars by utilizing exchange rate closing quotations obtained from the
London Stock Exchange.

<PAGE>
58

Discovery, Passport, Frontier Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced and Government Securities Funds. The net
asset value per share of each Fund is calculated by dividing the value of all
securities held by that Fund and its other assets (including dividends and
interest accrued but not collected), less the Fund's liabilities (including
accrued expenses), by the number of outstanding shares of that Fund. Securities
traded on national securities exchanges and foreign markets are valued at their
last sale prices on the exchanges or markets where such securities are primarily
traded (except as described in the preceding paragraph). Securities traded in
the over-the counter market (including those traded on the NASDAQ National
Market System and the NASDAQ Small Cap Market), and listed securities for which
no sales were reported on a particular date, are valued at their last current
bid prices or, in the case of foreign securities, on the basis of the average of
at least two market maker quotes and/or the PORTAL system. If market quotations
are not readily available, securities will be valued at their fair values as
determined in good faith by the Company's board of directors or pursuant to
procedures approved by the board of directors. The above procedures may include
the use of valuations furnished by pricing services, including services that
employ a matrix to determine valuations for normal institutional-size trading
units of debt securities. The Company's board of directors periodically reviews
and approves the pricing services used to value the Funds' securities.
Commercial paper with remaining maturities of sixty days or less at the time of
purchase will be valued at amortized cost, absent unusual circumstances.

Money Market Fund. The Board of Directors has adopted a policy that
requires that the Fund use its best efforts, under normal circumstances, to
maintain a constant net asset value of $1.00 per share using the amortized cost
method. The amortized cost method involves valuing a security at its cost and
thereafter accruing any discount or premium at a constant rate to maturity. By
declaring these accruals to the Fund's shareholders in the daily dividend, the
value of the Fund's assets, and thus its net asset value per share, generally
will remain constant. No assurances can be provided that the Fund will be able
to maintain a stable $1.00 per share net asset value. This method may result in
periods during which the value of the Fund's securities, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the securities. During periods of declining interest rates, the daily yield
on shares of the Fund computed as described above may tend to be higher than a
like computation made by a similar fund with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its portfolio securities. Thus, if the use of amortized cost by the Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher yield than would
result from investment in a similar fund utilizing market values, and existing
investors in the Fund would receive less investment income. The converse would
apply in a period of rising interest rates.

In connection with its use of the amortized cost method, Money Market
Fund must maintain a dollar-weighted average portfolio maturity of 90 days or
less, purchase only portfolio securities having remaining maturities of 397
calendar days or less, and

<PAGE>
59

invest only in securities, whether rated or unrated, determined by the board of
directors to be of high quality with minimal credit risks. The board of
directors also has established procedures designed to stabilize, to the extent
reasonably possible, the Fund's net asset value per share, as computed for the
purpose of sales and redemptions, at $1.00. Such procedures include review of
the Fund's portfolio holdings by the board of directors at such intervals as it
may deem appropriate to determine whether the Fund's net asset value calculated
by using available market quotations deviates from $1.00 per share, and, if so,
whether such deviation may result in material dilution or may otherwise be
unfair to existing shareholders. In the event the board of directors determines
that such a deviation exists, the Board will take such corrective action as it
deems necessary and appropriate, which action might include selling portfolio
securities prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends, or establishing a net asset
value per share by using available market quotations.

All Funds Except Special, Growth, Government Securities, and Money
Market Funds. When a Fund writes an option, an amount equal to the premium
received is included in the Fund's Statement of Assets and Liabilities as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.

All Funds Except Balanced, Money Market, and Government Securities
Funds. When these Funds purchase a put or call option on a stock index, the
premium paid is included in the asset section of the Fund's Statement of Assets
and Liabilities and subsequently adjusted to the current market value of the
option. Thus, if the current market value of the option exceeds the premium
paid, the excess is unrealized appreciation and, conversely, if the premium
exceeds the current market value, such excess is unrealized depreciation.

All Funds. The Company has authorized a number of brokers and other
financial services companies to accept orders for the purchase and redemption of
Fund shares. Certain of such companies are authorized to designate other
intermediaries to accept purchase and redemption orders on the Company's behalf.
In certain of these arrangements, the Company will be deemed to have received a
purchase or redemption order when an authorized company or, if applicable, its
authorized designee, accepts the order. In such cases, the customer's order will
be priced at the net asset value of the applicable Fund next determined after
the order is accepted by the company or its authorized designee.

YIELD AND PERFORMANCE INFORMATION

The Company may, from time to time, include the yield or total return of
the Funds (other than Money Market Fund) in advertisements or reports to
shareholders or prospective investors.

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60

Quotations of yield for will be based on all investment income per share
earned during a particular 30-day period (including dividends and interest),
less expenses accrued during the period ("net investment income"), and are
computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:

YIELD = 2[(1 + a-b)6 - 1]
---
cd

where a = dividends and interest earned during the period,

b = expenses accrued for the period (net of reimbursements),

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends, and

d = the maximum offering price per share on the last day of
the period.

The yields of the Balanced and Government Securities Funds for the 30
days ended December 31, 1997 were 2.99% and 4.77%, respectively.

Quotations of average annual total return for each Fund (other than
Money Market Fund) will be expressed in terms of the average annual compounded
rate of return of a hypothetical investment in the Fund over periods of 1, 5,
and 10 years (up to the life of the Fund). These are the annual total rates of
return that would equate the initial amount invested to the ending redeemable
value. These rates of return are calculated pursuant to the following formula: P
(1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the
average annual total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). All total return figures reflect the deduction of a proportional share
of Fund expenses on an annual basis, and assume that all dividends and
distributions are reinvested when paid.

For the 1, 5, and 10 year periods ended December 31, 1997 the average
annual total returns of the Funds were:

10 year or
1 year 5 year Life of Fund
------ ------ ------------

Discovery Fund 11.95% 12.74% 18.38%+
Passport Fund 1.68% 9.12%*
Frontier Fund 6.22% 13.51% 18.13%
Special Fund 16.43% 13.24% 16.64%
International Equity Fund 16.11% 17.35%++

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61

Worldwide Growth Fund 10.55% 14.07% 13.83%+
Growth Fund 26.59% 21.12% 18.20%
Blue Chip Fund 19.44% 17.15% 15.52%
Balanced Fund 16.92% 16.51% 13.97%
Government Securities Fund 7.88% 4.40% 6.36%**

+ From inception on 12/31/89 to 12/31/97.

* From inception on 11/16/93 to 12/31/97.

++ From inception on 12/29/95 to 12/31/97.

** From inception on 3/1/88 to 12/31/97.

Performance information for a Fund may be compared in reports and
promotional literature to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare a Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by independent
research firms that rank mutual funds by overall performance, investment
objectives and assets, or tracked by other services, companies, publications, or
persons, that rank mutual funds on overall performance or other criteria, such
as Lipper Analytical Services, MONEY, MORNINGSTAR, KIPLINGER'S PERSONAL FINANCE,
CDA WEISENBERGER, FINANCIAL WORLD, WALL STREET JOURNAL, U.S. NEWS, BARRON'S, USA
TODAY, BUSINESS WEEK, INVESTOR'S BUSINESS DAILY, FORTUNE, MUTUAL FUNDS MAGAZINE
and FORBES; and (iii) the Consumer Price Index (a measure for inflation), to
assess the real rate of return from an investment in the Funds. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.

Other unmanaged indices that may be used by the Funds in providing
comparison data of performance and shareholder service include Lehman Brothers,
National Association of Securities Dealers Automated Quotations, Frank Russell
Company, Value Line Investment Survey, American Stock Exchange, Morgan Stanley
Capital International, Wilshire Associates, Financial Times - Stock Exchange,
New York Stock Exchange, the Nikkei Stock Average, and the Deutscher
Aktienindex.

Performance information for any Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objectives and policies, characteristics and
quality of the portfolios and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.

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62

In conjunction with performance reports, comparative data between the
Funds' performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.

Rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service made by independent sources
may be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Funds. Sources of Fund performance information and articles about the Funds
include, but are not limited to, the following:

American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
Ibbotson Associates, Inc.
Individual Investor
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis
Money
Morningstar
Mutual Fund Forecaster
Mutual Funds Magazine
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
United Mutual Fund Selector
USA Today
Wall Street Journal
Weisenberger Investment Companies Service
Working Woman

<PAGE>
63

Worth

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

FUND LIPPER MUTUAL FUND GROUPING
- --------------------------------------------------------------------------------
Discovery Small Cap Funds
Passport International Small Company Funds
Frontier Small Cap Funds
Special Capital Appreciation Funds
International Equity International Funds
Worldwide Growth Global Funds
Growth Growth Funds
Blue Chip Growth and Income Funds
Balanced Balanced Funds
Government Securities U.S. Government Funds

REDEMPTION PAYMENTS

All Funds. Proceeds of redemptions normally will be forwarded within
three business days after receipt by the Company's transfer agent of the request
for redemption in good order, although the Company may delay payment of
redemption proceeds under certain circumstances for up to seven calendar days
after receipt of the redemption request. (We consider redemptions to be received
in good order upon receipt of the required documents as described in the
Prospectus under "Investing in the Founders Funds.") In addition, net asset
value determination for purposes of redemption may be suspended or the date of
payment postponed during periods when (1) trading on the New York Stock Exchange
is restricted, as determined by the Securities and Exchange Commission, or the
Exchange is closed (except for holidays or weekends), (2) the Securities and
Exchange Commission permits such suspension and so orders, or (3) an emergency
exists as defined by the Securities and Exchange Commission so that disposal of
securities or determination of net asset value is not reasonably practicable. In
such a case, a shareholder seeking to redeem shares may withdraw his request or
leave it standing for execution at the per share net asset value next computed
after the suspension has been terminated.

A redemption charge is authorized by the Company's Articles of
Incorporation, but the Company currently has no intent to impose this charge.
Shareholders will be notified in the event of the imposition of any such charge.

Shares of the Funds normally will be redeemed in cash, although Founders
retains the right to redeem shares of all Funds except the Money Market Fund in
kind by delivery

<PAGE>
64

of readily marketable securities selected from a Fund's assets at its discretion
under unusual circumstances, such as a period with an unusually large number of
redemption requests, in order to protect the interests of the remaining
shareholders. However, the Company has elected to be governed by Rule 18f-1
under the 1940 Act, pursuant to which the Company is obligated during any 90-day
period to redeem shares for any one shareholder solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund at the beginning of that
period. The method of valuing securities used to make redemptions in kind will
be the same as the method of valuing portfolio securities described under
"Determination of Net Asset Value," and such valuation will be made as of the
same time the redemption price is determined. The investor will incur brokerage
costs in converting these securities into cash. Fund shares have not been
redeemed in kind during the past ten years.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Distributions paid from a Fund's investment company taxable income
(which includes, among other items, dividends, interest, and the excess of net
short-term capital gains over net long-term capital losses) are taxable as
ordinary income whether received in cash or additional shares. Distributions of
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) designated by a Fund as capital gain dividends are taxable as
long-term capital gain, regardless of the length of time the shareholder has
held his Fund shares at the time of the distribution, whether received in cash
or additional shares. Shareholders receiving distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share received equal to the net asset value of a share of that Fund on the
reinvestment date.

Any loss realized by a shareholder upon the disposition of shares held
for six months or less from the date of his or her purchase will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period. Further, a loss realized on
a disposition will be disallowed to the extent the shares disposed of are
replaced (whether by reinvestment of distributions or otherwise) within a period
of 61 days beginning 30 days before and ending 30 days after the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.

A portion of a Fund's dividends may qualify for the corporate
dividends-received deduction; however, the revised alternative minimum tax
applicable to corporations may reduce the value of the dividends-received
deduction.

All dividends and distributions are regarded as taxable to the investor,
whether or not such dividends and distributions are reinvested in additional
shares. If the net asset value of Fund shares should be reduced below a
shareholder's cost as a result of a distribution of such realized capital gains,
such distribution would be taxable to the shareholder although a portion would
be, in effect, a return of invested capital. The net

<PAGE>
65

asset value of each Fund's shares reflects accrued net investment income and
undistributed realized capital gains; therefore, when a distribution is made,
the net asset value is reduced by the amount of the distribution. Distributions
generally are taxable in the year in which they are received, regardless of
whether received in cash or reinvested in additional shares. However, dividends
declared in October, November, or December of a calendar year to shareholders of
record on a date in such a month and paid by a Fund during January of the
following calendar year will be taxable as though received by shareholders on
December 31 of the calendar year in which the dividends were declared.

While the Funds intend to make distributions at the times set forth in
the prospectus, those times may be changed at each Fund's discretion. The Funds
intend to distribute substantially all investment company taxable income and net
realized capital gains. Through such distributions, and by meeting certain other
requirements, each Fund intends to continue to qualify for the tax treatment
accorded to regulated investment companies under Subchapter M of the Internal
Revenue Code (the "Code"). In each year in which a Fund so qualifies, it will
not be subject to federal income tax upon the amounts so distributed to
investors. The Code contains a number of complex tests to determine whether a
Fund will so qualify, and a Fund might not meet those tests in a particular
year. If it did not so qualify, the Fund would be treated for tax purposes as an
ordinary corporation and receive no tax deduction for payments made to
shareholders. Qualification as a regulated investment company does not involve
supervision by any governmental authority either of the Company's management or
of the Funds' investment policies and practices.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent application of the excise tax, the Funds intend to continue to make
distributions in accordance with this requirement. However, the Company's Board
of Directors and Founders could determine in a particular year that it would be
in the best interests of shareholders for a Fund not to make such distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.

Certain options and forward contracts in which the Funds may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses;
however, foreign currency gains or losses (as discussed below) arising from
certain section 1256 contracts may be treated as ordinary income or loss. Also,
section 1256 contracts held by the Funds at the end of each taxable year (and,
with some exceptions, for purposes of the 4% excise tax, on October 31 of each
year) are "marked-to-market," with the result that unrealized gains or losses
are treated as though they were realized.

Generally, the hedging transactions undertaken by the Funds may result
in "straddles" for federal income tax purposes. The straddle rules may affect
the character

<PAGE>
66

of gains (or losses) realized by the Funds. In addition, losses realized by the
Funds on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which the losses are realized. Because only a few
regulations implementing the straddle rules have been promulgated, the tax
consequences to the Funds of hedging transactions are not entirely clear. The
hedging transactions may increase the amount of short-term capital gain realized
by the Funds, which is taxed as ordinary income when distributed to
shareholders.

The Funds may make one or more of the elections available under the Code
that are applicable to straddles. If any of the elections are made, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the character of
gains or losses by deferring losses and/or accelerating the recognition of gains
from the affected straddle positions, the amount that must be distributed to
shareholders and that will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.

Requirements related to the Funds' status as regulated investment
companies may limit the extent to which any particular Fund will be able to
engage in transactions in options and forward contracts.

The Funds intend to accrue dividend income for Federal income tax
purposes in accordance with Code rules applicable to regulated investment
companies. In some cases, these rules may have the effect of accelerating (in
comparison to other recipients of the dividend) the time at which the dividend
is taken into account by a Fund as income.

Gains or losses attributable to fluctuations in foreign currency
exchange rates that occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time a Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain options and forward contracts, gains or losses
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the position and the date of disposition also are treated
as ordinary gain or loss. These gains and losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If section 988 losses exceed other investment
company taxable income during a taxable year, a Fund

<PAGE>
67

generally would not be able to make any ordinary income dividend distributions.
Such distributions made before the losses were realized generally would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.

A Fund may be required to withhold federal income tax at the rate of 31%
of all taxable distributions and gross proceeds from the disposition of Fund
shares payable to shareholders who fail to provide the Fund with their correct
taxpayer identification numbers or to make required certifications, or where a
Fund or a shareholder has been notified by the Internal Revenue Service (the
"IRS") that a shareholder is subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's federal
income tax liability.

Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the amount of
foreign taxes that will be imposed on a Fund. If more than 50% of the value of a
Fund's total assets at the close of any taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the IRS that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign and U.S.
possessions' income taxes paid by it. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's income
from sources within, and taxes paid to, foreign countries and U.S. possessions
if it makes this election.

Certain Funds may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.

Money Market Fund will declare a dividend of its investment company
taxable income on a daily basis, and shareholders of record begin receiving
dividends no later than the next day following the day when the purchase is
effected. The dividend declared at 4:00 p.m. Eastern time will be deducted
immediately before the net asset value calculation is made. Shareholders will
receive dividends in additional shares, unless they elect to receive cash by
notifying the Transfer Agent in writing. Dividends

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68

will be reinvested monthly on the last business day of each month at the per
share net asset value on that date. If cash payment is requested, checks will be
mailed as soon as possible after the end of the month. If a shareholder redeems
his entire account, all dividends declared to the effective date of redemption
will be paid at that time. Shareholders will receive quarterly statements of
account activity, including information on dividends paid or reinvested.
Shareholders also will receive confirmations after each transaction, except as
stated in the prospectus. Tax information will be provided annually.

Money Market Fund's net income consists of all interest income accrued
(including accrued discount earned and premium amortized), plus or minus all
short-term realized gains and losses on portfolio assets, less accrued expenses.
The amount of the daily dividend will fluctuate. To the extent necessary to
attempt to maintain a net asset value of $1.00 per share, the Board of Directors
may consider the advisability of temporarily reducing or suspending payment of
daily dividends.

Founders may provide the Funds' shareholders with information concerning
the average cost basis of their shares to assist them in preparing their tax
returns. This information is intended as a convenience to the Funds'
shareholders and will not be reported to the IRS. The IRS permits the use of
several methods in determining the cost basis of mutual fund shares. Cost basis
information provided by Founders will be computed using the single-category
average cost method, although neither Founders nor the Company recommends any
particular method of determining cost basis. Other methods may result in
different tax consequences. If a Fund's shareholder has reported gains or losses
from investments in the Fund in past years, the shareholder must continue to use
the method previously used, unless the shareholder applies to the IRS for
permission to change methods.

The treatment of any ordinary dividends and capital gains distributions
to shareholders from a Fund under the various state and local income tax laws
may not parallel that under federal law. In addition, distributions from a Fund
may be subject to additional state, local, and foreign taxes, depending upon
each shareholder's particular situation. Shareholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in a Fund.

ADDITIONAL INFORMATION

CAPITAL STOCK

The Company has 3,000,000,000 shares of capital stock authorized, with a
par value per share of $0.01. Of these shares, 100,000,000 shares have been
allocated to Discovery Fund, 100,000,000 to Passport Fund, 100,000,000 to
Frontier Fund, 180,000,000 to Special Fund, 100,000,000 to International Equity
Fund, 100,000,000 to Worldwide Growth Fund, 400,000,000 to Growth Fund,
400,000,000 to Blue Chip Fund, 500,000,000 to Balanced Fund, 20,000,000 to
Government Securities Fund, and

<PAGE>
69

1,000,000,000 to Money Market Fund. The Board of Directors is authorized to
create additional series or classes of shares, each with its own investment
objectives and policies.

As of January 30, 1998, no person owned of record or, to the knowledge
of the Company, beneficially, more than 5% of the capital stock of any Fund then
outstanding except: Charles Schwab & Co., Inc., 101 Montgomery Street, San
Francisco, CA 94104, which held of record 30.77%, 50.97%, 28.00%, 22.12%,
26.13%, 32.56%, 21.40%, 12.70%, 20.26%, and 7.73% of the outstanding shares of
Discovery Fund, Passport Fund, Frontier Fund, Special Fund, International Equity
Fund, Worldwide Growth Fund, Growth Fund, Blue Chip Fund, Balanced Fund, and
Government Securities Fund, respectively; National Financial Services Corp.,
P.O. Box 3908, Church Street Station, New York, NY 10008, which held of record
10.64%, 5.01%, 11.69%, and 6.42% of the outstanding shares of Passport Fund,
International Equity Fund, Worldwide Growth Fund, and Growth Fund, respectively;
Donaldson, Lufkin & Jenrette Securities Corp., P.O. Box 2052, Jersey City, NJ
07303, which held of record 7.28% of the outstanding shares of Worldwide Growth
Fund; Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, which held of
record 7.73% of the outstanding shares of Discovery Fund; Mercantile Safe
Deposit & Trust Co., Two Hopkins Plaza PAV2, Baltimore, MD 21201, which held of
record and beneficially 6.08% of the outstanding shares of Worldwide Growth
Fund; VALIC, 2929 Allen Parkway L7-01, Houston, TX 77019, which held of record
and beneficially 10.19 % of the outstanding shares of Growth Fund; American
Express Trust Company, 733 Marquette Avenue, Minneapolis, MN 55402, which held
of record 8.87% of the outstanding shares of Balanced Fund; State of Michigan
Plan 2, State Street Bank & Trust Company, 200 Newport Avenue, Quincy, MA 02170,
which held of record and beneficially 7.09% of the outstanding shares of
Balanced Fund; Fidelity Investments Institutional Operations Company, 100
Magellan Way, Covington, KY 41015, which held of record 5.77% of the outstanding
shares of Balanced Fund; Eugene H. Vaughan, Jr., 6300 Texas Commerce Tower,
Houston, TX 77002, who held of record and beneficially 5.09% of the outstanding
shares of Money Market Fund; and Connecticut General Life Ins. Co., One
Commercial Plaza, 280 Trumbull Street, Hartford CT 06103, which held of record
and beneficially 20.56% and 8.12% of the outstanding shares of Balanced Fund and
Growth Fund, respectively.

Shares of each Fund are fully paid and nonassessable when issued. All
shares participate equally in dividends and other distributions by each Fund,
and in the residual assets of a Fund in the event of its liquidation. Shares of
each Fund are redeemable as described herein under "Redemption Payments" and
under "Investing in the Founders Funds" in the prospectus. Fractional shares
have the same rights proportionately as full shares. The Company does not issue
share certificates.

Shares of the Company have no conversion, subscription or preemptive
rights. Each full share of the Company has one vote and fractional shares have
proportionate voting rights. Shares of the Company have non-cumulative voting
rights, which means

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70

that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so and, in such
an event, the holders of the remaining less than 50% of the shares voting for
the election of directors will not be able to elect any person or persons to the
board of directors.

CODE OF ETHICS

The Company and Founders have adopted a strict code of ethics that
limits directors, officers, investment personnel and other Founders employees in
investing in securities for their own accounts. With certain exceptions, the
code of ethics requires pre-clearance of personal securities transactions and
imposes restrictions and reporting requirements upon such transactions. The code
of ethics provides an exemption from the pre-approval requirement for "de
minimis" transactions. In order to qualify as a de minimis transaction, the
purchase or sale must meet two tests: (1) the security must be issued by a
company with a market capitalization of at least $1 billion and an average daily
trading volume of at least 100,000 shares; and (2) the transaction must involve
no more than 100 shares or $5,000, whichever is greater. In addition, the
employee cannot rely on this exemption for a particular security if the employee
is involved in buying or selling the same security for a Fund or other client of
Founders. An employee must complete and submit a notification form prior to
effecting a de minimis transaction. The Company and Founders carefully monitor
compliance with the code of ethics by their respective personnel.

Violations or apparent violations of the code of ethics by an officer,
director or employee of the Company are reported to the president of the Company
or to the Company's legal counsel, and thereafter to the Company's board of
directors. The Company's board of directors determines whether a violation of
the code of ethics has occurred and, if so, the sanctions, if any, deemed
appropriate.

Violations or apparent violations of the code of ethics by an officer,
director or employee of Founders who is not also an officer, director or
employee of the Company are reported to the president of Founders, Founders'
Legal Department or to Founders' legal counsel. Founders' president, in
conjunction with the Legal Department, shall determine whether a violation has
occurred and, if so, will impose such sanctions, if any, as he or she may deem
appropriate. These determinations are reviewed by the Company's Board of
Directors.

Sanctions may include verbal or written warnings, a letter of censure,
suspension, termination of employment, disgorgement of profits from improper
transactions, or other sanctions. The code of ethics requires maintenance of the
highest standards of integrity and conduct. In engaging in personal business
activities, personnel of the Company and of Founders must act in the best
interests of the Company and its shareholders. The Company's shareholders may
obtain a copy of the code of ethics without charge by calling Founders at
1-800-525-2440.

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71

PURCHASES OF FUND SHARES BY FOUNDERS EMPLOYEES

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

CUSTODIAN

Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania, Kansas
City, Missouri, is custodian of the portfolio securities and cash of the Funds.
IFTC has entered into a subcustodian agreement with State Street Bank and Trust
Company, through which each Fund participates in the State Street global custody
network. The foreign subcustodians have been approved by the Company's board of
directors as required by Rule 17f-5 under the 1940 Act (and the notes to the
Rule), based on the following: the financial strength of the foreign
subcustodian, its general reputation and standing in the country in which it is
located, its ability to provide efficiently the custodial services required, the
relative cost for these services, the level of safeguards for maintaining the
Fund's assets and whether or not the foreign subcustodian has branch offices in
the United States.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP, 950 17th Street, Denver, Colorado, acts as
independent accountants for the Company. The independent accountants are
responsible for auditing the financial statements of each Fund and meeting with
the Audit Committee of the Board of Directors.

REGISTRATION STATEMENT

A Registration Statement (Form N-1A) under the 1933 Act has been filed
with the Securities and Exchange Commission, Washington, D.C., with respect to
the securities to which this Statement of Additional Information relates. If
further information is desired with respect to the Company or such securities,
reference should be made to the Registration Statement and the exhibits filed as
a part thereof.

FINANCIAL STATEMENTS

The Funds' audited financial statements and the notes thereto for the
fiscal year ended December 31, 1997, and the report of Price Waterhouse LLP with
respect to such financial statements, are incorporated herein by reference from
the Funds' Annual Report to Shareholders for the fiscal year ended December 31,
1997.

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72

APPENDIX

RATINGS OF CORPORATE BONDS

An NRSRO is a nationally recognized statistical rating organization. The
Division of Market Regulation of the Securities and Exchange Commission
currently recognizes six NRSROs: Duff & Phelps, Inc. ("D&P"), Fitch Investors
Services, Inc. ("Fitch"), Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's Ratings Services ("S&P"), Thompson Bankwatch, Inc. ("TBW"), and IBCA
Limited and its affiliate, IBCA Inc. ("IBCA").

Guidelines for Moody's and S&P ratings are described below. For D&P,
ratings correspond exactly to S&P's format from AAA through B-. For Fitch,
ratings correspond exactly to S&P's format from AAA through CCC-. For both TBW
and IBCA, ratings correspond exactly to S&P's format in all ratings categories.
Because the Funds cannot purchase securities rated below B, ratings from D&P,
Fitch, TBW, and IBCA can be compared directly to the S&P ratings scale to
determine the suitability of a particular investment for a given Fund. For
corporate bonds, a security must be rated in the appropriate category by one or
more of these six agencies to be considered a suitable investment.

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

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

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

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

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A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

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

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

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

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

A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

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

BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to

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adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.

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

RATINGS OF COMMERCIAL PAPER

The SEC recognizes the same six nationally recognized statistical rating
organizations (NRSROs) for commercial paper that it does for corporate bonds:
D&P, Fitch, Moody's, S&P, TBW, and IBCA. The ratings that would constitute the
highest short-term rating category are Duff 1 (D&P), F-1 (Fitch), P-1 (Moody's),
A-1 or A-1+ (S&P), TBW-1 (TBW), and A1 (IBCA).

Description of Moody's commercial paper ratings. Among the factors
considered by Moody's in assigning commercial paper ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of the risks which may be
inherent in certain areas; (3) evaluation of the issuer's products in relation
to competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations. Relative differences in strength and weakness in respect to these
criteria would establish a rating of one of three classifications; P-1 (Highest
Quality), P-2 (Higher Quality) or P-3 (High Quality).

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

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

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

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

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

RATINGS OF PREFERRED STOCK

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

"aaa" -- An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.

"aa" -- An issue that is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.

"a" -- An issue that is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.

"baa" -- An issue that is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

"ba" -- An issue that is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.

"b" -- An issue that is rated "b" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.

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

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AAA -- This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.

AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.

A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.

BBB -- An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.

BB, B -- Preferred stocks rated BB and B are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. BB indicates the lowest degree of speculation and B a higher
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

PLUS (+) OR MINUS (-): To provide more detailed indications of preferred
stock quality, the ratings from AA to B may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.