File No. 2-17531
File No. 811-1018
As filed on February 27, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. _____ _____
Post-Effective Amendment No. 63 X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 34 X
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FOUNDERS FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
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(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (303) 394-4404
Kenneth R. Christoffersen, Esq.
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
----------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
this post-effective amendment becomes effective.
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
___ on ______________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
X on May 1, 1998 pursuant to paragraph (a)(1)
- ---
___ 75 days after filing pursuant to paragraph (a)(2)
___ on ______________ pursuant to paragraph (a)(2)of rule 485.
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Registrant has previously elected to register an indefinite number of shares of
its common stock pursuant to Rule 24f-2 under the Investment Company Act of
1940. Registrant's Rule 24f-2 Notice for the fiscal year ended December 31, 1997
will be filed on or about March 27, 1998.
< Page 1 of _____
< Exhibit index is located at page ___
<PAGE>
FOUNDERS FUNDS, INC.
--------------------
CROSS REFERENCE SHEET
Form N-1A
ITEM NO. CAPTION
- --------- -------
PART A PROSPECTUS
- ------ ----------
1................Front Cover Page; Back Cover Page
2............... Welcome to Founders; The Funds and Their Management
3................The Funds and Their Management; General Information;
Back Cover Page
4................The Funds and Their Management; Investment Policies and
Risks; General Information
5................The Funds and Their Management; General Information;
Back Cover
5A...............Not Applicable
6................Investing in the Founders Funds; General Information
7................Investing in the Founders Funds; General Information
8................Investing in the Founders Funds
9................Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
- ------ -----------------------------------
10...............Cover Page
11...............Table of Contents
12...............Not Applicable
13...............Investment Objectives and Policies;
Investment Restrictions; Brokerage Allocation
and Portfolio Turnover Rates
14...............Directors and Officers
-i-
<PAGE>
Form N-1A
ITEM NO. CAPTION
- --------- -------
15...............Directors and Officers; Additional Information
16...............Investment Adviser and Distributor;
Directors and Officers; Shareholder Servicing; Additional
Information
17...............Brokerage Allocation and Portfolio Turnover Rates
18...............Additional Information
19...............Determination of Net Asset Value; Redemption Payments
20...............Dividends, Distributions and Taxes
21...............Investment Adviser and Distributor
22...............Yield and Performance Information
23...............Additional Information
PART C
- ------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
-ii-
<PAGE>
P R O S P E C T U S
May 1, 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>
[LOGO] 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 LONG-TERM GROWTH OF CAPITAL
Founders Discovery Fund Founders International Equity Fund
Founders Passport Fund Founders Worldwide Growth Fund
Founders Frontier Fund Founders Growth Fund
Founders Special Fund
LONG-TERM GROWTH OF CAPITAL CURRENT INCOME AND
AND INCOME CAPITAL APPRECIATION
Founders Blue Chip Fund Founders Balanced Fund
CURRENT INCOME MAXIMUM CURRENT INCOME CONSISTENT
WITH THE PRESERVATION OF CAPITAL AND
LIQUIDITY
Founders Government Securities Fund Founders Money Market Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IT'S IMPORTANT TO NOTE THAT FOUNDERS FUNDS:
- - ARE NOT BANK DEPOSITS OR OBLIGATIONS
- - ARE NOT FEDERALLY INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY
- - ARE NOT GUARANTEED OR ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
- - ARE NOT GUARANTEED TO MAINTAIN STABLE NET ASSET VALUES
- - ARE NOT GUARANTEED TO ACHIEVE THEIR OBJECTIVES
<PAGE>
CONTENTS
HOW TO CONTACT US..............................................................4
WELCOME TO FOUNDERS............................................................5
Investment Objectives and Risks............................................5
THE FUNDS AND THEIR MANAGEMENT.................................................5
FOUNDERS' INVESTMENT PHILOSOPHY................................................5
Founders' Investment Management Team.......................................6
Founders' Fund Offerings...................................................6
Discovery Fund.............................................................7
Passport Fund..............................................................9
Frontier Fund.............................................................12
Special Fund..............................................................14
International Equity Fund.................................................17
Worldwide Growth Fund.....................................................19
Growth Fund...............................................................22
Blue Chip Fund............................................................24
Balanced Fund.............................................................27
Government Securities Fund................................................30
Money Market Fund.........................................................32
INVESTMENT POLICIES AND RISKS.................................................35
GENERAL INFORMATION...........................................................41
Understanding Fund Expenses...............................................41
Understanding Financial Highlights........................................42
Calculating Share Price...................................................43
Dividends and Distributions...............................................44
Dividend and Capital Gain Distribution Options............................44
Taxes.....................................................................44
Founders' Services to the Funds...........................................45
Distribution Plans........................................................48
Distributor...............................................................49
Voting Rights.............................................................49
Fund Performance Information..............................................49
INVESTING IN THE FOUNDERS FUNDS...............................................49
Conducting Business with Founders.........................................52
GLOSSARY OF TERMS.............................................................60
<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: 1 call us toll-free 1 mail us your written instructions 1 fax exchange
requests 1 find us on the Internet 1 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 Fast Line (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 "[email protected]"
IN PERSON
Visit Founders' Investor Center in Denver,
Monday-Friday, 8 a.m.-5 p.m., Mountain time.
Founders Financial Center
2930 East Third Avenue (at Milwaukee)
Denver, CO 80206
For directions, call 1-800-525-2440.
For more information, see "Investing in the Founders Funds."
<PAGE>
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 a 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."
THE FUNDS AND THEIR MANAGEMENT
FOUNDERS' INVESTMENT PHILOSOPHY
Founders has developed a distinctive approach to portfolio management based on
several elements:
- THE PURSUIT OF GROWTH. We look for companies, both domestically and
abroad, whose fundamental strengths indicate potential for growth in
earnings per share--a
<PAGE>
prime indicator of business success. Over the long term, these growth
companies may be among the best investment opportunities the markets have to
offer.
- BOTTOM-UP FOCUS. In our search for promising 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.
- 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.
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."
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).
- Founders Discovery Fund
- Founders Passport Fund
- Founders Frontier Fund
- 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). 1 Founders International
Equity Fund 1 Founders Worldwide Growth Fund 1 Founders Growth Fund
<PAGE>
GROWTH AND INCOME FUNDS
These funds invest in growth sectors of the market, but in companies that may be
larger and more established, and that generally pay dividends. Due to these
factors, growth and income funds may present less risk than aggressive growth or
growth funds.
- Founders Blue Chip Fund
- Founders Balanced Fund
INCOME-ORIENTED FUNDS
These funds are the lowest-risk funds offered by Founders.
- Founders Government Securities Fund
- 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.
FOUNDERS DISCOVERY FUND
Investment Objective: Capital appreciation
Discovery Fund will normally invest at least 65% of its total assets in common
stocks of small, rapidly growing U.S. companies with market capitalizations or
annual revenues
between $10-$500 million. Typically, these companies are not listed on a
national securities exchange, but trade on the over-the-counter market. Although
the Fund normally will invest in common stocks of U.S. companies, it may invest
up to 30% of its total assets in foreign securities. For more information on the
Fund's investment techniques and their related risks, see "Investment Policies
and Risks."
Graphic: Spacecraft
Portfolio Manager:
ROBERT T. AMMANN, PORTFOLIO MANAGER. 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 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).
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.99%
12b-1 Fees (1) 0.25%
Other Expenses 0.30%
-----
Total Fund Operating Expenses 1.54%
=====
(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."
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
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31*
---------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
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
or (Loss) 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 --- --- --- --- --- ---
<FN>
* No activity in inception year of 1989
# 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.
</FN>
</TABLE>
FOUNDERS PASSPORT FUND
Investment Objective: Capital appreciation
Passport Fund normally invests primarily in securities issued by foreign
companies, in both established and emerging economies throughout the world,
which have market capitalizations or annual revenues of $1 billion or less. At
least 65% of the Fund's total assets normally will be invested in foreign
securities from a minimum of three countries. The Fund may invest in larger
foreign companies or in U.S.-based companies if, in our opinion, they represent
better prospects for capital appreciation. For more information on the Fund's
investment techniques and their related risks, see "Investment Policies and
Risks."
Graphic: Compass
<PAGE>
Portfolio Manager:
MICHAEL W. GERDING, VICE PRESIDENT OF INVESTMENTS. Mr. Gerding is a
Chartered Financial Analyst who has been part of Founders' investment
department since 1990. Mr. Gerding has served as the lead portfolio
manager for Founders Worldwide Growth Fund since 1990 and for Founders
Passport Fund since its inception in 1993. He also has served as
portfolio manager or co-portfolio manager for Founders International
Equity Fund from 1996 until 1997. Prior to joining Founders, he served
as a portfolio manager and research analyst with NCNB Texas for
several years. Mr. Gerding earned a BBA in finance and an MBA from
Texas Christian University.
Expenses:
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 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%
=====
(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."
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):
<PAGE>
1 Year 3 Years 5 Years 10 Years
-------- -------- -------- --------
$16 $49 $85 $186
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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 Period of
-------------------------------------------------------------------
1997 1996 1995 1994 11/16/93
(inception) -
12/31/93
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
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 Asset 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 --- --- ---
<FN>
* 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.
</FN>
</TABLE>
FOUNDERS FRONTIER FUND
Investment Objective: Capital appreciation
Frontier Fund will normally invest at least 65% of its total assets in common
stocks of small- and medium-sized U.S. and foreign companies with market
capitalizations or annual revenues of $200 million-$1.5 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."
Graphic: Spyglass
Portfolio Manager:
MICHAEL K. HAINES, SENIOR VICE PRESIDENT OF INVESTMENTS. Mr. Haines
has been with Founders since 1985, serving as an assistant portfolio
manager, and as lead portfolio manager for Founders Frontier Fund
since 1990. Mr. Haines served as the portfolio or co-portfolio manager
of Founders Discovery Fund from 1989 until July 1995. A graduate of
The Colorado College, Mr. Haines received an MBA from the University
of Denver.
Expenses:
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 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%
=====
<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."
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 $50 $86 $188
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $32.34 $31.08 $26.50 $27.94 $25.03 $24.21 $16.87 $18.49 $13.45 $11.03
------------------------------------------------------------------------------------------------------------
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 0.12 (0.06)
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) 5.81 3.26
------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.75 4.31 9.74 (0.79) 4.11 2.13 8.28 (1.38) 5.93 3.20
------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND
DISTRIBUTIONS
From Net Investment Income 0.00 0.00 0.00 0.00 0.00 0.00 (0.01) (0.16) (0.05) 0.00
From Net Realized Gains (6.10) (3.05) (5.16) (0.65) (1.20) (1.31) (0.93) (0.08) (0.84) (0.78)
------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (6.10) (3.05) (5.16) (0.65) (1.20) (1.31) (0.94) (0.24) (0.89) (0.78)
------------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $27.99 $32.34 $31.08 $26.50 $27.94 $25.03 $24.21 $16.87 $18.49 $13.45
============================================================================================== =============
TOTAL RETURN 6.2% 14.3% 37.0% (2.8%) 16.5% 8.9% 49.3% (7.5%) 44.3% 29.2%
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 $50,318 $8,771
Net Expenses to Average
Net Assets# 1.54% 1.52% 1.53% 1.62% 1.66% 1.83% 1.68% 1.71% 1.46% 1.89%
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% 0.38% (0.43%)
Portfolio Turnover Rate 54% 85% 92% 72% 109% 155% 158% 207% 198% 312%
Average Commission Rate
Paid $0.0527 $0.0567 --- --- --- --- --- --- --- ---
<FN>
# 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.
</FN>
</TABLE>
FOUNDERS SPECIAL FUND
Investment Objective: Capital appreciation
Special Fund normally invests 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 our
"growth" style of portfolio management, see "Founders' Investment Philosophy."
For more information on the Fund's investment techniques and their related
risks, see "Investment Policies and Risks."
Graphic: Compass star
Portfolio Managers:
MICHAEL K. HAINES, SENIOR VICE PRESIDENT OF INVESTMENTS. Mr. Haines
has been with Founders since 1985, serving as an assistant portfolio
manager, and as lead portfolio manager for Founders Frontier Fund
since 1990. He also has
<PAGE>
served as co-lead portfolio manager for Founders Special Fund since
May 1997, after having previously served in that capacity from July to
December 1996. Mr. Haines served as the portfolio or co-portfolio
manager of Founders Discovery Fund from 1989 until July 1995. A
graduate of The Colorado College, Mr. Haines received an MBA from the
University of Denver.
DOUGLAS A. LOEFFLER, PORTFOLIO MANAGER. Mr. Loeffler is a Chartered
Financial Analyst who has been co-lead portfolio manager for Founders
International Equity and Special Funds since 1997. Mr. Loeffler joined
Founders in 1995 as a senior international equities analyst and
previously served as assistant portfolio manager for Founders
International Equity Fund. Prior to joining Founders, he served for
seven years with Scudder, Stevens & Clark as an international equities
analyst and as a quantitative analyst. A graduate of Washington State
University, Mr. Loeffler received an MBA in finance from the
University of Chicago.
Expenses:
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 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%
=====
(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."
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
-------- -------- -------- --------
$14 $42 $73 $160
<PAGE>
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $7.66 $7.05 $7.01 $7.67 $7.76 $7.59 $5.03 $6.64 $5.47 $5.14
----------------------------------------------------------------------------------------------------
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 0.16 0.03
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) 1.97 0.65
----------------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 1.22 1.07 1.79 (0.38) 1.24 0.63 3.17 (0.70) 2.13 0.68
----------------------------------------------------------------------------------------------------
LESS DIVIDENDS
AND DISTRIBUTIONS
From Net Investment
Income 0.00 0.00 0.00 0.00 0.00 0.00 (0.04) (0.10) (0.15) (0.04)
From Net Realized
Gains (1.16) (0.46) (1.75) (0.28) (1.33) (0.46) (0.57) (0.81) (0.81) (0.31)
----------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.16) (0.46) (1.75) (0.28) (1.33) (0.46) (0.61) (0.91) (0.96) (0.35)
----------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $7.72 $7.66 $7.05 $7.01 $7.67 $7.76 $7.59 $5.03 $6.64 $5.47
====================================================================================================
TOTAL RETURN 16.4% 15.3% 25.7% (4.9%) 16.0% 8.3% 63.7% (10.4%) 39.2% 13.2%
RATIOS/SUPPLE-
MENTAL DATA
Net Assets--End of
Period
(000s Omitted) $320,186 $363,835 $388,754 $299,190 $432,710 $456,793 $226,154 $57,951 $94,554 $62,990
Net Expenses to
Average Net Assets# 1.30% 1.34% 1.29% 1.36% 1.33% 1.23% 1.15% 1.20% 1.06% 1.12%
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% 1.95% 0.59%
Portfolio Turnover
Rate 110% 186% 263% 272% 285% 223% 102% 146% 151% 160%
Average Commission
Rate Paid $0.0555 $0.0417 --- --- --- --- --- --- --- ---
<FN>
# 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.
</FN>
</TABLE>
FOUNDERS INTERNATIONAL EQUITY FUND
Investment Objective: Long-term growth of capital
International Equity Fund normally invests at least 65% of its total assets in
foreign equity securities from a minimum of three countries outside of the
United States. The Fund will not invest more than 50% of its assets in the
securities of any one foreign country. Normally, the Fund will invest in
companies from countries around the world, except the United States, including
companies in both established and emerging economies. For more information on
the Fund's investment techniques and their related risks, see "Investment
Policies and Risks."
Graphic: Three flags flying on poles
Portfolio Manager:
DOUGLAS A. LOEFFLER, PORTFOLIO MANAGER. Mr. Loeffler is a Chartered
Financial Analyst who has been lead portfolio manager for Founders
International Equity Fund and co-lead portfolio manager for Founders
Special Fund since 1997. Mr. Loeffler joined Founders in 1995 as a
senior international equities analyst and previously served as assistant
portfolio manager for Founders International Equity Fund. Prior to
joining Founders, he served for seven years with Scudder, Stevens &
Clark as an international equities analyst and as a quantitative
analyst. A graduate of Washington State University, Mr. Loeffler
received an MBA in finance from the University of Chicago.
Expenses:
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions).
<PAGE>
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%
=====
(1) LONG-TERM SHAREHOLDERS MAY, OVER TIME, INDIRECTLY PAY MORE IN 12B-1
FEES THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES
PERMITTED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
(2) CERTAIN EXPENSES OF THE FUND ARE BEING REIMBURSED VOLUNTARILY BY
FOUNDERS. 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 HAVE BEEN 0.80% AND 2.05%, RESPECTIVELY, OF THE FUND'S
AVERAGE NET ASSETS BASED ON ITS ACTUAL EXPENSES FOR THE YEAR ENDED
DECEMBER 31, 1997.
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
-------- -------- -------- --------
$18 $57 $98 $213
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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
<PAGE>
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 Period of
----------------------------------------------------
1997 1996 12/29/95
(inception) -
12/31/95
<S> <C> <C> <C>
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% 0.0%
RATIOS/SUPPLEMENTAL DATA
Net Assets--End of Period
(000s Omitted) $15,738 $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
<FN>
* In the absence of voluntary expense reimbursements and waivers from Founders,
the Ratios of Average 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.
</FN>
</TABLE>
FOUNDERS WORLDWIDE GROWTH FUND
Investment Objective: Long-term growth of capital
Worldwide Growth Fund, a global fund, normally invests at least 65% of its total
assets in equity securities of growth companies in a variety of markets
throughout the world. The Fund may purchase securities in any foreign country
(as well as in the United States), emphasizing common stocks of both emerging
and established growth companies that generally have proven performance records
and strong market positions. The Fund's
<PAGE>
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."
Graphic: Globe with an arrow
Portfolio Manager:
MICHAEL W. GERDING, VICE PRESIDENT OF INVESTMENTS. Mr. Gerding is a
Chartered Financial Analyst who has been part of Founders' investment
department since 1990. Mr. Gerding has served as the lead portfolio
manager for Founders Worldwide Growth 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 following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions).
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.95%
12b-1 Fees (1) 0.25%
Other Expenses 0.27%
-----
Total Fund Operating Expenses 1.47%
=====
(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."
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
<PAGE>
income distributed to shareholders; these expenses are not charged
directly to your account):
1 Year 3 Years 5 Years 10 Years
-------- -------- -------- --------
$15 $47 $81 $177
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
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 --- --- --- --- --- ---
<FN>
* No activity in inception year of 1989
# 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.
</FN>
</TABLE>
FOUNDERS GROWTH FUND
Investment Objective: Long-term growth of capital
Growth Fund normally invests at least 65% of its total assets in common stocks
of well-established, high-quality growth companies. These companies tend to have
strong performance records, solid market positions and reasonable financial
strength, and have continuous operating records of three years or more. The Fund
may also invest up to 30% of its total assets in foreign securities, with no
more than 25% invested in any one foreign country. For more information on the
Fund's investment techniques and their related risks, see "Investment Policies
and Risks."
Graphic: Up-and-down arrow on a grid
Portfolio Manager:
EDWARD F. KEELY, VICE PRESIDENT OF INVESTMENTS. Mr. Keely is a
Chartered Financial Analyst who joined Founders in 1989 and assumed
lead portfolio manager responsibilities for Founders Growth Fund in
1994. From 1992 to 1993, he served as assistant portfolio manager of
Founders Discovery and Frontier Funds. A graduate of The Colorado
College, Mr. Keely holds a bachelor of arts degree in economics.
Expenses:
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 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%
=====
<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."
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
-------- -------- -------- --------
$11 $36 $62 $137
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $15.87 $14.77 $11.63 $12.38 $10.54 $11.22 $8.27 $9.41 $7.61 $7.41
----------------------------------------------------------------------------------------------
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 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) 3.07 0.22
----------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 4.16 2.42 5.29 (0.41) 2.69 0.49 3.89 (1.00) 3.14 0.35
----------------------------------------------------------------------------------------------
LESS DIVIDENDS
AND
DISTRIBUTIONS
From Net Investment
Income (0.07) (0.02) (0.02) 0.00 0.00 (0.01) (0.07) (0.13) (0.07) (0.15)
From Net Realized
Gains (2.68) (1.30) (2.13) (0.34) (0.85) (1.16) (0.87) (0.01) (1.27) 0.00
----------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (2.75) (1.32) (2.15) (0.34) (0.85) (1.17) (0.94) (0.14) (1.34) (0.15)
----------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $17.28 $15.87 $14.77 $11.63 $12.38 $10.54 $11.22 $8.27 $9.41 $7.61
==============================================================================================
TOTAL RETURN 26.6% 16.6% 45.6% (3.4%) 25.5% 4.3% 47.4% (10.6%) 41.7% 4.8%
RATIOS/SUPPLE-
MENTAL 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 $111,938 $53,023
Net Expenses to
Average Net
Assets# 1.10% 1.19% 1.24% 1.33% 1.32% 1.54% 1.45% 1.45% 1.28% 1.38%
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% 0.77% 1.74%
Portfolio Turnover
Rate 189% 134% 130% 172% 131% 216% 161% 178% 167% 179%
Average
Commission Rate
Paid $0.0615 $0.0649 --- --- --- --- --- --- --- ---
<FN>
# 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.
</FN>
</TABLE>
FOUNDERS BLUE CHIP FUND
Investment Objective: Long-term growth of capital and income
Blue Chip Fund, a large-capitalization fund, normally invests primarily in
common stocks of large, well-established, stable and mature companies of great
financial strength, commonly known as "blue chip" companies. These companies
generally have long records of profitability and dividend payments and a
reputation for quality management, products, and services.
The Fund normally invests at least 65% of its total assets in "blue
chip" stocks that: 1 Are included in a widely recognized index of stock market
performance, such as the
Dow Jones Industrial Average or the Standard & Poor's 500 Index
- Generally pay regular dividends
- Have a market capitalization of at least $1 billion.
<PAGE>
The Fund may invest in non-dividend-paying companies if, in our opinion, they
offer better prospects for capital appreciation. The Fund may also invest up to
30% of its total assets in foreign securities. For more information on the
Fund's investment techniques and their related risks, see "Investment Policies
and Risks."
Graphic: Blue ribbon
Portfolio Manager:
BRIAN F. KELLY, VICE PRESIDENT OF INVESTMENTS. Mr. Kelly joined
Founders in 1996 as the lead portfolio manager of the Founders Blue
Chip and Balanced Funds. Prior to joining Founders, Mr. Kelly served
as a portfolio manager for INVESCO Trust Company (1993 - 1996), and as
a senior equity investment analyst for Sears Investment Management
Company (1986 - 1993). A graduate of the University of Notre Dame, Mr.
Kelly received an MBA and JD from the University of Iowa. He is also a
Certified Public Accountant.
Expenses:
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions).
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.62%
12b-1 Fees (1) 0.25%
Other Expenses 0.24%
-----
Total Fund Operating Expenses 1.11%
=====
(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."
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):
<PAGE>
1 Year 3 Years 5 Years 10 Years
-------- -------- -------- --------
$11 $35 $61 $136
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
DATA
Net Asset Value -
- - Beginning of
Period $7.23 $6.69 $6.16 $6.49 $6.91 $7.67 $6.67 $7.32 $6.31 $6.14
-----------------------------------------------------------------------------------------------------
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 0.16 0.18
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) 2.05 0.43
-----------------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 1.38 1.61 1.79 0.04 1.00 (0.02) 1.85 0.03 2.21 0.61
-----------------------------------------------------------------------------------------------------
LESS
DIVIDENDS AND
DISTRIBUTIONS
From Net
Investment
Income (0.13) (0.09) (0.09) (0.06) (0.04) (0.08) (0.11) (0.17) (0.16) (0.19)
From Net
Realized Gains (1.56) (0.98) (1.17) (0.31) (1.38) (0.66) (0.74) (0.51) (1.04) (0.25)
-----------------------------------------------------------------------------------------------------
TOTAL
DISTRIBUTIONS (1.69) (1.07) (1.26) (0.37) (1.42) (0.74) (0.85) (0.68) (1.20) (0.44)
-----------------------------------------------------------------------------------------------------
Net Asset Value -
- - End of Period $6.92 $7.23 $6.69 $6.16 $6.49 $6.91 $7.67 $6.67 $7.32 $6.31
=====================================================================================================
TOTAL RETURN 19.4% 24.4% 29.1% 0.5% 14.5% (0.3%) 28.3% 0.4% 35.6% 10.1%
RATIOS
Net Assets--End
of Period (000s
Omitted) $543,168 $535,866 $375,200 $311,051 $306,592 $290,309 $290,155 $233,630 $232,468 $173,342
Net Expenses
to Average
Net Assets# 1.09% 1.15% 1.17% 1.21% 1.22% 1.23% 1.10% 1.07% 0.98% 1.00%
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% 2.03% 2.81%
Portfolio Turnover
Rate 256% 195% 235% 239% 212% 103% 95% 82% 64% 58%
Average
Commission Rate
Paid $0.0597 $0.0613 --- --- --- --- --- --- --- ---
<FN>
# 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.
</FN>
</TABLE>
FOUNDERS BALANCED FUND
Investment Objective: Current income and capital appreciation
Balanced Fund normally invests in a balanced portfolio of common stocks, U.S.
and foreign government securities, and a variety of corporate fixed-income
obligations.
For the equity portion of its portfolio, the Fund emphasizes investments
in common stocks with the potential for capital appreciation. These stocks
generally pay regular dividends, although the Fund also may invest in
non-dividend-paying companies if, in our opinion, they offer better prospects
for capital appreciation. Normally, the Fund will invest a significant
percentage (up to 75%) of its total assets in equity securities.
The Fund will maintain a minimum of 25% of its total assets in
fixed-income, investment-grade securities rated Baa or higher by Moody's
Investors Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's
("S&P"). There is no maximum limit on the amount of straight debt securities in
which the Fund may invest, 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."
Graphic: Scale
<PAGE>
Portfolio Manager:
BRIAN F. KELLY, VICE PRESIDENT OF INVESTMENTS. Mr. Kelly joined
Founders in 1996 as the lead portfolio manager of the Founders Blue
Chip and Balanced Funds. Prior to joining Founders, Mr. Kelly served
as a portfolio manager for INVESCO Trust Company (1993 - 1996), and as
a senior equity investment analyst for Sears Investment Management
Company (1986 - 1993). A graduate of the University of Notre Dame, Mr.
Kelly received an MBA and JD from the University of Iowa. He is also a
Certified Public Accountant.
Expenses:
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions).
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59%
12b-1 Fees (1) 0.25%
Other Expenses 0.17%
-----
Total Fund Operating Expenses 1.01%
=====
(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."
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
-------- -------- -------- --------
$10 $32 $56 $124
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS.
<PAGE>
ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND MAY BE
HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of
Period $10.61 $9.58 $8.56 $8.93 $8.30 $8.19 $7.22 $7.97 $6.89 $6.55
----------------------------------------------------------------------------------------------
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 0.32 0.38
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) 1.39 0.34
----------------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 1.77 1.78 2.49 (0.17) 1.80 0.48 1.61 (0.40) 1.71 0.72
----------------------------------------------------------------------------------------------
LESS DIVIDENDS
AND
DISTRIBUTIONS
From Net Investment
Income (0.30) (0.27) (0.28) (0.20) (0.21) (0.28) (0.31) (0.35) (0.32) (0.38)
From Net Realized
Gains (0.73) (0.48) (1.19) 0.00 (0.96) (0.09) (0.33) 0.00 (0.31) 0.00
----------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS(1.03) (0.75) (1.47) (0.20) (1.17) (0.37) (0.64) (0.35) (0.63) (0.38)
----------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $11.35 $10.61 $9.58 $8.56 $8.93 $8.30 $8.19 $7.22 $7.97 $6.89
==============================================================================================
TOTAL RETURN 16.9% 18.8% 29.4% (1.9%) 21.9% 6.0% 22.9% (5.0%) 25.3% 11.1%
RATIOS
Net Assets--End of
Period (000s
Omitted) $942,690 $394,896 $130,346 $95,226 $72,859 $31,538 $18,790 $13,650 $15,082 $12,636
Net Expenses to
Average Net Assets# 0.99% 1.10% 1.19% 1.26% 1.34% 1.88% 1.73% 1.65% 1.52% 1.64%
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% 4.19% 5.39%
Portfolio Turnover
Rate 203% 146% 286% 258% 251% 96% 133% 103% 85% 182%
Average Commission
Rate Paid $0.0596 $0.0588 --- --- --- --- --- --- --- ---
<FN>
# 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.
</FN>
</TABLE>
FOUNDERS GOVERNMENT SECURITIES FUND
Investment Objective: Current income
Government Securities Fund normally invests at least 65% of its total assets in
obligations of the U.S. government. 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."
Graphic: Building with pillars
Portfolio Manager:
MARGARET DANUSER, FIXED-INCOME MANAGER. Ms. Danuser has been the lead
portfolio manager for Founders Government Securities and Money Market
Funds since 1996, and has served as Founders' fixed-income specialist
since 1995. Previously, she was an investment officer with LaSalle
Street Capital Management from 1989 to 1994. Ms. Danuser received a
bachelor of arts degree from the University of Colorado.
Expenses:
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions).
<PAGE>
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%
=====
(1) LONG-TERM SHAREHOLDERS MAY, OVER TIME, INDIRECTLY PAY MORE IN 12B-1
FEES THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES
PERMITTED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
(2) CERTAIN 12B-1 FEES OF THE FUND ARE BEING WAIVED VOLUNTARILY BY
FOUNDERS. HAD THESE FEES NOT BEEN WAIVED, "12B-1 FEES" AND "TOTAL FUND
OPERATING EXPENSES" IN THE ABOVE TABLE WOULD HAVE BEEN 0.25% AND 1.49%,
RESPECTIVELY, OF THE FUND'S AVERAGE NET ASSETS BASED ON ITS ACTUAL
EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997.
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
-------- -------- -------- --------
$13 $42 $72 $159
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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
<PAGE>
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 Period of
----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 3/1/88
(inception) -
12/31/88
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $9.04 $9.29 $8.78 $10.02 $10.19 $10.48 $9.85 $10.13 $9.68 $10.00
----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
or (Loss) 0.45 0.46** 0.45 0.52 0.46 0.51 0.60 0.69 0.78 0.64
Net Gains or Losses on
Securities (Both Realized
and Unrealized) 0.24 (0.25)** 0.51 (1.26) 0.47 0.03 0.81 (0.28) 0.46 (0.32)
----------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 0.69 0.21 0.96 (0.74) 0.93 0.54 1.41 0.41 1.24 0.32
----------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND
DISTRIBUTIONS
From Net Investment
Income (0.45) (0.46) (0.45) (0.50) (0.46) (0.51) (0.60) (0.69) (0.79) (0.64)
From Net Realized Gains 0.00 0.00 0.00 0.00 (0.64) (0.32) (0.18) 0.00 0.00 0.00
----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.45) (0.46) (0.45) (0.50) (1.10) (0.83) (0.78) (0.69) (0.79) (0.64)
----------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period $9.28 $9.04 $9.29 $8.78 $10.02 $10.19 $10.48 $9.85 $10.13 $9.68
==========================================================================================================
TOTAL RETURN 7.9% 2.3% 11.1% (7.5%) 9.3% 5.3% 14.9% 4.4% 13.3% 3.2%
RATIOS
Net Assets--End of Period
(000s Omitted) $13,259 $15,190 $20,263 $21,323 $30,465 $25,047 $18,146 $7,424 $6,460 $4,392
Net Expenses to Average
Net Assets*# 1.26% 1.26% 1.30% 1.34% 1.18% 1.18% 1.12% 1.03% 0.65% 0.26%+
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% 7.90% 7.67%+
Portfolio Turnover Rate 147% 166% 141% 379% 429% 204% 261% 103% 195% 194%
<FN>
* 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),
1.49% (1996), 1.45% (1995), 1.51% (1994), 1.37% (1993), 1.43% (1992), 1.42%
(1991), 1.53% (1990), 1.48% (1989) and 1.33% (1988), the 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).
+ Annualized
** Restated
# 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.
</FN>
</TABLE>
FOUNDERS MONEY MARKET FUND
Investment Objective: Maximum current income consistent with the
preservation of capital and liquidity
Money Market Fund invests in high-quality money market instruments with minimal
credit risks 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
<PAGE>
best efforts, under normal circumstances, to maintain a constant net asset value
of $1.00 per share. The Fund declares dividends daily. For more information on
the Fund's investment techniques and their related risks, see "Investment
Policies and Risks."
Graphic: Bag with a dollar sign
Portfolio Manager:
MARGARET DANUSER, FIXED-INCOME MANAGER. Ms. Danuser has been the lead
portfolio manager for Founders Government Securities and Money Market
Funds since 1996, and has served as Founders' fixed-income specialist
since 1995. Previously, she was an investment officer with LaSalle
Street Capital Management from 1989 to 1994. Ms. Danuser received a
bachelor of arts degree from the University of Colorado.
Expenses:
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Fund. The
Fund is "no-load," which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 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%
=====
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
-------- -------- -------- --------
$9 $27 $47 $104
<PAGE>
SINCE THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL, THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL FUND EXPENSES AND RETURNS MAY VARY FROM YEAR TO YEAR AND
MAY BE HIGHER OR LOWER THAN THOSE SHOWN ABOVE.
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 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of
Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------------
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 0.08 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 0.00 0.00
---------------------------------------------------------------------------------------
TOTAL FROM
INVESTMENT
OPERATIONS 0.05 0.05 0.05 0.03 0.02 0.03 0.05 0.07 0.08 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) (0.08) (0.07)
From Net Realized
Gains 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------------------------------------------
TOTAL DISTRIBUTION (0.05) (0.05) (0.05) (0.03) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07)
---------------------------------------------------------------------------------------
Net Asset Value --
End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=======================================================================================
TOTAL RETURN 4.7% 4.5% 5.1% 3.4% 2.2% 2.8% 5.1% 7.3% 8.1% 6.9%
RATIOS
Net Assets--End of
Period
(000s Omitted) $106,073 $109,866 $125,646 $201,342 $142,399 $120,295 $99,765 $125,440 $84,281 $54,168
Net Expenses to
Average Net Assets# 0.82% 0.86% 0.89% 0.91% 0.95% 0.95% 0.99% 0.94% 0.77% 0.80%
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% 8.22% 6.75%
<FN>
* 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.
</FN>
</TABLE>
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:
<PAGE>
- - CURRENCY RISK. Fluctuations in exchange rates of foreign currencies affect
the value of a Fund's assets as measured in U.S. dollars and the costs of
converting between various currencies.
- - REGULATORY RISK. There may be less governmental supervision of foreign
stock exchanges, security brokers, and issuers of securities, and less
public information about foreign companies. Also, accounting, auditing and
financial reporting standards are less uniform than in the United States.
Exchange control regulations or currency restrictions could prevent cash
from being brought back to the United States. The Funds may be subject to
withholding taxes and could experience difficulties in pursuing legal
remedies and collecting judgments.
- - MARKET RISK. Foreign markets have substantially less volume than U.S.
markets, and are not generally as liquid as, and may be more volatile than,
those in the United States. Brokerage commissions and other transaction
costs are generally higher than in the United States, and settlement periods
are longer.
- - POLITICAL RISK. 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
time at an agreed upon rate. The Funds may conduct their foreign currency
exchange transactions
<PAGE>
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 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. 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
<PAGE>
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 each Fund's investments in Rule 144A securities could
be impaired if institutional investors become disinterested in purchasing such
securities.
Each of the Funds except the Money Market Fund may invest up to 15% of
the market value of its net assets, measured at the time of purchase, in
securities that are not readily marketable, including repurchase agreements
maturing in more than seven days. Money Market Fund may enter into repurchase
agreements if, as a result thereof, no more than 10% of the market value of its
net assets would be subject to repurchase agreements maturing in more than seven
days. Securities that are not readily marketable are those that, for whatever
reason, cannot be disposed of within seven days in the ordinary course of
business at approximately the amount at which the applicable Fund has valued the
investment.
Investments in illiquid securities, which may include restricted
securities, involve certain risks to the extent that a Fund may be unable to
dispose of such a security at the time desired or at a reasonable price. In
addition, in order to resell a restricted security, a Fund might have to bear
the expense and incur the delays associated with effecting registration.
For more information, see the Statement of Additional Information.
DERIVATIVES: FUTURES CONTRACTS AND OPTIONS. In order to hedge their portfolios,
all Funds except the Money Market Fund may enter into futures contracts. In
addition,
<PAGE>
certain Funds (other than the Government Securities and Money Market Funds) may
purchase and/or write options on securities, stock indices, futures contracts
and foreign currencies for hedging purposes. The successful use of these
instruments draws upon skills and experience that are different from those
needed to select the other securities in which the Funds invest. All of these
practices entail risks and can be highly volatile. Should interest or exchange
rates, or the prices of securities or financial indices, move in an unexpected
manner, the Funds may not achieve the desired benefits of these instruments or
may realize losses and thus be in a worse position. In addition, the markets for
these instruments may not be liquid. These instruments and their risks are
discussed in greater detail the Statement of Additional Information.
OTHER INVESTMENTS.
Money Market and Government Securities Funds. Money Market Fund invests in
U.S. government obligations, commercial paper, bank obligations, repurchase
agreements, and negotiable U.S. dollar-denominated obligations of domestic and
foreign branches of U.S. depository institutions, U.S. branches of foreign
depository institutions, and foreign depository institutions. Government
Securities Fund 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 we determine it is appropriate for purposes of enhancing
liquidity or preserving capital in light of adverse market or economic
conditions. While a Fund is in a defensive position, its opportunity to achieve
capital growth will be limited and, to the extent that this assessment of market
conditions is incorrect, the Fund will be foregoing the opportunity to benefit
from capital growth resulting from increases in the value of equity investments.
Government Securities. U.S. government obligations include Treasury
bills, notes and bonds; Government National Mortgage Association (GNMA)
pass-through securities; and issues of U.S. agencies, authorities, and
instrumentalities. Obligations of other agencies and instrumentalities of the
U.S. government include securities issued by the Federal Farm Credit Bank System
(FFCB), the Federal Agricultural Mortgage Corporation ("Farmer Mac"), the
Federal Home Loan Bank System (FHLB), the Financing Corporation (FICO), Federal
Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage
Association (FNMA), the Student Loan Marketing Association (SLMA), and the U.S.
Small Business Administration (SBA). Some government obligations, such as GNMA
pass-through certificates, are supported by the full faith and credit of the
United States Treasury. Other obligations, such as securities of the FHLB, are
supported by the right of the issuer to borrow from the United States Treasury;
and others, such as bonds issued by FNMA (a private corporation), are supported
only by the credit of the agency, authority or instrumentality. The Fund also
may invest in obligations issued by the International Bank for Reconstruction
and Development (IBRD or "World Bank"). Mortgage-related securities, which are
interests in pools of mortgage loans made to home buyers, pose the risk that
borrowers may prepay their mortgages faster than expected, which may adversely
affect the instruments' average life and yield. For more information
<PAGE>
on the mortgage-related securities in which the Funds may invest, including
GNMA, FNMA, FHLMC and other mortgage pass-through securities and collateralized
mortgage obligations, see the Statement of Additional Information.
Commercial Paper and Other Cash Securities. Commercial paper purchased
by Money Market Fund must be rated by at least two nationally recognized
statistical rating organizations (NRSROs), or by the only NRSRO that has rated
the security, in the highest short-term rating category, or comparable unrated
securities. For a list of NRSROs and a description of their ratings, see the
Statement of Additional Information.
A Fund may also acquire certificates of deposit and bankers' acceptances
of banks which meet criteria established by the Funds' board of directors. A
certificate of deposit is a short-term obligation of a bank. A banker's
acceptance is a time draft drawn by a borrower on a bank, usually relating to an
international commercial transaction.
When-Issued Securities. The Funds (except the Money Market Fund) may
purchase securities with settlement taking place in the future, and in
securities for which additional installments of the original issue price are
payable in the future. For more information concerning these types of
securities, see the Statement of Additional Information.
Repurchase Agreements. A repurchase agreement is a transaction under
which a Fund acquires a security and simultaneously promises to sell that same
security back to the seller at a higher price, usually within a seven-day
period. Such agreements may be considered "loans" under the 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.
<PAGE>
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.
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.
- MANAGEMENT FEES: These fees compensate the Funds' investment manager,
Founders Asset Management LLC, for administering the Funds and
selecting the Funds' securities portfolios.
- 12B-1 FEES: These fees pay for a variety of promotional, marketing,
sales, and servicing activities associated with the distribution of
Fund shares. These activities include, but are not limited to:
- Preparing, printing, and mailing prospectuses, sales
literature, and other promotional materials to prospective
investors
- Direct-mail solicitations
- Advertising
- Public relations
- Compensation of sales personnel, brokers, financial planners,
or others for their assistance in selling and distributing the
Fund's shares
- Payments to financial intermediaries for shareholder support
services
<PAGE>
- OTHER EXPENSES: These include, but are not limited to, fees and
expenses of the Funds':
- Board of directors
- Custodian bank
- Legal counsel
- Independent accountants
- Fund accounting agent
- Transfer and shareholder servicing agents
- Registration of shares under applicable laws
- 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 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.
- 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.
- 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
<PAGE>
the total return, we assume that dividends and distributions are reinvested
when distributed.
6. NET ASSETS--END OF PERIOD The value of the Fund's assets, minus liabilities,
at the end of the year.
7. NET EXPENSES TO AVERAGE NET ASSETS Expressed as a percentage, this figure
reflects the Fund's total out-of-pocket operating expenses divided by its
average net assets for the year.
8. GROSS EXPENSES TO AVERAGE NET ASSETS Expressed as a percentage, this figure
reflects the Fund's total operating expenses (including fees offset by
credits earned on uninvested cash held at the Fund's custodian), divided by
its average net assets for the year.
9. RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS This figure, expressed
as a percentage, reflects the Fund's net investment income divided by its
average net assets for the year.
10. PORTFOLIO TURNOVER RATE This figure is a measure of the Fund's buying and
selling activity. It is computed by dividing the Fund's total security
purchases or sales (excluding short-term securities), whichever is less, by
the average monthly market value of the Fund's securities portfolio.
11. AVERAGE COMMISSION RATE PAID The average per-share agency commissions paid
to brokers on equity securities trades during the year.
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.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Discovery, Passport, Frontier, Special, International Equity, Worldwide Growth,
Growth, and Blue Chip Funds intend to distribute net realized investment income
each December. Balanced Fund intends to distribute net realized investment
income on a quarterly basis every March, June, September, and December.
Government Securities Fund intends to declare dividends daily and distribute net
realized investment income monthly. Money Market Fund declares dividends daily,
which are paid on the first business day of every month. All Funds intend to
distribute any net realized capital gains, after utilization of capital loss
carryforwards, each December. Shares of Government Securities and Money Market
Funds begin receiving dividends no later than the next business day following
the day when funds are received by us. From time to time, the Funds may make
distributions in addition to those described above.
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
You may elect to have your income dividends and capital gain distributions
reinvested in additional shares. We will assign you this option automatically if
you make no choice on the application. Otherwise, you may elect to have either
or both paid to you in cash.
Income dividends and capital gain distributions will be reinvested
without a sales charge at the net asset value on the ex-dividend date. If you
have elected to receive your dividends or capital gains in cash and the Postal
Service cannot deliver your checks, or if your checks remain uncashed for six
months, we reserve the right to reinvest your distribution checks in your
account at the then-current net asset value and to reinvest all the account's
subsequent distributions in shares of that Fund. 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
<PAGE>
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 is contained in the Funds' annual report or may be obtained upon
request by calling us.
You also may realize capital gains or losses when you sell Fund shares
at more or less than the price you originally paid. Likewise, exchanges from one
Fund to another represent a sale from one Fund and a purchase of another, and
may result in a gain or loss that you will need to recognize on your tax return.
Foreign shareholders may be subject to federal income tax rules that differ from
those described above.
If you do not provide your Social Security or tax identification number
when you open your account, federal tax law requires the Fund to withhold 31% of
all dividends, capital gain distributions, redemptions and exchange proceeds. We
also may refuse to sell shares to anyone not furnishing these numbers, or may
take such other action as may be deemed necessary, including redeeming some or
all of the shareholder's shares. In addition, a shareholder's account may be
reduced by $50 to reimburse the Fund for the penalty imposed by the Internal
Revenue Service for failure to report the investor's taxpayer identification
number on information reports.
We advise you to consult your own tax adviser regarding the particular
tax consequences of an investment in a Fund.
FOUNDERS' SERVICES TO THE FUNDS
Founders Funds, Inc. is a no-load mutual fund, registered with the SEC as a
diversified, open-end management investment company. It was incorporated on June
19, 1987, under the laws of Maryland.
Founders serves as investment adviser to each of the Funds. Founders is
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
<PAGE>
on Personal Investing of the Investment Company Institute, requires maintenance
of the highest standards of integrity and conduct. In engaging in personal
business activities, personnel of Founders and the Funds must act in the best
interests of the Funds and their shareholders. We carefully monitor compliance
with the code of ethics by all personnel.
Investment Advisory Services. Founders, which has acted as an investment
adviser since 1938, manages the investment of each Fund's assets and provides
certain related administrative services to each Fund. For these services, each
Fund pays Founders an investment advisory fee which, during the most recent
fiscal year, represented the following percentages of each Fund's average daily
net assets:
Discovery Fund 0.99%
Passport Fund 1.00%
Frontier Fund 0.99%
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
<PAGE>
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 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.
<PAGE>
DISTRIBUTION PLANS
Discovery, Passport, Frontier, Special, International Equity, Worldwide Growth,
Growth, Blue Chip, Balanced, and Government Securities Funds (the "12b-1 Funds")
have adopted Distribution Plans pursuant to Rule 12b-1 under the 1940 Act. These
Plans permit each of the 12b-1 Funds to use its assets to finance certain
activities relating to the distribution of its shares. Each Plan provides that
the Fund may pay distribution and related expenses of up to 0.25% each year of
its average daily net assets.
Expenses permitted to be paid by a 12b-1 Fund under its Plan include:
preparation, printing and mailing of prospectuses, reports to shareholders (such
as semiannual and annual reports, performance reports, and newsletters), sales
literature and other promotional material to prospective investors; direct mail
solicitation; advertising; public relations; compensation of sales 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:
Fund Amount % of Net 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
<PAGE>
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.
In addition, Founders may from time to time make additional payments
from its revenues to securities dealers and other financial institutions that
provide distribution- related, recordkeeping, and/or other administrative
services to the Funds. The Funds' board of directors reviews a quarterly written
report of amounts expended under each Plan and the purposes of the expenditures.
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
affiliated with Premier or with affiliates of Premier.
VOTING RIGHTS
Each full share of the Funds has one vote and fractional shares have
proportionate fractional votes. Shares of the Funds are generally voted in the
aggregate except where separate voting by each Fund is required by law. The
Funds are not required to hold regular annual meetings of shareholders and do
not intend to do so; however, the board of directors will call special meetings
of shareholders if requested in writing generally by the holders of 10% or more
of the outstanding shares of each Fund or as may be required by applicable law
or the Funds' Articles of Incorporation. Each Fund will assist shareholders in
communicating with other shareholders as required by the 1940 Act. Directors may
be removed by action of the holders of a majority or more of the outstanding
shares of all of the Funds.
FUND PERFORMANCE INFORMATION
We may, from time to time, include the yield or total return of the Funds (other
than Money Market Fund) in advertisements or reports to shareholders or
prospective investors, and may use performance comparisons from a variety of
financial and trade publications. For more information, see the Statement of
Additional Information.
INVESTING IN THE FOUNDERS FUNDS
OPENING YOUR ACCOUNT WITH US
You may establish the following types of accounts by completing a Founders New
Account Application:
- - 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.
<PAGE>
- - TRANSFER ON DEATH. A way to designate beneficiaries on an Individual or
Joint Tenant account. We will provide the rules governing this type of
account when the account is established.
- - UGMA OR UTMA. (Uniform Gifts to Minors Act or Uniform Transfers to Minors
Act) These accounts are a way to give money to a child or to help a child
invest on his/her own. Depending on state laws, we will set the account up
as an UGMA or UTMA.
- - TRUST. The trust needs to be effective before we can establish this kind of
account.
- - CORPORATION OR OTHER ENTITY. This account is owned by a corporation or
entity. Please attach a certified copy of your corporate resolution showing
the person(s) authorized to act on this account.
RETIREMENT ACCOUNTS
You may set up the following retirement accounts by completing a Founders IRA
Application:
- - 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.
- - ROLLOVER IRA. Distributions from qualified employer-sponsored retirement
plans (and, in most cases, from any IRA) retain their tax advantages when
rolled over to an IRA within 60 days of receipt. You also need to complete a
Founders Direct Rollover/Conversion Form.
- - 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 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.
- - 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
<PAGE>
with incomes below certain thresholds may convert their traditional IRAs to
Roth Conversion IRAs.
- - 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.
- - PROFIT-SHARING AND MONEY PURCHASE PENSION PLAN. A retirement plan that
allows self-employed persons or small business owners and their employees to
make tax-deductible contributions for themselves and any eligible employees.
Call 1-800-934- GOLD (4653) for instructions.
- - 403(B)(7) CUSTODIAL ACCOUNT. Available to employees of 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.
- - 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"
for one of the following amounts:
- - $1,000 minimum for most regular accounts.
- - $500 minimum for IRA and UGMA/UTMA accounts.
- - No minimum if you begin an Automatic Investment Plan of $50
or more per month.
MINIMUM ADDITIONAL INVESTMENT
- - $100 for mail, TeleTransfer and wire payments
- - $50 for Automatic Investment Plan payments
<PAGE>
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CONDUCTING BUSINESS WITH FOUNDERS
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HOW TO OPEN AN HOW TO ADD TO HOW TO SELL HOW TO
ACCOUNT AN ACCOUNT SHARES EXCHANGE
SHARES
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BY PHONE If you already have TeleTransfer We can send If you have
an account with us allows you to proceeds only to telephone
1-800-525-2440 and have exchange make electronic the address or exchange
Monday - Friday 7 privileges, you can purchases directly bank of record. privileges, you
a.m.-6:30 p.m. call to open an from a checking or Minimum may exchange
Saturday 9 a.m.-2 account in another savings account at redemption - from one fund to
p.m. (Mountain time) Fund by exchange. your request. You $100; $1,000 another. The
The names and may establish minimum for a names and
[Graphic: Telephone] registrations need to TeleTransfer when redemption by registrations need
be identical on both your account is wire. Phone to be identical on
accounts. opened, or add it redemption is not both accounts.
later by available on
completing an retirement
Account Changes accounts and
Form. We charge certain other
no fee for accounts. You
TeleTransfer may add phone
transactions. redemption
privileges by
completing an
Account Changes
Form.
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BY MAIL Complete the proper Make your check In a letter, please In a letter, include
application. Make payable to tell us the number the name(s) of the
Founders Funds your check payable "Founders Funds, of shares or account owner(s),
P.O. Box 173655 to "Founders Funds, Inc." Enclose the dollars you wish to the Fund and
Denver, CO 80217- Inc." We cannot purchase stub redeem, the account number
3655 establish new (from your most name(s) of the you wish to
accounts with third- recent account owner(s), exchange from,
If you are using party checks. confirmation or the Fund and your Social
certified or registered quarterly account number, Security or tax
mail or an overnight statement); if you and your Social identification
delivery service, do not have one, Security or tax number, the dollar
send your write the Fund identification or share amount,
correspondence to: name and your number. All and the account
Founders Funds account number account owners you wish to
2930 East Third on the check. For need to sign the exchange into. All
Avenue IRAs, please state request exactly as account owners
Denver, CO 80206- the contribution their names need to sign the
5002 year. appear on the request exactly as
Founders Funds account. We can their names
[Graphic: Mailbox] does not normally send proceeds appear on the
accept third-party only to the account.
checks. address or bank of Exchange
record. requests may be
faxed to us at
(303) 394-4021.
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HOW TO OPEN AN HOW TO ADD TO HOW TO SELL HOW TO
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SHARES
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IN PERSON Visit the Founders Visit the Founders Visit the Founders Visit the Founders
Investor Center. Investors Center. Investor Center, 8 Investor Center, 8
Founders Investor Hours are 8 a.m. to Hours are 8 a.m. a.m. to 5 p.m., a.m. to 5 p.m.,
Center 5 p.m. Mountain to 5 p.m. Mountain Mountain time, Mountain time,
Founders Financial time, Monday time, Monday Monday through Monday through
Center through Friday. Call through Friday. Friday. Call us at Friday. Call us at
2930 East Third Ave. us at 1-800-525- Call us at 1-800- 1-800-525-2440 1-800-525-2440
(at Milwaukee) 2440 for directions. 525-2440 for for directions and for directions and
Denver, CO directions. to ask whether all to ask whether all
account owners account owners
[Graphic: Two hands need to be need to be present
shaking] present.
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BY WIRE Complete and mail Wire funds to: $6 fee; $1,000 Not applicable.
the proper Investors minimum. Monies
[Graphic: Tower with application. Wire Fiduciary Trust are usually
dollar sign above] funds to: Company received the
Investors Fiduciary ABA # 101003621 business day after
Trust Company For Credit to the date you sell.
ABA # 101003621 Account # 751- Unless otherwise
For Credit to 842-0 specified, we will
Account # 751-842-0 Please indicate deduct the fee
Please indicate the the Fund name from your
Fund name and your and your account redemption
account number, number, and proceeds.
and indicate the indicate the
name(s) of the name(s) of the
account owner(s). account owner(s).
- -----------------------------------------------------------------------------------------------------------
THROUGH OUR Download, complete Not applicable Not applicable. You may
WEBSITE and mail a signed exchange shares
WWW.FOUNDERS.COM copy of the proper using our Website
application. if you have
[Graphic: Person at telephone
computer terminal] exchange
privileges.
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THROUGH Automatic Automatic Systematic Fund to Fund
AUTOMATIC Investment Plan Investment Plan Withdrawal Plan Investment Plan
TRANSACTION (AIP) allows you to (AIP) allows you to permits you to allows you to
PLANS make electronic make electronic receive a fixed automatically
purchases directly purchases directly sum on a monthly, exchange a fixed
[Graphic: A calendar] from a checking or from a checking or quarterly or annual dollar amount from
savings account. savings account. basis from one Fund to
The minimum to The minimum to accounts with a purchase shares
open an account is open an account value of $5,000 or in another Fund.
$50 per month. is $50 per month. more. Payments
Once established, Once established, may be sent
AIP purchases take AIP purchases electronically to
place automatically take place your bank or to
on approximately the automatically on you in check form.
5th and/or 20th of approximately the
the month. 5th and/or 20th of
We charge no fee the month.
for AIP. We charge no fee
for AIP.
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HOW TO OPEN AN HOW TO ADD TO HOW TO SELL HOW TO
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FASTLINE Follow instructions Follow instructions We can send Follow instructions
provided when you provided when proceeds only to provided when
1-800-947-FAST call to open an you call to add to the bank of record. you call. $100
(3278) account in a new your account via Minimum minimum.
Automated Fund by exchange. TeleTransfer. redemption -
telephone account $100. Phone
access service redemption is not
available on
[Graphic: retirement
Telephone] accounts and
certain other
accounts. You
may add phone
redemption
privileges by
completing an
Account Changes
Form.
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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
- - 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.
- - INDIVIDUAL, JOINT TENANT, TRANSFER ON DEATH AND UGMA/UTMA ACCOUNTS. If
requesting a redemption in writing, a letter of instruction needs to be
signed by all account owners as their names appear on the account.
- - RETIREMENT ACCOUNTS. Please call 1-800-525-2440 for the appropriate form.
- - TRUST ACCOUNTS. The trustee needs to sign a letter indicating his/her
capacity as trustee. If the trustee's name is not in the account
registration, you will need to provide a certificate of incumbency dated
within the past 60 days.
- - CORPORATION OR OTHER ENTITY. A certified corporate resolution complete with
a corporate seal or signature guarantee needs to be provided. At least one
person authorized to act on the account needs to sign the letter.
SIGNATURE GUARANTEE
For your protection, we require a guaranteed signature if you request:
- - A redemption check made payable to anyone other than the shareholder(s) of
record.
- - A redemption check mailed to an address other than the address of record.
- - A redemption check or wire sent to a bank other than the bank we have on file.
- - A redemption check mailed to an address that has been changed within 30 days
of your request.
- - A redemption for $50,000 or more (excluding accounts held by a corporation).
You can have your signature guaranteed at a:
- - bank
- - broker/dealer
- - credit union (if authorized under state law)
- - securities exchange/association
- - clearing agency
- - savings association
<PAGE>
Please note that a notary public cannot provide a signature guarantee.
REDEMPTION PROCEEDS
We can deliver redemption proceeds to you:
- - BY CHECK. Checks are sent to the address of record. If you request that a
check be sent to another address, we require a signature guarantee. (See
"Signature Guarantee.") If you don't specify, we will deliver proceeds via
check. No interest will accrue on amounts represented by uncashed redemption
checks.
- - BY WIRE. $6 fee; $1,000 minimum. Monies are usually received the business
day after the date you sell. Unless otherwise specified, we will deduct the
fee from your redemption proceeds
- - BY TELETRANSFER. No fee. Monies are usually transferred to your bank two
business days after you sell. Call your bank to find out when monies are
accessible.
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:
- - requiring personal identification prior to acting upon instructions
- - providing written confirmation of such transactions
- - tape-recording telephone instructions
<PAGE>
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 twelve-month period. 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 our
agents. Under certain circumstances, payment of redemption proceeds may be
delayed for up to seven calendar days to allow for the orderly liquidation of
securities. Also, when the New York Stock Exchange is closed (or when trading is
restricted) for any reason other than its customary weekend or holiday closings,
or under any emergency circumstances, as determined by the Securities and
Exchange Commission, we may suspend redemptions or postpone payments. If you are
unable to reach us by phone, consider sending your order by overnight delivery
service.
FAX TRANSMISSIONS. Exchange instructions may be faxed, but we cannot process
redemption requests received by fax.
CERTIFICATES. 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
<PAGE>
that your account will be closed or that the $10 fee will be charged, so that
you may make an additional investment to bring the account up to the required
minimum balance.
WE RESERVE THE RIGHT TO:
- - reject any investment or application
- - cancel any purchase due to nonpayment
- - modify the conditions of purchase at any time
- - waive or lower investment minimums
- - limit the amount that may be purchased
- - perform a credit check on shareholders establishing a new account or
requesting checkwriting privileges.
SHAREHOLDER SERVICES
INVESTOR SERVICES
1-800-525-2440
Our Investor Services Representatives are available to assist you Monday through
Friday, from 7 a.m. to 6:30 p.m., Mountain time, and on Saturday, from 9 a.m. to
2 p.m., Mountain time. For your protection, we record calls to Investor
Services.
24-HOUR ACCOUNT INFORMATION
- - BY PHONE: 1-800-947-FAST (3278) FASTLINE, our automated telephone service,
enables you to access account information, conduct exchanges and purchases
and request duplicate statements and tax forms 24 hours a day with a
Touch-tone phone.
- - BY ONLINE COMPUTER SERVICES: By visiting Founders InvestorSITE on the World
Wide Web, you can access the latest Fund performance returns, daily prices,
portfolio manager commentaries, news articles about the Funds, and much
more. Shareholders may access account transaction histories and account
balances, 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.
<PAGE>
STATEMENTS AND REPORTS
- - CONFIRMATION STATEMENTS. We will send you a confirmation after each
transaction, except in certain retirement accounts and where the only
transaction is a dividend or capital gain reinvestment or an Automatic
Investment Plan purchase. In those cases, your quarterly account statement
serves as your confirmation.
- - ACCOUNT STATEMENTS. We will send you a consolidated statement at the end of
each quarter, showing that quarter's transactions and ending balances in
your accounts. The year-end statement shows the year's account activity.
- - SHAREHOLDER REPORTS. The Funds prepare an annual report to shareholders as
of December 31 and a semiannual report as of June 30 each year. Each report
contains the Funds' financial statements, portfolio holdings, historical
performance and commentary by the Funds' managers.
ESTABLISHING ADDITIONAL SERVICES
Many convenient service options are available for Founders Funds accounts. You
may call 1-800-525-2440 to request a form to establish the following services:
- - AUTOMATIC INVESTMENT PLAN (AIP). Allows you to make automatic purchases of
at least $50 from a bank account once or twice a month. See "How to Add to
an Account Electronically."
- - TELETRANSFER PROGRAM. Allows you to purchase or redeem Fund shares with a
simple phone call at any time. Purchase or redemption amounts are
automatically transferred to/from your bank account. If you select an
Automatic Investment Plan, you are automatically authorized to participate
in the TeleTransfer program.
- - TELEPHONE REDEMPTION. Available for regular (non-retirement) accounts only.
- - TELEPHONE EXCHANGE. Allows you to exchange money between identically
registered accounts.
- - CHECKWRITING
- Available on Government Securities and Money Market Funds.
- May be established with a minimum account balance of $1,000.
- There is no fee for this service.
- Minimum amount per check: $500
- Maximum amount per check: $250,000
- - DIVIDEND AND LONG-TERM CAPITAL GAIN DISTRIBUTION OPTIONS. Either or both may
be paid in cash or reinvested. The payment method for short-term capital
gain distributions is the same as for dividends.
<PAGE>
- - SYSTEMATIC WITHDRAWAL PLAN. Permits you to receive a fixed sum on a
monthly, quarterly or annual basis from accounts with a value of $5,000 or
more. Payments may be sent electronically to your bank or to you in check
form.
- - FUND-TO-FUND INVESTMENT PLAN. Allows you to automatically exchange a fixed
dollar amount each month from one Fund to purchase shares in another Fund.
- - DISTRIBUTION PURCHASE PROGRAM. Permits you to have capital gain
distributions and/or dividends from one Fund automatically reinvested in
another Fund account having a balance of at least $1,000 ($500 for IRAs or
UGMA/UTMAs).
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 Investors 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.
<PAGE>
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.
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.
MATURITY: The length of time until a bond or other debt instrument "matures," or
becomes due and payable.
<PAGE>
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.
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
<PAGE>
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 the receipt of assets in a liquidation.
STRAIGHT DEBT SECURITY: A bond that is not convertible into stock.
TAX-DEFERRED: The term used to describe an investment in which any money
accumulated is not taxed until withdrawn.
TOTAL RETURN: The increase or decrease in the value of an investment, expressed
as a percentage. This figure includes any realized or unrealized capital gains
or losses, dividends and interest payments.
TRANSFER AGENT: An institution appointed by a mutual fund charged with
maintaining shareholder records and executing shareholder transactions.
TRANSFER ON DEATH (TOD): An account registration, either individual or joint,
that allows the account owner(s) to name one or more beneficiaries to be
entitled to the account upon the death(s) of the original owner(s).
TREASURIES: Marketable U.S. government debt obligations with varied maturities
that are backed by the full faith and credit of the U.S. government.
TRUSTEE: A person who is legally responsible for holding property for and acting
on behalf of another person, called the beneficiary. 12B-1 FEES: Fees assessed
to pay for a variety of promotional, marketing, sales, and servicing activities
associated with the distribution of mutual fund shares.
UNIFORM GIFT TO MINORS ACT/UNIFORM TRANSFERS TO MINORS ACT (UGMA/UTMA): Two
similar pieces of legislation that allow gifts of money, securities, and other
assets to be given to a minor and held in a custodial account that is managed by
an adult for the minor's benefit until the minor reaches the age of majority.
YIELD: The return on an investor's capital investment, expressed as a
percentage.
<PAGE>
[Logo]
FOUNDERS FUNDS
FOUNDERS ASSET MANAGEMENT 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 semi annual reports contain the Funds' financial
statements, portfolio holdings, historical performance, and commentary by Fund
management. In addition, a current Statement of Additional Information ("SAI"),
containing more detailed information about the Funds, has been filed with the
Securities and Exchange Commission (the "SEC"), and is incorporated into this
prospectus by reference. You can obtain copies of the annual and semi annual
reports and the SAI without charge by calling Founders at 1-800-525-2440. In
addition, the SEC maintains a 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
William H. Baughn
Bjorn K. Borgen
Alan S. Danson
Trygve E. Myhren
Eugene H. Vaughan, Jr.
John K. Langum, Chairman Emeritus
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.............................................1
Options On Stock Indices and Stocks.........................................1
Futures Contracts...........................................................4
Options on Futures Contracts................................................7
Options on Foreign Currencies...............................................8
Risk Factors of Investing in Futures and Options............................9
Foreign Securities and ADRs................................................10
Forward Contracts For Purchase or Sale of Foreign Currencies...............12
Illiquid Securities........................................................14
Rule 144A Securities.......................................................15
Fixed-Income Securities....................................................16
Foreign Bank Obligations...................................................18
Repurchase Agreements......................................................18
Convertible Securities.....................................................19
Mortgage-Related Securities................................................19
When-Issued Securities.....................................................23
Borrowing..................................................................23
Securities of Other Investment Companies...................................23
INVESTMENT RESTRICTIONS.......................................................24
DIRECTORS AND OFFICERS........................................................37
INVESTMENT ADVISER AND DISTRIBUTOR............................................43
Investment Adviser.........................................................43
Distributor................................................................47
Distribution Plans.........................................................47
SHAREHOLDER SERVICING.........................................................49
Fund Accounting and Administrative Services Agreement......................49
Shareholder Services Agreement.............................................49
Transfer Agency Agreement..................................................50
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER RATES.............................51
DETERMINATION OF NET ASSET VALUE..............................................55
YIELD AND PERFORMANCE INFORMATION.............................................58
REDEMPTION PAYMENTS...........................................................61
DIVIDENDS, DISTRIBUTIONS AND TAXES............................................62
ADDITIONAL INFORMATION........................................................67
Capital Stock..............................................................67
Code of Ethics.............................................................68
Purchases of Fund Shares by Founders Employees.............................69
Custodian..................................................................69
Computer Systems...........................................................69
Independent Accountants....................................................70
Registration Statement.....................................................70
Financial Statements.......................................................70
APPENDIX......................................................................71
Ratings of Corporate Bonds.................................................71
Ratings of Commercial Paper................................................73
Ratings of Preferred Stock.................................................74
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
As stated in the prospectus under "Investment Policies and Risks," in
order to hedge their portfolios, certain Funds may enter into futures contracts
and may purchase and/or write options on securities, stock indices, futures
contracts and foreign currencies. As of the date of this Statement of Additional
Information, none of the Funds intends to engage in such activities 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
<PAGE>
premium received upon writing the original option, in which event the writer
will incur a loss on the transaction. However, because an increase in the market
price of an option generally reflects an increase in the market price of the
underlying security, any loss resulting from a closing purchase transaction is
likely to be offset in whole or in part by appreciation of the underlying
security that the writer continues to own.
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
<PAGE>
then may be acquired over the option period in a manner designed to minimize
adverse price movements. Purchasing put and call options on stock indices also
permits greater time for evaluation of investment alternatives. When Founders
believes that the trend of stock prices may be downward, particularly for a
short 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.
<PAGE>
The value of a stock index option depends upon movements in the level of
the stock index rather than the price of a particular stock. Whether a Fund will
realize a gain or a loss from its option activities depends upon movements in
the level of 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
<PAGE>
futures market is more liquid than the cash market, the use of futures contracts
as an investment technique would allow the Fund to maintain a defensive position
without having to sell portfolio securities.
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.
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
clearinghouse establishes a corresponding short position for the writer of the
option, in the case of a call option, or a corresponding long position, in the
case of a put option. In the event that an option is exercised, the parties will
be subject to all the risks associated with the trading of futures contracts,
such as payment of variation margin deposits.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearinghouse assigns exercise notices
on a random basis to those of its members that have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers that have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. See
"Options on Foreign Currencies" below. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying instrument, ownership of the option may or may not
be less risky than ownership of the futures contract or the underlying
instrument. As with the purchase of futures contracts, when a Fund is not fully
invested it could buy a call option on a futures contract to hedge against a
market advance.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund would be able to buy a put option on a futures contract to hedge
the Fund's portfolio against the risk of falling prices.
The amount of risk a Fund would assume, if it bought an option on a
futures contract, would be the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above, the
purchase of an option also entails the risk that changes in the value of the
underlying futures contract will not fully be reflected in the value of the
options bought.
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
In addition, Passport, Worldwide Growth, and International Equity Funds
may invest in securities issued by companies located in countries not considered
to be major industrialized nations. Such countries are subject to more economic,
political and business risk than major industrialized nations, and the
securities issued by companies located there are expected to be more volatile,
less liquid and more uncertain as to payments of dividends, interest and
principal. 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.
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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, 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;
<PAGE>
(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' 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
<PAGE>
rated securities (Baa or BBB and lower) and non-rated securities of comparable
quality tend to be subject to wider fluctuations in yields and market values
than higher rated securities and may have speculative characteristics. The Funds
are not required to dispose of debt securities whose ratings are downgraded
below these ratings subsequent to a Fund's purchase of the securities, unless
such a disposition is necessary to reduce a Fund's holdings of such securities
to less than 5% of its total assets. In order to decrease the risk in investing
in debt securities, in no event will a Fund ever invest in a debt security rated
below B by Moody's or by S&P. Of course, relying in part on ratings assigned by
credit agencies in making investments will not protect the Funds from the risk
that the securities in which they invest will decline in value, since credit
ratings represent evaluations of the safety of principal, dividend, and interest
payments on preferred stocks and debt securities, and not the 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.
<PAGE>
FOREIGN BANK OBLIGATIONS
The obligations of foreign branches of U.S. depository institutions
purchased by the Funds may be general obligations of the parent depository
institution in addition to being an obligation of the issuing branch. These
obligations, and those of foreign depository institutions, may be limited by the
terms of the specific obligation and by governmental regulation. The payment of
these obligations, both interest and principal, also may be affected by
governmental action in the country of domicile of the institution or branch,
such as imposition of currency 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.
<PAGE>
CONVERTIBLE SECURITIES
All Funds except Government Securities and Money Market Funds may buy
securities convertible into common stock if, for example, the Fund's investment
adviser believes that a company's convertible securities are undervalued in the
market. Convertible securities eligible for purchase include convertible bonds,
convertible preferred stocks, and warrants. A warrant is an instrument issued by
a corporation that gives the holder the right to subscribe to a specific amount
of the corporation's capital stock at a set price for a specified period of
time. Warrants do not represent ownership of the securities, but only the right
to buy the securities. The prices of warrants do not 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.
<PAGE>
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned U.S. government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA- insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government- sponsored 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.
<PAGE>
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a DE FACTO breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). 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.
<PAGE>
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 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
<PAGE>
securities may fluctuate to a greater extent than would be expected from
interest rate movements alone.
A Fund's investments in CMOs also are subject to extension risk.
Extension risk is the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively change a security that was considered short or intermediate-term at
the time of purchase into a long-term security. Long-term securities generally
fluctuate more widely in response to changes in interest rates than short or
intermediate-term securities.
WHEN-ISSUED SECURITIES
The Funds (other than the Money Market Fund) may purchase securities on
a when-issued or delayed-delivery basis; i.e., the 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
<PAGE>
Funds, (b) no more than 5% of the value of the total assets of the Fund may be
invested in any one investment company, and (c) no more than 10% of the value of
the total assets of the Fund and all other Funds may be invested in the
securities of all such investment companies. Should a Fund purchase securities
of other investment companies, shareholders may incur additional management,
advisory, and distribution fees.
INVESTMENT RESTRICTIONS
Certain of the investment restrictions set forth below are fundamental
("Fundamental") policies of each Fund, I.E., they may not be changed with
respect to a Fund without approval of the holders of a majority, as defined in
the Investment Company Act of 1940 (the "1940 Act"), of the outstanding voting
securities of that Fund. Other investment practices that may be changed by the
Board of Directors without the approval of shareholders to the extent permitted
by applicable law, regulation or regulatory policy are considered
non-fundamental ("Non-Fundamental"). If a 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
<PAGE>
or other illiquid interests in real estate, and in readily marketable interests
in real estate investment trusts.
6. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry.
7. Issue any senior securities.
NON-FUNDAMENTAL
1. With the exception of Money Market Fund, invest more than 15% of the
market value of its net assets in securities which are not readily marketable,
including repurchase agreements maturing in over seven days. Money Market Fund
may invest up to 10% of its net assets in repurchase agreements maturing in over
seven days.
As a non-fundamental investment policy, in periods of uncertain market
and economic conditions, as determined by each Fund's investment adviser, each
Fund may depart from its basic investment objective and assume a defensive
position with all or a large portion of its assets temporarily invested in high
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
<PAGE>
same industry, provided that this limitation does not apply to obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
3. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.
NON-FUNDAMENTAL
1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.
2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in securities of that issuer.
The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American Depositary Receipts that are traded in the United States on exchanges
or over-the-counter.
PASSPORT FUND
FUNDAMENTAL
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may enter into forward foreign
currency exchange contracts.
2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
3. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.
NON-FUNDAMENTAL
1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.
<PAGE>
2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
FRONTIER FUND
FUNDAMENTAL
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may enter into forward foreign
currency exchange contracts.
2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
3. Invest in restricted securities.
4. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.
NON-FUNDAMENTAL
1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.
2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
The Fund may invest without limitation in U.S. or foreign securities,
although it normally will be at least 50% invested in U.S. companies, with no
more than 25% of its total assets invested in any one foreign country.
<PAGE>
SPECIAL FUND
FUNDAMENTAL
1. Sell securities short, except that the Fund may sell securities short
provided that at all times during which a short position is open it owns an
equal amount of such securities or by virtue of ownership of convertible or
exchangeable securities it has the right, without payment of further
consideration, to obtain through the conversion or exchange of such other
securities an equal amount of the securities sold short, and unless not more
than 15% of the Fund's net assets (taken at market or other current value) are
held as collateral for such sales at any one time.*
2. Underwrite the securities of other issuers, except in those instances
where the Fund acquires restricted securities which it would not be free to sell
without registering and being deemed an underwriter for purposes of the
Securities Act of 1933.
3. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.
4. Participate in any joint trading account.
5. Purchase or sell puts, calls, straddles, spreads or combinations
thereof except that the Fund may purchase put and call options on stock indices
and enter into closing transactions with respect to such options.
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
- --------
* 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>
the total assets of the Fund and all other Funds would be invested in the
securities of all such investment companies. Should the Fund purchase securities
of other investment companies, shareholders may incur additional management,
advisory, and distribution fees. The Fund may acquire such securities if they
are acquired in connection with a purchase or acquisition in accordance with a
plan of reorganization, merger or consolidation.
9. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.
10. Invest in companies for the purpose of exercising control or
management.
11. Issue any senior securities, except that the Fund may borrow from
banks so long as the requisite asset coverage has been provided.
12. Borrow from banks unless if immediately after such borrowing the
value of the assets of the Fund (including the amount borrowed) less its
liabilities (not including the borrowing) is at least three times the amount of
the borrowing. While borrowings are outstanding, no purchases of securities will
be made. Interest on borrowings will reduce a Fund's income.
13. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in securities of that issuer.
NON-FUNDAMENTAL
1. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American Depositary Receipts that are traded in the United States on exchanges
or over-the-counter.
INTERNATIONAL EQUITY FUND
FUNDAMENTAL
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund
<PAGE>
may invest in securities of issuers which invest in commodities, commodity
futures, real estate, real estate mortgage loans or other illiquid interests in
real estate and (ii) the Fund may enter into forward foreign currency exchange
contracts.
2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
3. Borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an aggregate amount not
exceeding 33-1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings that exceed
33-1/3% of the value of the Fund's total assets by reason of a decline in total
assets will be reduced within three days, not including Sundays and holidays, to
the extent necessary to comply with the 33-1/3% limitation. This restriction
shall not prohibit deposits of assets to margin or guarantee positions in
futures, options, or forward contracts, or the segregation of assets in
connection with such contracts.
NON-FUNDAMENTAL
1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.
2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
WORLDWIDE GROWTH FUND
FUNDAMENTAL
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may enter into forward foreign
currency exchange contracts.
2. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
<PAGE>
3. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.
NON-FUNDAMENTAL
1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.
2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
GROWTH FUND
FUNDAMENTAL
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.
2. Participate in any joint trading account.
3. Purchase more than 10% of any class of securities or purchase more
than 10% of the voting securities of any single issuer.
4. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years.
5. Purchase securities of other investment companies, 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
<PAGE>
fees. The Fund may acquire such securities if they are acquired in connection
with a purchase or acquisition in accordance with a plan of reorganization,
merger or consolidation.
6. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.
7. Invest in companies for the purpose of exercising control or
management.
8. Pledge, mortgage or hypothecate its assets except to secure permitted
borrowings, and then only in an amount up to 15% of the value of the Fund's net
assets taken at the lower of cost or market value at the time of such
borrowings.
9. Redeem its shares in kind unless the proceeds of cash redemptions
exceed the lesser of $250,000 or 1% of the net asset value of the Fund during
any 90 day period for any one shareholder.
10. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's assets would be invested in
securities of that issuer.
11. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.
NON-FUNDAMENTAL
1. Sell puts, calls, straddles, spreads or combinations thereof.
2. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American Depositary Receipts that are traded in the United States on exchanges
or over-the-counter.
<PAGE>
BLUE CHIP FUND
FUNDAMENTAL
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.
2. Make any investment that would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
3. Invest in restricted securities.
4. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.
NON-FUNDAMENTAL
1. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.
2. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American Depositary Receipts that are traded in the United States on exchanges
or over-the-counter.
BALANCED FUND
FUNDAMENTAL
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in 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.
<PAGE>
3. Purchase or sell puts, calls, straddles, spreads or combinations
thereof except that the Fund may sell covered call options with respect to any
or all of its portfolio securities and enter into closing purchase transactions
with respect to such options.
4. Purchase more than 10% of any class of securities or purchase more
than 10% of the voting securities of any single issuer.
5. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years.
6. Purchase securities of other investment companies, except that the
Fund may purchase such securities in the open market where no commission or
profit to a sponsor or dealer other than the customary broker's commission
results from such purchase, and only if immediately thereafter (a) no more than
3% of the voting securities of any one investment company is owned in the
aggregate by the Fund and all other Funds, (b) no more than 5% of the value of
the total assets of the Fund would be invested in any one investment company,
and (c) no more than 10% of the value of the total assets of the Fund and all
other Funds would be invested in the securities of all such investment
companies. Should the Fund purchase securities of other investment companies,
shareholders may incur additional management, advisory, and distribution fees.
The Fund may acquire such securities if they are acquired in connection with a
purchase or acquisition in accordance with a plan of reorganization, merger or
consolidation.
7. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.
8. Invest in companies for the purpose of exercising control or
management.
9. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
10. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.
<PAGE>
NON-FUNDAMENTAL
1. Make any investment which would concentrate 25% or more of a Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Fund may invest up to 30% of the market value of its total assets in
foreign securities. This restriction does not apply to dollar-denominated
American Depositary Receipts that are traded in the United States on exchanges
or over-the-counter.
GOVERNMENT SECURITIES FUND
FUNDAMENTAL
1. Invest in commodities, commodity futures contracts, real estate, real
estate mortgage loans or other illiquid interests in real estate, except that
(i) the Fund may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate and (ii) the Fund may hedge a foreign securities
transaction by entering into forward foreign currency transactions.
2. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
3. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total assets would be
invested in securities of that issuer.
4. Borrow money, except for extraordinary or emergency purposes, and
then only from banks in amounts up to 10% of the Fund's net assets computed at
the lesser of cost or value.
NON-FUNDAMENTAL
1. Purchase or sell puts, calls, straddles, spreads or combinations
thereof.
2. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer.
3. Invest more than 5% of the market value of its net assets in equity
securities.
<PAGE>
MONEY MARKET FUND
FUNDAMENTAL
1. Make loans to other persons; the purchase of a portion of an issue of
publicly distributed bonds, debentures or other securities is not considered the
making of a loan by a Fund. The Fund may also enter into repurchase agreements
by purchasing money market instruments with a simultaneous agreement with the
seller to repurchase them at the original purchase price plus accrued interest.
2. Purchase or sell puts, calls, straddles, spreads or combinations
thereof.
3. Purchase more than 10% of any class of securities of a single issuer.
4. Make any investment which would concentrate 25% or more of the Fund's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that (i) this limitation does not
apply to obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities and (ii) this limitation does not apply to obligations of
domestic commercial banks.
5. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years, except that the Fund may invest in
obligations guaranteed by the U.S. government or issued by its agencies or
instrumentalities.
6. Purchase securities of other investment companies except in
connection with a purchase or acquisition in accordance with a plan of
reorganization, merger or consolidation.
7. Acquire or retain the securities of any issuer if any officer or
director of the Company, or any officer or director of its investment adviser or
principal underwriter, owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities.
8. Invest in interests in oil, gas or other mineral exploration or
development programs or leases, although the Fund may invest in the securities
of issuers which invest in or sponsor such programs or leases.
9. Purchase securities with legal or contractual restrictions on resale
or purchase securities which are not otherwise readily marketable, except that
the Fund may enter into repurchase agreements if, as a result thereof, 10% or
less of its net assets valued at the time of the transaction would be subject to
repurchase agreements maturing in more than seven days.
<PAGE>
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>
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>
The officers of the Company and their principal occupations for the last
five years are as follows. 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 are 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
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.
RICHARD W. INGRAM
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Treasurer
Senior Vice President and Director of Client Services and Treasury
Operations of Funds Distributor Inc. Executive Vice President of
Premier Mutual Fund Services, Inc. From March 1994 to November 1995,
Mr. Ingram was Vice President and Division Manager for First Data
Investor Services Group. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The
Boston Company. Vice President and Assistant Treasurer of the
registered investment companies in the Dreyfus family of funds (since
July 1996). Born: September 15, 1955.
<PAGE>
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>
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 1.77%, 1.03%, 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>
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, with the exception
of an arrangement with former Chairman and director John K. Langum, who receives
a monthly payment from Founders. 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
Name of Person, Position(1) Company to 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 $ 37,000 $ 37,000
- --------------------------------------------------------------------------------
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 $210,250 $210,250
================================================================================
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 has been designated Chairman Emeritus of the Company an
honorary, non-director position.
<PAGE>
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 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:
<PAGE>
SPECIAL AND GROWTH FUNDS
------------------------
On Assets in But Not
Excess Of Exceeding Annual Fee
- ------------ --------- ----------
$ 0 $ 30,000,000 1.00%
30,000,000 300,000,000 0.75%
300,000,000 500,000,000 0.70%
500,000,000 ---- 0.65%
BLUE CHIP AND BALANCED FUNDS
----------------------------
On Assets in But Not
Excess Of Exceeding Annual Fee
- ------------ --------- ----------
$ 0 $250,000,000 0.65%
250,000,000 500,000,000 0.60%
500,000,000 750,000,000 0.55%
750,000,000 ---- 0.50%
MONEY MARKET FUND
-----------------
On Assets in But Not
Excess Of Exceeding Annual Fee
- ------------ --------- ----------
$ 0 $250,000,000 0.50%
250,000,000 500,000,000 0.45%
500,000,000 750,000,000 0.40%
750,000,000 ---- 0.35%
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%
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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,
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; Kenneth R. Christoffersen, Vice
President and General Counsel; Gregory P. Contillo, Senior Vice President; Frank
Gaffney, Vice President; Roberto Galindo, Jr., Assistant Vice President; Laurine
Garrity, Vice President; Michael W. Gerding, Vice President; Michael K. Haines,
Senior Vice President; Edward F. Keely, Vice President; Brian F. Kelly, Vice
President; James P. Rankin, Vice President; David L. Ray, 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 ____________, 1998,
Premier Mutual Fund Services Inc. ("Premier") became the Funds' distributor.
Prior to ____________, 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
<PAGE>
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 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
<PAGE>
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.
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,
<PAGE>
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 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.
<PAGE>
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER RATES
It is the policy of the Company, in effecting transactions in portfolio
securities, to seek the best execution of orders at the most favorable prices.
The determination of what may constitute best execution in a securities
transaction involves a number of judgmental considerations, including, without
limitation, the overall direct net economic result to a Fund (involving both
price paid or received and any commissions and other costs), the efficiency with
which the transaction is effected, the ability to effect the transaction at all
where a large block is involved, the availability of the broker to stand ready
to execute possibly difficult transactions for the Fund in the future, and the
financial strength and stability of the broker.
Because selection of executing brokers is not based solely on net
commissions, a Fund may pay an executing broker a commission higher than that
which might have been charged by another broker for that transaction. Founders
will not knowingly pay higher mark-ups on principal transactions to brokerage
firms as consideration for receipt of research services or products. While it is
not practicable for the Company to solicit competitive bids for commissions on
each portfolio transaction, consideration is regularly given to available
information concerning the level of commissions charged in comparable
transactions by various brokers. Transactions in over the counter securities are
normally placed with principal market makers, except in circumstances where, in
the opinion of Founders, better prices and execution are available elsewhere.
Subject to the policy of seeking best execution of orders at the most
favorable prices, a Fund may execute transactions with brokerage firms that
provide research services and products to Founders. The phrase "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
<PAGE>
hard dollars from Founders. Any such allocation may create a conflict of
interest for Founders.
Neither the research services nor the amount of brokerage given to a
particular broker-dealer are made pursuant to any agreement or commitment with
any of the selected broker-dealers that would bind Founders to compensate the
selected broker-dealer for research provided. However, Founders maintains an
internal allocation procedure to identify those broker-dealers that have
provided it with research and endeavors to direct sufficient commissions to them
to ensure continued receipt of research Founders believes is useful.
Research services and products may be useful to Founders in providing
investment advice to any of the Funds or clients it advises. Likewise,
information made available to Founders from brokers effecting securities
transactions for such other Funds and clients may be utilized on behalf of
another Fund. Thus, there may be no correlation between the amount of brokerage
commissions generated by a particular Fund or client and the indirect benefits
received by that Fund or client.
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
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
computing each Fund's net asset value. However, in the event that the closing
price of a foreign security is not available in time to calculate a Fund's net
asset value on a particular day, the Company's board of directors has authorized
the use of the market price for the security obtained from an approved pricing
service at an established time during the day which may be prior to the close of
regular trading in the security. If events occur that are known to Founders to
have materially affected the value of foreign securities that are not reflected
in the value obtained through regular procedures, the securities will be valued
at fair market value as determined in good faith by the Board of Directors. All
foreign currencies are converted into U.S. dollars by utilizing exchange rate
closing quotations obtained from the London Stock Exchange.
DISCOVERY, PASSPORT, FRONTIER SPECIAL, INTERNATIONAL EQUITY, WORLDWIDE
GROWTH, GROWTH, BLUE CHIP, BALANCED AND GOVERNMENT SECURITIES FUNDS. The net
asset value per share of each Fund is calculated by dividing the value of all
securities held by that Fund 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
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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%++
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
<PAGE>
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.
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
<PAGE>
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
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
<PAGE>
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 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
<PAGE>
ending 30 days after the shares are disposed of. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss.
A portion of a Fund's dividends may qualify for the corporate
dividends-received deduction; however, the revised alternative minimum tax
applicable to corporations may reduce the value of the dividends-received
deduction.
All dividends and distributions are regarded as taxable to the investor,
whether or not such dividends and distributions are reinvested in additional
shares. If the net asset value of Fund shares should be reduced below a
shareholder's cost as a result of a distribution of such realized capital gains,
such distribution would be taxable to the shareholder although a portion would
be, in effect, a return of invested capital. The net asset value of each Fund's
shares reflects accrued net investment income and undistributed realized capital
gains; therefore, when a distribution is made, the net asset value is reduced by
the amount of the distribution. Distributions generally are taxable in the year
in which they are received, regardless of whether received in cash or reinvested
in additional shares. However, dividends declared in October, November, or
December of a calendar year to shareholders of record on a date in such a month
and paid by a Fund during January of the following calendar year will be taxable
as though received by shareholders on December 31 of the calendar year in which
the dividends were declared.
While the Funds intend to make distributions at the times set forth in
the prospectus, those times may be changed at each Fund's discretion. The Funds
intend to distribute substantially all investment company taxable income and net
realized capital gains. Through such distributions, and by meeting certain other
requirements, each Fund intends to continue to qualify for the tax treatment
accorded to regulated investment companies under Subchapter M of the Internal
Revenue Code (the "Code"). In each year in which a Fund so qualifies, it will
not be subject to federal income tax upon the amounts so distributed to
investors. The Code contains a number of complex tests to determine whether a
Fund will so qualify, and a Fund might not meet those tests in a particular
year. If it did not so qualify, the Fund would be treated for tax purposes as an
ordinary corporation and receive no tax deduction for payments made to
shareholders. Qualification as a regulated investment company does not involve
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.
<PAGE>
Certain options and forward contracts in which the Funds may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses;
however, foreign currency gains or losses (as discussed below) arising from
certain section 1256 contracts may be treated as ordinary income or loss. Also,
section 1256 contracts held by the Funds at the end of each taxable year (and,
with some exceptions, for purposes of the 4% excise tax, on October 31 of each
year) are "marked-to-market," with the result that unrealized gains or losses
are treated as though they were realized.
Generally, the hedging transactions undertaken by the Funds may result
in "straddles" for federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Funds. In addition, losses
realized by the Funds on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Funds, which is taxed as ordinary income when
distributed to shareholders.
The Funds may make one or more of the elections available under the Code
that are applicable to straddles. If any of the elections are made, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
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.
<PAGE>
Gains or losses attributable to fluctuations in foreign currency
exchange rates that occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time a Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain options and forward contracts, gains or losses
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the position and the date of disposition also are treated
as ordinary gain or loss. These gains and losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If section 988 losses exceed other investment
company taxable income during a taxable year, a Fund generally would not be able
to make any ordinary income dividend distributions. Such distributions made
before the losses were realized generally would be recharacterized as a return
of capital to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares.
A Fund may be required to withhold federal income tax at the rate of 31%
of all taxable distributions and gross proceeds from the disposition of Fund
shares payable to shareholders who fail to 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
<PAGE>
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 will be reinvested monthly on
the first business day of each month at the per share net asset value on that
date. If cash payment is requested, checks will be mailed as soon as possible
after the end of the month. If a shareholder redeems his entire account, all
dividends declared to the effective date of redemption will be paid at that
time. Shareholders will receive 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
<PAGE>
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 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
<PAGE>
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 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'
<PAGE>
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.
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.
COMPUTER SYSTEMS
The investment management, shareholder, fund accounting and
administrative services provided to the Company by Founders, and the services
provided by the Company's 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
<PAGE>
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.
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.
<PAGE>
APPENDIX
RATINGS OF CORPORATE BONDS
An NRSRO is a nationally recognized statistical rating organization. The
Division of Market Regulation of the Securities and Exchange Commission
currently recognizes six NRSROs: Duff & Phelps, Inc. ("D&P"), Fitch Investors
Services, Inc. ("Fitch"), Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's Ratings Services ("S&P"), Thompson Bankwatch, Inc. ("TBW"), and IBCA
Limited and its affiliate, IBCA Inc. ("IBCA").
Guidelines for Moody's and S&P ratings are described below. For D&P,
ratings correspond exactly to S&P's format from AAA through B-. For Fitch,
ratings correspond exactly to S&P's format from AAA through CCC-. For both TBW
and IBCA, ratings correspond exactly to S&P's format in all ratings categories.
Because the Funds cannot purchase 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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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:
<PAGE>
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.
<PAGE>
PART C
------
OTHER INFORMATION
-----------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
- -------- ---------------------------------
(a) FINANCIAL STATEMENTS:
---------------------
Part A: Financial Highlights for the Discovery, Passport, Frontier,
Special, International Equity, Worldwide Growth, Growth, Blue
Chip, Balanced, Government Securities and Money Market Funds for
each of the fiscal years or periods in the ten year (or since
inception) period ended December 31, 1997.
Part B: The following audited financial statements of the Discovery,
Passport, Frontier, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced, Government Securities and
Money Market Funds and the notes thereto for the fiscal year
ended December 31, 1997, and the report of Price Waterhouse LLP
with respect to such financial statements, are incorporated in
the Statement of Additional Information by reference from the
Company's annual report to shareholders for the fiscal year ended
December 31, 1997 (the "Annual Report"): Statements of
Investments as of December 31, 1997; Statements of Assets and
Liabilities as of December 31, 1997; Statements of Operations for
the year ended December 31, 1997; Statements of Changes in Net
Assets for each of the two years in the period ended December 31,
1997; Financial Highlights for each of the two years in the
period ended December 31, 1997. The Financial Highlights for each
of the fiscal years or periods in the three year (or since
inception) period ended December 31, 1995 for the foregoing Funds
were audited by another independent accounting firm, and are also
incorporated in the Statement of Additional Information by
reference from the Annual Report.
(b) EXHIBITS
--------
(1) (A) Articles of Incorporation of Founders Funds, Inc.,
dated June 19, 1987.(1)
(B) Articles Supplementary to the Articles of Incorporation,
filed November 25, 1987.(1)
(C) Articles Supplementary to the Articles of
Incorporation, filed February 25, 1988.(1)
C - 1
<PAGE>
(D) Articles Supplementary to the Articles of
Incorporation, filed December 12, 1989.(1)
(E) Articles Supplementary to the Articles of
Incorporation, filed May 3, 1990.(1)
(F) Articles Supplementary to the Articles of
Incorporation, filed September 22, 1993.(1)
(G) Articles Supplementary to the Articles of
Incorporation, filed December 27, 1995.(1)
(H) Articles Supplementary to the Articles of
Incorporation, filed May 20,1996.(3)
(I) Articles Supplementary to the Articles of Incorporation,
filed October 21, 1996.(3)
(J) Articles Supplementary to the Articles of
Incorporation, filed April 9, 1997.
(2) By-Laws of Founders Funds, Inc., as amended
November 18, 1997.
(3) Not applicable.
(4) Specimen Stock Certificates. Not required to be filed on
EDGAR.
(5) (A) Investment Advisory Agreement between Founders Funds,
Inc. and Founders Asset Management, Inc. on behalf of
Founders Discovery, Passport, Frontier, Special,
International Equity, Worldwide Growth, Growth, Blue Chip,
and Balanced Funds, dated August 27, 1993.(1)
(B) Investment Advisory Agreement between Founders Funds,
Inc. and Founders Asset Management, Inc. on behalf of
Founders Money Market Fund, dated November 30, 1987.(2)
(C) Amended and Restated Investment Advisory Agreement
between Founders Funds, Inc. and Founders Asset
Management, Inc. on behalf of Founders Government
Securities Fund, dated September 29, 1988.(2)
C - 2
<PAGE>
(D) Form of Investment Advisory Agreement between Founders
Funds, Inc. and Founders Asset Management LLC.
(6) (A) Amended and Restated Underwriting Agreement between
Founders Funds, Inc. and Founders Asset Management, Inc.,
dated March 7,1997.
(B) Form of Distribution and Shareholder Support Agreement for
Founders Funds, Inc.(3)
(C) Form of Underwriting Agreement between Founders Funds,
Inc. and Premier Mutual Fund Services, Inc.
(7) Not applicable.
(8) (A) Custody Agreement between Investors Fiduciary Trust
Company and Founders Funds, Inc., dated January 3, 1994.(3)
(B) Proposed Fee Schedule effective August 1996.(3)
(9) (A)(i) Amended Shareholder Services Agreement between Founders
Funds, Inc. and Founders Asset Management, Inc., dated
June 1, 1994.(2)
(A)(ii) Addendum to Amended Shareholder Services Agreement
between Founders Funds, Inc. and Founders Asset
Management, Inc., dated June 1, 1995.(2)
(A)(iii) Second Addendum to Amended Shareholder Services
Agreement between Founders Funds, Inc. and Founders
Asset Management, Inc., dated June 1, 1996.
(A)(iv) Third Addendum to Amended Shareholder Services
Agreement between Founders Funds, Inc. and Founders
Asset Management, Inc., dated June 1, 1997.
(A)(v) Form of Shareholder Services Agreement between Founders
Funds, Inc. and Founders Asset Management LLC.
(B)(i) Fund Accounting and Administrative Services Agreement,
dated June 26, 1991, amended August 25, 1995.(2)
(B)(ii) Form of Fund Accounting and Administrative Services
Agreement between Founders Funds, Inc. and Founders
Asset Management LLC.
C - 3
<PAGE>
(10) Opinion and consent of Moye, Giles, O'Keefe,
Vermeire & Gorrell
(11) Consent of Independent Accountants.
(12) Not applicable.
(13) Not applicable.
(14) (A) Prototype Profit Sharing and Money Purchase Pension Plan
(included in Post-Effective Amendment No. 39 to the
Registration Statement and incorporated herein by
reference).
(B) Form of Individual Retirement Custodian Account
(included in Post-Effective Amendment No. 43 to
the Registration Statement and incorporated
herein by reference).
(C) 403(b) Plan (included in Post-Effective Amendment
No. 36 to the Registration Statement and
incorporated herein by reference).
(15) Founders Funds, Inc. Rule 12b-1 Distribution
Plan, as amended November 18, 1997.
(16) (A) Schedule showing computation of performance quotations in
response to Item 22 (unaudited) (included in Post-Effective
Amendment No. 50 to the Registration Statement and
incorporated herein by reference).
(B) Schedule showing computation of yield performance
quotations in response to Item 22 (unaudited).(3)
(17) (A) Financial Data Schedule for the year ended
December 31, 1997 for Founders Discovery Fund.
(B) Financial Data Schedule for the year ended
December 31, 1997 for Founders Passport Fund.
(C) Financial Data Schedule for the year ended
December 31, 1997 for Founders Frontier Fund.
(D) Financial Data Schedule for the year ended
December 31, 1997 for Founders Special Fund.
C - 4
<PAGE>
(E) Financial Data Schedule for the year ended
December 31, 1997 for Founders International
Equity Fund.
(F) Financial Data Schedule for the year ended
December 31, 1997 for Founders Worldwide Growth Fund.
(G) Financial Data Schedule for the year ended
December 31, 1997 for Founders Growth Fund.
(H) Financial Data Schedule for the year ended
December 31, 1997 for Founders Blue Chip Fund.
(I) Financial Data Schedule for the year ended
December 31, 1997 for Founders Balanced Fund.
(J) Financial Data Schedule for the year ended
December 31, 1997 for Founders Government
Securities Fund.
(K) Financial Data Schedule for the year ended
December 31, 1997 for Founders Money Market Fund.
(18) Not applicable.
(19) Code of Ethics for Founders Funds, Inc. and
Founders Asset Management, Inc., as amended
November 18, 1997.
- --------------
(1) Filed previously on EDGAR with Post-Effective Amendment No. 60 to the
Registration Statement on April 29, 1996 and incorporated herein by
reference.
(2) Filed previously on EDGAR with Post-Effective Amendment No. 61 to the
Registration Statement on July 26, 1996 and incorporated herein by
reference.
(3) Filed previously on EDGAR with Post-Effective Amendment No. 62 to the
Registration Statement on February 24, 1997 and incorporated herein by
reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
- -------- -------------------------------------------------------------
Registrant knows of no person or group of persons directly or
indirectly controlled by or under common control with the Registrant
within the meaning of this item.
C - 5
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
- -------- -------------------------------
As of December 31, 1997:
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
Common Stock - Founders Discovery Fund 12,249
Common Stock - Founders Passport Fund 4,136
Common Stock - Founders Frontier Fund 13,975
Common Stock - Founders Special Fund 16,493
Common Stock - Founders International Equity Fund 1,370
Common Stock - Founders Worldwide Growth Fund 10,344
Common Stock - Founders Growth Fund 28,595
Common Stock - Founders Blue Chip Fund 20,182
Common Stock - Founders Balanced Fund 7,657
Common Stock - Founders Government Securities Fund 1,168
Common Stock - Founders Money Market Fund 6,787
ITEM 27. INDEMNIFICATION
- -------- ---------------
Indemnification provisions for officers, directors, employees, and
agents of the Registrant are set forth in Article XII of the Bylaws of
the Registrant, which Bylaws were filed on EDGAR as Exhibit 2 to the
Registrant's Post-Effective Amendment No. 63. Section 12.01 of
Article XII of the Bylaws provides that the Registrant shall indemnify
each person who is or was a director, officer, employee or agent of
the Registrant against expenses, judgments, fines and amounts paid in
settlement to the full extent permitted by Section 2-418 of the
General Corporation Law of Maryland or any other applicable law.
However, notwithstanding any provisions in Article XII to the
contrary, no officer, director, employee, and/or agent of the
Registrant shall be indemnified by the Registrant in violation of
sections 17(h) and (i) of the Investment Company Act of 1940, as
amended.
Pursuant to the Underwriting Agreement between the Registrant and
Premier Mutual Fund Services, Inc. ("Premier"), with certain
exceptions, the Registrant has agreed to indemnify Premier against any
liabilities and expenses arising out of any omissions of material
facts or untrue statements made by the Registrant in its prospectus or
registration statement.
C - 6
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
- -------- ----------------------------------------------------
The management board of Founders Asset Management LLC ("Founders"),
investment adviser to the Registrant, consists of:
Christopher M. Condron Vice Chairman:
Chairman Mellon Bank Corporation(1)
The Boston Company(2)
Deputy Director:
Mellon Trust(1)
Chief Executive Officer:
The Boston Company Asset Management,
Inc.(2)
The Dreyfus Corporation(3)
President:
Boston Safe Deposit and Trust Company(2)
The Dreyfus Corporation(3)
Chief Operating Officer:
Mellon Bank Corporation(1)
(effective April 1, 1998)
The Dreyfus Corporation(3)
Director:
The Dreyfus Corporation(3)
Stephen E. Canter Director:
The Dreyfus Corporation(3)
The Dreyfus Trust Company(4)
Formerly, Chairman and Chief Executive
Officer:
Kleinwort Benson Investment
Management Americas Inc.(3)
Vice Chairman and Chief Investment Officer:
The Dreyfus Corporation(3)
Lawrence S. Kash Chairman, President and Chief Executive
Officer:
The Boston Company Advisors, Inc.(5)
Executive Vice President and Director:
Dreyfus Service Organization, Inc.(6)
Director:
The Dreyfus Corporation(3)
Dreyfus America Fund(7)
The Dreyfus Consumer Credit
Corporation(3)
C - 7
<PAGE>
The Dreyfus Trust Company(4)
Dreyfus Service Corporation(3)
President:
The Boston Company(2)
Laurel Capital Advisors(1)
Boston Group Holdings, Inc.(2)
Executive Vice President:
Mellon Bank, N.A.(1)
Boston Safe Deposit and Trust Company(2)
Vice Chairman-Distribution:
The Dreyfus Corporation(3)
Jonathan F. Zeschin President and Chief Executive Officer:
Founders Asset Management LLC(8)
Formerly, President and Chief Operating
Officer:
Founders Asset Management, Inc.(8)
Gregory P. Contillo Senior Vice President-Institutional
Marketing:
Founders Asset Management LLC(8)
Formerly, Senior Vice President-
Institutional Marketing:
Founders Asset Management, Inc.(8)
---------------------------
The address of the businesses so indicated are:
(1) One Mellon Bank Center, Pittsburgh, Pennsylvania 15258
(2) One Boston Place, Boston, Massachusetts 02108
(3) 200 Park Avenue, New York, New York 10166
(4) 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144
(5) 53 State Street, Exchange Place, Boston, Massachusetts 02109
(6) 131 Second Street, Lewes, Delaware 19958
(7) 69, Route 'd'Esch, L-1470 Luxembourg
(8) 2930 East Third Avenue, Denver, Colorado 80206
Information concerning the officers of Founders can be found under
"The Funds and Their Management" in the Prospectus and "Investment
Adviser and Distributor" in the Statement of Additional Information.
With the exception of Mr. Zeschin, each of such officers previously
held identical officer positions with Founders Asset Management, Inc.
("Old Founders"). Prior to joining Old Founders, Mr. Christoffersen
was a Vice President and Assistant General Counsel of INVESCO Funds
Group, Inc. and INVESCO Trust Company, 7800 E. Union Avenue, Denver,
Colorado 80237.
C - 8
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
- -------- ----------------------
(a) Premier Mutual Fund Services, Inc., the Registrant's
principal underwriter, also serves as principal underwriter
for the following investment companies:
1) Comstock Partners Funds, Inc.
2) Dreyfus A Bonds Plus, Inc.
3) Dreyfus Appreciation Fund, Inc.
4) Dreyfus Asset Allocation Fund, Inc.
5) Dreyfus Balanced Fund, Inc.
6) Dreyfus BASIC GNMA Fund
7) Dreyfus BASIC Money Market Fund, Inc.
8) Dreyfus BASIC Municipal Fund, Inc.
9) Dreyfus BASIC U.S. Government Money Market Fund
10) Dreyfus California Intermediate Municipal Bond Fund
11) Dreyfus California Tax Exempt Bond Fund, Inc.
12) Dreyfus California Tax Exempt Money Market Fund
13) Dreyfus Cash Management
14) Dreyfus Cash Management Plus, Inc.
15) Dreyfus Connecticut Intermediate Municipal Bond Fund
16) Dreyfus Connecticut Municipal Money Market Fund, Inc.
17) Dreyfus Florida Intermediate Municipal Bond Fund
18) Dreyfus Florida Municipal Money Market Fund
19) The Dreyfus Fund Incorporated
20) Dreyfus Global Bond Fund, Inc.
21) Dreyfus Global Growth Fund
22) Dreyfus GNMA Fund, Inc.
23) Dreyfus Government Cash Management
24) Dreyfus Growth and Income Fund, Inc.
25) Dreyfus Growth and Value Funds, Inc.
26) Dreyfus Growth Opportunity Fund, Inc.
27) Dreyfus Income Funds
28) Dreyfus Institutional Money Market Fund
29) Dreyfus Institutional Short Term Treasury Fund
30) Dreyfus Insured Municipal Bond Fund, Inc.
31) Dreyfus Intermediate Municipal Bond Fund, Inc.
32) Dreyfus International Funds, Inc.
33) Dreyfus Investment Grade Bond Funds, Inc.
34) The Dreyfus/Laurel Funds, Inc.
35) The Dreyfus/Laurel Funds Trust
36) The Dreyfus/Laurel Tax-Free Municipal Funds
37) Dreyfus LifeTime Portfolios, Inc.
38) Dreyfus Liquid Assets, Inc.
39) Dreyfus Massachusetts Intermediate Municipal Bond Fund
C - 9
<PAGE>
40) Dreyfus Massachusetts Municipal Money Market Fund
41) Dreyfus Massachusetts Tax Exempt Bond Fund
42) Dreyfus MidCap Index Fund
43) Dreyfus Money Market Instruments, Inc.
44) Dreyfus Municipal Bond Fund, Inc.
45) Dreyfus Municipal Cash Management Plus
46) Dreyfus Municipal Money Market Fund, Inc.
47) Dreyfus New Jersey Intermediate Municipal Bond Fund
48) Dreyfus New Jersey Municipal Bond Fund, Inc.
49) Dreyfus New Jersey Municipal Money Market Fund, Inc.
50) Dreyfus New Leaders Fund, Inc.
51) Dreyfus New York Insured Tax Exempt Bond Fund
52) Dreyfus New York Municipal Cash Management
53) Dreyfus New York Tax Exempt Bond Fund, Inc.
54) Dreyfus New York Tax Exempt Intermediate Bond Fund
55) Dreyfus New York Tax Exempt Money Market Fund
56) Dreyfus 100% U.S. Treasury Intermediate Term Fund
57) Dreyfus 100% U.S. Treasury Long Term Fund
58) Dreyfus 100% U.S. Treasury Money Market Fund
59) Dreyfus 100% U.S. Treasury Short Term Fund
60) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
61) Dreyfus Pennsylvania Municipal Money Market Fund
62) Dreyfus Premier California Municipal Bond Fund
63) Dreyfus Premier Equity Funds, Inc.
64) Dreyfus Premier International Growth Fund, Inc.
65) Dreyfus Premier GNMA Fund
66) Dreyfus Premier Worldwide Growth Fund, Inc.
67) Dreyfus Premier Insured Municipal Bond Fund
68) Dreyfus Premier Municipal Bond Fund
69) Dreyfus Premier New York Municipal Bond Fund
70) Dreyfus Premier State Municipal Bond Fund
71) Dreyfus Premier Value Fund
72) Dreyfus Index Funds, Inc.
73) Dreyfus Short-Intermediate Government Fund
74) Dreyfus Short-Intermediate Municipal Bond Fund
75) The Dreyfus Socially Responsible Growth Fund, Inc.
76) Dreyfus Stock Index Fund, Inc.
77) Dreyfus Tax Exempt Cash Management
78) The Dreyfus Third Century Fund, Inc.
79) Dreyfus Treasury Cash Management
80) Dreyfus Treasury Prime Cash Management
81) Dreyfus Variable Investment Fund
82) Dreyfus Worldwide Dollar Money Market Fund, Inc.
83) General California Municipal Bond Fund, Inc.
84) General California Municipal Money Market Fund
C - 10
<PAGE>
85) General Government Securities Money Market Fund, Inc.
86) General Money Market Fund, Inc.
87) General Municipal Bond Fund, Inc.
88) General Municipal Money Market Fund, Inc.
89) General New York Municipal Bond Fund, Inc.
90) General New York Municipal Money Market Fund
(b) The directors and officers of Premier Mutual Fund Services,
Inc., located at 60 State Street, Suite 1300, Boston,
Massachusetts, 02109, are as follows:
Name & Principal Positions & Offices Positions & Offices
Business Address With Underwriter With Registrant
- ---------------- ---------------- ---------------
Marie E. Connolly President, Chief President and Treasurer
Executive Officer, Chief
Compliance Officer and
Director
Richard W. Ingram Executive Vice President Vice President and
Assistant Treasurer
Mary A. Nelson Vice President Vice President and
Assistant Treasurer
Joseph F. Tower, III Senior Vice President, Vice President and
Treasurer, Chief Assistant Treasurer
Financial Officer and
Director
Paul Prescott Vice President None
Jean M. O'Leary Assistant Vice President, None
Compliance Officer,
Secretary and Clerk
William J. Nutt Chairman of the Board None
and Director
(c) Not applicable.
C - 11
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
- -------- --------------------------------
Principal executive office of the Registrant, Founders Financial
Center, 2930 East Third Avenue, Denver, Colorado 80206 (David L. Ray,
Treasurer), except records described in Rule 31a-1(b)(2)(iv) under the
Investment Company Act of 1940, which are in the possession of
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
- -------- -------------------
Not applicable.
ITEM 32. UNDERTAKINGS
- -------- ------------
The Registrant hereby undertakes that the board of directors will call
such meetings of shareholders for action by shareholder vote,
including acting on the question of removal of a director or directors
and to assist in communications with other shareholders as required by
Section 16(c) of the Investment Company Act of 1940, as may be
requested in writing by the holders of at least 10% of the outstanding
shares of the Registrant or any of its portfolios, or as may be
required by applicable law or the Fund's Articles of Incorporation.
The Registrant shall furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C - 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to its Registration Statement (File No. 2-17531) to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City and County of
Denver, State of Colorado, on the 27th day of February, 1998.
FOUNDERS FUNDS, INC.
ATTEST:
By: /S/ BJORN K. BORGEN
/S/ KENNETH R. CHRISTOFFERSEN --------------------------
- ------------------------------------ Bjorn K. Borgen, President
Kenneth R. Christoffersen, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/S/ BJORN K. BORGEN President (Principal February 27, 1998
- ------------------------------ Executive Officer)
/S/ DAVID L. RAY Vice President and February 27, 1998
- ------------------------------ Treasurer
(Principal Financial
and Accounting Officer)
/S/ JAY A. PRECOURT * Chairman February 27, 1998
- ------------------------------
Jay A. Precourt
/S/ WILLIAM H. BAUGHN * Director February 27, 1998
- ------------------------------
William H. Baughn
/S/ BJORN K. BORGEN Director February 27, 1998
- ------------------------------
Bjorn K. Borgen
/S/ ALAN S. DANSON * Director February 27, 1998
- ------------------------------
Alan S. Danson
/S/ TRYGVE E. MYHREN * Director February 27, 1998
- ------------------------------
Trygve E. Myhren
/S/ EUGENE H. VAUGHAN * Director February 27, 1998
- ------------------------------
Eugene H. Vaughan
<PAGE>
/S/ JONATHAN F. ZESCHIN Director February 27, 1998
- ------------------------------
Jonathan F. Zeschin
/S/ BJORN K. BORGEN February 27, 1998
- ------------------------------
By Bjorn K. Borgen
Attorney-in-Fact
*Original Powers of Attorney authorizing Bjorn K. Borgen, Edward F. O'Keefe and
David L. Ray, and each of them, to execute this Post-Effective Amendment to the
Registration Statement of the Registrant on behalf of the above-named directors
and officers of the Registrant (with the exception of Mr. Myhren) were filed
with Post-Effective Amendment No. 54. A Power of Attorney authorizing Bjorn K.
Borgen, Edward F. O'Keefe and David L. Ray, and each of them, to execute this
Post-Effective Amendment to the Registration Statement of the Registrant on
behalf of Trygve E. Myhren was filed with Post-Effective Amendment No. 62.
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -------------
1(J) Articles Supplementary to the Articles of Incorporation
2 By-Laws of Founders Funds, Inc., as amended
November 18, 1997.
5(D) Form of Investment Advisory Agreement between Founders
Funds, Inc. and Founders Asset Management LLC.
6(A) Amended and Restated Underwriting Agreement between
Founders Funds, Inc. and Founders Asset Management, Inc.,
dated March 7,1997.
6(C) Form of Underwriting Agreement between Founders Funds, Inc.
and Premier Mutual Fund Services, Inc.
9(A)(iii) Second Addendum to Amended Shareholder Services
Agreement between Founders Funds, Inc. and Founders
Asset Management, Inc.
9(A)(iv) Third Addendum to Amended Shareholder Services
Agreement between Founders Funds, Inc. and Founders
Asset Management, Inc.
9(A)(v) Form of Shareholder Services Agreement between Founders
Funds, Inc. and Founders Asset Management LLC
9(B)(ii) Form of Fund Accounting and Administrative Services
Agreement between Founders Funds, Inc. and Founders
Asset Management LLC
10 Opinion and consent of Moye, Giles, O'Keefe, Vermeire & Gorrell
11 Consent of Independent Accountants
15 Founders Funds, Inc. Rule 12b-1 Distribution Plan,
as amended November 18, 1997
17(A) Financial Data Schedule - Founders Discovery Fund
17(B) Financial Data Schedule - Founders Passport Fund
17(C) Financial Data Schedule - Founders Frontier Fund
17(D) Financial Data Schedule - Founders Special Fund
17(E) Financial Data Schedule - Founders International Equity Fund
17(F) Financial Data Schedule - Founders Worldwide Growth Fund
17(G) Financial Data Schedule - Founders Growth Fund
17(H) Financial Data Schedule - Founders Blue Chip Fund
17(I) Financial Data Schedule - Founders Balanced Fund
17(J) Financial Data Schedule - Founders Government Securities Fund
17(K) Financial Data Schedule - Founders Money Market Fund
19 Code of Ethics for Founders Funds, Inc. and Founders Asset
Management, Inc., as amended November 18, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> FOUNDERS DISCOVERY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 196425
<INVESTMENTS-AT-VALUE> 246328
<RECEIVABLES> 4924
<ASSETS-OTHER> 774
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 252027
<PAYABLE-FOR-SECURITIES> 3078
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2668
<TOTAL-LIABILITIES> 5746
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 194640
<SHARES-COMMON-STOCK> 10501
<SHARES-COMMON-PRIOR> 10219
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1738
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49903
<NET-ASSETS> 246281
<DIVIDEND-INCOME> 483
<INTEREST-INCOME> 1891
<OTHER-INCOME> (3)
<EXPENSES-NET> 3708
<NET-INVESTMENT-INCOME> (1337)
<REALIZED-GAINS-CURRENT> 26135
<APPREC-INCREASE-CURRENT> 243
<NET-CHANGE-FROM-OPS> 25041
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 32226
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8704
<NUMBER-OF-SHARES-REDEEMED> 9695
<SHARES-REINVESTED> 1273
<NET-CHANGE-IN-ASSETS> 5972
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7455
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2427
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3768
<AVERAGE-NET-ASSETS> 244308
<PER-SHARE-NAV-BEGIN> 24.22
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 2.69
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 3.53
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.45
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> FOUNDERS PASSPORT FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 100755
<INVESTMENTS-AT-VALUE> 122431
<RECEIVABLES> 633
<ASSETS-OTHER> 745
<OTHER-ITEMS-ASSETS> 2
<TOTAL-ASSETS> 123811
<PAYABLE-FOR-SECURITIES> 72
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1093
<TOTAL-LIABILITIES> 1165
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101319
<SHARES-COMMON-STOCK> 8993
<SHARES-COMMON-PRIOR> 12784
<ACCUMULATED-NII-CURRENT> (13)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (335)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21675
<NET-ASSETS> 122646
<DIVIDEND-INCOME> 2006
<INTEREST-INCOME> 1299
<OTHER-INCOME> (174)
<EXPENSES-NET> 2765
<NET-INVESTMENT-INCOME> 366
<REALIZED-GAINS-CURRENT> 2711
<APPREC-INCREASE-CURRENT> 1747
<NET-CHANGE-FROM-OPS> 4824
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 241
<DISTRIBUTIONS-OF-GAINS> 4261
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8876
<NUMBER-OF-SHARES-REDEEMED> 12977
<SHARES-REINVESTED> 310
<NET-CHANGE-IN-ASSETS> (55597)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1071
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1808
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2796
<AVERAGE-NET-ASSETS> 180814
<PER-SHARE-NAV-BEGIN> 13.91
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.48
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.64
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> FOUNDERS FRONTIER FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 182971
<INVESTMENTS-AT-VALUE> 230311
<RECEIVABLES> 2248
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 232560
<PAYABLE-FOR-SECURITIES> 3157
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7299
<TOTAL-LIABILITIES> 10456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157275
<SHARES-COMMON-STOCK> 7934
<SHARES-COMMON-PRIOR> 10852
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17488
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47341
<NET-ASSETS> 222104
<DIVIDEND-INCOME> 712
<INTEREST-INCOME> 954
<OTHER-INCOME> (48)
<EXPENSES-NET> 3970
<NET-INVESTMENT-INCOME> (2352)
<REALIZED-GAINS-CURRENT> 46900
<APPREC-INCREASE-CURRENT> (34125)
<NET-CHANGE-FROM-OPS> 10423
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 40788
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2445
<NUMBER-OF-SHARES-REDEEMED> 6837
<SHARES-REINVESTED> 1474
<NET-CHANGE-IN-ASSETS> (98392)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 11370
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2547
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4029
<AVERAGE-NET-ASSETS> 257768
<PER-SHARE-NAV-BEGIN> 32.34
<PER-SHARE-NII> (0.15)
<PER-SHARE-GAIN-APPREC> 1.90
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 6.10
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.99
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> FOUNDERS SPECIAL FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 264863
<INVESTMENTS-AT-VALUE> 319257
<RECEIVABLES> 572
<ASSETS-OTHER> 1501
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 321331
<PAYABLE-FOR-SECURITIES> 373
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 772
<TOTAL-LIABILITIES> 1145
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 261451
<SHARES-COMMON-STOCK> 41495
<SHARES-COMMON-PRIOR> 47497
<ACCUMULATED-NII-CURRENT> (7)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4349
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 54393
<NET-ASSETS> 320186
<DIVIDEND-INCOME> 1438
<INTEREST-INCOME> 2861
<OTHER-INCOME> (98)
<EXPENSES-NET> 4364
<NET-INVESTMENT-INCOME> (163)
<REALIZED-GAINS-CURRENT> 44070
<APPREC-INCREASE-CURRENT> 4371
<NET-CHANGE-FROM-OPS> 48278
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 42213
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5949
<NUMBER-OF-SHARES-REDEEMED> 17345
<SHARES-REINVESTED> 5394
<NET-CHANGE-IN-ASSETS> (49714)
<ACCUMULATED-NII-PRIOR> (48)
<ACCUMULATED-GAINS-PRIOR> 2689
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4432
<AVERAGE-NET-ASSETS> 335945
<PER-SHARE-NAV-BEGIN> 7.66
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 1.21
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.16
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.72
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> FOUNDERS INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 14938
<INVESTMENTS-AT-VALUE> 16096
<RECEIVABLES> 261
<ASSETS-OTHER> 86
<OTHER-ITEMS-ASSETS> 7
<TOTAL-ASSETS> 16450
<PAYABLE-FOR-SECURITIES> 532
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178
<TOTAL-LIABILITIES> 710
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14662
<SHARES-COMMON-STOCK> 1306
<SHARES-COMMON-PRIOR> 853
<ACCUMULATED-NII-CURRENT> (1)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (79)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1158
<NET-ASSETS> 15740
<DIVIDEND-INCOME> 145
<INTEREST-INCOME> 101
<OTHER-INCOME> (13)
<EXPENSES-NET> 263
<NET-INVESTMENT-INCOME> (30)
<REALIZED-GAINS-CURRENT> 1760
<APPREC-INCREASE-CURRENT> 169
<NET-CHANGE-FROM-OPS> 1899
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1945
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 939
<NUMBER-OF-SHARES-REDEEMED> 641
<SHARES-REINVESTED> 155
<NET-CHANGE-IN-ASSETS> 5667
<ACCUMULATED-NII-PRIOR> (2)
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 293
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<PER-SHARE-NAV-BEGIN> 11.86
<PER-SHARE-NII> (0.01)
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> FOUNDERS WORLDWIDE GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 257041
<INVESTMENTS-AT-VALUE> 306615
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<TOTAL-ASSETS> 313682
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<PAID-IN-CAPITAL-COMMON> 257880
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<ACCUMULATED-NET-GAINS> 1363
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49574
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<OTHER-INCOME> (354)
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<APPREC-INCREASE-CURRENT> (7643)
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<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> FOUNDERS GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
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<PERIOD-END> DEC-31-1997
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<OVERDISTRIBUTION-GAINS> 0
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<NET-INVESTMENT-INCOME> 7133
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<APPREC-INCREASE-CURRENT> 60215
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> FOUNDERS BLUE CHIP FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<INVESTMENTS-AT-VALUE> 538839
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<PAYABLE-FOR-SECURITIES> 16756
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<TOTAL-LIABILITIES> 17882
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<PAID-IN-CAPITAL-COMMON> 487653
<SHARES-COMMON-STOCK> 78442
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<ACCUMULATED-NII-CURRENT> 145
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3226
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 52144
<NET-ASSETS> 543168
<DIVIDEND-INCOME> 9474
<INTEREST-INCOME> 6878
<OTHER-INCOME> (302)
<EXPENSES-NET> 5982
<NET-INVESTMENT-INCOME> 10068
<REALIZED-GAINS-CURRENT> 85675
<APPREC-INCREASE-CURRENT> 1134
<NET-CHANGE-FROM-OPS> 96877
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10159
<DISTRIBUTIONS-OF-GAINS> 101087
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9168
<NUMBER-OF-SHARES-REDEEMED> 19054
<SHARES-REINVESTED> 14250
<NET-CHANGE-IN-ASSETS> 21671
<ACCUMULATED-NII-PRIOR> (13)
<ACCUMULATED-GAINS-PRIOR> 18886
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3384
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6095
<AVERAGE-NET-ASSETS> 547059
<PER-SHARE-NAV-BEGIN> 7.23
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 1.25
<PER-SHARE-DIVIDEND> 0.13
<PER-SHARE-DISTRIBUTIONS> 1.56
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<PER-SHARE-NAV-END> 6.92
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> FOUNDERS BALANCED FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 880812
<INVESTMENTS-AT-VALUE> 930105
<RECEIVABLES> 35653
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<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 968931
<PAYABLE-FOR-SECURITIES> 23881
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<TOTAL-LIABILITIES> 26241
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 887526
<SHARES-COMMON-STOCK> 83084
<SHARES-COMMON-PRIOR> 37196
<ACCUMULATED-NII-CURRENT> 23
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5048
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 50093
<NET-ASSETS> 942690
<DIVIDEND-INCOME> 9438
<INTEREST-INCOME> 19328
<OTHER-INCOME> (274)
<EXPENSES-NET> 7521
<NET-INVESTMENT-INCOME> 20971
<REALIZED-GAINS-CURRENT> 57096
<APPREC-INCREASE-CURRENT> 32318
<NET-CHANGE-FROM-OPS> 110358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21476
<DISTRIBUTIONS-OF-GAINS> 59093
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 61542
<NUMBER-OF-SHARES-REDEEMED> 22543
<SHARES-REINVESTED> 6889
<NET-CHANGE-IN-ASSETS> 518005
<ACCUMULATED-NII-PRIOR> 186
<ACCUMULATED-GAINS-PRIOR> 7422
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4490
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7641
<AVERAGE-NET-ASSETS> 756059
<PER-SHARE-NAV-BEGIN> 10.61
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.73
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.35
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> FOUNDERS GOVERNMENT SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 12192
<INVESTMENTS-AT-VALUE> 12523
<RECEIVABLES> 798
<ASSETS-OTHER> 28
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13349
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90
<TOTAL-LIABILITIES> 90
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16201
<SHARES-COMMON-STOCK> 1429
<SHARES-COMMON-PRIOR> 1679
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3278)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 331
<NET-ASSETS> 13259
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 867
<OTHER-INCOME> 0
<EXPENSES-NET> 175
<NET-INVESTMENT-INCOME> 692
<REALIZED-GAINS-CURRENT> 43
<APPREC-INCREASE-CURRENT> 270
<NET-CHANGE-FROM-OPS> 1005
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 692
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 862
<NUMBER-OF-SHARES-REDEEMED> 1182
<SHARES-REINVESTED> 70
<NET-CHANGE-IN-ASSETS> (2244)
<ACCUMULATED-NII-PRIOR> 5
<ACCUMULATED-GAINS-PRIOR> (3322)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 90
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 182
<AVERAGE-NET-ASSETS> 13884
<PER-SHARE-NAV-BEGIN> 9.04
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.45
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.28
<EXPENSE-RATIO> 1.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> FOUNDERS MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 105590
<INVESTMENTS-AT-VALUE> 105590
<RECEIVABLES> 1273
<ASSETS-OTHER> 97
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 106961
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 888
<TOTAL-LIABILITIES> 888
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 106071
<SHARES-COMMON-STOCK> 106073
<SHARES-COMMON-PRIOR> 109835
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 106073
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6823
<OTHER-INCOME> 0
<EXPENSES-NET> 996
<NET-INVESTMENT-INCOME> 5827
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5827
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5856
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 258173
<NUMBER-OF-SHARES-REDEEMED> 267340
<SHARES-REINVESTED> 5405
<NET-CHANGE-IN-ASSETS> (3764)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 611
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1024
<AVERAGE-NET-ASSETS> 122100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
FOUNDERS FUNDS, INC.
ARTICLES SUPPLEMENTARY
FOUNDERS FUNDS, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
registered office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The aggregate number of shares of stock of all classes which the
Corporation shall have authority to issue is hereby increased to three billion
(3,000,000,000) shares of the Corporation's common stock ("Common Stock"). Prior
to this increase in the Corporation's authorized aggregate number of shares of
Common Stock, the Corporation was authorized to issue two billion
(2,000,000,000) shares of Common Stock of all classes. Before and after this
increase in the Corporation's authorized aggregate number of shares of Common
Stock, the Corporation's shares of Common Stock had and will have a par value of
$0.01 per share. The aggregate par value of the Corporation's two billion
authorized shares of Common Stock was twenty million dollars ($20,000,000). The
aggregate par value of the Corporation's three billion authorized shares of
Common Stock is thirty million dollars ($30,000,000)
SECOND: The board of directors of the Corporation, by a meeting duly
convened and held on March 7, 1997, reclassified and reallocated shares of the
Corporation's Common Stock among each of its series effective Marcy 7, 1997, as
follows:
Additional
Previous Share Share Adjusted Share
Fund Allocation Allocation Allocation
Discovery 100,000,000 -0- 100,000,000
Frontier 100,000,000 -0- 100,000,000
Passport 100,000,000 -0- 100,000,000
Special 180,000,000 -0- 180,000,000
International 100,000,000 -0- 100,000,000
Equity
Worldwide 100,000,000 -0- 100,000,000
Growth
Growth 200,000,000 200,000,000 400,000,000
Blue Chip 200,000,000 200,000,000 400,000,000
<PAGE>
Balanced 100,000,000 400,000,000 500,000,000
Government 20,000,000 -0- 20,000,000
Securities
Money Market 800,000,000 200,000,000 1,000,000,000
-------------- -------------- --------------
TOTAL 2,000,000,000 1,000,000,000 3,000,000,000
THIRD: A description of the shares so reclassified with the powers,
preferences, and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof, are as follows:
(a) All shares of Common Stock shall have the following powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof shall be as follows:
(1) All consideration received by the Corporation for the issue of
the shares of Common Stock, together with all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to the
class of shares of that series with respect to which such assets, payments or
funds were received by the Corporation for all purposes, subject only to the
rights of creditors, and shall be so handled in the records of the Corporation.
Such assets, income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and any assets
derived from any reinvestment of such proceeds, in whatever form the same may
be, are herein referred to as "assets belonging to" the class of each series of
shares.
(2) The assets belonging to the class of each series of shares shall
be charged with the liabilities, including the redemption of shares, in respect
of such class and shall also be charged with its share of the general
liabilities of the Corporation, in proportion to the net asset value of the
class of such series determined as hereinafter provided. The determination of
the board of directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the same to a
given class, and as to whether the same or general assets of the Corporation are
allocable to one or more classes.
(3) The net asset value per share of the class of each series shall
be determined in accordance with Article FIFTH, Paragraph (5) of the
Corporation's Articles of Incorporation, as amended, by separately computing the
assets belonging to such class less the liabilities applicable to that class,
allocating any general assets and general liabilities to that class, and
dividing the net result of the number of shares of common stock of that class
outstanding.
<PAGE>
(4) Dividends or distributions on the class of each series of
shares, whether payable in stock or cash, shall be paid only out of earnings,
surplus or other lawfully available assets belonging to such class.
(5) In the event of the liquidation or dissolution of the
Corporation, stockholders of shares of each series shall be entitled to receive,
as a class, out of the assets of the Corporation available for distribution to
stockholders, but other than general assets, the assets belonging to such class.
The assets so distributable to the stockholders of any class shall be
distributed among such stockholders in proportion to the number of shares of
such class held by them and recorded in the records of the Corporation.
(6) The provisions of Article FIFTH, Paragraphs (1) through (5) of
the Corporation's Articles of Incorporation, as amended, shall apply to the
holders of shares of each class as may be issued from time to time and the
assets belonging to such class.
(b) Except as otherwise may be provided in the Corporation's Articles of
Incorporation, the holders of shares of each series shall have the same powers,
preferences and participating, voting or other special rights and the
qualifications, restrictions and limitations thereof as the holders of any other
series of the Corporation's Common Shares, as that term is used in the
Corporation's Articles of Incorporation, as amended.
FOURTH: Shares of each series have been duly classified by the board of
directors pursuant to authority and power contained in the Articles of
Incorporation of the Corporation, as heretofore amended.
FIFTH: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940.
SIXTH: The total number of shares of Common Stock that the Corporation has
authority to issue has been increased by the board of directors in accordance
with Section 2-105(c) of the Maryland General Corporation Law.
<PAGE>
IN WITNESS WHEREOF, FOUNDERS FUNDS, INC. has caused these presents to be
signed in its name and on its behalf by its duly authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation and
that, to the best of their knowledge, all matters and facts set forth therein
are true in all material respects under penalties of perjury.
FOUNDERS FUNDS, INC.
/s/ Bjorn K. Borgen
---------------------------
Bjorn K. Borgen, President
ATTEST:
/s/ Kenneth R. Christoffersen
- --------------------------------
Kenneth R. Christoffersen
Secretary
FOUNDERS FUNDS, INC.
A Maryland Corporation
BY-LAWS
(AS AMENDED NOVEMBER 18, 1997)
<PAGE>
BY-LAWS
TABLE OF CONTENTS
ARTICLE I. FISCAL YEAR AND OFFICES.........................................1
SECTION 1.01. FISCAL YEAR ..........................................1
SECTION 1.02. REGISTERED OFFICE.....................................1
SECTION 1.03. OTHER OFFICES.........................................1
ARTICLE II. STOCKHOLDERS ...................................................1
SECTION 2.01. PLACE OF MEETING......................................1
SECTION 2.02. ANNUAL MEETING........................................1
SECTION 2.03. SPECIAL MEETINGS......................................2
SECTION 2.04. NOTICE ..........................................2
SECTION 2.05. QUORUM ..........................................3
SECTION 2.06. VOTING ..........................................3
SECTION 2.07. VOTING - PROXIES......................................4
SECTION 2.08. INSPECTORS ..........................................4
SECTION 2.09. STOCK LEDGER AND LIST OF
STOCKHOLDERS..........................................4
SECTION 2.10. ACTION WITHOUT MEETING................................5
ARTICLE III. DIRECTORS ...................................................5
SECTION 3.01. GENERAL POWERS........................................5
SECTION 3.02. POWER TO ISSUE AND SELL...............................5
SECTION 3.03. POWER TO DECLARE DIVIDENDS............................6
SECTION 3.04. NUMBER AND TERM OF OFFICE.............................8
SECTION 3.05. ELECTION ..........................................8
SECTION 3.06. REMOVAL OF DIRECTORS..................................8
SECTION 3.07. PLACE OF MEETING......................................8
SECTION 3.08. QUORUM ..........................................9
SECTION 3.09. REGULAR MEETINGS......................................9
SECTION 3.10. SPECIAL MEETINGS......................................9
SECTION 3.11. INFORMAL ACTIONS......................................9
SECTION 3.12. COMMITTEES .........................................10
SECTION 3.13. ACTION OF COMMITTEES.................................10
SECTION 3.14. COMPENSATION.........................................10
SECTION 3.15. CHAIRMAN OF THE BOARD................................10
ARTICLE IV. NOTICES ..................................................11
SECTION 4.01. FORM .........................................11
SECTION 4.02. WAIVER .........................................11
<PAGE>
ARTICLE V. OFFICERS ..................................................11
SECTION 5.01. EXECUTIVE OFFICERS...................................11
SECTION 5.02. ELECTION .........................................12
SECTION 5.03. OTHER OFFICERS.......................................12
SECTION 5.04. COMPENSATION.........................................12
SECTION 5.05. TENURE .........................................12
SECTION 5.06. PRESIDENT .........................................12
SECTION 5.07. VICE PRESIDENT.......................................13
SECTION 5.08. SECRETARY .........................................13
SECTION 5.09. ASSISTANT SECRETARIES................................13
SECTION 5.10. TREASURER .........................................13
SECTION 5.11. CONTROLLER .........................................14
SECTION 5.12. ASSISTANT TREASURER..................................14
SECTION 5.13. SURETY BONDS.........................................14
ARTICLE VI. FUNDAMENTAL POLICIES AND INVESTMENT
RESTRICTIONS...................................................14
ARTICLE VII. STOCK..........................................................15
SECTION 7.01. CERTIFICATES.........................................15
SECTION 7.02. SIGNATURE .........................................15
SECTION 7.03. RECORDING AND TRANSFER WITHOUT
CERTIFICATES.........................................15
SECTION 7.04. LOST CERTIFICATES....................................16
SECTION 7.05. TRANSFER OF CAPITAL STOCK............................16
SECTION 7.06. REGISTERED STOCKHOLDERS..............................16
SECTION 7.07. TRANSFER AGENTS AND REGISTRARS.......................16
SECTION 7.08. STOCK LEDGER.........................................17
SECTION 7.09. TRANSFER REGULATIONS.................................17
SECTION 7.10. FIXING OF RECORD DATE................................17
ARTICLE VIII. GENERAL PROVISIONS.............................................18
SECTION 8.01. RIGHTS IN SECURITIES.................................18
SECTION 8.02. CUSTODIANSHIP........................................18
SECTION 8.03. REPORTS .........................................19
SECTION 8.04. SEAL .........................................19
SECTION 8.05. EXECUTION OF INSTRUMENTS.............................20
SECTION 8.06. CHECKS, NOTES, DRAFTS, ETC...........................20
ARTICLE IX. REDEMPTION AND REPURCHASE OF THE
CORPORATION'S SHARES...........................................20
SECTION 9.01. REDEMPTION OF SHARES.................................20
SECTION 9.02. PRICE .........................................21
SECTION 9.03. PAYMENT .........................................21
SECTION 9.04. EFFECT OF SUSPENSION OF
DETERMINATION OF NET ASSET VALUE.....................21
<PAGE>
SECTION 9.05. REPURCHASE BY AGREEMENT..............................22
SECTION 9.06. REDEMPTION OF STOCKHOLDERS'
INTERESTS............................................22
ARTICLE X. NET ASSET VALUE OF SHARES......................................22
SECTION 10.01. BY WHOM DETERMINED...................................22
SECTION 10.02. WHEN DETERMINED......................................22
SECTION 10.03. SUSPENSION OF DETERMINATION OF NET
ASSET VALUE..........................................23
SECTION 10.04. COMPUTATION OF PER SHARE NET ASSET
VALUE................................................23
SECTION 10.05. INTERIM DETERMINATIONS...............................26
SECTION 10.06. MISCELLANEOUS........................................26
ARTICLE XI. ACCOUNTANT ..................................................27
SECTION 11.01. ACCOUNTANT .........................................27
ARTICLE XII. INDEMNIFICATION AND INSURANCE..................................27
SECTION 12.01. INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS......................28
SECTION 12.02. INSURANCE OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS.................................28
ARTICLE XIII. AMENDMENTS ..................................................28
<PAGE>
BY-LAWS OF
FOUNDERS FUNDS, INC.
ARTICLE I
FISCAL YEAR AND OFFICES
Section 1.01. FISCAL YEAR. Unless otherwise provided by resolution of
the Board of Directors the fiscal year of the Corporation shall begin January 1
and end on the last day of December.
Section 1.02. REGISTERED OFFICE. The registered office of the
Corporation in Maryland shall be located in the City of Baltimore c/o The
Corporation Trust, Incorporated, 32 South Street, Baltimore, Maryland 21202 and
the name and address of its Resident Agent is The Corporation Trust,
Incorporated, 32 South Street, Baltimore, Maryland 21202.
Section 1.03. OTHER OFFICES. The Corporation shall have the power to
open additional offices for the conduct of its business, either within or
outside the State of Maryland, at such places as the Board of Directors may from
time to time designate.
ARTICLE II
STOCKHOLDERS
Section 2.01. PLACE OF MEETING. Meetings of the stockholders for the
election of Directors shall be held in such place as the Board of Directors may
by resolution establish. In the absence of any specific resolution, annual
meetings of stockholders shall, if required, be held at the Corporation's
principal office at 810 Cherry Creek National Bank Building, 3033 East First
Avenue, Denver, Colorado 80206. Meetings of stockholders for any other purpose
may be held at such place and time as shall be fixed by resolution of the Board
of Directors and stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
Section 2.02. ANNUAL MEETING. The annual meeting of stockholders, if
required, shall be held on a date and at a time to be set by the Board of
Directors. The Corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940. If the Corporation is required to hold
a meeting of stockholders to
<PAGE>
elect directors, the meeting shall be designated as the annual meeting of
stockholders for that year and shall be held within the time prescribed by the
Investment Company Act of 1940 and the Maryland General Corporation Law. At the
annual meeting, the stockholders shall transact any other business which may
properly be brought before the meeting.
Section 2.03. SPECIAL MEETINGS. Special meetings of the stockholders
(including meetings involving only one or more but less than all classes of
stock) may be called at any time by the Chairman of the Board of the President,
or by a majority of the Board of Directors, and shall be called by the Chairman
of the Board, President or Secretary upon written request of the holders of
shares entitled to cast not less than twenty-five percent of all the votes
entitled to be cast at such meeting provided that (a) such request will state
the purpose of such meeting and the matters proposed to be acted upon and (b)
the stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
Secretary shall determine and specify to such stockholders. Unless requested by
the holders of shares entitled to cast a majority of all the votes entitled to
be cast at such meeting, no special meeting need be called to consider any
matter which is substantially the same as a matter voted on at any meeting of
the stockholders held during the preceding twelve months.
Section 2.04. NOTICE. Not less than ten nor more than ninety days
before the date of every annual or special stockholders' meeting, the Secretary
shall cause to be mailed to each stockholder entitled to vote at such meeting at
his, her or its address (as it appears on the records of the Corporation at the
time of mailing) written notice stating the time and place of the meeting and,
in the case of a special meeting of stockholders, the purpose or purposes for
which the meeting is called. Notice of any stockholders' meeting need not be
given to any stockholder who shall sign a written waiver of such notice whether
before or after the time of such meeting, or to any stockholder who shall attend
such meeting in person or by proxy. Notice of adjournment of a stockholders'
meeting to another time or place need not be given, if such time and place are
announced at the meeting.
Section 2.05. QUORUM. At any meeting of stockholders, the presence in
person or by proxy of the holders of a majority of the aggregate number of
shares of common stock at the time outstanding shall constitute a quorum for the
<PAGE>
transaction of business at the meeting, except that where any provision of law,
the Articles of Incorporation, or these By-laws require that the holders of any
class of shares shall vote as a class, then a majority of the aggregate number
of shares of that class at the time outstanding shall be necessary to constitute
a quorum for the transaction of such business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, any officer
entitled to preside at, or act as a Secretary of, such meeting, shall have the
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 2.06. VOTING. Each stockholder shall have one vote for each
full share and a fractional vote for each fractional share of stock having
voting power held by such stockholder on the record date set pursuant to Section
7.10 on each matter submitted to a vote at a meeting of stockholders. Such vote
may be made in person or by proxy. If no record date has been fixed for the
determination of stockholders, the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be (a) at the close of business (i) on the day ten days before the date on which
notice of the meeting is mailed or (ii) on the day 90 days before the meeting
whichever is the closer date to the meeting; or (b) if notice is waived by all
stockholders entitled to notice of or to vote at the meeting, at the close of
business on the tenth day next preceding the day on which the meeting is held.
At all meetings of the stockholders, a quorum being present, all matters shall
be decided by majority vote of the shares of stock entitled to vote held by
stockholders present in person or by proxy, unless the question is one which by
express provision of the laws of Maryland, the Investment Company Act, or the
Articles of Incorporation, a different vote is required in which case such
express provision shall control the decision of such question. At all meetings
of stockholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of votes and the validity of proxies and the
acceptance or rejection of votes shall be decided by the Chairman of the
meeting.
Section 2.07. VOTING - PROXIES. The right to vote by proxy shall
exist only if the instrument authorizing such proxy to act shall have been
executed in writing by the
<PAGE>
stockholder himself or by his attorney thereunto duly authorized. No proxy shall
be voted on after eleven months from its date unless it provides for a longer
period. Each proxy shall be in writing executed by the stockholder or his duly
authorized attorney and shall be dated, but need not be sealed, witnessed or
acknowledged. Proxies shall be delivered to the Secretary of the Corporation or
person acting as Secretary of the meeting before being voted. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the
Corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid unless challenged at or prior to its exercise.
Section 2.08. INSPECTORS. At any election of directors, the Board of
Directors prior thereto may, or, if they have not so acted, the Chairman of the
meeting may, appoint one or more inspectors of election who shall first
subscribe an oath of affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of director shall be appointed such
inspector.
Section 2.09. STOCK LEDGER AND LIST OF STOCKHOLDERS. It shall be the
duty of the Secretary or Assistant Secretary of the Corporation to cause an
original or duplicate stock ledger to be maintained at the office of the
Corporation's transfer agent. Such stock ledger may be in writing form or any
other form capable of being converted into written form within a reasonable time
for visual inspection. Any one or more persons, each of whom has been a
stockholder of record of the Corporation for more than six months next preceding
such request, who owns or own in the aggregate 5% or more of the outstanding
capital stock of the Corporation, may submit a written request to any officer of
the Corporation or its resident agent in Maryland for a list of the stockholders
of the Corporation. Within 20 days after such a request, there shall be prepared
and filed at the Corporation's principal office a list containing the names and
addresses of all stockholders of the Corporation and the number of shares of
each class held by each stockholders, certified as correct by an officer of the
Corporation, by its stock transfer agent, or by its registrar.
Section 2.10. ACTION WITHOUT MEETING. Any action to be taken by
stockholders may be taken without a meeting if
<PAGE>
all stockholders entitled to vote on the matter consent to the action in
writing, and the written consents are filed with the records of the meetings of
stockholders. Such consent shall be treated for all purposes as a vote at a
meeting.
ARTICLE III
DIRECTORS
Section 3.01. GENERAL POWERS. The business of the Corporation shall be
under the direction of its Board of Directors, which may exercise all powers of
the Corporation, except such as are by statute, or by the Articles of
Incorporation, or by these By-laws conferred upon or reserved to the
stockholders. All acts done by any meeting of the directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as a
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the corporation.
Section 3.02. POWER TO ISSUE AND SELL STOCK
(a) GENERAL. The Board of Directors may from time to time issue,
reissue, sell or cause to be issued and sold any of the Corporation's authorized
shares of any class of common stock, including any additional shares hereafter
authorized of any class and any shares redeemed or repurchased by the
Corporation, to such persons and for such consideration as the Board of
Directors shall deem advisable, except that only shares previously contracted to
be sold may be issued during any period when the determination of net asset
value is suspended pursuant to the provisions of Article X hereof. All shares of
any classes of such authorized common stock, when issued in accordance with the
terms of this Section 3.02 shall be fully paid and nonassessable.
(b) PRICE. No shares of common stock shall be issued or sold by the
Corporation, except as a stock dividend distributed to shareholders, for less
than an amount which would result in proceeds to the Corporation, before taxes
payable by the Corporation in connection with such transaction, of at least the
net asset value per share determined as set forth in Article X hereof as of such
time as the Board of Directors shall have by resolution
<PAGE>
prescribed. In the absence of a resolution of the Board of Directors applicable
to the transaction, such net asset value shall be that next determined after an
unconditional order for shares has been received by the Corporation (either
directly or through one of its agents) and the sales price in currency has been
determined.
(c) ON MERGER OR CONSOLIDATION. In connection with the acquisition of
all or substantially all the assets or stock of another investment company or
investment trust, the Board of Directors may issue or cause to be issued shares
of common stock of the Corporation and accept in payment thereof, in lieu of
cash, such assets at their market value, or such stock at the market value of
the assets held by such investment company or investment trust, either with or
without adjustment for contingent costs or liabilities, provided such assets are
of the character in which the Board of Directors is permitted to invest the
funds of the Corporation.
(d) FRACTIONAL SHARES. The Corporation may issue and sell or cause to
be issued and sold fractions of shares having pro rata all the rights of full
shares, including, without limitation, the right to vote and to receive
dividends.
Section 3.03 POWER TO DECLARE DIVIDENDS
(a) The Board of Directors may from time to time declare and pay
dividends or distributions, in stock or in cash at the election of the
stockholders, on all issued and outstanding shares of any or all classes of
common stock, the amount of such dividends and distributions and the payment of
them being wholly in the discretion of the Board of Directors and payable only
out of earnings, surplus, or other lawfully available assets belonging to the
Corporation; provided, however, that the sum of the cash dividend actually paid
to any stockholder and the asset value of the shares received (determined as of
such time as the Board of Directors shall have prescribed pursuant to Section
3.02 hereof with respect to shares sold on the date of such stockholder
election) shall not exceed the full amount of cash to which the stockholder
would be entitled if he elected to receive only cash.
The Board of Directors is expressly authorized to determine in
accordance with generally accepted accounting principles and practices what
constitutes net profits, earnings, surplus or net assets in excess of capital,
and to determine what accounting periods shall be used by the
<PAGE>
Corporation for any purpose, whether annual or any other period, including
daily; to set apart out of any funds of the Corporation such reserves for such
purposes as it shall determine and to abolish the same; to declare and pay
dividends and distributions in cash, securities or other property from surplus
or any funds legally available therefor, at such intervals (which may be as
frequently as daily) or on such other periodic basis, as it shall determine; to
declare such dividends or distributions, including daily dividends, by means of
a formula or other method of determination at meetings held less frequently than
the frequency of the effectiveness of such declarations; to establish payment
dates for dividends or any other distributions on any basis including dates
occurring less frequently than the effectiveness of the declarations thereof;
and to provide for the payment of declared dividends on a date other than the
specified payment date in the case of the stockholders of the Corporation
redeeming their entire ownership of the Corporation.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
(i) the Corporation's accumulated undistributed net income
(determined in accordance with good accounting practice and the rules and
regulations of the Securities and Exchange Commission then in effect and not
including profits or losses realized upon the sale of securities or other
properties); or
(ii) the Corporation's net income so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such
payment and the basis of calculation, and shall be in such form as the
Securities and Exchange Commission may prescribe.
Section 3.04. NUMBER AND TERM OF OFFICE. The number of directors which
shall constitute the whole Board shall be determined from time to time by the
Board of Directors, but shall not be fewer than three, nor more than fifteen.
Each director elected shall hold office until his or her successor is elected
and qualified or until his or her earlier death, resignation, or removal.
Directors need not be stockholders.
<PAGE>
Section 3.05. ELECTION. Initially the directors shall be those persons
named as such in the Articles of Incorporation. Except as provided in the next
sentence, the directors shall be elected by the vote of a majority of the shares
present in person or by proxy at the annual meeting of the stockholders. If any
vacancies shall occur in the Board of Directors for any reason, the directors
then in office shall continue to act, and such vacancies (if not previously
filled by the stockholders) may be filled by a majority vote of the remaining
directors, although less than a quorum, and except that a newly created
Directorship may be filled only by a majority vote of the entire Board of
Directors, provided that in either case immediately after filling any such
vacancy at least two-thirds of the directors then holding office shall have been
elected to such office by the stockholders, a stockholders' meeting shall be
called as soon as possible, and in any event within sixty days, for the purpose
of electing an entire new Board of Directors.
Section 3.06. REMOVAL OF DIRECTORS. At any stockholders meeting,
provided a quorum is present, any director may be removed (either with or
without cause) by the vote of the holders of a majority of the shares present or
represented at the meeting, and at the same meeting a duly qualified person may
be elected in his or her stead by a majority of the votes validly cast.
Section 3.07. PLACE OF MEETING. Meetings of the Board of Directors,
regular or special, may be held at any place in or out of the State of Maryland
as the Board may from time to time determine.
Section 3.08. QUORUM. At all meetings of the Board of Directors a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the action of a majority of the directors present at
any meeting at which a quorum is present shall be the action of the Board of
Directors unless the concurrence of a greater proportion is required for such
action by the laws of Maryland, the Investment Company Act, the Articles of
Incorporation, or these By-laws. If a quorum shall not be present at any meeting
of directors, the directors present there at may by a majority vote adjourn the
meeting from time to time without notice other than announcement at the meeting,
until a quorum shall be present.
Section 3.09. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by
<PAGE>
the Board of Directors provided that notice of any change in the time or place
of such meetings shall be sent promptly to each director not present at the
meeting at which such change was made in the manner provided for notice of
special meetings. Members of the Board of Directors or any committee designated
thereby may participate in a meeting of such Board or committee by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
Section 3.10. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on one
day's notice to each director; special meetings shall be called by the Chairman
of the Board, President or Secretary in like manner and on like notice on the
written request of two directors.
Section 3.11. INFORMAL ACTIONS. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if a written consent to such action is signed in one
or more counterparts by all members of the Board or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board or committee.
Section 3.12. COMMITTEES. The Board of Directors may by resolution
passed by a majority of the entire Board appoint from among its members an
Executive Committee and other committees composed of two or more directors, and
may delegate to such committees, in the intervals between meetings of the Board
of Directors, any or all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, except the powers (a)
to declare dividends or distributions on stock, (b) to issue stock (although a
committee may participate in fixing the terms and conditions of stock issued, in
accordance with the laws of Maryland), (c) to recommend to stockholders any
action requiring stockholder approval, (d) to amend the By-laws, or (e) to
approve any merger or share exchange which does not require stockholder
approval.
Section 3.13. ACTION OF COMMITTEES. In the absence of an appropriate
resolution of the Board of Directors each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that the quorum shall not be less than two
directors. The committees shall keep minutes
<PAGE>
of their proceedings and shall report the same to the Board of Directors at the
meeting next succeeding, and any action by the committee shall be subject to
revision and alteration by the Board of Directors, provided that no rights of
third persons shall be affected by any such revision or alteration. In the
absence of any member of such committee the members thereof present at any
meeting, whether or not they constitute a quorum, may appoint a member of the
Board of Directors to act in the place of such absent member.
Section 3.14. COMPENSATION. Any director, whether or not he is a
salaried officer or employee of the Corporation, may be compensated for his
services as a director or as a member of a committee of directors, or as
Chairman of the Board or chairman of a committee by fixed periodic payments, by
fees for attendance at meetings, or otherwise or by a combination thereof, and
in addition may be reimbursed for transportation and other expenses, all in such
manner and amounts as the Board of Directors may from time to time determine.
Section 3.15. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
shall be chosen from and by the directors, shall preside at all meetings of the
Board of Directors and stockholders, and shall perform and execute such
executive duties and administrative powers as the Board of Directors shall from
time to time prescribe.
ARTICLE IV
NOTICES
Section 4.01. FORM. Notice to stockholders shall be in writing and
delivered personally or mailed to the stockholders at their addresses appearing
on the books of the Corporation. Notices to directors shall be oral or by
telephone or telegram or in writing delivered personally or mailed to the
directors at their addresses appearing on the books of the Corporation. Notice
by mail shall be deemed to be given at the time when the same shall be mailed.
Notice to directors need not state the purpose of a regular or special meeting.
Section 4.02. WAIVER. Whenever any notice of the time, place or
purpose of any meeting of stockholders, directors or a committee is required to
be given under the provisions of the laws of Maryland, the Articles of
Incorporation or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the records of the
meeting, whether before or after the holding thereof, or actual attendance at
the
<PAGE>
meeting of stockholders in person or by proxy, or at the meeting of directors or
committee in person, shall be deemed equivalent to the giving of such notice to
such persons.
ARTICLE V
OFFICERS
Section 5.01. EXECUTIVE OFFICERS. The officers of the Corporation
shall be chosen by the Board of Directors and shall include a President, a
Secretary and a Treasurer. The Board of Directors may, from time to time, elect
or appoint a Controller, one or more Vice Presidents, Assistant Secretaries, and
Assistant Treasurers. The same person may hold two or more offices, except that
no person shall be both President and Vice President and no officer shall
execute, acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law, the Articles of Incorporation or these By-laws to
be executed, acknowledged or verified by two or more officers.
Section 5.02. ELECTION. The Board of Directors shall choose a
President, a Secretary and a Treasurer at its first meeting and thereafter at
the next meeting following a stockholders' meeting at which directors were
elected.
Section 5.03. OTHER OFFICERS. The Board of Directors from time to time
may appoint such officers and agents as it shall deem advisable, who shall hold
their offices for such terms and shall exercise powers and perform such duties
as shall be determined from time to time by the Board. The Board of Directors
from time to time may delegate to one or more officers or agents the power to
appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 5.04. COMPENSATION. The salaries or other compensation of all
officers and agents of the Corporation shall be fixed by the Board of Directors,
except that the Board of Directors may delegate to any person or group of
persons the power to fix the salary or other compensation of any subordinate
officers or agents appointed pursuant to Section 5.03.
Section 5.05. TENURE. The officers of the Corporation shall serve
until their successors are chosen and qualify. Any officer or agent may be
removed by the affirmative vote of a majority of the Board of Directors
whenever, in its judgment, the best interest of the Corporation will be served
thereby. In addition, any officer or agent appointed pursuant to Section 5.03
may be removed, either with or
<PAGE>
without cause, by any officer upon whom such power of removal shall have been
conferred by the Board of Directors. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise shall be filled by the
Board of Directors, unless pursuant to Section 5.03 the power of appointment has
been conferred by the Board of Directors on any other officer.
Section 5.06. PRESIDENT. The President, unless the Chairman has been
so designated, shall be the Chief Executive Officer of the Corporation; if
designated by the Chairman, he or she shall preside at all meetings of the
stockholders, and shall see that all orders and resolutions of the Board are
carried into effect. The President, unless the Chairman has been so designated,
shall also be the chief administrative officer of the Corporation and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 5.07. VICE-PRESIDENT. The Vice-Presidents, in the order of
their seniority, shall, in the absence or disability of the President, perform
the duties and exercise the powers of the President and shall perform such other
duties as the Board of Directors or the Chief Executive Officer may from time to
time prescribe.
Section 5.08. SECRETARY. Unless a secretary of the meeting has been
appointed, the Secretary shall attend all meetings of the Board of Directors and
all meetings of the stockholders and record all the proceedings thereof and
shall perform like duties for any Committee when required. He or she shall give,
or cause to be given, notice of meetings of the stockholders and of the Board of
Directors, shall have charge of, or shall cause an agent to have charge of, the
records of the Corporation, including the stock books, and shall perform such
other duties as may be prescribed by the Board of Directors or Chief Executive
Officer, under whose supervision the Secretary shall be. The Secretary shall
keep in safe custody the seal of the Corporation and, when authorized by the
Board of Directors, shall affix and attest the same to any instrument requiring
it. The Board of Directors may give general authority to any other officer to
affix the seal of the Corporation and to attest the affixing by his or her
signature.
Section 5.09. ASSISTANT SECRETARIES. The Assistant Secretaries in
order of their seniority, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties as the Board of Directors shall prescribe.
<PAGE>
Section 5.10. TREASURER. The Treasurer, unless another officer has
been so designated, shall be the Chief Financial Officer of the Corporation. He
or she shall have general charge of the finances and books of account of the
Corporation. Except as otherwise provided by the Board of Directors the
Treasurer shall have general supervision of the funds and property of the
Corporation and of the performance by the custodian of its duties with respect
thereto. The Treasurer shall render to the Board of Directors, whenever directed
by the Board, an account of the financial condition of the Corporation and of
all his or her transactions as Treasurer. The Treasurer shall cause to be
prepared annually a full and correct statement of the affairs of the Corporation
including a balance sheet and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
stockholders, if such a meeting be held, and filed within twenty days
thereafter, or after the date set herein for such meeting, at the principal
office of the Corporation in the State of Maryland. The Treasurer shall perform
all the acts incidental to the office of Treasurer, subject to the control of
the Board of Directors.
Section 5.11. CONTROLLER. The Controller shall be under the direct
supervision of the Chief Financial Officer of the Corporation. The Controller
shall have such further powers and duties as may be conferred upon him or her
from time to time by the President or the Board of Directors.
Section 5.12. ASSISTANT TREASURER. The Assistant Treasurers, in the
order of their seniority, shall, in the absence or disability of the Treasurer,
perform such other duties as the Board of Directors may from time to time
prescribe.
Section 5.13. SURETY BONDS. The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act) to the Corporation
in such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his or her duties to the
Corporation, including responsibility for negligence and for the accounting of
any Corporation's property, funds or securities that may come into his or her
hands.
<PAGE>
ARTICLE VI
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
Each class of the Corporation's common stock shall be subject to two
different types of limitations on the investments which may be made with the
assets of that class. The first type of limitation, referred to hereinafter as
"Fundamental Policies," may not be changed without approval of the lesser of (a)
67% or more of the shares of that class present at a meeting if the holders of
more than 50% of the outstanding shares of that class are present or represented
by proxy, or (b) more than 50% of the outstanding shares of that class of stock.
The second type of limitation, referred to hereinafter as "Investment
Restrictions, "may be changed by the Board of Directors without shareholder
approval or prior notification. The Fundamental Policies and Investment
Restrictions which apply to each class of the Corporation's common stock shall
be set forth in the Prospectus or the Statement of Additional Information for
such class of common stock.
ARTICLE VII
STOCK
Section 7.01. CERTIFICATES. The Corporation may, but is not required
to, issue certificates representing shares of the Corporation. If certificates
are issued, they shall be in a form approved by the Board of Directors which
shall certify the class and the number of shares owned by such stockholder in
the Corporation. Any such certificate shall be signed by the President or a Vice
President and countersigned by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer.
Section 7.02. SIGNATURE. Where a certificate is signed (1) by a
transfer agent or an assistant transfer agent, or (2) by a transfer clerk acting
on behalf of the Corporation and a registrar, the signature of any such
President, Vice President, Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary may be a facsimile. In case any officer who has signed any
certificate ceases to be an officer of the Corporation before the certificate is
issued, the certificate may nevertheless be issued by the Corporation with the
same effect as if the officer had not ceased to be such officer as of the date
of its issue.
Section 7.03. RECORDING AND TRANSFER WITHOUT CERTIFICATES.
Notwithstanding the foregoing provisions of this Article VII, the Corporation
shall have full power to participate in any program approved by the Board of
Directors providing for the recording and transfer of ownership of shares of the
Corporation's stock by electronic or other means without the issuance of
certificates.
<PAGE>
Section 7.04. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been stolen,
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to have been stolen, lost or destroyed, or
upon other satisfactory evidence of such theft, loss or destruction. When
authorizing such issuance of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such stolen, lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and to give the Corporation a bond with sufficient surety to
the Corporation to indemnify it against any loss or claim that may be made by
reason of the issuance of a new certificate.
Section 7.05. TRANSFER OF CAPITAL STOCK. Transfers of shares of the
stock of the Corporation shall be made on the books of the Corporation by the
holder of record thereof (in person or by his attorney thereunto duly authorized
by a power of attorney duly executed in writing and filed with the Secretary of
the Corporation) (a) if a certificate or certificates have been issued, upon the
surrender of the certificate or certificates, properly endorsed or accompanied
by proper instruments of transfer, representing such shares, or (b) as otherwise
prescribed by the Board of Directors. Every certificate exchanged, surrendered
for redemption or otherwise returned to the Corporation shall be marked
"cancelled" with the date of cancellation.
Section 7.06. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by the
laws of Maryland.
Section 7.07. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may, from time to time, appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made, all certificates representing shares
<PAGE>
of stock thereafter issued shall be countersigned by one of such transfer agents
or by one of such registrars of transfers or by both and shall not be valid
unless so countersigned. If the same person shall be both transfer agent and
registrar, only one countersignature by such person shall be required.
Section 7.08. STOCK LEDGER. The Corporation shall maintain an original
stock ledger containing the names and addresses of all stockholders and the
number and class of shares held by each stockholder. Such stock ledger may be in
written form or any other form capable of being converted into written form
within a reasonable time for visual inspection.
Section 7.09. TRANSFER REGULATIONS. The shares of stock of the
Corporation may be freely transferred, and the Board of Directors may, from time
to time, adopt rules and regulations with reference to the method of transfer of
the shares of stock of the Corporation.
Section 7.10. FIXING OF RECORD DATE. The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, provided that
such record date shall not be a date more than ninety nor less than ten days
prior to the date on which the particular action requiring such determination of
stockholders of record on the record date so fixed shall be entitled to such
notice of, and to vote at, such meeting or adjournment, or to give such consent,
or to receive payment of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights or to take such other action, as
the case may be, notwithstanding any transfer of any shares on the books of the
Corporation after any such record date. A meeting of shareholders convened on
the date for which it was called may be adjourned from time to time without
further notice to a date not more than 120 days after the original record date.
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. RIGHTS IN SECURITIES. The Board of Directors, on behalf
of the Corporation, shall have the authority to exercise all of the rights of
the Corporation as owner of any securities which might be exercised by any
individual owning such securities in his own right; including, but not limited
to, the rights to vote by proxy for any and all purposes, to consent to the
reorganization, merger or consolidation of any issuer or to consent to the sale,
lease or mortgage of all or substantially all of the property and assets of any
issuer; and to exchange any of the shares of stock of the issuer for the shares
of stock issued therefor upon any such reorganization, merger, consolidation,
sale, lease or mortgage. The Board of Directors shall have the right to
authorize any officer of the investment adviser to execute proxies and the right
to delegate the authority granted by this Section 8.01 to any officer of the
Corporation.
Section 8.02. CUSTODIANSHIP.
(a) The Corporation shall place and at all times maintain in the
custody of a custodian (including any sub-custodian) all funds, securities and
similar investments owned by the Corporation. Subject to the approval of the
Board of Directors, the custodian may enter into arrangements with securities
depositories, as long as such arrangements comply with the provisions of the
Investment Company Act. The custodian (and any sub-custodian) shall be a bank
having not less than $2,000,000 aggregate capital, surplus and undivided profits
and shall be appointed from time to time by the Board of Directors, which shall
fix its remuneration.
(b) Upon termination of a custodian agreement or inability of the
custodian to continue to serve, the Board of Directors shall promptly appoint a
successor custodian. But in the event that no successor custodian can be found
who has the required qualifications and is willing to serve, the Board of
Directors shall call as promptly as possible a special meeting of the
stockholders to determine whether the Corporation shall function without a
custodian or shall be liquidated. If so directed by vote of the holders of a
majority of the outstanding shares of stock of the Corporation, the custodian
shall deliver and pay over all property of the Corporation held by it as
specified in such vote.
(c) The following provisions shall apply to the employment of a
custodian and to any contract entered into with the custodian so employed:
<PAGE>
The Board of Directors shall cause to be delivered to the
custodian all securities owned by the Corporation or to which it may
become entitled, and shall order the same to be delivered by the
custodian only in completion of a sale, exchange, transfer, pledge or
other disposition thereof, all as the Board of Directors may generally
or from time to time require or approve or to a successor custodian;
and the Board of Directors shall cause all funds owned by the
Corporation or to which it may become entitled to be paid to the
custodian, and shall order the same disbursed only for investment
against delivery of the securities acquired, or in payment of
expenses, including management compensation, and liabilities of the
Corporation, including distributions to shareholders or proper
payments to borrowers of securities representing partial return of
collateral, or to a successor custodian.
Section 8.03. REPORTS. Not less often than semi-annually, the
Corporation shall transmit to the stockholders a report of the operations of the
Corporation, based at least annually upon an audit by independent public
accountants, which report shall clearly set forth, in addition to the
information customarily furnished in a balance sheet and profit and loss
statement, a statement of all amounts paid to security dealers, legal counsel,
transfer agent, disbursing agent, registrar or custodian or trustee, where such
payments are made to a firm, Corporation, bank or trust company, having a
partner, officer or director who is also an officer or director of the
Corporation. A copy, or copies, of all reports submitted to the stockholders or
the Corporation shall also be sent, as required, to the regulatory agencies of
the United States and of the states in which the securities of the Corporation
are registered and sold.
Section 8.04. SEAL. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Maryland." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise. Any officer or
director of the Corporation shall have authority to affix the corporate seal of
the Corporation to any document requiring the same.
Section 8.05. EXECUTION OF INSTRUMENTS. All deeds, documents,
transfers, contracts, agreements and other
<PAGE>
instruments requiring execution by the Corporation shall be signed by the
Chairman or the President or a Vice President and by the Treasurer or Secretary
or an Assistant Treasurer or an Assistant Secretary, or as the Board of
Directors may otherwise, from time to time, authorize. Any such authorization
may be general or confined to specific instances. Except as otherwise authorized
by the Board of Directors, all requisitions or orders for the assignment of
securities standing in the name of the custodian or its nominee, or for the
execution of powers to transfer the same, shall be signed in the name of the
Corporation by the Chairman or the President or a Vice President and by the
Secretary, Treasurer or an Assistant Secretary.
Section 8.06. CHECKS, NOTES, DRAFTS, ETC. So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the Board of Directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Corporation by the President or a Vice President and by the
Treasurer or an Assistant Treasurer. Promissory notes, checks or drafts payable
to the Corporation may be endorsed only to the order of the custodian or its
nominee and only by the Treasurer or President or a Vice President or by such
other person or persons as shall be authorized by the Board of Directors.
ARTICLE IX
REDEMPTION AND REPURCHASE OF THE CORPORATION'S SHARES
Section 9.01. REDEMPTION OF SHARES. All shares of all classes of the
common stock of the Corporation now or hereafter authorized shall be "subject to
redemption" and "redeemable" in the sense used in the laws of Maryland
authorizing the formation of Corporations, at the redemption or purchase price
for any such shares, determined in the manner provided in the Articles of
Incorporation or in any amendment thereto; provided, however, that the
Corporation shall have the right, at its option, to refuse to redeem the shares
of stock at less than the par value thereof. Redeemed shares may be resold by
the Corporation.
The Corporation shall redeem shares of any class of its common stock,
subject to the conditions, and at the price determined as hereinafter set forth,
upon the appropriately verified written application of the record holder thereof
<PAGE>
(or upon such other form of request as the Board of Directors may determine) at
such office or agency as may be designated from time to time for that purpose by
the Board of Directors. Any such application must be accompanied by any
certificate or certificates which may have been issued for such shares, duly
endorsed or accompanied by a proper instrument of transfer.
Section 9.02. PRICE. Such shares shall be redeemed at their net asset
value determined as provided in Article X hereof as of such time as the Board of
Directors shall have prescribed by resolution. In the absence of such
resolution, the redemption price of shares shall be the net asset value of such
shares next determined as provided in Article X hereof after receipt of such
application (including any certificate or certificates which may have been
issued therefor, if any, duly endorsed or accompanied by a proper instrument of
transfer).
Section 9.03. PAYMENT. Payment for such shares shall be made in cash
to the stockholder of record within seven (7) days after the date upon which the
application (including any certificate or certificates which may have been
issued therefor, duly endorsed or accompanied by a proper instrument of
transfer) is received, subject to the provisions of Section 9.04 hereof and the
provisions of Articles of Incorporation.
Section 9.04. EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET
VALUE. If, pursuant to Section 10.03 hereof, the Board of directors shall
declare a suspension of the determination of net asset value, the rights of
stockholders (including those who shall have applied for redemption pursuant to
Section 9.01 hereof but who shall not yet have received payment) to have shares
redeemed and paid for by the Corporation shall be suspended until the
termination of such suspension is declared. Any stockholder who shall have his
redemption right so suspended may during the period of such suspension, by
appropriate written notice of revocation at the office or agency where
application was made, revoke any application for redemption not honored and
withdraw any certificates on deposit. The redemption price of shares for which
redemption applications have not been revoked shall be the net asset value of
such shares next determined as provided in Article X after the termination of
such suspension, and payment shall be made within seven (7) days after the date
upon which the application was made plus the period after such application
during which the determination of net asset value was suspended.
<PAGE>
Section 9.05. REPURCHASE BY AGREEMENT. The Corporation may repurchase
shares of any class of common stock of the Corporation directly, or through its
distributor or another agent designated for the purpose, by agreement with the
owner thereof at a price not exceeding the net asset value per share determined
pursuant to Article X hereof.
Section 9.06. REDEMPTION OF STOCKHOLDERS' INTERESTS. The Corporation
shall have the right to redeem shares of any stockholder for their then current
net asset value per share as provided in the Articles of Incorporation.
ARTICLE X
NET ASSET VALUE OF SHARES
Section 10.01. BY WHOM DETERMINED. The Board of Directors shall have
the power and duty to determine from time to time the net asset value per share
of the outstanding shares of each class of common stock of the Corporation It
may delegate such power and duty to any one or more of the directors and
officers of the Corporation, to the investment adviser, custodian or depository
of the Corporation's assets, or to another agent of the Corporation appointed
for such purpose. Any determination made pursuant to this Section by the Board
of Directors or its delegate shall be binding on all parties concerned.
Section 10.02. WHEN DETERMINED. The net asset value shall be
determined at such time as the Board of Directors shall prescribe by resolution,
provided that such net asset value shall be determined at least once each week.
In the absence of a resolution of the Board of Directors, the net asset value
shall be determined at the close of the New York Stock Exchange on each business
day that the Exchange is open for trading.
Section 10.03. SUSPENSION OF DETERMINATION OF NET ASSET VALUE. The
Board of Directors may declare a suspension of the determination of net asset
value for the whole or any part of any period (a) during which the New York
Stock Exchange is closed other than customary week-end and holiday closings, (b)
during which trading on the New York Stock Exchange is restricted, (c) during
which an emergency exists as a result of which disposal by the Corporation of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value of its net assets
or (d) during which a governmental body having jurisdiction over the Corporation
may by order permit for the protection
<PAGE>
of the stockholders of Corporation. Such suspension shall take effect at such
time as the Board of Directors shall specify and thereafter there shall be no
determination of net asset value until the Board of Directors shall declare the
suspension at an end, except that the suspension shall terminate in any event on
the first day on which (a) the condition giving rise to the suspension shall
have ceased to exist, and (b) no other conditions exists under which suspension
is authorized under this Section 10.03. Each declaration by the Board of
Directors pursuant to this Section 10.03 shall be consistent with such official
rules and regulations, if any, relating to the subject matter thereof as shall
have been promulgated by the Securities and Exchange Commission or any other
governmental body having jurisdiction over the Corporation and as shall be in
effect at the time. To the extent not inconsistent with such official rules and
regulations, the determination of the Board of Directors shall be conclusive.
Section 10.04. COMPUTATION OF PER SHARE NET ASSET VALUE.
(a) NET ASSET VALUE PER SHARE. The net asset value of each share of a
class of common stock as of any particular time shall be the quotient obtained
by dividing the value of the net assets of such class by the total number of
shares of such class outstanding.
(b) VALUE OF THE NET ASSETS OF A CLASS. The value of the net assets of
a class of common stock as of any particular time shall be the value of the
assets belonging to such class less the liabilities belonging to such class,
determined and computed as follows:
(i) ASSETS BELONGING TO A CLASS. The assets belonging to a
class of common stock shall be deemed to include the following items
to the extent they belong to or are attributed to, in whole or in
part, such class: (A) all cash on hand or on deposit, including any
interest accrued thereon, (B) all bills and demand notes and accounts
receivable, (C) all securities owned or contracted for by the
Corporation, (D) all stock and cash dividends and cash distributions
payable to but not yet received by that class (or by the Corporation
on behalf of that class) (when the valuation of the underlying
security is being determined ex-dividend), (E) all interest accrued on
any interest- bearing securities owned by that class (or by the
Corporation on behalf of that class) (except accrued interest included
in the valuation of the underlying security),
<PAGE>
(F) all repurchase agreements and (G) all other property of every kind
and nature, including prepaid expenses.
(ii) VALUATION OF ASSETS. The value of such assets is to be
determined as follows:
(A) CASH AND PREPAID EXPENSES. The value of any cash on hand
and of any prepaid expenses shall be deemed to be their face
amount.
(B) OTHER CURRENT ASSETS. The value of any cash on deposit,
bills, demand notes, accounts receivable, and cash dividends
and interest declared or accrued as aforesaid and not yet
received shall be deemed to be the face amount thereof,
unless the Board of Directors or its delegate shall determine
that any such item is not worth its face amount. In such
case, the value of the item shall be deemed to be its
reasonable value, as determined by the Board of Directors or
its delegate.
(C) SECURITIES LISTED OR DEALT IN ON NEW YORK STOCK EXCHANGE.
The value of any security listed or dealt in upon the New
York Stock Exchange and not subject to restrictions against
sale by the Corporation on such Exchange shall be determined
by taking the latest sale price at the time as of which net
asset value is being determined, all as reported by means in
common use. Lacking any sales, the value shall be deemed to
be such value, not higher than the closing asked price and
not lower than the closing bid price therefor at such time,
as the Board of Directors or its delegate may from time to
time determine. When an appraisal is made as part of a
determination other than as of the close of trading, the
latest available quotations (i.e., last sale on that date or
latest bid price if no sale on that day) shall be used. The
Board of Directors may be resolution permit quotations on an
exchange other than the New York Stock Exchange or
over-the-counter rather than stock exchange quotations to be
used when they appear to the Board of Directors or its
delegate to reflect more closely the fair value of any
particular security in the portfolio.
(D) SECURITIES LISTED ON OTHER EXCHANGES. The value of any
security listed or dealt in on one or
<PAGE>
more securities exchanges, but not on the New York Stock
Exchange and not subject to restrictions against the sale by
the Corporation on such exchanges, shall be determined as
nearly as possible in the manner described in the preceding
subparagraph, with reference to the quotations on the
exchange that, in the opinion of the Board of Directors or
its delegate, best reflects the fair value of the security.
(E) UNLISTED SECURITIES AND OTHER PROPERTY. All other
securities for which over-the-counter market quotations are
readily available shall be valued at the last current bid
price. The value of any other property, the valuation of
which is not provided for above, shall be its fair market
value as determined in such manner as the Board of Directors
shall from time to time prescribe by resolution.
(iii) LIABILITIES BELONGING TO A CLASS. The liabilities
belonging to a class of common stock shall not be deemed to include
outstanding shares and surplus. They shall be deemed to include the
following items to the extent they belong to or are attributed to, in
whole or in part, that class: (A) all bills and accounts payable, (B)
all expenses accrued, (C) all contractual obligations for the payment
of money or property, including the amount of any unpaid dividends
upon the shares of that class declared to shareholders of record at or
before the time as of which the net asset value is being determined,
(D) all reserves authorized or approved by the Board of Directors for
taxes or contingencies and (E) all other liabilities of whatsoever
kind and nature.
(c) OTHER METHODS OF VALUATION. The Board of Directors is empowered to
establish other methods for determining such asset value whenever, because of
extraordinary or emergency conditions, such other methods are deemed by it to be
necessary, or at any time in order to enable the Corporation to comply with any
provision of the Investment Company Act, including Section 22 thereof.
Section 10.05. INTERIM DETERMINATIONS. Any determination of net
asset value other than as of the close of trading on the New York Stock Exchange
may be made either by appraisal or by calculation or estimate. Any such
calculation or estimate shall be based on changes in the market value of
representative or selected securities or on
<PAGE>
recognized market averages since the last closing appraisal and made in a manner
which, in the opinion of the Board of Directors or its delegate, will fairly
reflect the changes in the net asset value.
Section 10.06. MISCELLANEOUS. For the purposes of this Article X:
(a) Shares of any class of common stock of the Corporation sold shall
be deemed to be outstanding as of the time at or after an unconditional order
therefor has been received by the Corporation (directly or through one of its
agents) and the sale price in currency has been determined. The net sale price
of shares of a class of stock sold by the Corporation (less commission, if any,
and less any stamp or other tax payable by the Corporation in connection with
the issue and sale thereof) shall be thereupon deemed to be an asset of that
class of stock of the Corporation.
(b) Shares of any class of stock of the Corporation for which an
application for redemption has been made or which are subject to repurchase by
the Corporation shall be deemed to be outstanding up to and including the time
as of which the redemption or repurchase price is determined. After such time,
they shall be deemed to be no longer outstanding and the price until paid shall
be deemed to be a liability of that class of stock.
(c) Funds on deposit and contractual obligations payable to the
Corporation or a class of stock of the Corporation in foreign currency ad
liabilities and contractual obligations payable by the Corporation or a class of
stock of the Corporation in foreign currency shall be taken at the current cable
rate of exchange as nearly as practicable at the time of which the net asset
value is computed.
ARTICLE XI
ACCOUNTANT
Section 11.01. ACCOUNTANT.
(a) The Corporation shall employ an independent public accountant or
firm of independent public accountants as its accountant to examine the accounts
of the Corporation and to sign and certify financial statements filed by the
Corporation. The accountant's certificates and reports shall be addressed both
to the Board of Directors and to the stockholders.
<PAGE>
(b) A majority of the members of the Board of Directors who are not
interested persons (as such term is defined in the Investment Company Act) of
the Corporation shall select the accountant at any meeting held within 30 days
before or 90 days after the beginning of the fiscal year of the Corporation or
before the annual stockholders' meeting in that year. Such selection shall be
submitted for ratification or rejection at the next succeeding annual
stockholder's meeting if such meeting be held. If such meeting shall reject such
selection, the accountant shall be selected by majority vote of the
Corporation's outstanding voting securities, either at the meeting at which the
rejection occurred or at a subsequent meeting of stockholders called for the
purpose.
(c) Any vacancy occurring between annual meetings, due to the death or
resignation of the accountant, may be filled by a majority of the members of the
Board of Directors who are not such interested persons.
ARTICLE XII
INDEMNIFICATION AND INSURANCE
Section 12.01. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS. The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or has been a director, officer, employee or agent
of the Corporation, or is or has been a director, officer, employee or agent of
another Corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, to the full extent provided and allowed by Section
2-418 of the General Corporation Law of Maryland, as amended from time to time,
or any other applicable provisions of law. Notwithstanding any provision herein
to the contrary, no such person shall be indemnified in violation of Section
17(h) and (I) of the Investment Company Act.
Section 12.02. INSURANCE OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.
The Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another Corporation, partnership, joint venture, trust or other
enterprise
<PAGE>
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability.
ARTICLE XIII
AMENDMENTS
The By-laws of the Corporation may be altered, amended or repealed
either by the affirmative vote of a majority of the stock issued and outstanding
and entitled to vote in respect thereof and represented in person or by proxy at
any annual or special meeting of the stockholders, or by the Board of Directors
at any regular or special meeting of the Board of Directors; provided, that the
Board of Directors may not alter, amend or repeal this Article XIII and may
amend Article VI only in accordance with the terms contained therein, and that
the vote of stockholders required for alteration, amendment or repeal of any of
such provisions shall be subject to all applicable requirements of federal or
state laws or of the Articles of Incorporation.
FORM OF INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement is executed as of this __ day of __ ,
1998, between FOUNDERS FUNDS, INC., a Maryland corporation (the "Company") on
behalf of each of its series Funds listed on Appendix 1 to this Agreement, which
Appendix 1 is incorporated into this Agreement by this reference (as to each
series, the "Fund"), and FOUNDERS ASSET MANAGEMENT LLC, a Delaware limited
liability company (the "Adviser").
WHEREAS, the Company has been organized and operates as an investment
company registered under the Investment Company Act of 1940 for the purpose of
investing and reinvesting its assets in securities, as set forth in its Articles
of Incorporation, its By-Laws and its Registration Statements under the
Investment Company Act of 1940 and the Securities Act of 1933, all as heretofore
amended and from time to time further amended and supplemented; and the Company
on behalf of each Fund desires to avail itself of the services, information,
advice, assistance and facilities of an investment adviser and to have an
investment adviser perform for it various management, statistical, research,
investment advisory and other services; and,
WHEREAS, the Adviser is engaged in the business of rendering management,
investment advisory, counseling and supervisory services to investment companies
and desires to provide these services to the Company.
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISER. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of each Fund and to
administer its affairs, consistent with the Fund's objectives, policies and
restrictions, and subject to the overall supervision of the Board of Directors
of the Company, for the period and on the terms hereinafter set forth. The
Adviser hereby accepts such employment and agrees during such period to render
the services and to assume the obligations herein set forth for the compensation
herein provided. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Company or any Fund in any way or otherwise be deemed an agent of the Company or
any Fund.
<PAGE>
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADVISER. In return for
the compensation described in paragraph 4 hereof, the Adviser undertakes to
provide the following services and to assume the following obligations:
A. OFFICE SPACE, FURNISHINGS, FACILITIES, EQUIPMENT AND PERSONNEL. The
Adviser shall furnish to the Company adequate office space, which may be space
within the office of the Adviser or in such other place as may be agreed upon
from time to time. The Adviser also shall furnish to the Company office
furnishings, facilities and equipment, including computer equipment and
programs, as may be reasonably required for managing the corporate affairs and
conducting the business of the Company, including ordinary clerical, bookkeeping
and administrative services, and maintenance of each Fund's books and records.
The Adviser shall employ or provide and compensate the executive, secretarial
and clerical personnel necessary to provide such services. The Adviser shall
also compensate all officers and employees of the Company and, in addition to
the services described in subparagraph D of this paragraph, shall permit
officers and employees of the Adviser to serve as directors or officers of the
Company, without compensation from the Company, if elected to such positions.
B. INVESTMENT ADVISORY SERVICES AND BROKERAGE ALLOCATION.
(1) The Adviser shall recommend from time to time to the officers and
directors of the Company a course of investment for each Fund's assets and
portfolio, subject to and in accordance with the investment objectives and
policies of the Fund and any directions which the Company's Board of Directors
may issue from time to time. The Adviser's recommendations also shall include
the manner in which the voting rights, rights to consent to corporate action and
any other rights pertaining to the Fund's portfolio securities shall be
exercised. Subject to such objectives, policies and directions and subject to
the overall supervision of the Board of Directors of the Company, the Adviser
shall manage the investment and reinvestment of the assets of each Fund. The
Adviser shall render such reports to the Company concerning the investment of
each Fund's assets and portfolio as may be required by the Board of Directors of
the Company.
(2) Decisions with respect to placement of each Fund's portfolio
transactions shall be made by the Adviser. The primary consideration in making
these decisions shall be to seek the best execution of orders at the most
favorable net prices for the Fund, taking into account such factors as the size
of the order, difficulty of execution, and the reliability, financial condition
and capabilities of the broker or dealer. Subject to these objectives, business
may be placed with brokers and dealers who furnish investment research services
to the Adviser or to affiliates of the Adviser. Such research services include
advice,
<PAGE>
both directly and in writing, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities, or purchasers or sellers of securities, as well as the furnishing of
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy, and the performance of accounts. Such
services allow the Adviser and its affiliates to supplement their own investment
research activities and provide them with information from individuals and
research staffs of many securities firms. The Company acknowledges on behalf of
each Fund that to the extent portfolio transactions are effected with brokers or
dealers who furnish research services to the Adviser or its affiliates, they
receive a benefit, which generally is not capable of evaluation in dollar
amounts, which is not passed on to the Fund in the form of a direct monetary
benefit.
(3) The Adviser shall render such reports regarding allocation of brokerage
business as may be required by the Board of Directors of the Company.
C. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Adviser shall make
available and provide accounting and statistical information required by the
Company and its principal underwriter in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and such information as the principal underwriter of the Company may
reasonably request, for use in the preparation of such documents or of other
materials necessary or helpful for the underwriting and distribution of each
Fund's shares.
D. OTHER OBLIGATIONS AND SERVICES. The Adviser shall keep its
qualifications, facilities and staff fully adequate for performance of its
duties hereunder, and will perform such duties in good faith and in the best
interests of the Fund. The Adviser shall comply in all respects with applicable
statutory and regulatory provisions, including the Investment Company Act of
1940 and the Investment Advisers Act of 1940. The Adviser shall make available
its officers and employees to the Board of Directors and officers of the Company
for consultation and discussions regarding the administrative management of each
Fund and its investment activities.
3. EXPENSES OF EACH FUND. It is understood that each Fund will pay all of
its expenses other than those expressly assumed by the Adviser herein, which
expenses payable by the Fund shall include:
A. Fees to the Adviser as provided herein;
B. Expenses of all audits by independent public accountants;
<PAGE>
C. The allocated portion of fees and expenses of legal counsel in
connection with legal services rendered to the Company, including the
Board of Directors of the Company, committees of the Board of
Directors and those directors who are not "interested persons" of the
Company or the Adviser, as defined in the Investment Company Act of
1940, and litigation;
D. Brokerage fees and commissions and other transaction costs in
connection with the purchase and sale of portfolio securities for the
Fund;
E. Costs, including the interest expense, of borrowing money;
F. All federal, state and local taxes levied against the Fund;
G. The allocated portion of fees of directors of the Company not
affiliated with the Adviser;
H. The allocated portion of costs and expenses of meetings of the Board
of Directors, committees of the Board of Directors and shareholders of
the Company;
I. Fees and expenses of the Company's transfer agent, registrar,
custodian, dividend disbursing agent, shareholder accounting agent,
and other agents approved by the Board of Directors of the Company;
J. Cost of printing stock certificates representing shares of the Fund;
K. Fees and expenses of registering and qualifying and maintaining
registration and qualification of the Company, the Fund and its shares
under federal, state and foreign securities laws;
L. The allocated portion of fees and expenses incident to filing of
reports with regulatory bodies and maintenance of the Company's
existence;
M. The allocated portion of premiums for insurance carried by the Company
pursuant to the requirements of Section 17(g) of the Investment
Company Act of 1940;
N. The allocated portion of fees and expenses incurred in connection with
any investment company organization or trade association of which the
Company may be a member;
O. The allocated portion of expenses of preparation, printing (including
typesetting) and distribution of reports, notices and prospectuses to
existing shareholders of the Company;
<PAGE>
P. Expenses of computing the Fund's daily per share net asset value; and
Q. The allocated portion of expenses incurred by the Company in
connection with litigation proceedings or claims, including any
obligation the Company may have to indemnify its officers and
directors with respect thereto.
4. COMPENSATION OF THE ADVISER. As compensation for its services to each
Fund, the Adviser will be paid a monthly management fee by the Fund at an annual
rate equal to the percentages of the average daily value of the Fund's net
assets described as to each Fund on Appendix 1 to this Agreement, with each
Fund's net assets determined in accordance with provisions of the then current
prospectus of the Fund. All fees and expenses are accrued daily and deducted
before payment of dividends to shareholders. The fee is payable monthly and
shall be prorated for any portion of a month beginning on the date of this
Agreement or ending on termination of this Agreement.
5. EXPENSE LIMITATION. In the event the total expenses of a Fund for any
fiscal year, including the advisory fee but excluding interest, taxes, brokerage
commissions and extraordinary expenses, should exceed the lowest applicable
annual expense limitation established pursuant to the statutes or regulations of
any jurisdiction in which shares of the Fund are then qualified for offer or
sale, the Adviser shall reimburse the Fund for the full amount of such excess.
Such reimbursement shall be made by the Adviser monthly, subject to annual
reconciliation.
6. ACTIVITIES OF THE ADVISER. Nothing in this Agreement shall limit or
restrict the right of any director, officer or employee of the Adviser who may
also be a director, officer or employee of the Company to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any business, whether of a similar or a dissimilar nature, nor to
limit or restrict the right of the Adviser to engage in any other business or to
render services of any kind to any other corporation, firm, individual or
association. Subject to and in accordance with the Articles of Incorporation and
By-Laws of the Company and to Section 10(a) of the Investment Company Act of
1940, it is understood that directors, officers, agents and shareholders of the
Company are or may be interested in the Adviser or its affiliates as directors,
officers, agents or shareholders of the Adviser or its affiliates and that
directors, officers, agents or shareholders of the Adviser or its affiliates are
or may be interested in the Company as directors, officers, shareholders or
otherwise, and that the effect of any such interests shall be governed by said
Articles of Incorporation, said By-Laws and the Act.
<PAGE>
7. LIABILITIES. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Company or
to any Fund hereunder for any act or omission in the course of, or connected
with, rendering services hereunder. No liability to the Adviser hereunder shall
attach individually to the shareholders, directors or officers of the Company.
8. RENEWAL, TERMINATION AND AMENDMENT. This Agreement shall become
effective upon the date first above written and shall continue in effect for an
initial term ending May 31, 1999, unless earlier amended or terminated. This
Agreement is renewable thereafter as to each Fund for successive periods not to
exceed one year if such continuance is approved at least annually by votes of
the Company's Board of Directors, cast in person at a meeting called for the
purpose of voting on such approval, or by a majority of the outstanding voting
securities of the Fund and in either event by the vote of a majority of the
directors who are not parties to the Agreement or interested persons of any such
party other than as directors of the Company. In addition, (i) this Agreement
may at any time be terminated as to any Fund without the payment of any penalty
either by vote of the Board of Directors of the Company or by vote of a majority
of the outstanding voting securities of the Fund, on 60 days' written notice to
the Adviser; (ii) this Agreement shall immediately terminate in the event of its
assignment (within the meaning of the Investment Company Act of 1940); and (iii)
this Agreement may be terminated by the Adviser on 60 days' written notice to
the Company. Any notice under this Agreement shall be given in writing addressed
and delivered, or mailed postpaid, to the other party at any office of such
party. This Agreement may be amended as to any Fund at any time by mutual
consent of the parties, provided that such consent on the part of the Company
shall have been approved by vote of a majority of the outstanding voting
securities of the Fund. As used in this paragraph, the term "vote of a majority
of the outstanding voting securities" shall have the meaning set forth for such
term in Section 2(a)(42) of the Investment Company Act of 1940.
9. NAME. The Company and each Fund may use the word "Founders" in their
names and businesses only so long as the Adviser acts as investment adviser to
the Fund.
10. SEVERABILITY. If any provision of this Agreement is held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
11. MISCELLANEOUS. This Agreement shall be subject to the laws of the State
of Colorado, and shall be interpreted and construed to further and promote the
operation of the Company as an open-end investment company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
FOUNDERS FUNDS, INC.
on behalf of each of the
series Funds listed on
Appendix 1 to this
Agreement
ATTEST: By:________________________
President
__________________________
Secretary
FOUNDERS ASSET
MANAGEMENT LLC
ATTEST: By:________________________
President
__________________________
Secretary
<PAGE>
APPENDIX 1
TO
FOUNDERS FUNDS, INC. INVESTMENT ADVISORY AGREEMENT
This Appendix 1 to the Investment Advisory Agreement ("Agreement") executed
as of the _ day of ______________, 1998, between Founders Funds, Inc. and
Founders Asset Management LLC is effective as of the __th day of ______________,
1998.
The following series Funds of Founders Funds, Inc. are parties to the
Agreement and, pursuant to paragraph 4 of the Agreement, shall pay to Founders
Asset Management LLC, as compensation for its services to each series Fund, the
management fees disclosed in the following table:
ADVISORY FEE
FUND SCHEDULE
--------------------------------------------
Discovery Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Passport Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Frontier Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Special Fund 1.00% to $30 million
0.75% next $270 million
0.70% next $200 million
0.65% thereafter
International Equity Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Worldwide Growth Fund 1.00% to $250 million
0.80% next $250 million
0.70% thereafter
Growth Fund 1.00% to $30 million
0.75% next $270 million
0.70% next $200 million
0.65% thereafter
Blue Chip Fund 0.65% to $250 million
0.60% next $250 million
0.55% next $250 million
0.50% thereafter
Balanced Fund 0.65% to $250 million
0.60% next $250 million
0.55% next $250 million
0.50% thereafter
Government Securities Fund 0.65% to $250 million
0.50% thereafter
Money Market Fund 0.50% to $250 million
0.45% next $250 million
0.40% next $250 million
0.35% thereafter
<PAGE>
FOUNDERS FUNDS, INC.
on behalf of each of the
series Funds listed on this
Appendix 1
ATTEST: By:__________________________
President
__________________________
Secretary
FOUNDERS ASSET
MANAGEMENT LLC
ATTEST: By:__________________________
President
__________________________
Assistant Secretary
FOUNDERS FUNDS, INC.
AMENDED AND RESTATED UNDERWRITING AGREEMENT
This Agreement made as of the 7th day of March, 1997, by and between
Founders Asset Management, Inc., a Delaware corporation (the "Underwriter"), and
Founders Funds, Inc., a Maryland corporation (the "Company"), on behalf of any
series of its shares which may now exist or hereafter be created (the "Funds").
WITNESSETH:
That in consideration of the mutual covenants herein contained and for
other good and valuable consideration the parties hereto, intending to be
legally bound hereby, agree as follows:
1. APPOINTMENT OF UNDERWRITER. Except as otherwise provided herein,
the Company hereby appoints the Underwriter its exclusive agent to sell and
distribute shares of the Funds without compensation at the public offering price
thereof, which shall be equivalent to their net asset value, calculated as
described in the current prospectus of the Company. The Company agrees that it
will deliver such shares as the Underwriter may sell. The Underwriter agrees 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.
2. INDEPENDENT CONTRACTOR. The Underwriter will undertake and
discharge its obligations hereunder as an independent contractor and shall have
no authority of power to obligate or bind the Company by its actions, conduct or
contracts except that it may be authorized to accept orders for the sale or
repurchase of shares of the Funds as the Company's agent. The Underwriter may
appoint subagents or distribute shares of the Funds through dealers or otherwise
as it may determine from time to time including, without limitation, appointing
subagents for the purpose of accepting orders for the sale or repurchase of Fund
shares, provided that no such appointment shall relieve the Underwriter of its
responsibility for the proper performance of this Agreement by the Underwriter
or, where applicable, its subagents.
3. PAYMENT FOR SHARES AND SHARE REGISTRATION. The Underwriter shall
notify the Company or cause the Company to be notified, at the end of each
business day, or as soon thereafter as orders placed during such day have been
compiled, of the number of shares and the prices thereof which the Underwriter
shall have sold on behalf of each Fund. The Underwriter shall use its best
efforts to cause the sums due for shares ordered from a Fund to be collected or
to be advanced to that Fund on behalf of purchasers on or before the third
business day after the shares have been so ordered. The Underwriter shall issue
and
<PAGE>
deliver on behalf of the Company or cause to be issued and delivered all
confirmations of transactions effected hereunder for the account of a Fund.
Unless otherwise requested by the purchaser, the Company will provide for the
recording of share purchases in "book accounts." Upon receipt of written request
from a purchaser, a certificate of shares in such names and amount as the
purchaser shall specify in writing will be delivered by the Company's Transfer
Agent as soon as practicable after payment therefor and their registration on
the books of the Company.
4. SUSPENSION OF SALES. The sale of shares of the Funds may be
suspended with or without prior notice whenever in the judgment of the Company
it is in its best interests to do so.
5. REPURCHASE OF SHARES. As the Company's agent, the Underwriter may
buy shares of a Fund offered for repurchase at the next effective net asset
value per share calculated and effective as set forth in Paragraphs 1 and 3
above. Whenever the officers of the Company deem it advisable, for the
protection of the shareholders of a Fund, they may suspend or cancel such
authority. The Underwriter will pay all expenses in connection with the
repurchase of shares.
6. CONDUCT OF BUSINESS. Neither the Underwriter nor any other person
is authorized by the Company or any Fund to give any information or make any
representation relative to the Company or any Fund's shares other than those
contained in the registration statement or prospectus filed with the Securities
and Exchange Commission as the same may be amended from time to time or in any
supplemental information to said prospectus approved by the Company. The
Underwriter agrees that any information or representation other than that
specified above which it or any dealer or other person who purchases shares
through the Underwriter may make in connection with the offer or sale of shares
shall be made entirely without liability on the part of the Company or any Fund.
The Underwriter agrees that in offering or selling shares as agent of the
Company, it will in all respects duly conform to all applicable state and
federal laws. The Underwriter will submit to the Company copies of all sales
literature before using the same and will not use such literature if disapproved
by the Company.
7. ALLOCATION OF EXPENSES. In connection with the sale and
distribution of shares pursuant to this Agreement, the Underwriter shall pay all
of its own expenses and such other expenses as are not specifically assumed by
the Company as hereinafter provided.
The Company specifically assumes and shall pay all fees and expenses,
including legal fees, incurred in (1) the preparation of audited financial
statements to the Company; (2) the preparation and initial printing of all post-
<PAGE>
effective amendments, supplements and revisions of its registration statements;
(3) printing and distributing copies of any prospectus to its shareholders; (4)
the preparation and initial printing of shareholder reports and communications
and distributing copies thereof to its shareholders; (5) the registration of the
Company and its shares with the Securities and Exchange Commission; and (6) the
qualification of the Company and its shares in each state in which its shares
will be qualified for sale.
8. OTHER ACTIVITIES. The Underwriter's services pursuant to this
Agreement shall not be deemed to be exclusive, and it may render similar
services and act as an underwriter, distributor or dealer for other investment
companies in the offering of their shares.
9. LIABILITY. The Underwriter is not to be liable to the Company or
any Fund hereunder for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties imposed on it by this Agreement.
10. TERM OF AGREEMENT. This Agreement shall become effective upon the
date first above written. This Agreement shall continue in effect through May
31, 1997, and thereafter for successive annual periods, provided that its
continuance is specifically approved at least annually by the Company's
directors or, with respect to any Fund, by vote of a majority of that Fund's
outstanding voting securities and, in any event, by a majority of those
directors who are not parties to this Agreement or interested persons of any
party to this Agreement (other than as directors of the Company) at a meeting
called for the purpose of voting on such approval.
This Agreement shall automatically terminate in the event of its
assignment (within the meaning of the Investment Company Act of 1940, as
amended); provided, however, that the Underwriter may employ such other person,
persons, corporation or corporations, as it shall determine, in order to assist
it in carrying out the provisions of this Agreement.
This Agreement may be terminated at any time by either party hereto by
giving six months' written notice to the other party, or at any time by mutual
consent of the parties hereto. Such notice shall be sent by certified mail.
Until further notice, the mailing address of both the Fund and the Underwriter
shall be:
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
11. MISCELLANEOUS. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Colorado and shall be
<PAGE>
interpreted and construed to further and promote the operation of the Company as
an open-end investment company. As used herein, the terms "Net Asset Value,"
"Offering Price," "Investment Company," and "Interested Persons" shall have the
meanings set forth in the Investment Company Act of 1940, as amended, and the
Rules, Regulations, Orders, and Forms thereunder.
IN WITNESS WHEREOF, this Agreement has been executed by the
Underwriter and the Company as of the day and year first above written.
FOUNDERS FUNDS, INC.
ATTEST: By: /S/ BJORN K. BORGEN
------------------------------
Bjorn K. Borgen, President
/S/ KENNETH R. CHRISTOFFERSEN
- ------------------------------------
Kenneth R. Christoffersen, Secretary
FOUNDERS ASSET MANAGEMENT, INC.
ATTEST: By: /S/ JONATHAN F. ZESCHIN
------------------------------
Jonathan F. Zeschin, President
/S/ DAVID L. RAY
- ---------------------------------
David L. Ray, Assistant Secretary
FOUNDERS FUNDS, INC.
FORM OF UNDERWRITING AGREEMENT
This Agreement made as of the __ day of _________,
1998, by and between Premier Mutual Fund Services, Inc., a
Delaware corporation (the "Underwriter"), and Founders
Funds, Inc., a Maryland corporation (the "Company"), on
behalf of any series of its shares which may now exist or
hereafter be created (the "Funds").
WITNESSETH:
That in consideration of the mutual covenants herein
contained and for other good and valuable consideration the
parties hereto, intending to be legally bound hereby, agree
as follows:
1. APPOINTMENT OF UNDERWRITER. Except as otherwise
provided herein, the Company hereby appoints the Underwriter
its exclusive agent to sell and distribute shares of the
Funds without compensation at the public offering price
thereof, which shall be equivalent to their net asset value,
calculated as described in the current prospectus of the
Company. The Company agrees that it will deliver such shares
as the Underwriter may sell. The Underwriter agrees 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.
2. INDEPENDENT CONTRACTOR. The Underwriter will
undertake and discharge its obligations hereunder as an
independent contractor and shall have no authority of power
to obligate or bind the Company by its actions, conduct or
contracts except that it may be authorized to accept orders
for the sale or repurchase of shares of the Funds as the
Company's agent. The Underwriter may appoint subagents or
distribute shares of the Funds through dealers or otherwise
as it may determine from time to time including, without
limitation, appointing subagents for the purpose of
accepting orders for the sale or repurchase of Fund shares,
provided that no such appointment shall relieve the
<PAGE>
Underwriter of its responsibility for the proper performance
of this Agreement by the Underwriter or, where applicable,
its subagents.
3. PAYMENT FOR SHARES AND SHARE REGISTRATION. The
Underwriter shall notify the Company or cause the Company to
be notified by the Company's Transfer Agent, at the end of
each business day, or as soon thereafter as orders placed
during such day have been compiled, of the number of shares
and the prices thereof which the Underwriter shall have sold
on behalf of each Fund. The Underwriter shall use its best
efforts to cause the sums due for shares ordered from a Fund
to be collected or to be advanced to that Fund by the
Company's Transfer Agent on behalf of purchasers on or
before the third business day after the shares have been so
ordered. The Underwriter shall issue and deliver on behalf
of the Company or cause to be issued and delivered by the
Company's Transfer Agent all confirmations of transactions
effected hereunder for the account of a Fund. The Company
will provide for the recording of share purchases in "book
accounts;" provided, however, that upon receipt of a written
request from a purchaser, the Company's Transfer Agent may,
but is not required to, deliver a certificate of shares in
such names and amount as the purchaser shall specify in
writing, such delivery to be made as soon as practicable
after payment therefor and their registration on the books
of the Company.
4. SUSPENSION OF SALES. The sale of shares of the
Funds may be suspended with or without prior notice whenever
in the judgment of the Company it is in its best interests
to do so.
5. REPURCHASE OF SHARES. As the Company's agent, the
Underwriter may buy shares of a Fund offered for repurchase
at the next effective net asset value per share calculated
and effective as set forth in Paragraphs 1 and 3 above.
Whenever the officers of the Company deem it advisable, for
the protection of the shareholders of a Fund, they may
suspend or cancel such authority. The Underwriter will pay
all expenses in connection with the repurchase of shares.
<PAGE>
6. CONDUCT OF BUSINESS. Neither the Underwriter nor
any other person is authorized by the Company or any Fund to
give any information or make any representation relative to
the Company or any Fund's shares other than those contained
in the registration statement or prospectus filed with the
Securities and Exchange Commission as the same may be
amended from time to time or in any supplemental information
to said prospectus approved by the Company. The Underwriter
agrees that any information or representation other than
that specified above which it or any dealer or other person
who purchases shares through the Underwriter may make in
connection with the offer or sale of shares shall be made
entirely without liability on the part of the Company or any
Fund. The Underwriter agrees that in offering or selling
shares as agent of the Company, it will in all respects duly
conform to all applicable state and federal laws. The
Underwriter will submit to the Company copies of all sales
literature before using the same and will not use such
literature if disapproved by the Company.
7. ALLOCATION OF EXPENSES. In connection with the
sale and distribution of shares pursuant to this Agreement,
the Underwriter shall pay all of its own expenses and such
other expenses as are not specifically assumed by the
Company as hereinafter provided.
The Company specifically assumes and shall pay all
fees and expenses, including legal fees, incurred in (a) the
preparation of audited financial statements to the Company;
(b) the preparation and initial printing of all
post-effective amendments, supplements and revisions of its
registration statements; (c) printing and distributing
copies of any prospectus to its shareholders; (d) the
preparation and initial printing of shareholder reports and
communications and distributing copies thereof to its
shareholders; (e) the registration of the Company and its
shares with the Securities and Exchange Commission; and (f)
the qualification of the Company and its shares in each
state in which its shares will be qualified for sale.
<PAGE>
Nothing contained herein shall be deemed to require the
Company to pay any of the costs of advertising the sale of
Company shares.
8. PROVISION OF INFORMATION. The Company shall
furnish the Underwriter from time to time, for use in
connection with the sale of shares of the Funds, such
information with respect to the Company or any relevant Fund
and the shares as the Underwriter may reasonably request,
all of which shall be signed by one or more of the Company's
duly authorized officers; and the Company warrants that the
statements contained in any such information, when so signed
by the Company's officers, shall be true and correct. The
Company also shall furnish the Underwriter upon request
with: (a) semi-annual reports and annual audited reports of
the Company's books and accounts made by independent public
accountants regularly retained by the Company, (b) a monthly
itemized list of the securities in the Company's or, if
applicable, each Fund's portfolio, and (c) from time to time
such additional information regarding the Company's
financial condition as the Underwriter may reasonably
request.
9. REGISTRATIONS AND QUALIFICATIONS; REPRESENTATIONS
AND WARRANTIES. (a) The Company agrees to execute any
and all documents and to furnish any and all information and
otherwise to take all actions which may be reasonably
necessary in the discretion of the Company's officers in
connection with the qualification of shares of the Funds for
sale in such states as the Underwriter may designate to the
Company and the Company may approve. The Underwriter shall
pay all expenses connected with its own qualification as a
dealer under state or Federal laws and, except as otherwise
specifically provided in this Agreement, all other expenses
incurred by it in connection with the sale of Shares as
contemplated in this Agreement.
(b) The Company represents to the Underwriter
that all registration statements and prospectuses filed by
the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and under the
Investment Company Act of 1940, as amended, with respect to
the shares have been carefully prepared in conformity with
the requirements of said Acts and rules and regulations of
<PAGE>
the Securities and Exchange Commission thereunder. As used
in this agreement the terms "registration statement" and
"prospectus" shall mean any registration statement and
prospectus, including the statement of additional
information incorporated by reference therein, filed with
the Securities and Exchange Commission and any amendments
and supplements thereto which at any time shall have been
filed with said Commission. The Company represents and
warrants to the Underwriter that any registration statement
and prospectus, when such registration statement becomes
effective, will contain all statements required to be stated
therein in conformity with said Acts and the rules and
regulations of said Commission; that all statements of fact
contained in any such registration statement and prospectus
will be true and correct when such registration statement
becomes effective; and that neither any registration
statement nor any prospectus when such registration
statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading. The Company may, but shall not be
obligated to, propose from time to time such amendment or
amendments to any registration statement and such supplement
or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Company's counsel,
be necessary or advisable. If the Company shall not propose
such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by the Company
of a written request from the Underwriter to do so, the
Underwriter may, at its option, terminate this agreement or
decline to make offers of the Company's securities until
such amendments are made if, in the Underwriter's reasonable
opinion, the failure to make such amendments could have a
material adverse effect upon the Underwriter. The Company
shall not file any amendment to any registration statement
or supplement to any prospectus without giving the
Underwriter reasonable notice thereof in advance, if
possible; provided, however, that nothing contained in this
agreement shall in any way limit the Company's right to file
<PAGE>
at any time such amendments to any registration statement
and/or supplements to any prospectus, of whatever character,
as the Company may deem advisable, such right being in all
respects absolute and unconditional.
(c) The Underwriter shall comply with all applicable
federal and state laws, rules and regulations, the rules and
regulations of any self-regulatory organization with
jurisdiction over the Underwriter and/or the Company, and
the provisions of the Company's prospectus and statement of
additional information (the foregoing laws, rules,
regulations and provisions are collectively referred to
herein as "Applicable Law") relating to the services the
Underwriter provides pursuant to this Agreement. The
Underwriter hereby represents and warrants to the Company
that:
(i) It has the corporate power and the
authority to enter into and perform all of its duties
and obligations under this Agreement;
(ii) This Agreement constitutes its legal,
valid and binding obligation and is enforceable against
it in accordance with its terms;
(iii) No consent or authorization of, filing
with, or other act by or in respect of any governmental
authority is required in connection with the execution,
delivery, performance, validity or enforceability of
this Agreement;
(iv) The execution, performance and delivery
of this Agreement by the Underwriter will not result in
its violating any Applicable Law or breaching or
otherwise impairing any of its contractual obligations;
and
(v) The Underwriter has obtained, and will
maintain in effect, all registrations under Applicable
Law that are necessary to enable it to perform its
obligations under this Agreement.
10. INDEMNIFICATION. (a) The Company authorizes the
Underwriter to use any current prospectus in the form
furnished by the Company to the Underwriter from time to
time, in connection with the sale of shares of the Funds.
The Company agrees to indemnify, defend and hold the
<PAGE>
Underwriter, its several officers and directors, and any
person who controls the Underwriter within the meaning of
Section 15 of the Securities Act of 1933, as amended, free
and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of
investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection
therewith) which the Underwriter, its officers and
directors, or any such controlling persons, may incur under
the Securities Act of 1933, as amended, or under common law
or otherwise, arising out of or based upon any omission, or
alleged omission, to state a material fact required to be
stated in either any registration statement or any
prospectus or necessary to make the statements in either
thereof not misleading; provided, however, that the
Company's agreement to indemnify the Underwriter, its
officers or directors, and any such controlling person shall
not be deemed to cover any claims, demands, liabilities or
expenses arising out of any untrue statement or alleged
untrue statement or omission or alleged omission made in any
registration statement or prospectus in reliance upon and in
conformity with written information furnished to the Company
by the Underwriter specifically for use in the preparation
thereof. The Company's agreement to indemnify the
Underwriter, its officers and directors, and any such
controlling person, as aforesaid, is expressly conditioned
upon the Company's being notified of any action brought
against the Underwriter, its officers or directors, or any
such controlling person, such notification to be given by
letter or by telegram addressed to the Company at its
address set forth above within ten days after the summons or
other first legal process shall have been served. The
failure so to notify the Company of any such action shall
not relieve the Company from any liability which the Company
may have to the person against whom such action is brought
by reason of any such untrue, or alleged untrue, statement
or omission, or alleged omission, otherwise than on account
of the Company's indemnity agreement contained in this
paragraph 10(a). The Company will be entitled to assume the
defense of any suit brought to enforce any such claim,
demand or liability, but, in such case, such defense shall
be conducted by counsel of good standing chosen by the
<PAGE>
Company and approved by the Underwriter, acting in good
faith. In the event the Company elects to assume the
defense of any such suit and retain counsel of good standing
approved by the Underwriter, the defendant or defendants in
such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the Company
does not elect to assume the defense of any such suit, or in
case the Underwriter does not approve of counsel chosen by
the Company, the Company will reimburse the Underwriter, its
officers and directors, or the controlling person or persons
named as defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by the
Underwriter or them. The Company's indemnification
agreement contained in this paragraph 10(a) and the
Company's representations and warranties in this agreement
shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the
Underwriter, its officers and directors, or any controlling
person, and shall survive the delivery of any shares of the
Funds. This agreement of indemnity will inure exclusively
to the Underwriter's benefit, to the benefit of its several
officers and directors, and their respective estates, and to
the benefit of any controlling persons and their successors.
The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against the
Company or any of its officers or Board members in
connection with the issue and sale of shares of the Funds.
(b) The Underwriter agrees to indemnify, defend and
hold the Company, its several officers and Board members,
and any person who controls the Company within the meaning
of Section 15 of the Securities Act of 1933, as amended,
free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection
therewith) which the Company, its officers or Board members,
or any such controlling person, may incur under the
Securities Act of 1933, as amended, or under common law or
otherwise, arising out of or based upon: (i) the
<PAGE>
Underwriter's negligence or willful misconduct in the
performance of its duties and obligations under this
Agreement; (ii) the Underwriter's violation of Applicable
Law in connection with the performance of its duties and
obligations under this Agreement; (iii) any breach by the
Underwriter of any provision of this Agreement, including
any representation, warranty or covenant made in the
Agreement; and (iv) any untrue, or alleged untrue, statement
of a material fact contained in information furnished in
writing by the Underwriter to the Company specifically for
use in the Company's registration statement and used in the
answers to any of the items of the registration statement or
in the corresponding statements made in the prospectus, or
any omission, or alleged omission, to state a material fact
in connection with such information furnished in writing by
the Underwriter to the Company and required to be stated in
such answers or necessary to make such information not
misleading. The Underwriter's agreement to indemnify the
Company, its officers and Board members, and any such
controlling person, as aforesaid, is expressly conditioned
upon its being notified of any action brought against the
Company, its officers or Board members, or any such
controlling person, such notification to be given by letter
or telegram addressed to the Underwriter at its address set
forth above within ten days after the summons or other first
legal process shall have been served. The failure so to
notify the Underwriter of any such action shall not relieve
the Underwriter from any liability which the Underwriter may
have to the Company, its officers or Board members, or to
such controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission,
otherwise than on account of its indemnity agreement
contained in this paragraph 10(b). The Underwriter will be
entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but, in such
case, such defense shall be conducted by counsel of good
standing chosen by the Underwriter and approved by the
Company, acting in good faith. In the event the Underwriter
elects to assume the defense of any such suit and retain
counsel of good standing approved by the Company, the
<PAGE>
defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them;
but in case the Underwriter does not elect to assume the
defense of any such suit, or in case the Company does not
approve of counsel chosen by the Underwriter, the
Underwriter will reimburse the Company, its officers and
Board members, or the controlling person or persons named as
defendant or defendants in such suit, for the reasonable
fees and expenses of any counsel retained by the Company or
them. The Underwriter's indemnification agreement contained
in this paragraph 10(b) and the Underwriter's
representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Company, its
officers and Board members, or any controlling person, and
shall survive the delivery of any shares of the Funds. This
agreement of indemnity will inure exclusively to the
Company's benefit, to the benefit of the Company's officers
and Board members, and their respective estates, and to the
benefit of any controlling persons and their successors.
The Underwriter agrees promptly to notify the Company of the
commencement of any litigation or proceedings against the
Underwriter or any of its officers or directors in
connection with the issue and sale of shares of the Funds.
11. SUSPENSION OF REGISTRATION. No shares of the
Funds shall be offered by either the Underwriter or the
Company under any of the provisions of this Agreement, and
no orders for the purchase or sale of such shares hereunder
shall be accepted by the Company, if and so long as the
effectiveness of the registration statement then in effect
or any necessary amendments thereto shall be suspended under
any of the provisions of the Securities Act of 1933, as
amended, or if and so long as a current prospectus as
required by Section 10 of said Act, as amended, is not on
file with the Securities and Exchange Commission; provided,
however, that nothing contained in this paragraph 11 shall
in any way restrict or have any application to or bearing
upon the Company's obligation to repurchase any shares of
<PAGE>
the Funds from any shareholder in accordance with the
provisions of the Company's prospectus or charter documents.
12. REQUIRED NOTIFICATIONS. The Company agrees to
advise the Underwriter promptly in writing:
(a) of any request by the Securities and Exchange
Commission for amendments to the registration statement or
prospectus then in effect or for additional information;
(b) in the event of the issuance by the
Securities and Exchange Commission of any stop order
suspending the effectiveness of the registration statement
or prospectus then in effect or the initiation of any
proceeding for that purpose;
(c) of the happening of any event which makes
untrue any statement of a material fact made in the
registration statement or prospectus then in effect or which
requires the making of a change in such registration
statement or prospectus in order to make the statements
therein not misleading; and
(d) of all actions of the Securities and Exchange
Commission with respect to any amendments to any
registration statement or prospectus which may from time to
time be filed with the Securities and Exchange Commission.
13. OTHER ACTIVITIES. So long as the Underwriter acts
as the distributor of Company shares, the Underwriter shall
not perform any services for any entity other than a "Mellon
Entity," such term being defined as any entity that is
advised or administered by a direct or indirect subsidiary
of the Mellon Bank Corporation. The Company acknowledges
that the persons employed by the Underwriter to assist in
the performance of its duties under this Agreement may not
devote their full time to such service and, subject to the
preceding sentence, nothing contained in this Agreement
shall be deemed to limit or restrict the Underwriter's right
or any of its affiliates' right to engage in and devote time
and attention to other businesses or to render services of
whatever kind or nature.
<PAGE>
14. TERM OF AGREEMENT. This Agreement shall become
effective upon the date first above written. This Agreement
shall continue in effect through May 31, 1999, and
thereafter for successive annual periods, provided that its
continuance is specifically approved at least annually by
the Company's directors or, with respect to any Fund, by
vote of a majority of that Fund's outstanding voting
securities and, in any event, by a majority of those
directors who are not parties to this Agreement or
interested persons of any party to this Agreement (other
than as directors of the Company) at a meeting called for
the purpose of voting on such approval.
This Agreement shall automatically terminate in
the event of its assignment (within the meaning of the
Investment Company Act of 1940, as amended): provided,
however, that the Underwriter may employ such other person,
persons, corporation or corporations, as it shall determine,
in order to assist it in carrying out the provisions of this
Agreement.
This Agreement may be terminated at any time by
either party hereto by giving six months' written notice to
the other party, or at any time by mutual consent of the
parties hereto. Such notice shall be sent by certified
mail. Until further notice, the mailing address of Company
shall be:
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
Until further notice, the mailing address of Underwriter
shall be:
200 Park Avenue
45th Floor
New York, NY 10166
15. MISCELLANEOUS. This Agreement shall be governed
by, construed and enforced in accordance with the laws of
the State of Colorado and shall be interpreted and construed
to further and promote the operation of the Company as an
open-end investment company. As used herein, the terms "Net
Asset Value," "Offering Price," "Investment Company," and
<PAGE>
"Interested Persons" shall have the meanings set forth in
the Investment Company Act of 1940, as amended, and the
Rules, Regulations, Orders, and Forms thereunder.
IN WITNESS WHEREOF, this Agreement has been executed by
the Underwriter and the Company as of the day and year first
above written.
FOUNDERS FUNDS, INC.
ATTEST: By:___________________________
________________, President
___________________________
________________, Secretary
PREMIER MUTUAL FUND SERVICES, INC.
ATTEST: By:___________________________
___________________________
________________, Secretary
SECOND ADDENDUM TO
AMENDED SHAREHOLDER SERVICES AGREEMENT
BETWEEN
FOUNDERS FUNDS, INC. AND FOUNDERS ASSET MANAGEMENT, INC.
This Second Addendum ("Second Addendum") is made as of the 1st day of
June, 1996 to the Amended Shareholder Services Agreement (the "Agreement") by
and between Founders Funds, Inc., a Maryland corporation (the "Fund"), and
Founders Asset Management, Inc., a Delaware corporation ("Founders").
WHEREAS, Founders and the Fund have heretofore entered into the Agreement
effective as of the 1st day of June, 1994; and
WHEREAS, Founders and the Fund have heretofore entered into an Addendum to
Amended Shareholder Services Agreement between Founders and the Fund effective
the 1st day of June, 1995 (the "Addendum"); and
WHEREAS, pursuant to the Addendum, the Fund pays to Founders a prorated
monthly fee equal on an annual basis to $25 for each shareholder account of the
Fund considered to be an open account at any time during the month (the "$25
Fee"); and
WHEREAS, at its regulary scheduled meeting held on May 31, 1996, the board
of directors of the Fund adopted an amendment to the Agreement and to the
Addendum which reduced the $25 Fee to a prorated monthly fee equal on an annual
basis to $24 for each shareholder account of the Fund considered to be an open
account at any time during the month (the "$24 Fee"); and
NOW, THEREFORE, in consideration of the covenants herein contained and for
other valuable consideration, the receipt and sufficiency of which is
acknowledged by Founders and the Fund, Founders and the Fund agree as follows:
1. The $25 Fee to which reference is made in the Addendum is reduced to a
$24 fee effective on and after June 1, 1996. Any references in the Addendum to
$25 and to the $25 Fee are hereby amended to $24 and the $24 Fee.
2. This Second Addendum shall remain in effect for such period of time as
the Agreement remains in effect.
<PAGE>
3. This Second Addendum shall be construed in accordance with the laws of
the State of Colorado and the applicable provisions of the Investment Company
Act of 1940, as amended (the "Act"). To the extent the applicable law of the
State of Colorado or any other provisions herein conflict with the applicable
provisions of the Act, the latter shall control.
4. This Second Addendum may not be modified except by written instrument
executed by the Fund and Founders.
IN WITNESS WHEREOF, the parties have executed and delivered this Second
Addendum effective on the day and year first above written.
FOUNDERS FUNDS, INC.
By: /s/ Bjorn K. Borgen
--------------------------------------
Bjorn K. Borgen, President
FOUNDERS ASSET MANAGEMENT, INC.
By: /s/ Jonathan F. Zeschin
--------------------------------------
Jonathan F. Zeschin, President
THIRD ADDENDUM TO
AMENDED SHAREHOLDER SERVICES AGREEMENT
BETWEEN
FOUNDERS FUNDS, INC. AND FOUNDERS ASSET MANAGEMENT, INC.
This Third Addendum ("Third Addendum") is made as of the 1st day of June,
1997, to the Amended Shareholder Services Agreement (the "Agreement") by and
between Founders Funds, Inc., a Maryland corporation (the "Fund"), and Founders
Asset Management, Inc., a Delaware corporation ("Founders").
WHEREAS, Founders and the Fund have heretofore entered into the Agreement
effective as of the 1st day of June, 1994; and
WHEREAS, Founders and the Fund have heretofore entered into an Addendum to
Amended Shareholder Services Agreement between Founders and the Fund effective
as of the 1st day of June, 1995 (the "Addendum"); and
WHEREAS, Founders and the Fund have heretofore entered into a Second
Addendum to Amended Shareholder Services Agreement between Founders and the Fund
effective as of the 1st day of June, 1996 (the "Second Addendum"); and
WHEREAS, pursuant to the Second Addendum, the Fund pays to Founders a
prorated monthly fee equal on an annual basis to $24 for each shareholder
account of the Fund considered to be an open account at any time during the
month (the "$24 Fee"); and
WHEREAS, at its regularly scheduled meeting held on May 30, 1997, the board
of directors of the Fund adopted an amendment to the Agreement and to the Second
Addendum which increased the $24 Fee to a prorated monthly fee equal on an
annual basis to $26 for each shareholder account of the Fund considered to be an
open account at any time during the month (the "$26 Fee");
NOW, THEREFORE, in consideration of the covenants herein contained and for
other valuable consideration, the receipt and sufficiency of which is
acknowledged by Founders and the Fund, Founders and the Fund agree as follows:
1. The $24 fee to which reference is made in the Second Addendum is
increased to a $26 fee effective on and after June 1, 1997. Any references in
the Second Addendum to $24 and to the $24 Fee are hereby amended to $26 and to
the $26 Fee.
2. This Third Addendum shall remain in effect for such period of time as
the Agreement remains in effect or this Third Addendum is modified as
hereinafter provided.
<PAGE>
3. This Third Addendum shall be construed in accordance with the laws of
the State of Colorado and the applicable provisions of the Investment Company
Act of 1940, as amended (the "Act"). To the extent the applicable law of the
State of Colorado or any other provisions herein conflict with the applicable
provisions of the Act, the latter shall control.
4. This Third Addendum may not be modified except by a written instrument
executed by the Fund and Founders.
IN WITNESS WHEREOF, the parties have executed and delivered this Third
Addendum effective on the day and year first above written.
FOUNDERS FUNDS, INC.
By: /s/ Bjorn K. Borgen
--------------------------------------
Bjorn K. Borgen, President
FOUNDERS ASSET MANAGEMENT, INC.
By: /s/ Jonathan F. Zeschin
--------------------------------------
Jonathan F. Zeschin, President
FORM OF
SHAREHOLDER SERVICES AGREEMENT
Between
FOUNDERS FUNDS, INC. and
FOUNDERS ASSET MANAGEMENT LLC
AGREEMENT made as of the _____ day of ________, 1998,
in Denver, Colorado, by and between Founders Funds, Inc., a
Maryland corporation (the "Fund"), and Founders Asset
Management LLC, a Delaware limited liability company
(hereinafter referred to as "Founders").
WHEREAS, the Fund is engaged in business as an open-end
management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the
"Act"); and
WHEREAS, Founders is registered as an investment
adviser under the Investment Advisers Act of 1940, and
engages in the business of acting as investment adviser and
providing certain other administrative, accounting, and
recordkeeping services to the Fund; and
WHEREAS, Founders is registered as a transfer agent
under the Securities Exchange Act of 1934; and
WHEREAS, pursuant to this Shareholder Services
Agreement (the "Agreement"), Founders will render certain
transfer agent and related services to the Fund and to the
Fund's shareholders (the "Services") in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Fund has entered into a Transfer Agent
Agreement with Investors Fiduciary Trust Company ("IFTC")
(the "TA Agreement"), pursuant to which IFTC provides
certain other transfer agent services to the Fund; and
WHEREAS, Founders has entered into a service agreement
with IFTC (the "Service Agreement"), pursuant to which a
computerized data processing recordkeeping system for
securityholder accounting (the "TA2000(TM) System") using
IFTC owned or licensed software developed by DST
Technologies, Inc., an affiliate of IFTC ("DST") is
available to Founders in providing transfer agent services
to the Fund; and
WHEREAS, the Fund has entered into a Software Remote
Access and License Agreement with DST (the "Remote Access
Agreement"), pursuant to which image based application
software and related user documentation to be operated in
conjunction with the TA2000(TM) System (the "Auxiliary
Software") is available to Founders in providing other
transfer agent services to the Fund; and
WHEREAS, Founders has entered into a Telephone and CRT
Input Equipment Recovery Services Agreement with DST (the
<PAGE>
"Back-Up Agreement"), pursuant to which certain computer and
backup capabilities will be made available to Founders for
use in providing transfer agent services to the Fund in the
event of a disaster to Founders' telephone and cathode-ray
tube input equipment; and
WHEREAS, the Fund has entered into an Agreement for
Handling Drafts with IFTC and DST (the "Drafts Agreement"),
pursuant to which the Fund has established a special account
with IFTC to which all drafts drawn by the Fund's
shareholders which are payable through IFTC will be charged;
and
WHEREAS, the TA Agreement, the Service Agreement, the
Remote Access Agreement, the Back-Up Agreement, and the
Drafts Agreement are collectively referred to herein as the
"Collective Agreements"; and
WHEREAS, the Fund, Founders, IFTC, and DST anticipate
that in the next few years Founders will, on a service-by-
service basis and over time, assume the responsibility for
performance of those transfer agent services currently being
provided to the Fund by IFTC; and
WHEREAS, the Fund desires to retain Founders to perform
these additional transfer agent services and Founders
desires to perform such services on the terms and conditions
hereinafter set forth; and
WHEREAS, Founders has in the past and will in the
future enter into arrangements with third parties which
provide sub-transfer agency, recordkeeping, investor
services, and/or other administrative services (the "Third
Party Services") to participants in 401(k) and other tax-
qualified retirement programs and to participants in other
arrangements (the "Participants"), pursuant to which the
third party establishes one or more omnibus accounts with
the Fund, into which investments of the Participants are
pooled; and
WHEREAS, in establishing such omnibus accounts and
providing the Third Party Services, the third parties
effectively reduce or eliminate the need for Services to be
provided on behalf of the Participants by Founders; and
WHEREAS, a third party may charge a basis point fee
method or other fee method to Founders or the Funds to
compensate it for providing the Third Party Services to
Participants (the "Third Party Fee"); and
WHEREAS, certain of the third parties may be broker-
dealers who, in accordance with applicable federal rules and
regulations, may be selected by Founders to execute
portfolio securities transactions on behalf of the Fund; and
WHEREAS, commissions earned by the broker-dealer third
party from executing portfolio transactions on behalf of a
specific series fund of the Fund ("Series") may be credited
by the broker-dealer against the Third Party Fee charged to
<PAGE>
that Series, on a basis which has resulted from negotiations
between Founders and the third party;
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter contained, the Fund and
Founders agree as follows:
1. SERVICES. The Fund hereby retains Founders to
provide the Services outlined on Exhibit A hereto, which
exhibit is incorporated herein by this reference. Founders
shall at all times use reasonable care, due diligence, and
act in good faith in performing its duties under this
Agreement.
2. COLLECTIVE AGREEMENT OBLIGATIONS. To the extent
that the TA Agreement and any other Collective Agreement (a)
may impose obligations upon the Fund to ensure that Founders
provides services, conforms to a standard of conduct,
adheres to a stipulated process or procedure, or otherwise
undertakes to perform a defined duty or responsibility or
(b) provides that Founders performs the foregoing
(collectively, the "Obligations"), Founders shall perform
the Obligations and shall at all times use reasonable care,
due diligence, and act in good faith in performing the
Obligations.
3. STAFF MAINTENANCE. Founders shall, at its own
expense, maintain such staff and employ or retain such
personnel as it shall from time to time determine to be
necessary or useful to the performance of its obligations
under this Agreement. Without limiting the generality of
the foregoing, such staff and personnel may include officers
of Founders and persons employed or otherwise retained by
Founders to provide or assist in providing services to the
Fund other than those Services to be provided pursuant to
this Agreement.
4. FACILITIES. Founders shall, at its own expense,
provide such office space, facilities, equipment, and other
property or resources as shall be necessary to provide the
Services to the Fund.
5. FUND INFORMATION. The Fund will, from time to
time, furnish or otherwise make available to Founders such
information relating to the business and affairs of the Fund
as Founders may reasonably require in order to discharge its
duties and obligations hereunder.
6. FEES. The Fund shall pay to Founders a prorated
monthly fee equal on an annual basis to $26.00 for each
shareholder account of the Fund considered to be an open
account at any time during the month. This fee shall
provide for the payment of the following:
a. The services rendered and facilities
furnished by Founders under this Agreement; and
<PAGE>
b. The services rendered and facilities
furnished by IFTC and DST to the Fund pursuant to the
Collective Agreements.
In addition to the $26.00 per account fee, Founders,
IFTC, and DST will also be entitled to reimbursement from
the Fund for all reasonable out-of-pocket expenses incurred
by Founders, IFTC, and DST in connection with the
performance of Services under the Agreement and services
under the Collective Agreements.
Out-of-pocket expenses with respect to the Agreement
shall include, but are not limited to, expenditures for
postage, envelopes, banking fees, courier fees, overnight
mail fees, computer hardware and software licensing fees,
voice response unit fees, checks, continuous forms, reports
and statements, telephone line charges, telegraph,
stationery, supplies, costs of outside mailing firms, record
storage costs and media for storage of records (e.g.,
microfilm and computer tapes). Out-of-pocket expenses
incurred by Founders, IFTC, and/or DST in connection with
the performance of services under the Collective Agreements
shall include those out-of-pocket expenses to which each
Collective Agreement makes reference.
Any other expenses incurred by Founders at the request
or with the consent of the Fund will be reimbursed promptly
by the Fund.
As provided herein, Founders will use a portion of the
$26.00 account fee to pay IFTC and DST for services which
are performed by each entity pursuant to the Collective
Agreements. Upon assumption by Founders in the future of
certain duties currently performed by IFTC and/or DST
pursuant to the terms of the Collective Agreements, Founders
will retain an amount equal to the amount previously paid to
IFTC and/or DST for performing such duties.
In the event any termination fee is appropriately
charged to Founders or to the Fund pursuant to Section 2.02
of the Service Agreement, the fee shall be paid by the Fund
unless circumstances would dictate payment of the fee by
Founders.
In the event any late charges or interest charges are
incurred pursuant to Section 2.03 of the TA Agreement, such
charges are the responsibility of Founders and the Fund will
reduce the amount of its next payment to Founders pursuant
to this Agreement by such amount.
The monthly fee described in this Section 6. and any
out-of-pocket reimbursements due to Founders pursuant to
this Section shall be payable to Founders on the first
business day of the calendar month next succeeding the month
in which the services are rendered, or as soon thereafter as
such reimbursements can be determined.
<PAGE>
In instances in which third parties establish omnibus
accounts with one or more of the Series which represent
pooled accounts of Participants whose transfer agency,
recordkeeping, or similar services are being provided by the
third party or its agent and not by Founders and/or IFTC
and/or DST, the Series will reimburse Founders for an amount
which shall not be in excess of the $26.00 account fee for
each Participant account, which amount Founders will have
previously paid to the third party.
In instances in which commissions are earned by a
broker-dealer third-party from executing portfolio
transactions on behalf of a Series, Founders is authorized
to enter into arrangements pursuant to which the commissions
may be credited by the broker-dealer against the Third Party
Fee otherwise payable by that Series to the broker-dealer,
on a basis which will have been negotiated between the
broker-dealer and Founders.
Any fees paid by the Fund to Founders as reimbursement
for payment by Founders to a third party in consideration of
its providing Third Party Services shall be paid monthly at
the rate of 1/12th of an annual fee not to exceed $26.00 per
Participant account. Such payments shall be made for a
Participant account in the month that it opens or closes, as
well as in each month in which the Participant account
remains open, regardless of its account balance.
In the event that the aggregate of the monthly fees per
Participant may on occasion exceed the aggregate monthly
Third Party Fees due to the third party, the applicable
Series will accrue the excess through the applicable
calendar year-end, which excess will be available to
reimburse Founders if, during any remaining month in the
calendar year, the aggregate monthly Third Party Fees
applicable to that Series paid by Founders exceed the
aggregate monthly fees per Participant. Any accrual
remaining at year-end will be credited to the respective
Series' general ledger expense account.
7. ACCESS TO FOUNDERS' RECORDS. Founders will permit
representatives of the Fund, including the Fund's
independent auditors, to have reasonable access to the
personnel and records of Founders in order to enable such
representatives to monitor the quality of services being
provided and the level of fees and reimbursements due
Founders pursuant to this Agreement. In addition, Founders
shall promptly deliver to the Board of Directors of the Fund
such information as may reasonably be requested from time to
time to permit the Board of Directors to make an informed
determination regarding the rendering of the Services, the
continuation of this Agreement, and the payments
contemplated to be made hereunder.
8. LIABILITY AND INDEMNIFICATION. So long as
Founders shall use reasonable care, due diligence, and act
in good faith in performing its duties under this Agreement,
Founders shall not be responsible for, and the Fund shall
<PAGE>
indemnify and hold Founders harmless from and against, any
and all losses, liabilities, claims, demands, suits, costs,
and expenses (including reasonable attorneys' fees) which
may be asserted against Founders or for which Founders may
be held to be liable, which arise out of, or are
attributable to, Founders' discharge of its responsibilities
and obligations imposed by this Agreement.
The Fund shall not be responsible for, and Founders
shall indemnify and hold the Fund harmless from and against,
any and all losses, liabilities, claims, demands, suits,
costs, and expenses (including reasonable attorneys' fees)
which may be asserted against the Fund or for which the Fund
may be held to be liable, which arise out of, or are
attributable to, any negligence, willful misconduct, or lack
of due care of Founders in discharging the responsibilities
and obligations imposed upon Founders by this Agreement.
Founders and the Fund agree that each shall promptly
notify the other in writing of any situation which
represents or appears to involve a claim which may be the
subject of indemnification hereunder, although the failure
to provide such notification shall not relieve the
indemnifying party of its liability pursuant to this Section
8. The indemnifying party shall have the option to defend
against any such claim. In the event the indemnifying party
so elects, it will notify the indemnified party and shall
assume the defense of such claim, and the indemnified party
shall cooperate fully with the indemnifying party, at the
indemnifying party's expense, in the defense of such claim.
Notwithstanding the foregoing, the indemnified party shall
be entitled to participate in the defense of such claim at
its own expense through counsel of its own choosing. The
indemnified party shall not enter into any settlement of
such matter without the written consent of the indemnifying
party, which consent shall not unreasonably be withheld.
The indemnifying party shall not be obligated to indemnify
the indemnified party for any settlement entered into
without the written consent of the indemnifying party. If
the consent of the indemnified party is required to
effectuate any settlement and the indemnified party refuses
to consent to any settlement negotiated by the indemnifying
party, the liability of the indemnifying party for losses
arising out of or due to such matter shall be limited to the
amount of the rejected proposed settlement.
The obligations of Founders and the Fund pursuant to
this Section 8 shall survive the termination of this
Agreement.
9. EFFECT OF AGREEMENT. Nothing herein contained shall be
deemed to require the Fund to take any action contrary to
its Articles of Incorporation or its By-Laws or any
applicable law, regulation or order to which it is subject
or by which it is bound, or to relieve or deprive the
directors of the Fund and the Fund of their overall
responsibility for and control of the conduct of the
business and affairs of the Fund.
<PAGE>
10. TERM AND TERMINATION. This Agreement shall remain in
effect until no later than May 31, 1998, and shall remain in
effect from year to year thereafter provided such
continuance is approved at least annually by the vote of a
majority of the directors of the Fund who are not parties to
this Agreement or "interested persons" (as defined in the
Act) of any such party, which vote must be cast in person at
a meeting called for the purpose of voting on such approval;
provided, however, that (a) the Fund may, at any time and
without the payment of any penalty, terminate this Agreement
upon 90 days' written notice to Founders; (b) the Agreement
shall immediately terminate in the event of its assignment
(within the meaning of the Act and the Rule thereunder)
unless the Board of Directors of the Fund approves such
assignment; and (c) Founders may terminate this Agreement
without payment of penalty on 180 days' written notice to
the Fund. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the
other party at the principal office of such party.
11. APPLICATION OF LAW. This Agreement shall be
construed in accordance with the laws of the State of
Colorado and the applicable provisions of the Act. To the
extent the applicable law of the State of Colorado or any of
the provisions herein conflict with the applicable provision
of the Act and other applicable laws, the latter shall
control.
IN WITNESS WHEREOF, the parties have executed and
delivered this Agreement on the day and year first above
written.
FOUNDERS FUNDS, INC.
By:__________________________
_______________, President
FOUNDERS ASSET MANAGEMENT LLC
By:__________________________
_______________, President
<PAGE>
EXHIBIT A
To
SHAREHOLDER SERVICES AGREEMENT
Between
FOUNDERS FUNDS, INC. and
FOUNDERS ASSET MANAGEMENT LLC
The following Services will be provided by Founders to the
Fund:
1. TELEPHONE SERVICES
Founders' personnel will receive and process all
telephone requests received by Founders to: purchase,
redeem or exchange shares; open an account, add or
delete services for an account, explain Fund or market
conditions and/or performance, perform research into
account problems and correct such problems, and other
matters related to account servicing; change an account
address or distribution option; correct a registration
or account error; or send an additional account
statement. Founders will also make available to
shareholders a Voice Response Unit to provide routine
account and Fund information.
2. TRANSFER AGENCY SERVICES
Founders' personnel will discharge the following
duties:
Pick up all incoming mail and scan documents into the
DST image system (the DST image system is that system
used by IFTC in performing transfer agent services on
behalf of the Fund).
Open new accounts, purchase shares, and establish
services requested by new shareholders. Contact
shareholders in writing or via the phone if incomplete
or inaccurate information is contained in the
application.
Make subsequent purchases on behalf of shareholders and
401(k) plans. Deliver checks to bank, monitor bank
account(s), wire funds to appropriate custodial
account.
Receive returned (bounced) checks, cancel purchases,
and contact shareholders regarding any potential
losses.
Research all mail returned to Founders by the Post
Office and forward such mail if possible.
Retrieve information from microfilm, microfiche, paper
files, and/or the DST image system needed to respond to
inquiries and/or to resolve research.
<PAGE>
Store previously scanned items as required by the SEC
and NASD.
Other routine partial transfer agency functions needed
to complete the duties typically expected of a transfer
agent performing the services outlined in this item 2.
3. RETIREMENT SERVICES
a. RETIREMENT PLAN TRANSFERS. Founders' personnel
will ensure that retirement plan transfers are
accomplished on a timely basis. Applications to
request transfers will be reviewed to ensure that the
application is in proper order before it is sent to the
shareholders' custodian. A Founders representative
will contact the shareholder with a personal note once
the transfer arrives at Founders. Founders will
maintain an updated list of the transfer requirements
imposed by transfer agents. A Founders representative
will contact the appropriate custodian to ensure that
the custodian has received the transfer application and
that the transfer occurs on a timely basis.
b. PROTOTYPE RETIREMENT PLANS. Founders' personnel
will provide the following services on prototype non-
TRAC2000 retirement plans (TRAC2000 retirement plans
are serviced on behalf of the Fund by a third party,
pursuant to separate contract):
(1) Review previous Adoption Agreements (if
applicable) and assist investors in completing the
Founders Adoption Agreement.
(2) Review the Founders Adoption Agreement to
ensure compliance with ERISA and IRS regulations.
(3) Complete the Summary Plan Description for the
Founders Adoption Agreement.
(4) Ensure that employers have all the necessary
forms to administer their plans.
(5) Review employee enrollment forms.
(6) Create documentation which consolidates the
information from the enrollment forms and forward
such documentation to the employer.
(7) Create and maintain documentation reflecting
contributions, loans, terminations and other types
of plan transactions.
<PAGE>
(8) Handle all money movements including
purchases, exchanges, redemptions (due to
terminations or hardship withdrawals, or loans),
and similar functions.
c. REVIEW OF RETIREMENT ACCOUNTS. Founders'
personnel will periodically review retirement account
information and advise investors before reaching age 70-
1/2 that a distribution may be required.
4. QUALITY CONTROL
Founders' personnel will periodically conduct a quality
control audit on telephone purchase, redemption and
exchange requests, account changes and applications
received by Founders. Founders will provide quality
control with respect to other aspects of the transfer
agent's operations, such as the transfer agent's
resolution of shareholder inquiries. Founders will
perform quality control on retirement plans.
5. TRAINING
Founders will periodically train personnel of IFTC on
Founders' products and services using its own training
materials and training workshops conducted at the
offices of IFTC by Founders' customer service
representatives. Founders will continually provide
training to its investor services representatives with
regard to processing exchanges and redemptions,
maintaining accounts, liquidating accounts,
transferring accounts, providing "B" notices, and
servicing mutual fund accounts.
6. CORRESPONDENCE
a. SHAREHOLDER INQUIRIES. Founders' personnel will
respond to shareholder inquiries received by Founders
and to the extent feasible will resolve such inquiries.
b. GERMAN SHAREHOLDERS. Founders' personnel will
provide specialized service to German shareholders as
may be necessary and appropriate.
c. DUE DILIGENCE. Founders will arrange for the
mailing of W-8 and W-9 forms to shareholders to ensure
that the Fund is complying with IRS regulations.
d. REQUESTS FOR INFORMATION. Founders will respond
to requests it receives from shareholders for
additional prospectuses and account statements.
<PAGE>
7. MONITORING CUSTOMER ACCOUNTS
a. TELEPHONE PURCHASES. Founders' personnel will
contact shareholders who have purchased shares by phone
but have not paid for such shares within the allowable
settlement period.
b. CANCELLED CHECKS. Founders' personnel will
contact shareholders who have cancelled their checks.
c. DORMANT ACCOUNTS. Founders' personnel will assist
in locating shareholders with dormant accounts.
d. ANNUAL REVIEW. Annually, Founders will review
open and closed accounts and arrange for the purging of
certain of these accounts.
e. SHORT-TERM TRADERS. Founders will monitor
shareholder accounts to uncover abuses of the telephone
exchange privilege described in the prospectus.
8. LARGE MONEY MANAGERS
Founders will assign a contact person to communicate
with large money managers and to ensure that their
transactions are timely and properly conducted and
their accounts are set up correctly and continually
updated.
9. USE OF IFTC'S SYSTEM AND FACILITIES
Founders hereby accepts responsibility for compliance
with the requirements of Section 6.06 of the TA
Agreement.
10. OTHER SERVICES
Founders will provide all other customary and
reasonable transfer agent and prototype non-TRAC2000
retirement plan services which are not being provided
to the Fund pursuant to the provisions of this
Agreement, the Collective Agreements, or other
agreements to which the Fund is a party.
FORM OF FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT initially made as of _______________, 1998,
in Denver, Colorado, by and between Founders Funds, Inc., a
Maryland corporation (the "Fund"), and Founders Asset
Management LLC, a Delaware limited liability company
(hereinafter referred to as "Founders").
WHEREAS, the Fund is engaged in business as an open-end
management investment company, is registered as such under
the Investment Company Act of 1940, as amended (the "Act"),
and is authorized to issue shares representing interests in
the separate portfolios of investments listed on Appendix 1
to this Agreement, which Appendix 1 is incorporated into
this Agreement by this reference (the "Portfolios"); and
WHEREAS, Founders is registered as an investment
adviser under the Investment Advisers Act of 1940, and
engages in the business of acting as investment adviser and
providing certain other administrative, shareholder
servicing, accounting, and record keeping services to the
Fund; and
WHEREAS, the Fund desires to retain Founders to render
certain additional administrative, accounting, and
recordkeeping services (the "Services") in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, Founders desires to be retained to perform
such services on said terms and conditions;
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter contained, the Fund and
Founders agree as follows:
1. SERVICES. The Fund hereby retains Founders to provide
the following Services to the Portfolios:
A. ACCOUNTING SERVICES.
(1) Prepare and maintain, according to generally
accepted accounting principles, general ledgers and
financial statements of the Fund and the Portfolios,
including the following:
(a) DAILY PREPARATION AND MAINTENANCE:
(i) Detailed transaction ledgers listing all
transactions affecting the Fund;
(ii) Trial balance listing by account the
beginning balance, all debits and credits, and the
ending balance;
<PAGE>
(iii) Balance sheet, income statement and
a portfolio listing summarizing net assets, net
income, capitalization, and realized and
unrealized gains and losses.
(b) MONTHLY PREPARATION AND MAINTENANCE:
Statements of assets and liabilities,
operations and changes in net assets, statements
of gains and losses and statements of sales and
redemptions.
(c) SEMI-ANNUAL PREPARATION AND MAINTENANCE:
The same ledgers as are prepared monthly,
plus per share statements, appreciation/
depreciation statements, and fund share activity
statements.
(2) Obtain such data from the Fund's transfer agent,
custodian, and investment adviser as is necessary to
calculate the net asset value of each Portfolio in the
manner, and at such times and frequencies, as is required by
the Act and by the Fund's prospectus and statement of
additional information.
B. CONTROL AND COMPLIANCE.
(1) Audit certain data and transactions of the
Fund's custodian, transfer agent and investment adviser by
engaging in the following:
(a) DAILY AUDIT/RECONCILIATION PROCEDURES:
(i) Reconciliation of the custodian's trust
account activity including cash movement, cash
balances, settlement of security purchases and
sales, and settlement of Fund share purchases and
sales;
(ii) Reconciliation of the transfer agent's
activity in regard to Fund share movements and "as
of" transactions;
(iii) Monitoring of the investment
adviser's trading activity, including compliance
and brokerage allocations.
(b) MONTHLY AUDIT/RECONCILIATION PROCEDURES:
(i) Audit of the custodian's holding of Fund
assets and assets in transit, audit of the
custodian's fees charged to the Fund, and audit of
credits for the Fund's compensating balances;
<PAGE>
(ii) Audit of the transfer agent's activity
concerning dividend and redemption payouts and of
the transfer agent's fees charged to the Fund;
(iii) Audit of the investment adviser's
fees charged to the Funds, including servicing and
accounting fees.
(c) MONITOR COMPLIANCE WITH THE ACT:
(i) Daily monitoring of the investment adviser's
trading activity, including compliance and
brokerage allocation and commissions;
(ii) Periodic monitoring of disclosures and record
keeping.
C. REPORTING AND ANALYSIS.
(1) Provide regulatory (Securities and Exchange
Commission), shareholder and other miscellaneous
reporting and, in particular, prepare and maintain the
following required books, records, and other documents:
(a) journals containing daily itemized
records of all Portfolio securities purchases and
sales, receipts and deliveries of securities,
receipts and disbursements of cash, and all other
debits and credits, in the form required by Rule
31a-1(b)(1) under the Act;
(b) general and auxiliary ledgers reflecting
all asset, liability, reserve, capital, income and
expense accounts, in the form required by Rules
31a-1(b)(1)(i) - (iii) under the Act;
(c) a securities record or ledger reflecting
separately for each portfolio security as of trade
date all "long" and "short" positions, if any,
carried by the Portfolios for the accounts of the
Portfolios, and showing the location of all
securities long and the off-setting positions of
all securities short, in the form required by Rule
31a-1(b)(3) under the Act;
(d) a record of all Portfolio purchases or
sales, in the form required by Rule 31a-1(b)(6)
under the Act;
(e) a record of all puts, calls, spreads,
straddles and other options, if any, in which the
Portfolios have any direct or indirect interest or
which the Portfolios have granted or guaranteed,
in the form required by Rule 31a-1(b)(7) under the
Act;
(f) a record of the proof of money balances
in all ledger accounts maintained pursuant to this
Agreement, in the form required by Rule 31a-
1(b)(8) under the Act;
<PAGE>
(g) price make-up sheets and such records as
are necessary to reflect the determination of the
Portfolios' net asset values;
(h) Regulatory: semi-annual and annual Form
N-SARs and quarterly Form 13-Fs.
(i) Shareholder: semi-annual and annual
statements of assets and liabilities, operations,
changes in net assets, per share data,
appreciation/depreciation, and share activity; and
(j) Media: weekly, monthly, quarterly, semi-
annual and annual statistical data of the Funds,
to be provided to newsletters and other investment
industry publications such as ICI, Donahue, Lipper
and the NASD.
The foregoing books and records shall be maintained and
preserved by Founders in accordance with and for the time
periods specified by applicable rules and regulations,
including Rule 31a-2 under the Act. All such books and
records shall be the property of the Fund and, upon request
therefor, Founders shall surrender to the Fund such of the
books and records so requested.
2. STAFF MAINTENANCE. Founders shall, at its own expense,
maintain such staff and employ or retain such personnel and
consult with such other persons as it shall from time to
time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting
the generality of the foregoing, such staff and personnel
may include officers of Founders and persons employed or
otherwise retained by Founders to provide or assist in
providing services to the Fund other than those Services to
be provided pursuant to this Agreement.
3. FACILITIES. Founders shall, at its own expense,
provide such office space, facilities and equipment
(including, but not limited to, computer equipment,
communication lines, and supplies) and such clerical help
and other services as shall be necessary to provide the
Services to the Portfolios. In addition, Founders may
arrange on behalf of the Fund to obtain pricing information
regarding the Portfolios' investment securities from such
company or companies as are approved by a majority of the
Fund's board of directors. The Fund shall be financially
responsible to such company or companies for the reasonable
cost of providing such pricing information.
4. FUND INFORMATION. The Fund will, from time to time,
furnish or otherwise make available to Founders such
information relating to the business and affairs of the
Portfolios as Founders may reasonably require in order to
discharge its duties and obligations hereunder.
<PAGE>
5. FEES. For the services rendered and facilities
furnished by Founders under this Agreement, the Fund shall
pay to Founders a fee computed on a daily basis and paid on
a monthly basis. The fee shall be computed at the annual
rate of 0.06% of the daily net assets of the Fund from $0 to
$500 million and at the annual rate of 0.02% of the daily
net assets of the Fund in excess of $500 million. Founders
shall also be reimbursed for all out-of-pocket expenses
incurred by it in performing its services pursuant to the
Agreement. For purposes of each daily calculation of this
fee, the most recently calculated net asset value of the
Fund, as determined by a valuation made in accordance with
the Fund's procedure for calculating Portfolio net asset
value as described in the Fund's prospectus and/or statement
of additional information, shall be used. During any period
when the determination of the Fund's net asset value is
suspended by the directors of the Fund, the net asset value
of the Fund as of the last business day prior to such
suspension shall, for the purpose of this Paragraph 5, be
deemed to be the net asset value at the close of each
succeeding business day until it is again determined.
6. ACCESS TO FOUNDERS' RECORDS. Founders will permit
representatives of the Fund, including the Fund's
independent auditors, to have reasonable access to the
personnel and records of Founders in order to enable such
representatives to monitor the quality of services being
provided and the level of fees due Founders pursuant to this
Agreement. In addition, Founders shall promptly deliver to
the board of directors of the Fund such information as may
reasonably be requested from time to time to permit the
board of directors to make an informed determination
regarding continuation of this Agreement and the payments
contemplated to be made hereunder.
7. LIABILITY. Founders shall not be liable to the Fund
for any action taken or omitted to be taken by Founders or
its employees, agents or contractors in carrying out the
provisions of this Agreement if such action was taken or
omitted in good faith and without gross negligence or
willful misconduct on the part of Founders or its employees,
agents or contractors.
8. INDEMNIFICATION BY THE FUND. The Fund shall indemnify
Founders and hold it harmless from and against any and all
losses, damages, and expenses, including reasonable
attorneys' fees and expenses, incurred by Founders which
result from: (i) any claim, action, suit or proceeding in
connection with Founders' entry into or performance of this
Agreement; (ii) any action taken or omission to act
committed by Founders in the performance of its obligations
hereunder; or (iii) any action of Founders upon instructions
reasonably believed in good faith by it to have been
executed by a duly authorized officer or representative of
the Fund; PROVIDED, HOWEVER, that Founders shall not be
entitled to such indemnification in respect of actions or
omissions constituting gross negligence or willful
misconduct on the part of Founders or its employees, agents
or contractors. Before confessing any claim against it
<PAGE>
which may be subject to indemnification by the Fund
hereunder, Founders shall give the Fund reasonable
opportunity to defend against such claim in its own name or
in the name of Founders.
9. INDEMNIFICATION BY FOUNDERS. Founders shall indemnify
the Fund and hold it harmless from and against any and all
losses, damages and expenses, including reasonable
attorneys' fees and expenses, incurred by the Fund which
result from: (i) Founders' lack of good faith in performing
its obligations hereunder; or (ii) the gross negligence or
willful misconduct of Founders or its employees, agents or
contractors in connection herewith. The Fund shall not be
entitled to such indemnification in respect of actions or
omissions constituting gross negligence or willful
misconduct on the part of the Fund or its employees, agents
or contractors other than Founders, unless such gross
negligence or willful misconduct results from or is
accompanied by gross negligence or willful misconduct on the
part of Founders, any affiliated person of Founders, or any
affiliated person of an affiliated person of Founders.
Before confessing any claim against it which may be subject
to indemnification hereunder, the Fund shall give Founders
reasonable opportunity to defend against such claim in its
own name or in the name of the Fund.
10. EFFECT OF AGREEMENT. Nothing herein contained shall be
deemed to require the Fund to take any action contrary to
its Articles of Incorporation or its By-Laws or any
applicable law, regulation or order to which it is subject
or by which it is bound, or to relieve or deprive the
directors of the Fund and the Fund of their overall
responsibility for and control of the conduct of the
business and affairs of the Fund.
11. TERM AND TERMINATION. This Agreement shall remain in
effect until May 31, 1998 and from year to year thereafter
provided such continuance is approved at least annually by
the vote of a majority of the directors of the Fund who are
not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party, which vote must be
cast in person at a meeting called for the purpose of voting
on such approval; provided, however, that (a) the Fund may,
at any time and without the payment of any penalty,
terminate this Agreement upon ninety days written notice to
Founders; (b) the Agreement shall immediately terminate in
the event of its assignment (within the meaning of the Act
and the Rules thereunder) unless the board of directors of
the Fund approves such assignment; and (c) Founders may
terminate this Agreement without payment of penalty on
ninety days written notice to the Fund. Any notice under
this Agreement shall be given in writing, addressed and
delivered, or mailed post-paid, to the other party at the
principal office of such party.
12. APPLICATION OF LAW. This Agreement shall be construed
in accordance with the laws of the State of Colorado and the
<PAGE>
applicable provisions of the Act. To the extent the
applicable law of the State of Colorado or any of the
provisions herein conflict with the applicable provisions of
the Act, the latter shall control.
IN WITNESS WHEREOF, the parties have executed and
delivered this Agreement on the day and year first above
written.
FOUNDERS FUNDS, INC.
By:__________________________
_______________, President
FOUNDERS ASSET MANAGEMENT LLC
By:__________________________
_______________, President
<PAGE>
APPENDIX 1
TO
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT
Founders Discovery Fund
Founders Frontier Fund
Founders Passport Fund
Founders International Equity Fund
Founders Special Fund
Founders Worldwide Growth Fund
Founders Growth Fund
Founders Blue Chip Fund
Founders Balanced Fund
Founders Government Securities Fund
Founders Money Market Fund
[LOGO] MOYE, GILES, O'KEEFE,
VERMEIRE & GORRELL LLP
ATTORNEYS
29TH FLOOR
1225 SEVENTEENTH STREET EDWARD F. O'KEEFE, P.C.
DENVER, COLORADO 80202-5529 DIRECT DIAL (303) 292-7912
(303) 292-2900 FAX (303) 292-4510
HTTP://WWW.MGOVG.COM
February 19, 1998
Founders Funds, Inc.
2930 East Third Avenue
Denver, Colorado 80206
Gentlemen:
This is in response to your request for our opinion as to certain
matters with respect to the shares of capital stock ($0.01 par value per share)
of Founders Funds, Inc. (the "Fund").
We have examined the articles of incorporation of Founders Funds, Inc.
as filed for record with the State Department of Assessments and Taxation of the
State of Maryland on June 19, 1987; articles of merger merging Founders Special
Fund, Inc. (a Delaware corporation) into Founders Funds, Inc., filed on August
26, 1987; Articles of Transfer of Founders Money Market Funds, Inc. (a Maryland
corporation) and Founders Funds, Inc., filed on November 25, 1987; Articles of
Transfer of Founders Equity Income Fund, Inc. (a Maryland corporation) and
Founders Funds, Inc., filed on November 25, 1987; Articles of Transfer of
Founders Growth Fund, Inc. (a Maryland corporation) and Founders Funds, Inc.,
filed on November 25, 1987; Articles of Transfer of Founders Frontier Fund, Inc.
(a Maryland corporation) and Founders Funds, Inc., filed on November 25, 1987;
Articles Supplementary of Founders Funds, Inc., filed on November 25, 1987;
Articles Supplementary of Founders Funds, Inc., filed on February 25, 1988;
Articles Supplementary of Founders Funds, Inc., filed on December 12, 1989;
Articles Supplementary of Founders Funds, Inc., filed on May 3, 1990; Articles
Supplementary of Founders Funds, Inc., filed on September 22, 1993; Articles
Supplementary of Founders Funds, Inc., filed on December 27, 1995; Articles
Supplementary of Founders Funds, Inc., filed on October 21, 1996; and Articles
Supplementary of Founders Funds, Inc., filed on April 9, 1997; the Fund's
bylaws; the Fund's minute books setting forth, among other matters, the actions
taken by the board of directors authorizing the issuance and sale of the Fund's
capital stock and related acts and procedures; the Fund's registration
statements including all exhibits thereto; and have made such other examination
as deemed necessary in the premises.
Based upon our examination, we are of the opinion that Founders Funds,
Inc. is a corporation duly organized and existing under and by virtue of the
laws of the State of Maryland, with full power to issue its shares of capital
stock. Said shares, up to the maximum amount hereinafter indicated, when issued
and sold in the manner and on the terms set forth in the registration statement,
will be legally and validly issued, fully paid and non-assessable shares of the
corporation of the par value of $0.01 per share. The maximum number of shares
which has
<PAGE>
MOYE, GILES, O'KEEFE,
VERMEIRE & GORRELL LLP
Founders Funds, Inc.
February 19, 1998
Page 2
been authorized by the Fund, and thus the maximum number which may legally and
validly be issued, is three billion shares of such capital stock, to be
allocated among the series portfolios of the Fund in accordance with the
following table. The table further discloses the approximate numbers of shares
of the capital stock of each series portfolio which are currently issued and
outstanding. Assuming that such shares were issued and sold in the manner and on
the terms set forth in the registration statement, we are of the opinion that
such shares, when issued, were legally and validly issued, fully paid and
non-assessable shares of the corporation.
Currently Issued and
Authorized Outstanding Capital
SERIES PORTFOLIO CAPITAL STOCK STOCK (APPROXIMATE)
---------------- ------------- -------------------
Discovery Fund 100,000,000 10,089,433.813
Frontier Fund 100,000,000 7,522,583.424
Passport Fund 100,000,000 8,638,213.984
Special Fund 180,000,000 41,604,545.008
International Equity Fund 100,000,000 1,314,581.847
Worldwide Growth Fund 100,000,000 14,139,244.432
Growth Fund 400,000,000 105,191,321.021
Blue Chip Fund 400,000,000 77,315,734.290
Balanced Fund 500,000,000 90,809,951.308
Government Securities Fund 20,000,000 1,407,057.866
Money Market Fund 1,000,000,000 97,894,989.680
============== ================
Total 3,000,000,000 455,927,656.673
We hereby consent to the use of this opinion in the Fund's
registration statement or any amendment thereof and further consent to the
reference to our name therein.
Very truly yours,
MOYE, GILES, O'KEEFE,
VERMEIRE & GORRELL LLP
By: Edward F. O'Keefe, P.C.
By: /S/Edward F. O'Keefe
----------------------------------
Edward F. O'Keefe, President
EFO/ljc
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 63 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 2, 1998, relating to the financial
statements and financial highlights appearing in the December 31, 1997 Annual
Report to Shareholders of Founders Funds, Inc., which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants" and "Financial Statements" in the Statement
of Additional Information.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Denver, Colorado
February 24, 1998
FOUNDERS FUNDS, INC.
RULE 12b-1 DISTRIBUTION PLAN
1. THE PLAN. Founders Funds, Inc. (the "Company") is
registered as an open-end management investment company
under the Investment Company Act of 1940 (the "Act") and is
authorized to issue shares of capital stock in separate
series, with each series representing interests in a
separate portfolio of securities and other assets. Pursuant
to Section 12(b) of the Act and the rules and regulations
thereunder as the same may be issued or amended from time to
time, and specifically pursuant to Rule 12b-1 (the "Rule"),
the Company, on behalf of those of the Company's series of
shares designated on Exhibit A attached hereto and
incorporated herein by this reference (each, a "Fund"), has
adopted this Distribution Plan (the "Plan"). The Plan is
designed to comply with the requirements of the Rule.
2. AUTHORIZED PAYMENTS. In addition to the expenses
described in Section 8 below, while the Plan is in effect,
each Fund is authorized to reimburse the Company's
distributor (the "Distributor") for out-of-pocket costs and
expenses actually incurred over a rolling twelve-month
period for the distribution of the shares of the Fund issued
by the Company, but only to the extent such expenses do not
exceed an annual rate of 0.25 of 1 percent of the Fund's
average daily net assets or such lesser amount as a majority
of the Board of Directors of the Company (the "Board of
Directors"), including a majority of the Independent
Directors (as defined herein), may determine. A majority of
the Board of Directors who are not interested persons of the
Company and have no direct or indirect financial interest in
the operation of the Plan ("Independent Directors") may from
time to time reduce the amount of such expenses or may
suspend the operation of this Section 2 for such period or
periods as they may determine. Reimbursement contemplated
under this Section shall be paid monthly upon receipt by the
Fund of a written expense report detailing the expenses
qualifying for such reimbursement and the purposes thereof.
Expenses permitted to be paid by each Fund pursuant to this
Section shall include and be limited to the following:
(a) payments to any securities dealer, financial
institution or other person (other than the
Distributor) for their assistance with respect to
the distribution of the Fund's shares, and
payments to any financial intermediary for
providing administrative and accounting services
with respect to the Fund's shareholders, provided
each recipient of such payment has entered into a
written agreement with the Distributor, the form
of which in the opinion of legal counsel to the
Distributor (and, if the Fund is a party to such
agreement, legal counsel to the Fund), complies
with, and is not in contravention of, the Plan;
and
<PAGE>
(b) expenses of promoting the sale of shares of the
Fund, including preparation, printing and mailing
of prospectuses, reports to shareholders of the
Funds, sales literature and other promotional
material to prospective investors; direct mail
solicitation; television, radio, newspaper,
magazine and other advertising; public relations;
compensation of sales personnel and persons who
render shareholder support services; and such
other expenses as may be approved from time to
time by the Board of Directors, including a
majority of the Independent Directors, and as may
be permitted by applicable statute, rule or
regulation. Payments by the Fund hereunder, for
any month, may be made only with respect to
expenditures incurred by the Distributor during
the rolling twelve-month period in which that
month falls. Any expenditures incurred in excess
of the limitation described above of 0.25 of 1
percent of the Fund's average daily net assets in
any one fiscal year are not reimbursable.
3. APPROVAL AND CONTINUANCE. The Plan shall not take
effect with respect to each Fund until it has been approved
by a majority of the Board of Directors and by a majority of
the Independent Directors, by votes cast in person at a
meeting called for the purpose of voting on the Plan and by
a vote of at least a majority of the outstanding voting
securities of the Fund. The Plan shall continue in effect
with respect to each Fund for so long as such continuance is
specifically approved at least annually by a majority of the
Board of Directors and a majority of the Independent
Directors, by votes cast at a meeting called for the purpose
of voting on such continuance.
4. REPORTS. Any person authorized to direct the
disposition of moneys paid or payable pursuant to the Plan
shall furnish at least quarterly to the Board of Directors,
and the Board of Directors shall review, a written report as
to the amounts expended during each quarter and the purposes
for which such amounts were expended, and such other
information as the Board of Directors or the Independent
Directors may reasonably request from time to time.
5. RECORDS. The Company shall preserve copies of the
Plan and all reports made pursuant to Section 4 above for a
period of not less than six years from the date of the Plan
and reports and shall preserve the Plan and reports for the
first two years in an easily accessible place.
6. SELECTION AND NOMINATION OF DIRECTORS. While the
Plan is in effect, the selection and nomination of those
Directors who are not interested persons of the Company
shall be committed to the discretion of the Independent
Directors.
<PAGE>
7. EXPENSE LIMITATION. Whether or not any
expenditure under the Plan is subject to a state expense
limitation shall depend upon the nature of the expenditure
and the terms of the state law or regulation imposing the
limitation. Any expenditure subject to such limitation
shall be included in the applicable Fund's total expenses
for purposes of determining compliance with such limitation.
8. OTHER EXPENSES OF THE FUNDS AND THE FUNDS'
INVESTMENT ADVISER. To the extent that any payments made by
the Company on behalf of a Fund pursuant to its investment
advisory agreement with Founders Asset Management LLC
("Founders") are considered to be "primarily intended to
result in the sale of shares" of the Fund within the meaning
of the Rule, such payments when made by the Company pursuant
to the investment advisory agreement are authorized under
the Plan. Any distribution expenses relating to the sale of
shares of the Fund incurred by Founders are in addition to
distribution expenses incurred by the Fund pursuant to
Section 2 above. To the extent that any management fee paid
by the Fund pursuant to its investment advisory agreement
with Founders might be considered to be indirectly financing
any activity which is "primarily intended to result in the
sale of shares" of the Fund within the meaning of the Rule,
the payment of such management fee is authorized under the
Plan. Adoption of the Plan shall not be deemed to mean that
any payments made by the Fund and authorized by the Plan
pursuant to this Section 8 constitute distribution expenses
within the meaning of the Rule, or that payment of
distribution expenses by Founders constitutes the indirect
payment of distribution expenses by the Fund.
9. AMENDMENT AND TERMINATION. The Plan may not be
amended to increase materially the amount of distribution
expenses to be paid by a Fund as described in Section 2
above without the approval of a majority of the outstanding
voting securities of the Fund. All material amendments to
the Plan must be approved by a majority of the Board of
Directors and a majority of the Independent Directors, by
votes cast in person at a meeting called for the purpose of
voting on such amendment. Amendments required to conform
the Plan to changes in the Rule shall not be deemed to be
material amendments.
The Plan may be terminated by a Fund at any time by the
vote of a majority of the Independent Directors or by the
vote of a majority of the outstanding voting securities of
the Fund. Upon termination, the Fund will not reimburse the
Distributor for any expenses incurred by the Distributor
subsequent to the date of termination which otherwise would
have been reimbursed under the Plan. The Fund will,
however, reimburse the Distributor for any such expenses
incurred prior to the date of termination, but only to the
extent that such expenses do not exceed 0.25 of 1 percent of
the Fund's average daily net assets in the calendar year of
termination (or such lesser amount as may have been
determined prior to termination by the Board of Directors,
<PAGE>
including the Independent Directors, in accordance with
Section 2 of the Plan).
10. DEFINITIONS. As used in the Plan, the terms
"assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the respective
meaning specified in the Act and the rules and regulations
thereunder.
Effective November 18, 1997.
<PAGE>
EXHIBIT A
TO
FOUNDERS FUNDS, INC.
RULE 12b-1 DISTRIBUTION PLAN
Founders Discovery Fund
Founders Frontier Fund
Founders Passport Fund
Founders Special Fund
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund
Founders Blue Chip Fund
Founders Balanced Fund
Founders Government Securities Fund
CODE OF ETHICS
FOR
FOUNDERS FUNDS, INC. AND
FOUNDERS ASSET MANAGEMENT, INC.
(AS AMENDED NOVEMBER 18, 1997)
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION...................................................................1
Entities Subject to This Code of Ethics..............................1
Statement of General Principles......................................1
SECTION 1: DEFINITIONS........................................................2
Access Person........................................................2
Affiliate............................................................3
Approval Officer.....................................................3
Beneficial ownership.................................................3
Client...............................................................3
Control..............................................................3
De minimis transaction...............................................3
FAMI Employee........................................................3
Independent Director.................................................4
Fund Affiliated Director.............................................4
Fund Affiliated Officer..............................................4
Purchase or sale of a security.......................................4
Restricted securities................................................4
Security.............................................................5
A security is being considered for purchase or sale..................5
A security is being purchased or sold................................5
SECTION 2: GENERAL POLICY.....................................................5
SECTION 3: PROHIBITED PURCHASES AND SALES.....................................6
General Prohibition..................................................6
Initial Public Offering..............................................6
SECTION 4: PRE-TRANSACTION APPROVAL...........................................6
SECTION 5: SHORT-TERM TRADING PROFITS.........................................8
SECTION 6: POTENTIAL CONFLICTS OF INTEREST....................................8
Gifts................................................................8
Trips................................................................8
Preferential Treatment...............................................9
Code of Ethics i
<PAGE>
Investment Advice to Others..........................................9
Outside Affiliations.................................................9
SECTION 7: INVESTMENT CLUBS...................................................9
SECTION 8: SERVICE AS A DIRECTOR OF PUBLICLY TRADED
COMPANIES..................................................10
SECTION 9: BROKER ACCOUNTS AND BROKER CONFIRMATIONS..........................10
SECTION 10: REPORTING REQUIREMENTS...........................................11
A. Initial Report by New Access Person..............................11
B. Periodic Reports by Access Persons and FAMI Employees............11
C. Annual Reports by Access Persons.................................12
D. Monitoring of Periodic and Annual Reports by Legal Department....12
E. Written Certification............................................13
F. Legal Department Report..........................................13
SECTION 11: EXEMPTIONS.......................................................14
A. Exempt Transactions..............................................14
B. Independent Director Exemptions..................................14
SECTION 12: DISSEMINATION, CORPORATE RECORD RETENTION,
DISCLOSURE, AND CONFIDENTIALITY..........................15
SECTION 13: PERSONAL RECORD RETENTION........................................16
SECTION 14: MATERIAL INSIDE (NON-PUBLIC) INFORMATION.........................16
SECTION 15: VIOLATIONS.......................................................16
SECTION 16: REVIEW...........................................................18
APPENDIX 1: List of Access Persons and Approval Officers.....................19
APPENDIX 2: Portion of Rule 16a-1 of Securities Exchange Act of 1934
and portions of Section 2.(a) of the Investment Company
Act of 1940..............................................20
APPENDIX 3: Policy Statement On Insider Trading..............................25
EXHIBIT A: Request for Approval of Security Transaction in Personal Account
ii Code of Ethics
<PAGE>
EXHIBIT B: Notification of Intention to Engage in De Minimis Transaction
EXHIBIT C: Approval Form for Trips Where a Portion of the Cost is Paid by a
Third Party
EXHIBIT D: Approval Form for Outside Employment or Business Activity
EXHIBIT E: Notification of Possible Security Transaction by Investment Club
or Similar Entity
EXHIBIT F: Initial Report Form
EXHIBIT G: Report of Securities Transactions Occurring Within Last Calendar
Quarter
EXHIBIT H: Report of Securities Ownership
EXHIBIT I: Compliance Certificate
Code of Ethics iii
<PAGE>
INTRODUCTION
ENTITIES SUBJECT TO THIS CODE OF ETHICS.
Founders Funds, Inc. (which, collectively with each of its series
portfolios, is hereinafter referred to as the "Fund") is an open-end,
diversified, externally managed investment company registered under the
Investment Company Act of 1940 (the "Act").
Founders Asset Management, Inc. ("FAMI") serves as the external
investment manager of the Fund pursuant to investment advisory agreements with
each series portfolio ("Portfolio" or collectively, "Portfolios") of the Fund,
and further serves as principal underwriter of the Fund pursuant to a
distribution contract with the Fund. FAMI is an investment adviser registered
under the Investment Advisers Act of 1940 (the "Advisers Act").
STATEMENT OF GENERAL PRINCIPLES.
The directors ("directors"), officers, employees, and other access
persons of the Fund ("Access Persons," as defined in Section 1 of this Code of
Ethics) and the directors, officers, and employees of FAMI ("FAMI Employees," as
hereinafter more specifically defined) are cognizant of and committed to the
performance of their fiduciary duties under general corporate law and as more
specifically articulated in the Act and the Advisers Act, including, without
limitation, proscriptions against overreaching, self-dealing, insider trading,
and conflicts of interests. Moreover, with respect to certain legal matters and
ethical questions arising in the course of their deliberations and actions,
directors, other Access Persons, and FAMI Employees regularly seek the advice of
counsel.
This Code of Ethics is directed to the particular objective of
compliance with the provisions of Rule 17j-1 under the Act as such provisions
are applicable to Access Persons, of compliance with various provisions of the
Advisers Act as such provisions are applicable to FAMI Employees, and to the
prevention of engagement in any personal securities transactions by Access
Persons and FAMI Employees which might conflict with or adversely affect the
interests and welfare of the Fund and its shareholders and, with respect to FAMI
Employees, of other clients of FAMI ("Clients," as defined in Section 1 of this
Code of Ethics).
The general principles and procedures which guide the activities of
all Access Persons and FAMI Employees are augmented by this Code of Ethics,
which is based upon the fundamental recognition that Access Persons have a
fiduciary relationship with the Fund and its shareholders and FAMI Employees may
have such a relationship with other Clients, which requires the maintenance by
all such individuals of the highest standards of integrity and conduct.
Code of Ethics 1
<PAGE>
Access Persons must at all times recognize, respect, and act in the
best interests of the shareholders of the Fund, and FAMI Employees must so act
with respect to the Fund and other Clients. In furtherance of their fiduciary
responsibilities, Access Persons and FAMI Employees must ensure that they do not
take any inappropriate advantage of their positions as directors, officers,
employees, or agents of the Fund and of FAMI. Access Persons and FAMI Employees
must avoid any situations which might compromise their exercise of fully
independent judgment in the interests of or on behalf of the Fund and its
shareholders and other Clients, as applicable.
Professional and legal responsibilities to the Fund and its
shareholders and to other Clients dictate that not only conflicts of interests,
but the appearance of conflicts of interests, be avoided. Although compliance by
Access Persons and FAMI Employees with the provisions of this Code of Ethics is
mandatory, codes of ethics cannot define all conflict and potential conflict
situations. Therefore, in addition to assuring that one's conduct comports with
this Code of Ethics, Access Persons and FAMI Employees must avoid engaging in
any conduct that may create a conflict of interest or the potential for a
conflict of interest. Access Persons and FAMI Employees must adhere not only to
the letter but also to the spirit of the Code of Ethics and the principles
articulated herein.
All activities of an Access Person and a FAMI Employee must be
governed by the high fiduciary standard of scrupulous avoidance of serving one's
own personal interests ahead of the interests of the Fund and other Clients, as
applicable. In one's business activities, one must act in all respects in the
best interests of the Fund and its shareholders and of other Clients.
SECTION 1: DEFINITIONS
For the purpose of this Code of Ethics, the following general
definitions shall apply:
1. ACCESS PERSON shall mean:
a. Any director or officer of the Fund or of FAMI; and
b. Any employee of the Fund or of FAMI who, in connection
with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of a security by
the Fund or a Client, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and
2 Code of Ethics
<PAGE>
c. Any natural person in a control relationship to the Fund or to
FAMI who obtains information concerning recommendations made to the
Fund or a Client with regard to the purchase or sale of a security.
Access Person shall not include an employee of the Fund or of FAMI who
receives no information about current recommendations or trading or an employee
who obtains information in a single instance, infrequently or inadvertently.
2. AFFILIATE. One is an "Affiliate" of another person or company if he
or she:
(i) is a partner, director, officer, or employee of such
other person or company; or
(ii) directly or indirectly owns, controls or holds with
power to vote 5% or more of the outstanding voting securities of such
company; or
(iii) directly or indirectly controls such company.
3. APPROVAL OFFICER means the person(s) designated by the president of
the Fund to provide certain written approvals required by this Code of Ethics.
The Approval Officer(s) is identified on Appendix 1.
4. BENEFICIAL OWNERSHIP shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an Access Person has or acquires.
A copy of the relevant portions of Rule 16a-1, which defines beneficial
ownership in accordance with Section 16, is included on Appendix 2.
5. CLIENT means an investment advisory client of Founders Asset
Management, Inc. other than the Fund.
6. CONTROL shall have the meaning set forth in Section 2(a)(9) of the
Act. A copy of Section 2(a)(9) of the Act is included on Appendix 2.
7. DE MINIMIS TRANSACTION means a securities transaction for which
pre-transaction approval is not required, as more fully described and defined in
Section 4.2 of this Code of Ethics.
8. FAMI EMPLOYEE means an officer, director, and/or employee of
Founders Asset Management, Inc.
Code of Ethics 3
<PAGE>
9. INDEPENDENT DIRECTOR means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19) of the
Act and who, in connection with his or her normal and regular responsibilities,
does not make or participate in decisions with respect to the purchase or sale
of a security by the Fund or make any recommendations with respect to such
purchases or sales. An independent director is further defined as one who does
not normally obtain information regarding the purchase or sale of a security by
the Fund within fifteen days before or after the purchase or sale. A copy of
Section 2(a)(19) of the Act is included on Appendix 2.
a. FUND AFFILIATED DIRECTOR means a director of the Fund who
is not a director, officer, or employee of Founders or any affiliate
thereof (other than the director's being affiliated with Founders as
an officer and/or director of the Fund) and who, in connection with
his or her normal and regular responsibilities, does not make or
participate in decisions with respect to the purchase or sale of a
security by the Fund or make any recommendations with respect to such
purchases or sales. A Fund Affiliated Director is further defined as
one who does not normally obtain information regarding the purchase or
sale of a security by the Fund within fifteen days before or after the
purchase or sale. A Fund Affiliated Director may be an "interested
person" of the Fund within the meaning of Section 2(a)(19) of the Act.
b. FUND AFFILIATED OFFICER means an officer of the Fund who
is not a director, officer, or employee of Founders or any affiliate
thereof (other than the officer's being affiliated with Founders as an
officer of the Fund) and who, in connection with his or her normal and
regular responsibilities, does not make or participate in decisions
with respect to the purchase or sale of a security by the Fund or make
any recommendations with respect to such purchases or sales. A Fund
Affiliated Officer is further defined as one who does not normally
obtain information regarding the purchase or sale of a security by the
Fund within fifteen days before or after the purchase or sale. A Fund
Affiliated Officer may be an "interested person" of the Fund within
the meaning of Section 2(a)(19) of the Act.
c. Except as may otherwise be indicated herein, the term
Independent Director when used in this Code shall be deemed to include
a Fund Affiliated Director and a Fund Affiliated Officer.
10. PURCHASE OR SALE OF A SECURITY shall include the writing of an
option to purchase or sell the security.
11. RESTRICTED SECURITIES shall include securities which are not
readily marketable and securities which cannot be resold or distributed to the
public or
4 Code of Ethics
<PAGE>
to qualified institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended (the "1933 Act"), without an effective registration
statement under the 1933 Act. A security which is not readily marketable is one
which, for whatever reason, cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the security is
reasonably valued.
12. SECURITY shall have the meaning set forth in Section 2(a)(36) of
the Act, and shall also include related securities, such as rights and
convertible instruments, and financial instruments such as futures, commodities,
and derivative instruments which are related to, but are not the same as,
securities that may be held or acquired by the Fund or a Client, and which may
not be defined as securities in Section 2(a)(36) of the Act. The term security
shall include restricted securities as defined herein. Security shall not
include: government securities as defined in Section 2(a)(16) of the Act; high
quality short-term debt instruments including, but not limited to, bankers'
acceptances, bank certificates of deposit, commercial paper, and repurchase
agreements; and shares of registered open-end investment companies. Copies of
Sections 2(a)(36) and 2(a)(16) of the Act are included on Appendix 2.
13. A SECURITY IS BEING CONSIDERED FOR PURCHASE OR SALE when a
recommendation to purchase or sell a security has been made and
communicated or, with respect to the person making the recommendation, when such
person seriously considers making such a recommendation.
14. A SECURITY IS BEING PURCHASED OR SOLD when, within the most recent
seven-day period, a transaction in such security has been effected for the Fund
or a Client, or when a transaction in such security is pending or in progress
for the Fund or a Client.
SECTION 2: GENERAL POLICY
Directors and other Access Persons are specifically reminded that it
is unlawful for any of them, in connection with the purchase or sale, directly
or indirectly, of a security held or to be acquired by the Fund:
1. To employ any device, scheme or artifice to defraud the Fund;
2. To make any untrue statement of a material fact to the Fund or omit
to state to the Fund a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading;
Code of Ethics 5
<PAGE>
3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the Fund; or
4. To engage in any manipulative practice with respect to the Fund.
For purposes of this Section 2, a security held or to be acquired by
the Fund means any security as defined herein which, within the most recent
15-day period, is or has been held by the Fund or is being or has been
considered by the Fund or by FAMI for purchase by the Fund.
These proscriptions apply to FAMI Employees not only with respect to
the Fund but also with respect to Clients.
The provisions of this Code of Ethics have been instituted, in part,
in an effort to ensure that directors, other Access Persons, and FAMI Employees
do not, inadvertently or otherwise, violate the proscriptions outlined above.
SECTION 3: PROHIBITED PURCHASES AND SALES
GENERAL PROHIBITION.
Except as provided in Section 11 of this Code of Ethics, no Access
Person or FAMI Employee shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership and which to his or her actual knowledge
at the time of such purchase or sale:
1. Is being considered for purchase or sale by the Fund or, as to FAMI
Employees, a Client; or
2. Is being purchased or sold by the Fund or, as to FAMI Employees, a
Client.
INITIAL PUBLIC OFFERING.
Except as provided in Section 11 of this Code of Ethics, no Access
Person and no FAMI Employee shall purchase, directly or indirectly, any
securities which are offered in an initial public offering.
SECTION 4: PRE-TRANSACTION APPROVAL
1. Every Access Person and FAMI Employee shall obtain written approval
of an Approval Officer prior to effecting any transactions in securities for
6 Code of Ethics
<PAGE>
his or her direct or indirect personal gain or in which he or she may have any
beneficial interest. Such prior written approval shall also be required of any
such transactions effected by, for, or on behalf of any member of the Access
Person's and FAMI Employee's household. Written approval shall be obtained by
use of the form attached hereto as Exhibit A. Such approval shall be effective
for three trading days. The legal department of FAMI (the "Legal Department")
shall retain the original copies of all completed approval forms.
2. The pre-transaction approval requirements of this Section 4 shall
not apply to "de minimis" transactions, defined as any purchase or sale of a
security by an Access Person or FAMI Employee who is not also buying or selling
the same security for the Fund or a Client, and which:
a. Is issued by a company with a market capitalization of at
least $1 billion and has an average daily trading volume of at least
100,000 shares; and
b. Involves no more than 100 shares or units, regardless of the
dollar amount of the transaction, or any number of shares or units
having a value of no more than $5,000.
If, during any two consecutive calendar quarters, aggregate purchase
or sale transactions by the Access Person or FAMI Employee in shares or units of
the same issuer exceed 300 shares or units or a cumulative value of $15,000,
whichever is the last to occur, subsequent transactions in the issuer's
securities shall no longer be regarded as "de minimis" transactions. Within
three business days of the transaction which causes a limit of 300 shares or
units or $15,000 to be exceeded, the Access Person or FAMI Employee shall notify
the Legal Department of the occurrence of the transaction. Transactions in the
applicable issuer's securities during the next 12 months will be subject to the
pre-clearance provisions of this Section 4.
Any Access Person or FAMI Employee who desires to engage in a de
minimis transaction (subject to the limits set forth in the preceding paragraph)
shall complete the form attached hereto as Exhibit B prior to each such
transaction, and return that form to the Legal Department.
3. Any Access Person or FAMI Employee who has obtained written
approval to purchase a restricted security and who has purchased and continues
to maintain the security in reliance upon such approval must disclose the
investment to his or her Approval Officer in any instance in which the Access
Person or FAMI Employee is involved in consideration by the Fund or a Client of
an investment in the issuer of the restricted security. In any such
circumstance, the decision of a Fund or a Client to purchase an investment in
the issuer of the restricted security must be reviewed independently by one or
more investment
Code of Ethics 7
<PAGE>
personnel of FAMI, selected by the Approval Officer, who have no personal
interest in the issuer, who must execute written approval of the investment in
the issuer prior to the investment's being made.
SECTION 5: SHORT-TERM TRADING PROFITS
Every Access Person or FAMI Employee who obtains a profit from a
purchase and sale, or a sale and purchase, of the same or equivalent securities
in which the individual has a beneficial ownership interest within sixty (60)
calendar days shall disgorge such profit, with the profit to be allocated in
whole or in part among Portfolios of the Fund as determined equitably by the
Fund's board of directors (any portion of the profit not so allocated shall be
allocated among Clients as determined by FAMI's board of directors); provided,
however, that such disgorgement of short-term trading profits shall not apply to
"de minimis" transactions as defined in Section 4 of this Code of Ethics or to
securities transactions of Access Persons or of FAMI Employees under
circumstances, determined in the sole discretion of the board of directors of
the Fund, in which disgorgement of profits would be inequitable.
SECTION 6: POTENTIAL CONFLICTS OF INTEREST
GIFTS.
No Access Person or FAMI Employee shall give, seek or accept any gift,
favor, or other item of value in excess of $100 to or from any person or entity
having a direct or indirect business and/or professional relationship with the
Fund or FAMI or any affiliated entities of the Fund or FAMI. No Access Person or
FAMI Employee shall participate individually or on behalf of FAMI, a Client or
the Fund, directly or indirectly, in any transaction involving the payment or
receipt of any bribe or kickback, or the payment or receipt of any other amount
with an understanding that part or all of such amount will be refunded or
delivered to a third party in violation of any law applicable to the
transaction.
TRIPS.
Any trip to be taken by an Access Person or a FAMI Employee must be
approved in advance, by use of the form attached hereto as Exhibit C, if any
portion of trip related expenses is to be paid by a broker, by a company whose
securities are publicly traded, or by any other person or entity with which FAMI
may have a current or anticipated business relationship.
8 Code of Ethics
<PAGE>
PREFERENTIAL TREATMENT.
No Access Person or FAMI Employee shall give, seek or accept any
preferential treatment in dealings with any broker, dealer, portfolio company,
financial institution, supplier or any other organization with which FAMI
transacts business or anticipates transacting business.
INVESTMENT ADVICE TO OTHERS.
Access Persons and FAMI Employees are strictly prohibited from acting
jointly or individually in an investment advisory capacity for an account other
than a Fund or Client.
OUTSIDE AFFILIATIONS.
Access Persons and FAMI Employees are prohibited from receiving direct
or indirect compensation of more than minimal value as a result of services
provided to any outside entity or from otherwise engaging in any outside
for-profit business activities without first receiving the written approval of
the Approval Officer on the form attached hereto as Exhibit D. The Legal
Department shall retain copies of all such approvals.
SECTION 7: INVESTMENT CLUBS
Notwithstanding any other provisions of this Code of Ethics to the
contrary, family members, such as husband, wife, and other dependent relatives
of an Access Person or a FAMI Employee may participate in investment clubs or
similar investment groups if, and only if, all of the following conditions are
present and are adhered to:
a. The Access Person or FAMI Employee does not provide
investment advice to the family member or to other club participants
with respect to any security which is being considered for purchase or
sale by the Fund or a Client or is being purchased or sold by the Fund
or a Client.
b. The family member immediately notifies the Access Person
or FAMI Employee when he or she is aware that the investment club has
purchased or sold or is considering the purchase or sale of a
security.
c. Upon being notified by the family member in accordance
with item (b), the Access Person or FAMI Employee completes and signs
Exhibit E and submits Exhibit E to the Approval Officer for
acknowledgment. The Legal Department shall retain copies of all such
forms.
Code of Ethics 9
<PAGE>
SECTION 8: SERVICE AS A DIRECTOR OF PUBLICLY TRADED
COMPANIES
No Access Person or FAMI Employee shall be permitted to serve on the
board of directors of a publicly traded company unless prior written
authorization has first been obtained from the president of the Fund. Approval
of such service by the president shall be based upon a determination that the
service is consistent with the interests of the Fund and its shareholders and
the Clients. In instances in which authorization to serve is granted, the Access
Person or FAMI Employee serving as a director shall refrain from any direct or
indirect involvement in the consideration for purchase or sale and in the
purchase or sale by the Fund or a Client (i) of any securities of the company on
the board of directors of which the Access Person or the FAMI Employee serves as
a director, or (ii) of any securities of an affiliate of such company.
SECTION 9: BROKER ACCOUNTS AND BROKER CONFIRMATIONS
1. Each Access Person and FAMI Employee is required to provide the
Legal Department with the name, address, and telephone number of any brokerage
firm with which the Access Person or FAMI Employee establishes or maintains a
brokerage account or in which such Access Person or FAMI Employee or any member
of such Access Person's or FAMI Employee's household has any direct or indirect
beneficial ownership, and the account number and registered owner designation of
any such account. Such information as to existing brokerage accounts shall be
provided upon filing of the initial written certification required of an Access
Person and FAMI Employee by use of the form attached hereto as Exhibit F. Such
information with respect to the establishment of a new brokerage account not
previously reported to the Legal Department shall be provided by the Access
Person or FAMI Employee to the Legal Department within ten days of establishment
of the account.
2. All Access Persons and FAMI Employees are required to direct any
broker effecting a transaction in any security in which such Access Person or
FAMI Employee or any member of such Access Person's or FAMI Employee's household
has any direct or indirect beneficial ownership to provide the Legal Department
with duplicate copies of the applicable trade confirmations and periodic account
statements.
10 Code of Ethics
<PAGE>
SECTION 10: REPORTING REQUIREMENTS
A. INITIAL REPORT BY NEW ACCESS PERSON.
Within ten (10) days of the date upon which an individual becomes an
Access Person, the new Access Person shall provide the Legal Department with an
initial report containing a list of all securities in which such Access Person
or any member of such Access Person's household has any direct or indirect
beneficial ownership. The list shall include the title and number of shares or
interests of each security owned, each security's ticker symbol, if any, the
date(s) of purchase of the security, and the price(s) paid for the security. The
initial report shall be made by use of a form similar to that attached hereto as
Exhibit F.
B. PERIODIC REPORTS BY ACCESS PERSONS AND FAMI EMPLOYEES.
1. Except as is otherwise provided in Section 10.B.2., every Access
Person, FAMI Employee, and Fund Affiliated Officer shall report to the Legal
Department, and every Fund Affiliated Director shall report to the Fund's
counsel, the information described in paragraph 3 of this Section 10B with
respect to transactions in any security in which such Access Person, FAMI
Employee, Fund Affiliated Officer, or Fund Affiliated Director, or any member of
such Access Person's, FAMI Employee's, Fund Affiliated Officer's, or Fund
Affiliated Director's household has, or by reason of such transaction acquires,
any direct or indirect beneficial ownership in the security. Such report shall
be made by use of a form similar to that attached hereto as Exhibit G not later
than ten days after the end of the calendar quarter in which the transaction
occurred.
2. An Independent Director shall be exempt from the reporting
requirements imposed by Section 10.B.1. and need only report a transaction in a
security if such Director, at the time of that transaction knew or, in the
ordinary course of fulfilling his official duties as a director of the Fund
should have known, that during the 15-day period immediately preceding or after
the date of the transaction by the Director, such security was purchased or sold
by the Fund or was being considered by the Fund or FAMI for purchase or sale by
the Fund. Any such transaction should be reported to the Fund's counsel not
later than ten days after the end of the calendar quarter in which the
transaction occurred.
3. At the end of each calendar quarter, the Legal Department will
provide each Access Person and FAMI Employee who effected securities
transactions during the quarter with a form similar to that attached as Exhibit
G containing a list of all securities transactions for which the individual has
submitted reports on Exhibits A and B during the quarter and/or for which broker
trade confirmations of the individual's securities transactions have been
received by the Legal Department during the quarter. The Access Person or FAMI
Employee is responsible for verifying the accuracy and completeness of the
Code of Ethics 11
<PAGE>
information on the report provided by the Legal Department and for adding any
transaction which was effected during the preceding quarter which is not
included on the report. All reports shall contain the following information:
a. The title of each security involved in the transaction,
each security's ticker symbol, if any, the amount of each security
purchased or sold, the date of the transaction, and the price at which
the transaction was executed;
b. The nature of the transaction (i.e., purchase, sale, or
any other type of acquisition or disposition);
c. If the transaction was effected through a brokerage firm,
a broker's confirmation of such transaction (unless the Legal
Department already has received a copy of the confirmation); and
d. If no brokerage firm was involved in the transaction, an
explanation of the circumstances surrounding the transaction and the
manner in which the transaction was executed.
4. Such reports and, if applicable, accompanying confirmations shall
be retained by the Fund's counsel or the Legal Department for a period of at
least six years.
5. Any such report may contain a statement that the report shall not
be construed as an admission by the person making such report that he or she has
any direct or indirect beneficial ownership in the security to which the report
relates.
C. ANNUAL REPORTS BY ACCESS PERSONS.
On or before February 1 of each calendar year, each Access Person
shall provide to the Legal Department a list of all securities in which, as of
the preceding December 31, the Access Person had any direct or indirect
beneficial ownership interest. The list shall include the title and number of
shares or interests of each security owned, the date(s) of purchase of the
security, and the price(s) paid for the security, and shall be provided by use
of a form similar to that attached hereto as Exhibit H.
D. MONITORING OF PERIODIC AND ANNUAL REPORTS BY LEGAL DEPARTMENT.
1. Upon receipt of each periodic report provided pursuant to Section
10B.1 and 10B.2, the Legal Department will review the report to determine
whether the Access Person or FAMI Employee may have engaged in possible
violations of this Code of Ethics, paying particular attention to trading
patterns
12 Code of Ethics
<PAGE>
and activities of the Access Person or FAMI Employee which may identify
potential infractions of this Code of Ethics.
2. Upon receipt by the Legal Department of each annual report from
Access Persons required by this Code of Ethics to provide such reports, the
Legal Department shall prepare a list of all securities shown on the reports and
shall compare the list with records of securities purchased or sold by the Fund
and by Clients during the prior twelve months. The Legal Department shall
determine, based upon such comparison and upon any further review of any Access
Person's securities transactions deemed necessary, whether any violations of
this Code of Ethics may have occurred.
E. WRITTEN CERTIFICATION.
On a basis no less frequently than annually, each Independent Director
of the Fund shall report to the Fund's counsel, and each other Access Person or
FAMI Employee shall be required to provide to the Legal Department, a written
certification that the Access Person or FAMI Employee has read and understands
this Code of Ethics and recognizes that he or she is subject to certain terms
and provisions thereof. Each Access Person and FAMI Employee shall further be
required annually to certify in writing that he or she has complied with the
requirements of this Code of Ethics and has disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to the
requirements of this Code of Ethics. Attached hereto as Exhibit I is the form to
be used by Access Persons, other than Independent Directors, and by FAMI
Employees to comply with this certification.
F. LEGAL DEPARTMENT REPORT.
1. On a basis no less frequently than semi-annually, the Legal
Department shall prepare a written report to the board of directors of the Fund
or to a standing committee of the board designated by the Independent Directors
to receive such reports, which shall provide the following information:
a. A summary of existing procedures concerning investments in
securities by all Access Persons and FAMI Employees who are required
to report their securities transactions to the Legal Department and
any changes in such procedures which were implemented in the past six
(6) months;
b. Any recommended changes in existing restrictions or
procedures based upon (i) the experience of the Fund and FAMI under
this Code of Ethics, (ii) the experience of any affiliate of the Fund
which may have a separate code of ethics, (iii) evolving industry
practices, or (iv) developments in applicable laws or regulations; and
Code of Ethics 13
<PAGE>
c. Certification that the Fund and FAMI have adopted such
procedures as are reasonably necessary to prevent violations of this
Code of Ethics by Access Persons and FAMI Employees.
SECTION 11: EXEMPTIONS
A. EXEMPT TRANSACTIONS.
The prohibitions of Section 3 of this Code of Ethics and the pre-
transaction, short-term trading, and reporting requirements of Sections 4, 5,
and 10B of this Code of Ethics shall not apply to:
1. Purchases or sales of securities effected in any account over which
an Access Person or FAMI Employee has no direct or indirect influence or
control;
2. Purchases or sales which are non-volitional on the part of an
Access Person or a FAMI Employee, including transactions in accounts in which
complete investment discretion has been delegated to a person or entity not an
Access Person or a FAMI Employee or a member of such Access Person's or FAMI
Employee's household;
3. Purchases which are part of an automatic dividend reinvestment
plan;
4. Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired;
5. Purchases or sales of securities other than restricted securities
which receive the prior approval of the president of the Fund or such other
senior officer as any such president may designate to grant such approval in his
absence, because they are only remotely potentially harmful to the Fund or a
Client since they would be very unlikely to affect a highly institutional
market, or because they clearly are not related economically to the securities
to be purchased, sold, or held by the Fund or a Client.
B. INDEPENDENT DIRECTOR EXEMPTIONS.
Notwithstanding any language in this Code of Ethics to the contrary,
the initial public offering prohibition of Section 3, the provisions of Section
4.1, the provisions of Section 5, the provisions of Section 6, the provisions of
Section 7, the provisions of Section 8, the provisions of Section 9, the
provisions of Section
14 Code of Ethics
<PAGE>
10A, and the provisions of Section 10C of this Code of Ethics shall not apply to
Independent Directors.
SECTION 12: DISSEMINATION, CORPORATE RECORD RETENTION,
DISCLOSURE, AND CONFIDENTIALITY
1. FAMI shall provide a copy of this Code of Ethics to all Access
Persons and to all FAMI Employees and shall inform such individuals of their
duties and responsibilities imposed by this Code of Ethics, including their
reporting responsibilities. FAMI shall obtain a written certification from each
FAMI Employee stating that he/she has read, understands, and will comply with
this Code of Ethics by use of the form attached hereto as Exhibit F.
2. The Fund and FAMI shall maintain for a six-year period in an easily
accessible place the following records:
a. A copy of this Code of Ethics;
b. A record of any violation of this Code of Ethics and of
any action taken as a result of such violation;
c. A copy of each report made by an Access Person or FAMI
Employee pursuant to this Code of Ethics;
d. A list of all persons who are, or within the past six
years have been, required to make reports pursuant to this Code of
Ethics. FAMI shall arrange for a list of all current Access Persons to
be attached to this Code of Ethics as Appendix 1 and to be amended
when necessary to add or delete Access Persons; and
e. A list of Approval Officers. FAMI shall arrange for a list
of all current Approval Officers to be included on Appendix 1 and to
be amended when necessary to add or delete Approval Officers.
3. The prospectuses and/or the statements of additional information of
the Fund shall provide disclosure with respect to the general policies and
procedures applicable to Access Persons by this Code of Ethics, including
specific disclosure with regard to the extent to which Access Persons are
permitted to engage in personal securities transactions. Such disclosure shall
further include a brief description of the procedures initiated by the Fund to
address conflicts of interests occurring as a result of violations of this Code
of Ethics, and shall include the manner in which a Fund investor may obtain a
copy of the Code of Ethics. Legal counsel for FAMI and for the Fund are to
review the disclosure for adequacy and are further directed to attach a copy of
the Code of Ethics as an exhibit to the Fund's registration statement.
Code of Ethics 15
<PAGE>
4. The Legal Department, Approval Officers, and other individuals who
may receive (i) reports of securities transactions and/or securities holdings of
Access Persons and (ii) other information with respect to Access Persons' and
other FAMI Employees' compliance with or violation of any provisions of this
Code of Ethics shall receive and maintain the information in confidence. Such
information shall only be disclosed to those persons or entities who have either
a need or a legal obligation to receive such information or have the legal
authority to be provided with the information. Persons and entities to whom such
information may appropriately be disclosed include, but are not necessarily
limited to, the directors of the Fund, the president of the Fund and of FAMI,
compliance, accounting, and legal personnel of the Fund and of FAMI, Approval
Officers, state and federal regulatory agencies, and appropriate representatives
of the National Association of Securities Dealers, Inc.
SECTION 13: PERSONAL RECORD RETENTION
Each Access Person and FAMI Employee is encouraged to retain in his or
her personal files for a period of at least six years broker's confirmations,
monthly statements, or other appropriate information covering all personal
securities transactions, and all transactions in securities effected by, for, or
on behalf of any member of the Access Person's and FAMI Employee's household,
showing the amount of each security purchased or sold, the date of the
transaction, the price at which it was executed, and the name and address of the
executing broker or dealer, if any.
SECTION 14: MATERIAL INSIDE (NON-PUBLIC) INFORMATION
It is unlawful under the Securities Exchange Act of 1934 and SEC Rule
10b-5 thereunder for any person to trade or recommend trading in securities on
the basis of material, inside (non-public) information. FAMI has adopted a
Policy Statement On Insider Trading, a copy of which is included as Appendix 3
and is incorporated herein by this reference. By acknowledging that they have
read, understand and will comply with this Code of Ethics, Access Persons and
FAMI Employees are also acknowledging that they have read, understand and will
comply with the attached Policy Statement on Insider Trading.
SECTION 15: VIOLATIONS
1. Any Access Person or FAMI Employee who becomes aware of a violation
or apparent violation of this Code of Ethics by an officer, director, or
employee of the Fund shall advise the president of the Fund or the Fund's legal
16 Code of Ethics
<PAGE>
counsel of the matter. The person to whom the violation or apparent violation is
made known shall thereupon report the matter to the Fund's board of directors.
The board shall determine whether a violation has occurred and, if so, will
impose or, where applicable, recommend such sanctions, if any, as it deems
appropriate, including verbal or written warnings, a letter of censure,
suspension, termination of employment, or other sanctions. Prior to the final
determination by the board of directors, FAMI shall provide such investigation
of a reported violation and shall make such recommendations to the board with
respect thereto as FAMI and/or the board shall deem advisable.
2. Any Access Person or FAMI Employee who becomes aware of a violation
or apparent violation of this Code of Ethics by an officer, director, employee,
or other access person of FAMI who is not also an officer, director, or employee
of the Fund shall advise the president, the Legal Department or FAMI's legal
counsel of the matter. The person to whom the violation or apparent violation is
made known shall thereupon report the matter to FAMI's president or, if the
violation or apparent violation involves FAMI's president, FAMI's chairman of
the board of directors. FAMI's president or chairman of the board, as
appropriate, in consultation with the Legal Department (if not involved with the
violation or apparent violation), shall determine whether a violation has
occurred and, if so, will impose such sanctions, if any, as he or she may deem
appropriate, including verbal or written warnings, a letter of censure,
suspension, termination of employment, or other sanctions.
3. In addition to any other sanctions which may be imposed upon an
Access Person or a FAMI Employee who has violated this Code of Ethics, and
particularly in circumstances in which the violation involves the sale or
purchase of a security, the Access Person or FAMI Employee having engaged in the
violation may be required either to unwind the purchase or sale transaction or,
if that is impractical, disgorge all profits from the transaction. Any such
profits are to be allocated in whole or in part among Portfolios of the Fund and
Clients as determined equitably by the Fund's board of directors, if the
sanction is imposed by the Fund's board, and by FAMI's president or chairman of
its board of directors, as appropriate, if the sanction is imposed by FAMI.
4. The Legal Department shall notify the Fund's board of directors, or
a standing committee of the board designated by the Independent Directors, of
violations of this Code of Ethics committed by an officer, director, employee,
or other access person of FAMI who is not also an officer or director of the
Fund and of the sanctions, if any, which have been imposed by FAMI upon the
person having committed the violation. Such a report will be provided at the
next regularly scheduled meeting of the Fund's board of directors following the
determination of the occurrence of the violation.
Code of Ethics 17
<PAGE>
The Fund's board of directors will review the report and other presentations
concerning the violation and the sanctions imposed with respect thereto, and may
either:
a. Take no further action; or
b. Recommend reconsideration of the determination that a
violation has occurred, the sanctions imposed with respect thereto,
and/or of the allocation of any disgorgement, accompanied by specific
suggestions for change in the actions taken by the chairman of the
board or the president of FAMI as the board of directors may deem
appropriate.
5. Upon receipt of a recommendation for reconsideration from the
Fund's board of directors in accordance with item 4.b. above, the chairman of
the board or the president of FAMI, as applicable, will consider the directors'
recommendations and will take such final action as he or she deems appropriate
under the circumstances. A report of the action taken will be provided at the
next regularly scheduled meeting of the Fund's board of directors.
SECTION 16: REVIEW
This Code of Ethics shall be reviewed by the board of directors of the
Fund and of FAMI no less frequently than annually. At the conclusion of any such
review, a majority of the directors of the Fund, including a majority of the
Fund's Independent Directors, shall determine whether the Code of Ethics
contains such provisions as are reasonably necessary to prevent Access Persons
and FAMI Employees from engaging in any act, practice, or course of business
which is prohibited by Section 2 of this Code of Ethics.
APPROVED AND AMENDED to be effective as of August 15, 1997, by vote of
a majority of the directors of the Fund, including a majority of the Independent
Directors, and by vote of the board of directors of FAMI.
18 Code of Ethics
<PAGE>
APPENDIX 1
TO
CODE OF ETHICS
List of Access Persons and Approval Officers
[Please contact the Legal Department to obtain the current list of
Access Persons and Approval Officers. This list can also be found on the
Legal Department section of FNet, FAMI's intranet site.]
Code of Ethics 19
<PAGE>
APPENDIX 2
TO
CODE OF ETHICS
Reg. ss. 240.16a-1.
(a) The term "beneficial owner" shall have the following applications:
(2) . . . the term "beneficial owner" shall mean any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares a direct or indirect pecuniary interest
in the equity securities, subject to the following:
(i) The term "pecuniary interest" in any class of equity
securities shall mean the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the
subject securities.
(ii) The term "indirect pecuniary interest" in any class of
equity securities shall include, but not be limited to:
(A) securities held by members of a person's
immediate family sharing the same household; provided, however, that
the presumption of such beneficial ownership may be rebutted; see also
ss. 240.16a-1(a)(4); [Amended in Release No. 34-29131 (P. 26,086A),
effective May 1, 1991, 56 F.R. 19925.]
(B) a general partner's proportionate interest in
the portfolio securities held by a general or limited partnership. The
general partner's proportionate interest, as evidenced by the
partnership agreement in effect at the time of the transaction and the
partnership's most recent financial statements, shall be the greater
of:
(1) the general partner's share of the partnership's
profits, including profits attributed to any limited
partnership interests held by the general partner and any
other interests in profits that arise from the purchase and
sale of the partnership's portfolio securities; or
(2) the general partner's share of the partnership
capital account, including the share attributable to any
limited partnership interest held by the general partner.
(C) a performance-related fee, other than an
asset-based fee, received by any broker, dealer, bank, insurance
company, investment
20 Code of Ethics
<PAGE>
company, investment adviser, investment manager, trustee or person or
entity performing a similar function; provided, however, that no
pecuniary interest shall be present where:
(1) the performance-related fee, regardless of when
payable, is calculated based upon net capital gains and/or
net capital appreciation generated from the portfolio or from
the fiduciary's overall performance over a period of one year
or more; and
(2) equity securities of the issuer do not account
for more than ten percent of the market value of the
portfolio. A right to a nonperformance-related fee alone
shall not represent a pecuniary interest in the securities;
(D) A person's right to dividends that is separated
or separable from the underlying securities. Otherwise, a right to
dividends alone shall not represent a pecuniary interest in the
securities;
(E) A person's interest in securities held by a
trust, as specified in ss. 240.16a-8(b); and
(F) A person's right to acquire equity securities
through the exercise or conversion of any derivative security, whether
or not presently exercisable.
(iii) A shareholder shall not be deemed to have a pecuniary
interest in the portfolio securities held by a corporation or similar
entity in which the person owns securities if the shareholder is not a
controlling shareholder of the entity and does not have or share
investment control over the entity's portfolio.
(e) The term "immediate family" shall mean any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and shall include adoptive relationships.
Code of Ethics 21
<PAGE>
GENERAL DEFINITIONS
Sec. 2.(a) When used in this title, unless the context other requires --
[Control]
(9) "Control" means the power to exercise a controlling influence over
the management or policies of a company, unless such power is solely the result
of an official position with such company.
[Government Security]
(16) "Government security" means any security issued or guaranteed as
to principal or interest by the United States, or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States; or
any certificate of deposit for any of the foregoing.
[Interested Person]
(19) "Interested person" of another person means --
(A) when used with respect to an investment company --
(i) any affiliated person of such company,
(ii) any member of the immediate family of any natural person
who is an affiliated person of such company,
(iii) any interested person of any investment adviser of or
principal underwriter for such company,
(iv) any person or partner or employee of any person who at
any time since the beginning of the last two completed fiscal years of
such company has acted as legal counsel for such company,
(v) any broker or dealer registered under the Securities
Exchange Act of 1934 or any affiliated person of such a broker or
dealer, and
(vi) any natural person whom the Commission by order shall
have determined to be an interested person by reason of having had, at
any time since the beginning of the last two completed fiscal years of
such company, a material business or professional relationship with
such company or with the principal executive officer of such company
or with
22 Code of Ethics
<PAGE>
any other investment company having the same investment adviser or
principal underwriter or with the principal executive officer of such
other investment company:
PROVIDED, That no person shall be deemed to be an interested person of an
investment company solely by reason of (aa) his being a member of its board of
directors or advisory board or an owner of its securities, or (bb) his
membership in the immediate family of any person specified in clause (aa) of
this proviso; and
(B) when used with respect to an investment adviser of or principal
underwriter for any investment company --
(i) any affiliated person of such investment adviser or
principal underwriter,
(ii) any member of the immediate family of any natural person
who is an affiliated person of such investment adviser or principal
underwriter,
(iii) any person who knowingly has any direct or indirect
beneficial interest in, or who is designated as trustee, executor, or
guardian of any legal interest in, any security issued either by such
investment adviser or principal underwriter or by a controlling person
of such investment adviser or principal underwriter,
(iv) any person or partner or employee of any person who at
any time since the beginning of the last two completed fiscal years of
such investment company has acted as legal counsel for such investment
adviser or principal underwriter,
(v) any broker or dealer registered under the Securities
Exchange Act of 1934 or any affiliated person of such a broker or
dealer, and
(vi) any natural person whom the Commission by order shall
have determined to be an interested person by reason of having had at
any time since the beginning of the last two completed fiscal years of
such investment company a material business or professional
relationship with such investment adviser or principal underwriter or
with the principal executive officer or any controlling person of such
investment adviser or principal underwriter.
For the purposes of this paragraph (19), "member of the immediate family"
means any parent, spouse of a parent, child, spouse of a child, spouse, brother
or sister, and includes step and adoptive relationships. The Commission may
Code of Ethics 23
<PAGE>
modify or revoke any order issued under clause (vi) of subparagraph (A) or (B)
of this paragraph whenever it finds that such order is no longer consistent with
the facts. No order issued pursuant to clause (vi) of subparagraph (A) or (B) of
this paragraph shall become effective until at least sixty days after the entry
thereof, and no such order shall affect the status of any person for the
purposes of this title or for any purpose for any period prior to the effective
date of such order.
[Security]
(36) "Security" means any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or participation in
any profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call,
straddle, option, or privilege on any security (including a certificate of
deposit) or on any group or index of securities (including any interest therein
or based on the value thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to foreign currency, or,
in general, any interest or instrument commonly known as a "security," or any
certificate of interest or participation in, temporary or interim certificate
for, receipt for, guarantee of, or warrant or right to subscribe to or purchase,
any of the foregoing.
24 Code of Ethics
<PAGE>
APPENDIX 3
TO
CODE OF ETHICS
FOUNDERS ASSET MANAGEMENT, INC.
POLICY STATEMENT ON INSIDER TRADING
INTRODUCTION
Founders Asset Management, Inc. ("FAMI") forbids any officer, director
or employee from trading, either personally or on behalf of others (such as
mutual funds or private accounts managed by FAMI), on material nonpublic
information or communicating material nonpublic information to others in
violation of the law. This conduct is frequently referred to as "insider
trading." Any questions regarding this policy should be referred to FAMI's
General Counsel (the "Reviewing Officer").
A. WHAT IS "INSIDER TRADING"?
"Insider trading" refers generally to buying or selling a security, in
breach of a fiduciary duty or other relationship of trust and confidence, while
in possession of material, nonpublic information about the security. Insider
trading violations may also include "tipping" such information, securities
trading by the person "tipped" and securities trading by those who
misappropriate such information. Examples of insider trading cases that have
been brought by the SEC are cases against: corporate officers, directors, and
employees who traded the corporation's securities after learning of significant,
confidential corporate developments; friends, business associates, family
members, and other "tippees" of such officers, directors, and employees, who
traded the securities after receiving such information; employees of law,
banking, brokerage and printing firms who were given such information in order
to provide services to the corporation whose securities they traded; government
employees who learned of such information because of their employment by the
government; and other persons who misappropriated, and took advantage of,
confidential information from their employers.
Because insider trading undermines investor confidence in the fairness
and integrity of the securities markets, it is imperative that all employees and
officers understand and comply with this legal requirement. The penalties for
insider trading are severe and the SEC considers insider trading violations as
one of its enforcement priorities.
Code of Ethics 25
<PAGE>
B. WHAT IS "MATERIAL INFORMATION"?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities. Information that officers, directors and
employees should consider material includes, but is not limited to: dividend
changes, earnings estimates, changes in previously released earnings estimates,
significant expansion or curtailment of operations, significant merger or
acquisition proposals or agreements, significant new products or discoveries,
major litigation, liquidation problems, and extraordinary management
development. Individuals should exercise caution when questioning the
materiality of the information provided and should contact the Reviewing Officer
for clarification of its materiality.
C. WHAT IS NONPUBLIC INFORMATION?
Nonpublic information, often referred to as "insider information," is
information that has not been communicated to the marketplace. One must be able
to point to some fact to show that the information is generally public. For
example, information found in a report filed with the SEC, or appearing in Dow
Jones, Reuters Economic Service, The Wall Street Journal, or other publications
of general circulation would be considered public.
D. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic
information are severe, both for individuals involved in such unlawful conduct
and their employers. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:
- civil injunction
- treble (i.e., triple) damages
- disgorgement of profits
- jail sentence
- fines for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the person
actually benefited, and
- fines for the employer or other controlling person of up to the
greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
Any violation of this policy statement can be expected to result in
serious sanctions by FAMI, including termination of employment.
26 Code of Ethics
<PAGE>
E. RELEVANT TOPICS
CONTACT WITH PUBLIC COMPANIES
For FAMI, contact with public companies represents an important part
of its research efforts. Investment decisions may be made by FAMI on the basis
of conclusions formed through such contact and analysis of publicly available
information. Difficult legal issues arise, however, when directors, officers or
employees of FAMI become aware of material nonpublic information. This could
happen, for example, if a company's chief financial officer prematurely
discloses quarterly results to an analyst or an investor relations
representative makes a selective disclosure of adverse news to a handful of
investors. In order to protect FAMI and yourself, you must contact the Reviewing
Officer if you believe you have received material, nonpublic information.
TENDER OFFERS
Tender offers represent a particular concern in the law of insider
trading. Tender offer activity often produces extraordinary gyrations in the
price of the target company's securities. Trading during this time period is
also more likely to attract regulatory attention (and produces a
disproportionate percentage of insider trading cases). Officers, directors, and
employees of FAMI should exercise extreme caution any time they become aware of
nonpublic information relating to a tender offer.
F. PROCEDURES TO PREVENT INSIDER TRADING
The following procedures have been established to aid the officers,
directors, and employees of FAMI to avoid insider trading, and to aid FAMI in
preventing, detecting, and imposing sanctions against insider trading. Every
officer, director, and employee of FAMI must follow these procedures or risk
serious sanctions including dismissal, substantial personal liability, and
criminal penalties. If you have any questions about these procedures you should
consult the Reviewing Officer.
IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including mutual funds and
privately managed accounts managed by FAMI, in the securities of a company about
which you have potential inside information, ask yourself the following
questions:
i. Is the information material? Is this information that an investor
would consider important in making his or her investment decision? Is
Code of Ethics 27
<PAGE>
this information that would substantially affect the market price of
the security if generally disclosed?
ii. Is the information nonpublic? To whom has this information been
provided? Has the information been effectively communicated to the
marketplace by being published in Reuters, The Wall Street Journal, or
other publications of general circulation?
If, after consideration of the above, you believe that the information
may be material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you must take the following steps:
i. Do not purchase or sell the securities on behalf of yourself or
others, including investment companies or private accounts managed by
FAMI.
ii. Report the matter immediately to the Reviewing Officer. If the
Reviewing Officer is not available and an immediate determination is
necessary, such judgment may be made by the President of FAMI or its
outside legal counsel.
iii. Do not communicate the information inside or outside FAMI, other
than to the designated Reviewing Officer, the President of FAMI, or
FAMI's outside legal counsel.
iv. After the Reviewing Officer has reviewed the issue, you will be
instructed to continue the prohibitions against trading or
communicating the information received, or you will be allowed to
trade and communicate the information.
G. RESTRICTING ACCESS TO MATERIAL NONPUBLIC INFORMATION
Information in your possession that you identify as material and
nonpublic may not be communicated to anyone, including persons within FAMI, with
the exception of FAMI's Reviewing Officer, the President of FAMI, or FAMI's
outside legal counsel. In addition, care should be taken so that such
information is handled in a manner which FAMI employees and others cannot
access. For example, physical documents containing such information should be
placed in a locked file cabinet and computer files should be password protected
and restricted from access.
H. PERSONAL SECURITIES TRANSACTIONS
All FAMI employees are required to obtain pre-clearance for securities
transactions in which they have a beneficial interest. Please refer to the Code
of
28 Code of Ethics
<PAGE>
Ethics or contact FAMI's Legal Department for details regarding how to obtain
prior approval. By requesting approval to engage in a personal securities
transaction, an individual is also certifying that they are not acting on inside
information.
Code of Ethics 29
<PAGE>
EXHIBIT A
REQUEST FOR APPROVAL OF SECURITY TRANSACTION
IN PERSONAL ACCOUNT
NAME: _________________________________________
DATE: _____________________________
BUY: _____ SELL: _____
AMOUNT OR SHARES: __________________________________ PRICE: _________________
NAME OF SECURITY: ___________________________________________________________
BROKER: _________________________________________________
*Address: _______________________________________________
_______________________________________________
*Telephone: _____________________________________________
*Account No.: ____________________________ *Registered Owner: ______________
THIS IS A NEW ISSUE: _______ YES ________ NO
THIS IS A SECONDARY: _______ YES ________ NO
I have not acted on inside information.
I have verified that the security described above is not being considered for
purchase or sale by a Client or Fund and is not being purchased or sold by a
Client or Fund. I have further verified that the security has not been purchased
or sold by a Client or Fund at any time during the seven days prior to the date
set forth above.
EMPLOYEE SIGNATURE: ____________________________________________________
CONFIRMATION THAT SECURITY HAS NOT BEEN PURCHASED OR SOLD
WITHIN PRIOR SEVEN DAYS:
_____________________________________________
_____________________________________________ Date: _______________________
Trading Department
APPROVED BY: ______________________________** Date: _______________________
Approval Officer
* Complete if not previously provided.
** The Approval Officer Line must be signed by Michael Haines. If Mr. Haines is
not present in Founders Financial Center and an immediate decision is necessary,
the Form may be executed by B. K. Borgen, Jon Zeschin, Mike Gerding, Ed Keely,
or Brian Kelly. Transactions must be approved by an Approval Officer other than
the employee effecting the transaction. No other Founders personnel are
authorized to approve this transaction.
<PAGE>
EXHIBIT B
NOTIFICATION OF INTENTION TO ENGAGE IN
DE MINIMIS TRANSACTION
NAME: ____________________________________________
DATE: ____________________________________________
BUY: _____ SELL: _____
AMOUNT OR SHARES: __________________________ (cannot exceed the greater of
100 shares or $5,000 per transaction)
NAME OF SECURITY: ___________________________________________________________
BROKER: _________________________________________________
*Address: _______________________________________________
_______________________________________________
*Telephone: _____________________________________________
*Account No.: ____________________________ *Registered Owner: ______________
I have not acted on inside information.
I am not involved in buying or selling this security for any Founders mutual
fund or private account client.
I have attached information confirming that this security is issued by a company
with a market capitalization of at least $1 billion and has an average daily
trading volume of at least 100,000 shares.
EMPLOYEE SIGNATURE: _____________________________________________________
ACKNOWLEDGED:
______________________________________ Date: ________________________
Legal Department
*Complete if not previously provided.
<PAGE>
EXHIBIT C
APPROVAL FORM FOR TRIPS
WHERE A PORTION OF THE COST IS PAID BY A THIRD PARTY
Name of Founders Employee: ___________________________________________________
Name of Person or Entity paying for any portion of the trip: _________________
______________________________________________________________________________
Type of Entity:
[ ] broker
[ ] publicly traded company
[ ] person or entity with which FAMI may have a current or
anticipated business relationship
[ ] other
Purpose for trip: ____________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
The foregoing trip is hereby:
[ ] Approved [ ] Disapproved
FOUNDERS ASSET MANAGEMENT, INC.
By: ________________________________* By: ______________________________*
Dated: ______________________________ Dated: ___________________________
* Must be signed by Department Manager and Jon Zeschin.
<PAGE>
EXHIBIT D
APPROVAL FORM FOR OUTSIDE EMPLOYMENT OR
BUSINESS ACTIVITY
Name of Founders Employee: ___________________________________________________
Name of Outside Employer: ____________________________________________________
(If self-employed, please so indicate.)
Type of Business: ____________________________________________________________
Brief Job Description: _______________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Typical Weekly Work Schedule: ________________________________________________
______________________________________________________________________________
The foregoing employment/business activity is hereby:
[ ] Approved [ ] Disapproved
FOUNDERS ASSET MANAGEMENT, INC.
By: _________________________________*
Dated: _______________________________
CC: Department Manager of Employee
Human Resources
* Must be signed by Erik Borgen, Jon Zeschin, or Ken Christoffersen following
consultation with Department Manager.
<PAGE>
EXHIBIT E
NOTIFICATION OF POSSIBLE SECURITY TRANSACTION
BY
INVESTMENT CLUB OR SIMILAR ENTITY
Name of Investment Club: _____________________________________________________
Name of Employee: ____________________________________________________________
Name of Family Member: _______________________________________________________
Name of Security: ____________________________________________________________
[ ] Buy
[ ] Sell
Employee Signature: __________________________________________________________
Date: ________________________________________________________________________
This form must be acknowledged by Michael K. Haines, or, in his absence, Erik
Borgen, Jon Zeschin, Mike Gerding, Ed Keely, or Brian Kelly, and returned to the
Legal Department.
ACKNOWLEDGED:
______________________________________________
Approval Officer
<PAGE>
EXHIBIT F
FOUNDERS ASSET MANAGEMENT, INC.
CODE OF ETHICS
INITIAL REPORT
By my signature below, I certify that I have received and read a copy of the
Code of Ethics for Founders Asset Management, Inc. (the "Code"), including,
without limitation, the Policy Statement on Insider Trading, and that I
understand the provisions and requirements of the Code as they apply to me. In
addition, I certify that the information provided herein with respect to
brokerage accounts and securities holdings is accurate and complete. I agree to
comply with all of the terms and provisions of the Code which are applicable to
me, and to disclose or report all personal securities transactions and other
information required to be disclosed or reported pursuant to the requirements of
the Code.
BROKERAGE ACCOUNTS. [Applicable to all employees.] The information provided
below is for all brokerage accounts in which I or any member of my household has
any direct or indirect beneficial ownership. I agree to notify the Legal
Department within ten days of the establishment of a new brokerage account not
previously reported to the Legal Department.
[ ] I have no brokerage accounts to report at this time.
[ ] The following brokerage accounts are maintained by me or a member of
my household (use additional copies of this form if necessary):
Name of brokerage firm: ________________________________________________________
Address: _______________________________ Telephone: ____________________________
Registered Owner Designation: __________________________ Account No.: _________
SECURITIES. [Applicable to Access Persons only.] The information provided below
is for all securities in which I or any member of my household has any direct or
indirect beneficial ownership.
[ ] I have no securities to report at this time.
[ ] The following securities are ones in which I or a member of my
household have direct or indirect beneficial ownership (use additional
copies of this form if necessary):
Name of Security Ticker Symbol Number of Shares Date Purchased Price
- ---------------- ------------- ---------------- -------------- -----
Employee Signature _____________________________ Date: ________________________
<PAGE>
REPORT OF SECURITIES TRANSACTIONS EXHIBIT G
OCCURRING WITHIN LAST CALENDAR QUARTER
- ----------------------------------------------------------------------------
| AMOUNT | | | | | |
| OR | | TICKER | DATE | | NAME OF |
| SHARES | SECURITY NAME | SYMBOL | BOUGHT SOLD | PRICE | DEALER OR BANK |
- ----------------------------------------------------------------------------
| | | | | | | |
- ----------------------------------------------------------------------------
| | | | | | | |
- ----------------------------------------------------------------------------
| | | | | | | |
- ----------------------------------------------------------------------------
| | | | | | | |
- ----------------------------------------------------------------------------
| | | | | | | |
- ----------------------------------------------------------------------------
The above is a record of one or more purchase or sale transactions in securities
in which I have acquired or disposed of a direct or indirect beneficial
ownership in the last calendar quarter, as more fully defined in the Fund's and
Founders' Codes of Ethics.
DATE: ______________________ SIGNATURE: __________________________________
Print Name: _________________________________
Note 1. If the transaction is other than a sale or purchase, please explain the
transaction on a separate page.
Note 2. If no broker or bank was involved in the transaction, describe on a
separate page the circumstances surrounding the transaction and the
manner in which the transaction was executed.
Note 3. If a broker was involved in the transaction, a copy of the broker's
confirmation of the transaction is attached or has previously been
received by Founders' Legal Department.
Note 4. This report shall not be construed as an admission by me that I have
acquired any direct or indirect beneficial ownership in the securities
involved in the transactions reported, which have been marked by me with
an asterisk(*). Such transactions are reported solely to meet the
standards imposed by Rule 17j-1 under the Investment Company Act of
1940.
<PAGE>
REPORT OF SECURITIES OWNERSHIP EXHIBIT H
FOR CALENDAR YEAR ENDING DECEMBER 31, 199_
- --------------------------------------------------------------------------------
| | | | | CHECK TYPE OF ACCOUNT
| AMOUNT | | | | Fiduciary or Other |
| OR | | DATE | | Household Beneficial |
| SHARES | SECURITY NAME | BOUGHT | PRICE | Personal Member Ownership |
- --------------------------------------------------------------------------------
| | | | | | | |
- --------------------------------------------------------------------------------
| | | | | | | |
- --------------------------------------------------------------------------------
| | | | | | | |
- --------------------------------------------------------------------------------
| | | | | | | |
- --------------------------------------------------------------------------------
| | | | | | | |
- --------------------------------------------------------------------------------
| | | | | | | |
- --------------------------------------------------------------------------------
| | | | | | | |
- --------------------------------------------------------------------------------
The above is a listing of every security in which I have any direct or indirect
beneficial ownership as of the end of the above-described calendar year, as more
fully defined in the Fund's and Founders' Codes of Ethics.
DATE: __________________________ SIGNATURE: __________________________________
Print Name: _________________________________
Note 1. This report shall not be construed as an admission by me that I have
acquired any direct or indirect beneficial ownership in the securities
listed above which have been marked by me with an asterisk(*). Such
transactions are reported solely to meet the standards imposed by Rule
17j-1 under the Investment Company Act of 1940.
<PAGE>
EXHIBIT I
FOUNDERS ASSET MANAGEMENT, INC.
CODE OF ETHICS COMPLIANCE CERTIFICATION
By my signature below, I certify that I have received and read a copy of the
Code of Ethics for Founders Asset Management, Inc. (the "Code"), including,
without limitation, the Policy Statement on Insider Trading, that I understand
the requirements of the Code, and that I recognize that I am subject to the
provisions of the Code. I also certify that as of the date below, I have
complied with the requirements of the Code and have disclosed or reported all
personal securities transactions and other information required to be disclosed
or reported pursuant to the requirements of the Code.
Employee Signature _________________________________ Date _____________________
Print Name _________________________________________
