1997 ANNUAL REPORT
For the Year Ended December 31, 1997
AGGRESSIVE GROWTH FUNDS
Founders Discovery Fund
Founders Passport Fund
Founders Frontier Fund
Founders Special Fund
GROWTH FUNDS
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund
GROWTH-AND-INCOME FUNDS
Founders Blue Chip Fund
Founders Balanced Fund
FIXED-INCOME FUND
Founders Government Securities Fund
MONEY MARKET FUND
Founders Money Market Fund
(LOGO)
Founders Funds
Growth, Plain and Simple.
<PAGE>
- --------------------------------------
TABLE OF CONTENTS
About this Report....................... 3
A Message From Founders................. 4
Founders Discovery Fund................. 6
Statement of Investments............ 9
Founders Passport Fund.................. 12
Statement of Investments............ 15
Founders Frontier Fund.................. 18
Statement of Investments............ 21
Founders Special Fund................... 24
Statement of Investments............ 27
Founders International Equity Fund...... 30
Statement of Investments............ 33
Founders Worldwide Growth Fund.......... 36
Statement of Investments............ 39
Founders Growth Fund.................... 42
Statement of Investments............ 45
Founders Blue Chip Fund................. 48
Statement of Investments............ 51
Founders Balanced Fund.................. 55
Statement of Investments............ 58
Founders Government Securities
Fund.................................. 62
Statement of Investments............ 63
Founders Money Market Fund
Statement of Investments............ 64
Statements of Assets and Liabilities.... 66
Statements of Operations................ 68
Statements of Changes in Net Assets..... 70
Financial Highlights.................... 74
Notes................................... 78
Report of Independent Accountants....... 86
Corporate Dividends-Received
Deduction............................. 87
<PAGE>
- ---------------------------------------- ABOUT THIS REPORT
HISTORICAL RETURNS
All total returns mentioned in this report account for both the change in a
Fund's per-share price and reinvestment of any dividends or capital gain
distributions made by that Fund. If your account is set up to pay out Fund
distributions rather than reinvest them, your return may differ from the figures
listed here.
The comparative indexes included with each Fund's performance chart are meant
to provide a basis for judging a Fund's performance against its peer group
and/or a specific securities market index (provided by Lipper Analytical
Services, Inc. and Morgan Stanley Capital International (MSCI)). Each index
shown accounts for both change in security price and reinvestment of any
dividends or coupon payments. The Lipper indexes reflect the expenses of
managing the mutual funds included in each index. The securities indexes are
unmanaged groups of securities; they do not reflect the costs of managing a
mutual fund. An investor may not invest in any of these indexes.
Past performance is no guarantee of future results. Actual total return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS OF THE FOUNDERS FUNDS
The following acronyms are used throughout the Statements of Investments to
indicate the country of origin of non-U.S. holdings:
AR Argentina
AU Australia
AT Austria
BE Belgium
BR Brazil
CA Canada
CH Chile
DE Denmark
FI Finland
FR France
GE Germany
HK Hong Kong
ID Indonesia
IS Israel
IT Italy
JA Japan
MX Mexico
NE Netherlands
NZ New Zealand
NW Norway
PA Panama
PH Philippines
PO Portugal
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
VZ Venezuela
3
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- ------------------------------------------------------
A MESSAGE FROM FOUNDERS
DEAR FELLOW SHAREHOLDER:
1997 was an exceptional year--for the markets AND for Founders. By anyone's
standards the stock market exceeded all expectations, hitting new highs in the
Dow Jones Industrial Average and the Standard & Poor's 500 Index. In fact, the
S&P's incredible return of 33.35% for the one-year period ended December 31,
1997 capped a three-year winning streak with average annual returns of 31.15%.
In this environment, it's tempting to look back and take credit for
recognizing the signs of a roaring bull market. But there were many periods of
uncertainty. Early in 1997, investors feared the Federal Reserve would raise
interest rates as a precautionary measure. On general nervousness, many
investors moved their assets into large-cap stocks for liquidity and earnings
consistency. At the same time, small-caps suffered until May when the markets
settled down on slower growth numbers. Small-caps enjoyed a strong third-quarter
rally, while large-caps did well throughout the year.
Then there was the Southeast Asian crisis, signs of which first began showing
up in the summer months. Although the impact was slight on most large-cap
stocks, small-caps and any technology-related holdings were definitely hit in
the fourth quarter. When we began to notice the strains on the Asian markets
last summer, we aggressively repositioned many of our Fund portfolios.
In response to the market's volatility, we stuck with our consistent bottom-up
strategy of identifying the best companies with the fundamental strengths for
potential growth in earnings. These are companies with the best potential to
grow in any market climate.
Certainly the market's volatility demanded more of our investment teams' time
and attention. But we were able to find good growth opportunities in small-,
mid-, and large-cap stocks both here and abroad. Each of the Funds finished the
year relatively strong. Although the small-cap growth funds' returns were
relatively weak, Founders' mid- to large-cap funds continue to shine. On the
international front, the Funds' performance was mixed--weak on an absolute
basis, but excellent when compared to other peer funds. Over the long term, the
Funds continue to deliver enviable historic returns.
KEEPING YOU INFORMED
In any market environment, we remain committed to providing useful information
to help you make wise investment decisions. Some highlights of new shareholder
communications initiatives from '97 include:
o NEW WEBSITE. To make it easier for you to get up-to-date information on the
Funds, we launched Founders InvestorSITE on the World Wide Web at
WWW.FOUNDERS.COM.
The site was recognized with a STAR Award from the Mutual Fund Education
Alliance, the national trade association of the direct-marketed, no-load
mutual fund industry. InvestorSITE was also included in the "Outstanding Web
Sites" compiled by McGladrey & Pullen, the nation's seventh largest
accounting and consulting firm.
o EDUCATION SERIES. To help you put the latest investment trends in
perspective, we introduced the Founders Investor
4
<PAGE>
Education Series Library, a collection of free educational brochures on
investment topics that concern you. The series includes seven booklets, and
more are in the works.
o REGULAR COMMUNICATIONS. To keep you better informed about the Funds, we have
taken great strides to enhance the regular communications material you
receive. Founders' prospectus was revamped, making it a more user-friendly
manual. We've taken a fresh approach to the semi-annual and annual reports,
providing more information at a glance. And, we've redeveloped the Focus
quarterly newsletter to provide you with more comprehensive, educational
information on a variety of timely investment topics.
We were pleased to receive the top STAR Award among mid-sized mutual fund
companies, recognizing our overall efforts in shareholder communications and
education. The award was presented by the Mutual Fund Education Alliance.
STRATEGIC PARTNERSHIP
As further validation of Founders' success and "Growth. Plain and Simple."
philosophy, the year culminated with the announcement of our strategic
partnership with Mellon Bank, N.A. It's a relationship that will allow us to
grow while maintaining our heritage of highly regarded mutual funds and
tradition of quality service.
We'll have an exciting opportunity to work in conjunction with The Dreyfus
Corporation, a subsidiary of Mellon, and one of the nation's oldest and largest
mutual fund companies. We believe this partnership will provide you with many
long-term benefits.
THE OUTLOOK
Looking ahead, we expect that general market volatility will continue,
particularly as we assess the impact of the Southeast Asian financial problems.
With what we expect to be volatile markets before us, it's a good time to
review your overall portfolio. If it is in line with your goals, your
expectations are realistic and you hold a long-term perspective, you should be
well-positioned to weather uncertain market conditions.
Sticking to our growth-oriented, company-by-company stock selection process,
we will continue to strive for the excellent performance you have come to
expect. For us and for you, it's the commitment to a proven investment
philosophy that may help you reach your financial goals.
Thank you for your continued confidence in Founders Funds. We wish you all the
best in the coming year.
Sincerely,
Bjorn K. Borgen
Chairman, Chief Executive Officer
and Chief Investment Officer
Founders Asset Management, Inc.
Jonathan F. Zeschin
President and Chief Operating Officer
Founders Asset Management, Inc.
5
<PAGE>
- --------------------------------------------------------------------------------
FOUNDERS DISCOVERY FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Russell Lipper Small Consumer
Discovery 2000 Cap. Fund Price
Fund Index Index Index
--------- ------- ------------ -------
12/89 ..... $10,000 $10,000 $10,000 $10,000
12/90 ..... $11,317 $ 8,052 $ 8,622 $10,610
12/91 ..... $18,387 $11,760 $12,806 $10,936
12/92 ..... $21,176 $13,925 $14,238 $11,251
12/93 ..... $23,465 $16,554 $16,643 $11,561
12/94 ..... $21,647 $16,252 $16,562 $11,870
12/95 ..... $28,421 $20,876 $21,800 $12,171
12/96 ..... $34,448 $24,319 $24,930 $12,576
12/97 ..... $38,563 $29,758 $28,683 $12,790
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997*
1 Year 5 Years Since Inception
------ ------- ---------------
11.95% 12.74% 18.38%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER ROBERT AMMANN
HOW DID THE FUND DO THIS YEAR?
When I took over the Fund last April, small-cap stocks were underperforming on
fears the Federal Reserve would raise interest rates to combat perceived
inflation risk. In May the markets settled down when more benign economic growth
numbers were released, and small-caps did very well until late in the year. In
fact, the rally in the third quarter was amazing--the Fund was up 22% for the
third quarter ended September 30, 1997 and outperformed the unmanaged Russell
2000 Index during that period.
The picture changed dramatically late in the year when the Southeast Asian
currency crisis hit. The markets rocked and rolled, and small-caps
underperformed again. Needless to say, in a year of tremendous volatility and a
move toward larger cap stocks, we feel fortunate that the Fund finished with a
total return of 11.95% for the one-year period ended December 31, 1997.
6
<PAGE>
WHY DID SMALL-CAP STOCKS SWING SO WILDLY?
We really think it was due to the combined influence of the Fed and the Asian
financial flu. The Fed has always been fickle in its intentions, and early in
the year investors were really focused on the possibility rates would go up. By
the third quarter, the economic picture seemed a little brighter and small-cap
stocks soared.
- --------------------------------------------
TOP 10 HOLDINGS
1. Fairfield Communities, Inc. 3.22%
2. J.P. Food Service, Inc. 2.77%
3. Hanger Orthopedic Group, Inc. 2.61%
4. Silverleaf Resorts, Inc. 2.33%
5. Proffitt's, Inc. 2.19%
6. Servico, Inc. 2.16%
7. Pre-Paid Legal Services, Inc. 2.08%
8. Cellular Communication
International, Inc. Sponsored ADR 2.03%
9. Cinar Films, Inc. Class B
Sponsored ADR 2.03%
10. Cutter and Buck, Inc. 1.97%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------
Later in the year, we started hearing dismal news about Asia which actually
raised the specter of global deflation. Around this time, investors fled to the
perceived safety of bonds and large-cap issues. As a result, we saw
disappointing underperformance in small-cap growth stocks compared to the S&P
500, which returned 33.35% for the 12 months ended December 31, 1997.
JUST HOW SERIOUS IS THE ASIAN CRISIS?
Frankly, we think the situation could pose a very real concern for major
companies in any country, given how global the economy has become. But many
small-cap companies may come through relatively unscathed simply because many of
them are dependent only on U.S. markets at this point in their growth curve.
Relatively speaking, it actually could be a fundamental advantage for small-caps
and a way for them to show earnings resilience.
IN LIGHT OF ALL THE VOLATILITY IN SMALL-CAPS THIS YEAR, HOW DID YOU POSITION THE
PORTFOLIO?
Early in the fourth quarter, we began to take profits in many of our technology
issues, particularly those with Southeast Asian exposure. Among the small-cap
sectors, we believe technology has the most direct risk related to the Asian flu
so our current technology weighting is around 17%, down from 30% earlier in the
year.
- ---------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $246.3 million
NAV ON DECEMBER 31, 1997: $23.45
EXPENSE RATIO: 1.54%
INCEPTION DATE: 12/31/89
- ---------------------------------
WHAT ARE YOU DOING NOW?
As always, we're using our bottom-up approach to find small, rapidly growing
companies with a strong ability to post growing corporate earnings. At this
point,
7
<PAGE>
FOUNDERS DISCOVERY FUND (CONTINUED)
we're seeking companies that derive almost all of their sales from the U.S. and
Europe.
Additionally, we are continuing to avoid exposure to what I call "concept
stocks." These are firms with little or no near-term earnings prospects and
which tend to trade primarily on news or other unanticipated events. We feel
companies with current, visible earnings would be better for the Fund's health.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
Consumer ............. 40.9%
Technology ........... 17.1
Healthcare ........... 14.1
Cash & Equivalents ... 11.7
Energy ............... 4.8
Capital Goods ........ 4.1
Financial ............ 3.6
Telecom Services ..... 3.0
Transportation ....... 0.7
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
SOME EXAMPLES?
We purchased restaurant stocks such as Schlotzsky's, a restaurant franchisor.
Schlotzsky's is currently experiencing 30% earnings growth and is attractively
valued. We also like dELiA*s, a catalog clothing retailer capitalizing on
today's current crop of teenagers, the group they call "Gen Y."
WHAT IS YOUR OUTLOOK FOR THE COMING YEAR?
While we expect the market to be somewhat choppy during the first half of 1998
as we develop a clearer picture of the Southeast Asian issues, we believe
small-caps present a good long-term opportunity, especially those companies with
superior growth characteristics and very low historical valuations. We will
continue to look for high quality small-cap companies on a bottom-up basis,
particularly those with earnings growth of 25% plus and revenue growth of 15%
plus. We personally visit with 300 to 500 companies a year to find those with
strong management and attractive market niches that are defensible over time.
Wherever the market goes, we'll continue to do what it takes to seek the best
small-cap companies the marketplace has to offer.
/s/ ROBERT AMMANN, CFA
Portfolio Manager
8
<PAGE>
FOUNDERS DISCOVERY FUND STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (DOMESTIC)-81.3%
APPAREL-4.6%
262,500 Cutter and Buck, Inc.* $ 4,856,250
76,575 North Face, Inc.* 1,684,650
211,500 Wolverine World Wide, Inc.* 4,785,188
----------
11,326,088
----------
BUSINESS SERVICES-5.6%
185,000 ImageMAX, Inc.* 1,873,125
31,500 Insight Enterprises, Inc.* 1,141,875
75,725 Metzler Group, Inc.* 2,991,138
150,000 Pre-Paid Legal Services, Inc.* 5,128,125
65,000 RWD Technologies, Inc.* 1,170,000
72,000 Vestcom International, Inc.* 1,557,000
----------
13,861,263
----------
COMPUTER EQUIPMENT-1.9%
85,000 Eltron International, Inc.* 2,571,250
59,225 RadiSys Corporation* 2,198,728
----------
4,769,978
----------
COMPUTER SOFTWARE/SERVICES-5.9%
92,500 Computer Management Sciences, Inc.* 1,757,500
102,675 Documentum, Inc.* 4,286,681
100,000 Edify Corporation* 1,862,500
135,000 Egghead, Inc.* 843,750
200,000 MetaCreations Corporation* 2,200,000
230,000 Procom Technology, Inc.* 3,536,250
----------
14,486,681
----------
CONSUMER PRODUCTS-2.1%
84,650 Helen of Troy Limited* 1,354,400
120,000 Ocular Sciences, Inc.* 3,150,000
23,850 Windemere-Durable
Holdings, Inc. 538,116
----------
5,042,516
----------
CONSUMER SERVICES-0.7%
65,000 EduTrek International, Inc.* 1,641,250
----------
ENVIRONMENTAL SERVICES-0.8%
175,000 ITEQ, Inc.* 2,001,563
----------
FINANCIAL SERVICES-2.3%
90,000 Franchise Mortgage Acceptance
Company* $ 1,653,750
220,000 LINC Capital, Inc.* 4,097,500
----------
5,751,250
----------
FOOD & BEVERAGE-4.0%
185,000 J.P. Food Service, Inc.* 6,833,438
105,000 Richfood Holdings, Inc. 2,966,250
----------
9,799,688
----------
HEALTHCARE SERVICES-10.1%
70,000 Advance Paradigm, Inc.* 2,222,500
195,000 Capital Senior Living Corporation* 2,035,313
500,000 Hanger Orthopedic
Group, Inc.* 6,437,500
91,925 Henry Schein, Inc.* 3,217,375
183,000 Orthodontic Centers of America, Inc.* 3,042,375
92,000 Parexel International Corporation* 3,404,000
72,200 Sunrise Assisted Living, Inc.* 3,077,525
65,700 Transition Systems, Inc.* 1,453,613
----------
24,890,201
----------
INSURANCE-1.3%
45,975 Executive Risk, Inc. 3,209,705
----------
LEISURE & ENTERTAINMENT-11.7%
130,000 Equity Marketing, Inc.* 3,201,250
180,000 Fairfield Communities, Inc.* 7,942,500
315,000 Servico, Inc.* 5,315,625
178,925 Signature Resorts, Inc.* 3,913,985
233,900 Silverleaf Resorts, Inc.* 5,730,550
85,000 Surburban Lodges of
America, Inc.* 1,131,563
65,575 Vistana, Inc.* 1,475,438
----------
28,710,911
----------
MANUFACTURING-3.3%
190,000 Ballantyne of Omaha, Inc.* 3,420,000
140,000 DTI Industries, Inc. 4,760,000
----------
8,180,000
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FOUNDERS DISCOVERY FUND
SHARES MARKET VALUE
- ------ ------------
MEDICAL SUPPLIES & EQUIPMENT-2.3%
150,000 Anika Therapeutics, Inc.* $1,340,625
150,000 ResMed, Inc.* 4,200,000
----------
5,540,625
----------
OIL SERVICES-3.7%
50,000 Dril-Quip, Inc.* 1,756,250
84,000 National Oilwell, Inc.* 2,871,750
206,875 Offshore Logistics, Inc.* 4,421,953
----------
9,049,953
----------
PHARMACEUTICALS-0.5%
36,100 Watson Pharmaceuticals, Inc.* 1,170,994
----------
PHOTOGRAPHY & IMAGING-1.5%
110,000 Analytical Surveys, Inc.* 3,753,750
----------
RESTAURANTS-1.9%
67,500 Dave and Busters, Inc.* 1,518,750
220,000 Schlotzsky's, Inc.* 3,190,000
----------
4,708,750
----------
RETAIL-9.3%
125,000 dELiA*s, Inc.* 2,718,750
10,000 Hot Topic, Inc.* 220,000
74,525 Men's Wearhouse, Inc.* 2,589,744
155,000 O'Reilly Automotive, Inc.* 4,068,750
190,000 Proffitt's, Inc.* 5,403,125
90,000 Rental Service Corporation* 2,210,625
280,000 Track 'n Trail, Inc.* 2,450,000
140,000 United States Rental, Inc.* 3,290,000
----------
22,950,994
----------
SEMICONDUCTORS & EQUIPMENT-2.6%
200,000 Applied Micro Circuits Corporation 2,475,000
73,000 Brooks Automation, Inc. 1,323,125
23,000 Semtech Corporation 894,125
35,000 Speedfam International, Inc. 927,500
18,500 Vitesse Semiconductor Corporation 698,375
----------
6,318,125
----------
TELECOMMUNICATION SERVICES-1.0%
105,000 SmarTalk Teleservices, Inc.* $ 2,388,750
-----------
TELECOMMUNICATIONS EQUIPMENT-3.6%
111,400 Digital Microwave Corporation* 1,615,300
132,200 Intelect Communications, Inc.* 669,263
94,000 P Com, Inc.* 1,621,500
130,000 REMEC, Inc.* 2,925,000
77,500 STM Wireless, Inc.* 649,062
55,000 Sawtek, Inc.* 1,443,750
-----------
8,923,875
-----------
TRANSPORTATION-0.6%
105,000 Jevic Transportation, Inc.* 1,653,750
-----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$158,627,689) 200,130,660
-----------
COMMON STOCKS (FOREIGN)-7.2%
APPAREL-0.9%
100,000 Tefron Limited Sponsored ADR (IS)* 2,300,000
-----------
COMPUTER SOFTWARE/SERVICES-1.2%
170,450 JBA Holdings PLC (UK) 2,903,007
-----------
OIL SERVICES-1.1%
56,200 Stolt Comex Seaway SA Sponsored ADR
(UK)* 2,725,700
-----------
PUBLISHING & BROADCASTING-2.0%
130,000 Cinar Films, Inc. Class B
Sponsored ADR (CA)* 4,988,750
-----------
TELECOMMUNICATION SERVICES-2.0%
108,000 Cellular Communications
International, Inc. Sponsored ADR
(IT)* 4,995,000
-----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$9,512,701) 17,912,457
-----------
10
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-11.5%
$10,900,000 American Express Credit Corporation
6.25% 01/02/98 $10,898,108
8,400,000 Chevron USA, Inc. 6.00% 01/06/98 8,393,000
9,000,000 Ford Motor Credit Company 6.01%
01/05/98 8,993,990
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$28,285,098) 28,285,098
-----------
TOTAL INVESTMENTS-100.0%
(COST-$196,425,488) $246,328,215
OTHER ASSETS &
LIABILITIES-(0.0%) (47,431)
------------
NET ASSETS-100.0% $246,280,784
============
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
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- --------------------------------------------------------------------------------
FOUNDERS PASSPORT FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Consumer
Passport MSCI World Price
Fund ex U.S. Index Index
-------- ------------- --------
11/93 ..... $10,000 $10,000 $10,000
12/94 ..... $ 9,430 $11,503 $10,267
12/95 ..... $11,729 $12,815 $10,528
12/96 ..... $14,081 $13,695 $10,878
12/97 ..... $14,317 $14,006 $11,063
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997*
1 Year Since Inception
------ ---------------
1.68% 9.12%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER MICHAEL GERDING
HOW DID PASSPORT FUND DO THIS YEAR?
We faced difficult environments over the year and the Fund ended with a total
return of 1.68% for the one-year period ended December 31, 1997. Small companies
both here and abroad suffered, but relative to its benchmark index, Passport's
performance was competitive.
HOW DID YOU POSITION THE PORTFOLIO THROUGHOUT THE YEAR?
We maintained our focus on building a portfolio of the most attractive rapidly
growing small companies from around the world one company at a time, without the
constraints of indexes or top-down models.
In response to the first signs of problems in Asia, we aggressively reduced
our exposure to the region, particularly because we no longer had any confidence
in our earnings estimates for the companies we owned.
12
<PAGE>
- --------------------------------------------
TOP 10 HOLDINGS
1. J D Wetherspoon PLC 3.76%
2. JBA Holdings PLC 3.38%
3. MLP preferred 3.24%
4. Pizza Express PLC 3.12%
5. VTech Holdings Limited 3.06%
6. Raision Group PLC Class V 2.93%
7. Tele Pizza 2.76%
8. Misys PLC 2.75%
9. Porsche AG non-voting preferred 2.65%
10. Koebenhavns Lufthavne SA 2.46%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------
HOW MUCH DID YOU REDUCE ASIAN HOLDINGS?
At the end of the year, we had a small Asian position in two companies. We like
VTech, a Hong Kong-based manufacturer of cordless phones and computer toys.
Because VTech's manufacturing is based in Hong Kong and China, and nearly all
its sales are outside Asia, it is more insulated from the currency crisis. We
have limited exposure to Japan as well.
WHERE ARE YOU FINDING GROWTH OPPORTUNITIES?
We continue to expect improving economic conditions in Europe, which we expect
will be favorable for small companies. They are historically much more sensitive
to their local economies because they have less exposure to exports. This
economic growth, coupled with the potential for lower interest rates and
continued corporate restructuring, is expected to lead to much better earnings
across Europe. At the end of the year, we were significantly overweighted in
Europe.
We own many attractive companies across many industries. For example, we own
MLP, a German insurance company that is growing very rapidly due to its
innovative approach to the insurance market.
- ---------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $122.6 million
NAV ON DECEMBER 31, 1997: $13.64
EXPENSE RATIO: 1.55%
INCEPTION DATE: 11/16/93
- ---------------------------------
WHAT DO YOU SEE AHEAD FOR SMALL-CAP STOCKS AROUND THE WORLD?
We continue to be very cautious regarding the Asian crisis and are paying
particular attention to how it will impact economies and markets around the
world. Although there has been limited progress in Asia in correcting some of
the problems, we believe that the crisis will cut more deeply than is currently
anticipated. It is possible the stock markets may well discount the worst long
before the economies actually bottom.
13
<PAGE>
FOUNDERS PASSPORT FUND (CONTINUED)
In spite of the difficult markets of the last several months, our outlook for
small growth companies around the world is very positive. We continue to travel
the world, visiting face-to-face with companies and looking for the best ideas
for the Fund. During the last year, we visited personally with nearly 1,000
companies from more than 20 countries. We believe our bottom-up focus has
positioned Passport Fund well to take advantage of the growth we see in Europe
and the eventual recovery in Asia.
/s/ MICHAEL GERDING, CFA
Portfolio Manager
- --------------------------------------------
PORTFOLIO COMPOSITION
United Kingdom 28.8%
Germany 13.9%
France 6.9%
Italy 5.3%
Finland 4.6%
Japan 4.1%
Netherlands 4.0%
Mexico 3.7%
Hong Kong 3.5%
Norway 2.9%
Canada 2.9%
Spain 2.7%
Other 10.4%
Cash & Equivalents 6.3%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
- --------------------------------------------
14
<PAGE>
FOUNDERS PASSPORT FUND STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
SHARES MARKET VALUE
- ------ ------------
PREFERRED STOCKS (FOREIGN)-5.9%
AUTOMOTIVE-2.7%
1,950 Porsche AG non-voting preferred (GE) $3,253,615
---------
FINANCIAL SERVICES-3.2%
15,700 Marschollek, Lautenschlaeger und
Partner AG non-voting preferred (GE) 3,972,885
---------
TOTAL PREFERRED STOCKS
(FOREIGN)
(COST-$3,616,077) 7,226,500
---------
COMMON STOCKS (FOREIGN)-88.3%
AIRLINES-1.4%
41,100 Ryanair Holdings PLC
Sponsored ADR (UK)* 1,027,500
34,850 Virgin Express Holdings PLC Sponsored
ADR (BE)* 705,713
---------
1,733,213
---------
APPAREL-0.9%
49,700 Tefron Limited Sponsored ADR (IS)* 1,143,100
---------
BANKING-0.7%
48,325 Banco de A. Edwards Sponsored ADR
representing Series A (CH) 821,525
---------
BASIC INDUSTRY-0.5%
985,900 Perusahaan Perkebu (ID) 560,697
---------
BUILDING MATERIALS-1.8%
63,300 Hunter Douglas NV (NE) 2,216,999
---------
BUSINESS SERVICES-4.9%
8,450 Altran Technologies SA (FR) $2,584,437
34,300 Asia Satellite Telecom Holdings
Sponsored ADR (HK) 576,669
97,525 BTG PLC (UK) 1,099,303
20,650 Brunel International NV (NE)* 395,235
104,650 Select Appointments Holdings PLC (UK) 964,357
5,325 Sixt AG (GE) 426,474
----------
6,046,475
----------
CAPITAL GOODS-1.1%
53,200 Noritsu Koki Company (JA) 1,317,272
----------
COMPUTER EQUIPMENT-2.3%
385,375 Psion PLC (UK) 2,853,690
----------
COMPUTER SOFTWARE/SERVICES-9.7%
64,000 Dassault Systems SA (FR) 1,952,074
25,000 Eidos PLC Sponsored ADR (UK)* 300,000
29,900 Fuji Soft ABC, Inc. (JA) 1,027,852
243,500 JBA Holdings PLC (UK) 4,147,283
111,310 Misys PLC (UK) 3,370,255
54,000 Nippon Systems Development Company
(JA) 1,113,051
----------
11,910,515
----------
CONSTRUCTION-1.2%
28,675 IHC Caland NV (NE) 1,488,067
----------
CONSUMER PRODUCTS-4.3%
73,700 Industrie Natuzzi
SPA Sponsored ADR (IT) 1,520,063
1,273,000 VTech Holdings
Limited (HK) 3,753,710
----------
5,273,773
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FOUNDERS PASSPORT FUND
SHARES MARKET VALUE
- ------ ------------
ELECTRONICS-1.6%
9,000 Pricer AB Class B (SW)* $ 166,744
152,575 Rofin Sinar Technologies,
Inc. Sponsored ADR (GE)* 1,830,900
----------
1,997,644
----------
ENVIRONMENTAL SERVICES-1.0%
53,275 Tomra Systems ASA (NW) 1,192,384
----------
FINANCIAL SERVICES-1.4%
40,250 Banco Latinoamericano de
Exportaciones, SA Class E Sponsored
ADR (PA) 1,665,344
----------
FOOD & BEVERAGE-4.1%
47,200 Compania Cervecerias Unidas SA
Sponsored ADR (CH) 1,386,500
30,225 Raision Group PLC Class V (FI) 3,591,210
----------
4,977,710
----------
LEISURE & ENTERTAINMENT-2.6%
2,651,285 Grupo Posadas SA de CV
Series A (MX)* 1,808,786
554,000 Village Roadshow
Limited (AU) 1,404,222
----------
3,213,008
----------
MACHINERY-4.1%
64,125 KCI Konecranes International PLC (FI) 2,119,679
51,575 Kverneland ASA (NW) 839,517
37,000 Toolex Alpha NV (NE)* 374,161
79,000 Turbon International (GE) 1,708,879
----------
5,042,236
----------
MANUFACTURING-0.3%
2,335 Plettac AG (GE) 323,368
----------
OIL & GAS-4.8%
428,989 British Borneo Petroleum
PLC (UK) $3,007,229
251,775 Cairn Energy PLC (UK)* 2,046,682
36,325 Gulf Indonesia Resources
Limited (ID)* 799,150
----------
5,853,061
----------
OIL SERVICES-2.6%
36,900 Coflexip SA Sponsored ADR (FR) 2,047,950
18,475 Petroleum Geological Services
Sponsored ADR (NW)* 1,196,256
----------
3,244,206
----------
PACKAGING-2.1%
15,550 Schmalbach Lubeca AG (GE) 2,564,076
----------
PHARMACEUTICALS-2.0%
35,700 Schwarz Pharma AG (GE) 2,402,203
----------
PUBLISHING & BROADCASTING-6.8%
287,925 Capital Radio PLC (UK) 2,343,997
70,750 Cinar Films, Inc. Class B Sponsored
ADR (CA)* 2,715,031
283,525 Flextech PLC (UK)* 2,435,413
105,000 Gruppo Editoriale L'Espresso SPA (IT) 504,809
246,000 Sky Network Television Limited (NZ)* 369,979
----------
8,369,229
----------
RESTAURANTS-12.2%
62,000 Doutor Coffee Company
Limited (JA) 1,597,434
842,000 J D Wetherspoon PLC (UK) 4,613,888
311,300 Pizza Express PLC (UK) 3,821,455
288,975 Regent Inns PLC (UK) 1,554,958
41,913 Tele Pizza SA (SP)* 3,382,400
----------
14,970,135
----------
16
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
RETAIL-5.8%
22,275 Beter Bed Holdings (NE) $ 429,633
360,500 Bulgari SPA (IT) 1,835,128
220,475 DFS Furniture Company (UK) 1,885,923
22,000 Douglas Holding AG (GE) 664,405
13,465 Guilbert SA (FR) 1,919,960
16,525 Narvesen ASA (NW) 365,374
-----------
7,100,423
-----------
TELECOMMUNICATION SERVICES-5.6%
57,150 Cellular Communications
International, Inc. Sponsored ADR
(IT)* 2,643,188
129,475 Grupo Iusacell Sponsored ADR
representing ten Class L shares (MX)* 2,807,989
68,000 Netcom Systems AB
Class B (SW)* 1,461,251
-----------
6,912,428
-----------
TRANSPORTATION-2.5%
25,050 Koebenhavns Lufthavne SA (DE) 3,018,205
756,850 International Container Terminal &
Services (PH)* 94,846
-----------
3,113,051
-----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$90,240,423) 108,305,832
-----------
PRINCIPAL VALUE AMORTIZED COST
- --------------- --------------
CORPORATE SHORT-TERM NOTES-5.6%
$5,100,000 American Express Credit Corporation
6.55% 01/02/98 $ 5,099,072
1,800,000 Ford Motor Credit Company 6.02%
01/02/98 1,799,699
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$6,898,771) 6,898,771
-----------
TOTAL INVESTMENTS-99.8%
(COST-$100,755,271) 122,431,103
-----------
OTHER ASSETS &
LIABILITIES-0.2% 215,254
-----------
NET ASSETS-100.0% $122,646,357
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- --------------------------------------------------------------------------------
FOUNDERS FRONTIER FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Russell Lipper Consumer
Frontier 2000 Small Cap. Price
Fund Index Fund Index Index
--------- ------- ---------- --------
12/87 ......... $10,000 $10,000 $10,000 $10,000
12/88 ......... $12,920 $12,502 $12,033 $10,442
12/89 ......... $18,645 $14,535 $14,567 $10,926
12/90 ......... $17,255 $11,704 $12,559 $11,593
12/91 ......... $25,766 $17,093 $18,655 $11,949
12/92 ......... $28,069 $20,240 $20,740 $12,294
12/93 ......... $32,710 $24,061 $24,244 $12,632
12/94 ......... $31,790 $23,622 $24,126 $12,970
12/95 ......... $43,560 $30,343 $31,755 $13,299
12/96 ......... $49,807 $35,347 $36,315 $13,741
12/97 ......... $52,903 $43,252 $41,781 $13,975
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997*
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
6.22% 13.51% 18.13% 18.05%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER MICHAEL HAINES
HOW DID THE FUND DO IN 1997?
Frankly, it was a difficult market for small-company growth stocks as investors
migrated to larger, more liquid issues because of their earnings visibility and
liquidity. Needless to say, we're somewhat disappointed by the Fund's 6.22%
total return for the one-year period ended December 31, 1997.
WHAT PRESSURES DID THE FUND FACE?
The fact that we were underweighted in both energy and the interest-rate
sensitive sectors, such as financial services, utilities and REITs, hurt the
Fund. We are generally underweighted in these sectors because they do not have
many companies that meet our growth hurdles.
However, 1997 was a year of continued consolidation within the financial
services and utilities sectors, which accounted for their contribution to the
Russell 2000 return. Our more typical growth sectors, such as healthcare,
technology and consumer products, were more volatile during the year.
18
<PAGE>
We also felt the impact of general underperformance in small-caps. They did
very well in the third quarter of the year once the Federal Reserve indicated it
would hold interest rates steady. But later on, the Southeast Asia crisis
diminished the third-quarter gains. Even some good, high-quality stocks did not
fare well. Additionally, investors continued their flight to large-cap
investments.
- --------------------------------------------
TOP 10 HOLDINGS
1. Watson Pharmaceuticals, Inc. 4.50%
2. J.P. Food Service, Inc. 3.34%
3. Health Care & Retirement
Corporation 2.94%
4. Rexall Sundown, Inc. 2.13%
5. Interstate Hotels Company 2.05%
6. Sylvan Learning Systems, Inc. 1.98%
7. CDW Computer Center, Inc. 1.96%
8. CKE Restaurants, Inc. 1.90%
9. Petroleum Geological Services
Sponsored ADR 1.81%
10. Health Management Association
Class A 1.75%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------
WHAT INVESTMENTS OR PORTFOLIO MOVES HELPED THE FUND?
We continued to concentrate on high-quality companies whose fundamentals
indicated the potential for rapid earnings growth. One long-term holding that we
have been very pleased with, and our largest position at 4.50%, is Watson
Pharmaceuticals, Inc. Watson did a great job of growing its business by buying
new products, building its sales force and making the transition to branded
products.
- ----------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $222.1 million
NAV ON DECEMBER 31, 1997: $27.99
EXPENSE RATIO: 1.57%
INCEPTION DATE: 1/22/87
- ----------------------------------
Other holdings that continue to perform admirably for us are J.P. Food
Service, Inc., which distributes food to restaurants, and Sylvan Learning
Systems, Inc., which has experienced big growth from its testing business, which
converts many standardized paper tests to an electronic form.
On a broader note, we are keeping the Fund well-diversified. However, we have
increased the weightings in our best holdings and reduced the number of stocks
in the portfolio to 80.
19
<PAGE>
FOUNDERS FRONTIER FUND (CONTINUED)
WHAT DO YOU EXPECT IN 1998?
It's obviously going to take some time to sort out the repercussions of the
Asian crisis. In the meantime, the markets will probably stay volatile during
the first half of the year. We believe, however, that a commitment to selecting
individual small companies that demonstrate solid prospects for revenue and
earnings growth, regardless of economic conditions, will serve the Fund well,
particularly in this volatile environment.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
Consumer ................... 31.0%
Healthcare ................. 18.7
Basic Materials ............ 2.4
Telecom Services ........... 2.5
Transportation ............. 2.6
Energy ..................... 2.6
Financial .................. 6.0
Capital Goods .............. 7.0
Technology ................. 13.5
Cash & Equivalents ......... 10.4
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
/s/ MICHAEL HAINES
Portfolio Manager
20
<PAGE>
FOUNDERS FRONTIER FUND STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (DOMESTIC)-81.1%
APPAREL-1.7%
40,000 Jones Apparel Group, Inc.* $1,720,000
67,550 The Warnaco Group, Inc.
Class A 2,119,381
----------
3,839,381
----------
AUTO PARTS & EQUIPMENT-0.6%
42,500 OEA, Inc. 1,229,844
----------
BANKING-1.3%
165,000 Friedman, Billings, Ramsey Group,
Inc.* 2,959,688
----------
BUSINESS SERVICES-6.2%
83,650 CDW Computer Center, Inc.* 4,349,800
62,975 Mail-Well, Inc.* 2,550,488
75,000 StaffMark, Inc.* 2,371,875
112,512 Sylvan Learning Systems, Inc.* 4,387,968
----------
13,660,131
----------
CHEMICALS-1.8%
76,700 Crompton & Knowles Corporation 2,032,550
51,775 OM Group, Inc. 1,896,259
----------
3,928,809
----------
COMPUTER SOFTWARE/SERVICES-8.8%
74,225 Aspen Technologies, Inc. 2,514,372
83,350 Harbinger Corporation* 2,323,381
80,000 HNC Software, Inc.* 3,430,000
97,900 Mastech Corporation* 3,108,325
30,000 The Registry, Inc.* 1,376,250
34,950 Security Dynamics Technologies, Inc.* 1,249,463
55,000 Sterling Commerce, Inc.* 2,114,063
41,300 Transaction Systems
Architects, Inc.* 1,559,075
50,000 Wind River Systems, Inc.* 1,962,500
----------
19,637,429
----------
CONSUMER PRODUCTS-3.0%
157,000 Rexall Sundown, Inc.* 4,739,438
60,875 Samsonite Corporation* 1,925,172
----------
6,664,610
----------
ELECTRONICS-2.5%
113,500 Berg Electronics Corporation* $2,582,125
43,100 Sanmina Corporation* 2,925,413
----------
5,507,538
----------
ENVIRONMENTAL SERVICES-1.2%
69,050 USA Waste Services, Inc.* 2,710,213
----------
FINANCIAL SERVICES-0.3%
24,200 Affiliated Managers
Group, Inc.* 701,800
----------
FOOD & BEVERAGE-3.3%
200,600 J.P. Food Service, Inc.* 7,409,663
----------
HEALTHCARE SERVICES-11.5%
86,350 Covance, Inc.* 1,716,206
117,625 FPA Medical Management, Inc.* 2,190,766
162,500 Health Care & Retirement Corporation* 6,540,625
153,750 Health Management Association Class A* 3,882,188
66,000 HealthCare Compare Corporation* 3,374,250
75,000 Henry Schein, Inc.* 2,625,000
180,700 Orthodontic Centers of America, Inc.* 3,004,138
100,000 Transition Systems, Inc.* 2,212,500
----------
25,545,673
----------
INSURANCE-3.3%
90,859 Frontier Insurance Group, Inc. 2,078,400
64,575 Reinsurance Group of
America, Inc. 2,748,473
60,000 Reliastar Financial Corporation 2,471,250
----------
7,298,123
----------
LEISURE & ENTERTAINMENT-5.5%
31,425 Action Performance
Companies, Inc.* 1,190,222
130,000 Interstate Hotels Company* 4,558,125
101,850 Midway Games, Inc.* 1,852,397
35,525 Promus Hotel Corporation* 1,492,050
143,825 Signature Resorts, Inc.* 3,146,172
----------
12,238,966
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
FOUNDERS FRONTIER FUND
SHARES MARKET VALUE
- ------ ------------
MANUFACTURING-2.9%
50,000 Harsco Corporation $2,156,250
128,400 Mettler-Toledo International, Inc.* 2,214,900
65,300 Zebra Technologies Corporation* 1,942,675
----------
6,313,825
----------
METALS & MINING-0.6%
79,500 NS Group, Inc.* 1,361,438
----------
OFFICE SUPPLIES & EQUIPMENT-1.7%
95,625 U.S. Office Products Company* 1,852,734
90,000 Viking Office Products, Inc.* 1,963,125
----------
3,815,859
----------
OIL & GAS-0.9%
67,250 United Meridian Corporation* 1,891,406
----------
OIL SERVICES-3.2%
163,710 Global Industries Limited* 2,783,070
52,500 Hanover Compressor Company* 1,072,969
60,000 Pride International, Inc.* 1,515,000
68,400 UTI Energy Corporation* 1,769,850
----------
7,140,889
----------
PHARMACEUTICALS-6.0%
45,000 Jones Medical Industries, Inc. 1,721,250
24,000 R.P. Scherer Corporation* 1,464,000
308,250 Watson Pharmaceuticals, Inc.* 9,998,859
----------
13,184,109
----------
PUBLISHING & BROADCASTING-1.9%
50,000 The Petersen Companies, Inc.* 1,150,000
44,200 Univision Communications, Inc.* 3,085,713
----------
4,235,713
----------
RESTAURANTS-1.9%
100,000 CKE Restaurants, Inc. 4,212,500
----------
RETAIL-2.6%
70,875 Claire's Stores, Inc. $1,377,633
53,600 Fred Meyer, Inc.* 1,949,700
66,350 Stage Stores, Inc.* 2,479,831
----------
5,807,164
----------
SEMICONDUCTORS & EQUIPMENT-2.0%
65,000 MRV Communications, Inc.* 1,535,625
71,375 SanDisk Corporation* 1,431,961
49,100 SIPEX Corporation* 1,485,275
----------
4,452,861
----------
TELECOMMUNICATION SERVICES-3.0%
37,700 Genesys Telecommunications
Laboritories, Inc.* 1,182,838
31,500 NEXTLINK Communications, Inc.* 671,344
134,000 Premiere Technologies, Inc.* 3,685,000
60,000 Tel-Save Holdings, Inc.* 1,185,000
-----------
6,724,182
-----------
TELECOMMUNICATIONS EQUIPMENT-0.8%
65,000 Aspect Telecommunications
Corporation* 1,356,875
31,025 Powerwave Technologies, Inc.* 511,913
-----------
1,868,788
-----------
TRANSPORTATION-2.6%
52,500 Expeditors International of
Washington, Inc.* 2,021,250
115,000 US Freightways Corporation 3,737,500
-----------
5,758,750
-----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$136,671,588) 180,099,352
-----------
22
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (FOREIGN)-8.6%
BUILDING MATERIALS-1.4%
90,000 Hunter Douglas NV (NE) $3,152,131
----------
CONSTRUCTION-0.9%
39,650 IHC Caland NV (NE) 2,057,607
----------
CONSUMER PRODUCTS-0.6%
62,000 Industrie Natuzzi SPA Sponsored ADR
(IT) 1,278,750
----------
FINANCIAL SERVICES-1.1%
56,000 Banco Latinoamericano de
Exportaciones, SA Class E Sponsored
ADR (PA) 2,317,000
----------
MEDICAL SUPPLIES & EQUIPMENT-1.3%
76,175 ESC Medical Systems Limited Sponsored
ADR (IS)* 2,942,259
----------
OIL SERVICES-1.8%
62,050 Petroleum Geological Services
Sponsored ADR (NW)* 4,017,738
----------
PUBLISHING & BROADCASTING-1.5%
380,000 Flextech PLC (UK)* 3,264,111
----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$15,116,826) 19,029,596
----------
PRINCIPAL VALUE AMORTIZED COST
- --------------- --------------
CORPORATE SHORT-TERM NOTES-14.0%
$ 9,800,000 American Express Credit Corporation
6.25% 01/02/98 $ 9,798,299
11,000,000 Chevron USA, Inc. 6.00% 01/06/98 10,990,833
2,100,000 Ciesco LP 6.00% 01/05/98 2,098,600
8,300,000 Ford Motor Credit Company 6.01%
01/05/98 8,294,457
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$31,182,189) 31,182,189
-----------
TOTAL INVESTMENTS-103.7%
(COST-$182,970,603) 230,311,137
OTHER ASSETS &
LIABILITIES-(3.7%) (8,207,108)
-----------
NET ASSETS-100.0% $222,104,029
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
- --------------------------------------------------------------------------------
FOUNDERS SPECIAL FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Standard & Lipper Capital Consumer
Special Poor's Appreciation Price
Fund 500 Index Fund Index Index
--------- ---------- ------------- ---------
12/87 ......... $10,000 $10,000 $10,000 $10,000
12/88 ......... $11,319 $11,657 $11,284 $10,442
12/89 ......... $15,757 $15,346 $14,478 $10,926
12/90 ......... $14,117 $14,864 $13,350 $11,593
12/91 ......... $23,103 $19,390 $18,362 $11,949
12/92 ......... $25,020 $20,867 $19,751 $12,294
12/93 ......... $29,029 $22,967 $22,861 $12,632
12/94 ......... $27,605 $23,265 $22,300 $12,970
12/95 ......... $34,697 $31,998 $29,342 $13,299
12/96 ......... $40,017 $39,354 $33,733 $13,741
12/97 ......... $46,593 $52,477 $40,430 $13,975
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997*
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
16.43% 13.24% 16.64% 16.33%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGERS
MICHAEL HAINES AND DOUGLAS LOEFFLER
HOW DID SPECIAL FUND PERFORM IN 1997?
Special gained 16.43% for the one-year period ended December 31, 1997. While a
respectable number most years, it fell short relative to benchmark indexes. Our
allocation to small-cap was a negative for the Fund with the exception of the
third quarter, when small-caps rallied on news the Federal Reserve would hold
interest rates steady.
The foreign component of the portfolio, while a good performer, was not up to
large-cap U.S. performance. On a relative basis, the Fund did fairly well amid
low inflation, good economic growth and better-than-expected corporate earnings.
HOW DID THE FUND PURSUE ITS GROWTH OBJECTIVE?
The Special Fund capitalizes on three of Founders' core disciplines: small- to
mid-capitalization, large-capitalization and international stocks. Generally,
we'll have a mix of close to 25% international stocks and 75% domestic growth
companies. And that is how the Fund was structured throughout 1997.
In many respects, if you look across the entire year, the strategy of
diversification served the Fund well. If you look at the small-cap holdings as
an example, small-caps
24
<PAGE>
were hit hard in early 1997 as investor sentiment was drawn toward more liquid
and stable stocks. Small-caps returned to favor in the third quarter. Even while
small-cap volatility ensued, the international and mid-to-large-cap holdings
served as a counterbalance.
- --------------------------------------------
TOP 10 HOLDINGS
1. Associates First Capital
Corporation Class A 2.78%
2. Cox Radio, Inc. 2.74%
3. Fred Meyer, Inc. 2.34%
4. US Freightways Corporation 2.03%
5. CKE Restaurants, Inc. 1.74%
6. Novartis AG Registered 1.73%
7. U.S. Office Products Company 1.65%
8. EVI, Inc. 1.62%
9. SAP preferred 1.59%
10. General Nutrition Companies, Inc. 1.59%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------
WHERE ARE YOU CURRENTLY FINDING OPPORTUNITY?
On the small-cap front, we're concentrating on high-quality companies whose
fundamentals indicate the potential for rapid earnings growth. One example is
First Health Group, formerly known as HealthCare Compare Corporation. It was at
1.28% of the portfolio at period-end. First Health Group is a PPO provider to
self-insured companies and has done well in the portfolio although it was
impacted in the fourth quarter by problems in the healthcare industry. But we
expect its growth rate to accelerate over the long term.
We're still looking for growth companies with the fundamental strengths for
growth in earnings. Right now, the market is at historically high levels, which
makes it a real challenge to find companies with good earnings valuations and
appreciation potential. But, we are managing to find some like Associates First
Capital Corporation, at 2.78% of the portfolio at year-end. This consumer
finance company is 80% owned by Ford Motor Co.
- ---------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $320.2 million
NAV ON DECEMBER 31, 1997: $7.72
EXPENSE RATIO: 1.32%
INCEPTION DATE: 9/8/61
- ---------------------------------
And, internationally, we're finding many attractively-valued growth stocks in
Europe, and we've added to our holdings in the region. We're specifically
looking for companies with dominant market positions in their region or country.
We've found several new growth opportunities in European financial services
stocks like ING Groep NV, which was 0.72% of the portfolio at year-end. ING is a
25
<PAGE>
FOUNDERS SPECIAL FUND (CONTINUED)
combination bank and insurance company. Its price suffered late last year on the
rumor it had high Asian exposure. However, the company's exposure to Asia is
actually less than 3% of its earnings, and more recently its price has
recovered.
WHAT ARE THE PROSPECTS FOR 1998?
As we launch into 1998, the Asian crisis will continue to loom over the global
marketplace. We think it will cause a real slowdown in the growth of large-cap
companies, especially those that depend on Asia for a portion of their sales.
We'll know more by mid-'98.
Additionally, it's clear that comparisons for earnings growth will be more
difficult in this economic environment. With all of that in mind, we can expect
volatility over the short term both internationally and domestically.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
Consumer ....................... 29.4%
Technology ..................... 17.6
Cash & Equivalents ............. 16.5
Healthcare ..................... 10.9
Energy ......................... 8.2
Financial ...................... 6.9
Transportation ................. 5.1
Capital Goods .................. 4.2
Basic Materials ................ 0.6
Telecom Services ............... 0.6
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
/s/ MICHAEL HAINES
/s/ DOUGLAS LOEFFLER, CFA
Co-Lead Portfolio Managers
26
<PAGE>
FOUNDERS SPECIAL FUND STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
SHARES MARKET VALUE
- ------ ------------
PREFERRED STOCKS (FOREIGN)-1.6%
COMPUTER SOFTWARE/SERVICES-1.6%
15,600 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG
non-voting preferred (GE) $5,106,007
----------
TOTAL PREFERRED STOCKS
(FOREIGN)
(COST-$2,673,735) 5,106,007
----------
COMMON STOCKS (DOMESTIC)-58.7%
AIRLINES-1.3%
169,050 Southwest Airlines Company 4,162,856
----------
APPAREL-1.5%
100,000 Jones Apparel Group, Inc.* 4,300,000
24,975 Polo Ralph Lauren Corporation Class A* 607,205
----------
4,907,205
----------
BANKING-0.6%
26,200 BankAmerica Corporation 1,912,600
----------
BUSINESS SERVICES-3.5%
91,625 CDW Computer Center, Inc.* 4,764,500
100,000 Fiserv, Inc.* 4,912,500
40,000 National Data Corporation 1,445,000
----------
11,122,000
----------
COMPUTER EQUIPMENT-1.5%
110,000 Data General Corporation* 1,918,125
45,400 Hewlett-Packard Company 2,837,500
----------
4,755,625
----------
COMPUTER SOFTWARE/SERVICES-6.1%
49,000 BMC Software, Inc.* 3,209,500
80,000 Cambridge Technology Partners, Inc.* 3,330,000
119,425 Keane, Inc.* 4,851,641
39,000 Microsoft Corporation* 5,038,313
100,000 SunGard Data Systems, Inc.* 3,100,000
----------
19,529,454
----------
CONSUMER PRODUCTS-1.5%
36,600 The Clorox Company 2,893,688
27,150 Colgate-Palmolive Company 1,995,525
----------
4,889,213
----------
ENVIRONMENTAL SERVICES-1.2%
97,000 USA Waste Services, Inc.* $3,807,250
----------
FINANCIAL SERVICES-3.9%
125,000 Associates First Capital Corporation
Class A* 8,890,625
100,000 Nationwide Financial
Services, Inc. 3,612,500
----------
12,503,125
----------
HEALTHCARE SERVICES-2.7%
114,350 Covance, Inc.* 2,272,706
80,000 HealthCare Compare Corporation* 4,090,000
85,000 NCS Healthcare, Inc.* 2,231,250
----------
8,593,956
----------
LEISURE & ENTERTAINMENT-2.5%
171,275 Midway Games, Inc.* 3,115,064
225,700 Signature Resorts, Inc.* 4,937,187
----------
8,052,251
----------
MANUFACTURING-0.5%
50,000 United States Filter
Corporation* 1,496,875
----------
MEDICAL SUPPLIES & EQUIPMENT-1.5%
105,000 Sybron International Corporation* 4,928,438
----------
MISCELLANEOUS-0.6%
50,000 Corrections Corporations
of America 1,853,125
----------
OFFICE SUPPLIES & EQUIPMENT-1.7%
273,125 U.S. Office Products Company* 5,291,797
----------
OIL & GAS-1.4%
126,000 Noble Affiliates, Inc. 4,441,500
----------
OIL SERVICES-3.6%
100,000 EVI, Inc.* 5,175,000
216,000 Global Industries Limited* 3,672,000
181,000 IRI International Corporation* 2,534,000
7,375 Patterson Energy, Inc.* 285,320
----------
11,666,320
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
FOUNDERS SPECIAL FUND
SHARES MARKET VALUE
- ------ ------------
PHARMACEUTICALS-3.1%
28,000 Bristol-Myers Squibb Company $ 2,649,500
62,000 Eli Lilly & Company 4,316,750
134,725 Mylan Laboratories, Inc. 2,820,805
-----------
9,787,055
-----------
PUBLISHING & BROADCASTING-2.7%
218,000 Cox Radio, Inc.* 8,774,500
-----------
RESTAURANTS-1.7%
132,500 CKE Restaurants, Inc. 5,581,563
-----------
RETAIL-7.9%
96,800 Claire's Stores, Inc. 1,881,550
70,000 CVS Corporation 4,484,375
205,950 Fred Meyer, Inc.* 7,491,431
150,000 General Nutrition
Companies, Inc.* 5,081,250
65,500 Lowes Companies, Inc. 3,123,531
131,425 United States Rental, Inc.* 3,088,488
-----------
25,150,625
-----------
SEMICONDUCTORS & EQUIPMENT-1.6%
34,150 Altera Corporation* 1,131,219
118,300 Maxim Integrated
Products, Inc.* 4,081,350
-----------
5,212,569
-----------
TELECOMMUNICATIONS EQUIPMENT-3.4%
55,000 Allen Telecom, Inc.* 1,014,063
50,000 Dynatech Corporation* 2,343,750
93,325 P Com, Inc.* 1,609,856
72,350 Sawtek, Inc.* 1,899,188
76,275 Tellabs, Inc.* 4,018,739
-----------
10,885,596
-----------
TRANSPORTATION-2.7%
200,000 US Freightways Corporation 6,500,000
85,000 Wisconsin Central Transportation
Corporation* 1,986,875
-----------
8,486,875
-----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$142,740,416) 187,792,373
-----------
COMMON STOCKS (FOREIGN)-23.2%
AIRLINES-1.1%
191,500 Deutsche Lufthansa AG
144A (GE)+ $3,674,499
----------
APPAREL-0.6%
15,000 Adidas AG (GE) 1,973,860
----------
AUTO PARTS & EQUIPMENT-0.5%
50,000 Autoliv AB (SW) 1,628,780
----------
BUSINESS SERVICES-1.3%
900,000 WPP Group PLC (UK) 4,013,494
----------
CHEMICALS-0.6%
12,000 L'Air Liquide (FR) 1,879,052
----------
COMPUTER SOFTWARE/SERVICES-1.2%
70 NTT Data Corporation (JA) 3,784,559
----------
CONSUMER PRODUCTS-1.3%
98,725 Benckiser NV Class B (NE)* 4,085,945
----------
ELECTRONICS-2.0%
40,000 Philips Electronics NV Sponsored ADR
(NE) 2,420,000
44,000 Sony Corporation (JA) 3,925,520
----------
6,345,520
----------
FINANCIAL SERVICES-2.4%
1,275,000 Credito Italiano SPA (IT) 3,933,902
55,000 ING Groep NV (NE) 2,316,989
21,000 Unidanmark AS A Shares (DE) 1,542,674
----------
7,793,565
----------
FOOD & BEVERAGE-1.3%
8,400 Groupe Danone (FR) 1,501,047
200,000 Quilmes Industrial SA Registered (AR) 2,150,000
50,000 Quilmes Industrial SA Sponsored ADR
representing one non-voting preferred
share (AR) 684,375
----------
4,335,422
----------
28
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
OFFICE SUPPLIES & EQUIPMENT-0.9%
25,500 OCE Van Der Grinten NV (NE) $2,779,943
----------
OIL & GAS-2.6%
249,000 Gulf Canada Resources Limited (CA)* 1,743,000
94,375 Gulf Indonesia Resources Limited
(ID)* 2,076,250
164,500 Saga Petroleum ASA Class A (NW) 2,833,595
49,800 YPF Sociedad Anonima Sponsored ADR
representing one Class D share (AR) 1,702,538
----------
8,355,383
----------
OIL SERVICES-0.6%
30,000 Petroleum Geological Services
Sponsored ADR (NW)* 1,942,500
----------
PAPER & FOREST PRODUCTS-0.5%
209,900 Metsa-Serla Oyj Class B (FI) 1,638,218
----------
PHARMACEUTICALS-3.6%
45,000 Glaxo Wellcome PLC Sponsored ADR (UK) 2,154,375
3,400 Novartis AG Registered (SZ) 5,524,874
400 Roche Holding AG Dividend Right
Certificate (SZ) 3,978,014
----------
11,657,263
----------
PUBLISHING & BROADCASTING-1.9%
375,000 Carlton Communications PLC (UK) 2,900,280
115,500 Ver Ned Uitgeversbedr Ver Bezit NV
(NE) 3,258,978
----------
6,159,258
----------
TELECOMMUNICATION SERVICES-0.6%
50,000 France Telecom SA (FR)* $1,814,389
----------
TELECOMMUNICATIONS EQUIPMENT-0.2%
9,000 Nokia Corporation Sponsored ADR (FI) 630,000
----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$67,582,380) 74,491,650
----------
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-16.2%
$13,300,000 Associates Corporation NA 6.11%
01/05/98 $13,290,971
11,600,000 Chevron USA, Inc. 5.95% 01/07/98 11,588,497
5,250,000 Ciesco LP 5.90% 01/06/98 5,245,698
15,000,000 Household Finance Corporation 6.10%
01/02/98 14,997,458
6,750,000 Massachusetts Electric Company 6.50%
01/06/98 6,743,906
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$51,866,530) 51,866,530
-----------
TOTAL INVESTMENTS-99.7%
(COST-$264,863,061) 319,256,560
OTHER ASSETS & LIABILITIES-0.3%
929,527
-----------
NET ASSETS-100.0% $320,186,087
===========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
- --------------------------------------------------------------------------------
FOUNDERS INTERNATIONAL EQUITY FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders MSCI Consumer
International World ex Price
Equity Fund U.S. Index Index
------------- ---------- ---------
12/95 ......... $10,000 $10,000 $10,000
06/96 ......... $11,460 $10,469 $10,209
12/96 ......... $11,860 $10,687 $10,333
06/97 ......... $13,810 $11,886 $10,443
12/97 ......... $13,770 $10,929 $10,509
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year Since Inception
------ ---------------
16.11% 17.35%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER DOUGLAS LOEFFLER
HOW DID THE FUND DO IN 1997?
Considering how challenging the international investment environment was during
the year, we're considerably pleased with its 16.11% total return for the
one-year period ended December 31, 1997. The Fund outperformed the benchmark
Morgan Stanley Capital International World ex U.S. Index, which had a total
return of 2.27% for the same period. We're continuing to build on the strength
the Fund established in 1996, its inaugural year.
GIVE US A BIRD'S-EYE VIEW OF THE INTERNATIONAL SCENE IN 1997. WHAT IMPACTED THE
FUND?
Early on, we benefited from new highs in the European equity markets. But as the
year progressed, Europe's strength was partially offset by the spreading
Southeast Asian crisis. This was obviously the major issue dominating the
markets during the second half of 1997.
30
<PAGE>
In anticipation of what we thought would become a substantial issue, and
subsequently did, we reduced our exposure to Asian-related stocks very early, in
the summer months of 1997. This helped the Fund considerably. We've since
reduced stocks from the region even more substantially, particularly in
Southeast Asia and Hong Kong.
- --------------------------------------------
TOP 10 HOLDINGS
1. Merita Limited Series A 3.09%
2. VNU 2.91%
3. Sony Corporation 2.83%
4. Novartis AG Registered 2.74%
5. JBA Holdings PLC 2.60%
6. Total SA Sponsored ADR 2.59%
7. Credito Italiano SPA 2.58%
8. Roche Holding AG 2.27%
9. Ladbroke Group PLC 2.21%
10. Glaxo Wellcome PLC Sponsored ADR 2.13%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------
WHAT SPECIFIC MOVES HAVE YOU MADE AS A RESULT OF THE ASIAN CRISIS?
We saw several examples of the Asian spillover in the portfolio. One example is
that we determined that luxury goods companies such as Gucci were significantly
dependent on sales to Asian consumers. It's not really obvious, but Gucci sold
its goods both within the region and to Japanese and other Asian tourists
traveling around the world. Gucci's actual Asian exposure was thus higher than
many investors anticipated, so we sold the stock last summer and avoided a
substantial decline in the share price. The Asian crisis also weakened the
demand for global commodities, including oil. Accordingly, we've trimmed our
exposure to energy stocks.
- ----------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $15.7 million
NAV ON DECEMBER 31, 1997: $12.05
EXPENSE RATIO: 1.89%
INCEPTION DATE: 12/29/95
- ----------------------------------
WHERE ARE THE BEST OPPORTUNITIES?
We're finding many attractively valued, growing stocks in Europe, and we've
added to our holdings in the region. We're still finding growing companies with
strong market positions in their country or region. In addition, many of these
companies are very attractively valued relative to their American counterparts.
European financial stocks in particular are experiencing a resurgence. It's
partly a byproduct of the expected move to a common currency but also a
realization among Europeans that they need to provide for their own retirement
rather than relying on the government. Some examples would be Merita Limited,
Credito Italiano SPA and Bank Austria. Merita, at 3.09% of the portfolio at
year-end, dominates the Finnish banking industry and has just merged with a
leading Swedish bank.
Credito Italiano was 2.58% of the portfolio at period-end. It's an Italian
bank
31
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND (CONTINUED)
undergoing a dramatic restructuring. And we've just added Bank Austria, a
company that is the result of last year's merger of two of the largest Austrian
banks.
- --------------------------------------------
PORTFOLIO COMPOSITION
United Kingdom 18.3%
Netherlands 11.5%
France 9.2%
Germany 8.5%
Japan 7.8%
Finland 5.8%
Switzerland 5.6%
Canada 3.9%
Sweden 3.8%
Argentina 3.5%
Norway 3.0%
Italy 2.6%
Hong Kong 2.0%
Other 6.5%
Cash & Equivalents 8.0%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
- --------------------------------------------
WHAT IS YOUR OUTLOOK FOR 1998?
We're waiting for Asia to bottom out so restructuring can begin. And we're
watching the U.S. markets since it seems likely U.S. earnings growth will weaken
in 1998 and that may affect the global economic picture. In the meantime, we're
keeping a close eye on all stocks in the portfolio.
Due to the challenges facing the international markets, we believe that our
research-driven, bottom-up focus will continue to be the key to International
Equity Fund's future.
/s/ DOUGLAS LOEFFLER, CFA
Portfolio Manager
32
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
SHARES MARKET VALUE
- ------ ------------
PREFERRED STOCKS (FOREIGN)-3.1%
COMPUTER SOFTWARE/SERVICES-2.1%
1,000 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG non-voting
preferred (GE) $ 327,308
---------
PUBLISHING & BROADCASTING-1.0%
3,500 ProSieben Media AG
144A (GE)*+ 163,515
---------
TOTAL PREFERRED STOCKS
(FOREIGN)
(COST-$341,204) 490,823
---------
COMMON STOCKS (FOREIGN)-88.4%
AIRLINES-2.4%
9,225 Deutsche Lufthansa AG 144A (GE)+ 177,009
10,000 SAS Danmark AS (DE) 146,045
2,800 Virgin Express Holdings PLC Sponsored
ADR (BE)* 56,700
---------
379,754
---------
APPAREL-1.8%
2,100 Adidas AG (GE) 276,340
---------
AUTOMOTIVE-1.4%
8,000 Volvo AB Class B (SW) 214,764
---------
AUTO PARTS & EQUIPMENT-2.5%
6,000 Autoliv AB (SW)* 195,480
4,000 Compagnie Generale des Etablissements
Michelin (FR) 201,469
---------
396,949
---------
BANKING-3.1%
89,000 Merita Limited Series A (FI) 487,053
---------
BUSINESS SERVICES-5.5%
300 Adecco SA (SZ) 87,110
1,000 Altran Technologies SA (FR) 305,861
26,000 Compass Group PLC (UK)* 320,454
35,000 WPP Group PLC (UK) 156,080
---------
869,505
---------
CHEMICALS-3.0%
1,300 L'Air Liquide (FR) $ 203,564
3,200 Potash Corporation of Saskatchewan,
Inc. (CA)* 265,600
---------
469,164
---------
COMPUTER SOFTWARE/SERVICES-6.9%
4,800 Baan Company NV Sponsored ADR (NE)* 157,200
24,000 JBA Holdings PLC (UK) 408,754
10,000 Konami Company (JA) 246,883
5 NTT Data Corporation (JA) 270,341
---------
1,083,178
---------
CONSTRUCTION-1.1%
5,000 Brisa Auto-Estradas de Portugal
SA (PO)* 179,309
---------
CONSUMER PRODUCTS-2.9%
4,925 Benckiser NV Class B (NE)* 203,832
85,400 VTech Holdings Limited (HK) 251,851
---------
455,683
---------
ELECTRONICS-3.9%
2,750 Philips Electronics NV Sponsored ADR
(NE) 166,375
5,000 Sony Corporation (JA) 446,082
---------
612,457
---------
FINANCIAL SERVICES-5.8%
2,800 Banco Latinoamericano de
Exportaciones SA Class E Sponsored
ADR (PA) 115,850
131,750 Credito Italiano SPA (IT) 406,503
5,500 ING Groep NV (NE) 231,699
2,100 Unidanmark AS A Shares (DE) 154,267
---------
908,319
---------
FOOD & BEVERAGE-1.8%
500 Groupe Danone (FR) 89,348
13,800 Quilmes Industrial SA Sponsored ADR
representing one non-voting preferred
share (AR) 188,888
---------
278,236
---------
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND
SHARES MARKET VALUE
- ------ ------------
INSURANCE-1.1%
18,000 Royal & Sun Alliance Insurance Group
PLC (UK) $ 181,570
---------
LEISURE & ENTERTAINMENT-3.8%
2,000 Four Seasons Hotels, Inc. (CA) 63,250
80,000 Ladbroke Group PLC (UK) 347,540
4,000 Polygram NV Sponsored ADR (NE) 190,750
---------
601,540
---------
MACHINERY-3.0%
5,500 KCI Konecranes International
PLC (FI) 181,805
12,000 Toolex Alpha NV (NV)* 121,350
1,100 VA Technologie AG (AT) 166,772
---------
469,927
---------
OFFICE SUPPLIES & EQUIPMENT-1.7%
2,500 OCE Van Der Grinten NV (NE) 272,543
---------
OIL & GAS-7.2%
23,050 Gulf Canada Resources
Limited (CA)* 161,350
5,500 Gulf Indonesia Resources Limited
(ID)* 121,000
11,200 Saga Petroleum ASA Class A (NW) 192,944
7,350 Total SA Sponsored ADR (FR) 407,925
7,300 YPF Sociedad Anonima Sponsored ADR
representing one Class D share (AR) 249,569
---------
1,132,788
---------
OIL SERVICES-1.8%
4,200 Aker Maritime ASA (NW) $ 89,445
2,900 Petroleum Geological Services
Sponsored ADR (NW)* 187,775
---------
277,220
---------
PACKAGING-1.2%
1,150 Schmalbach Lubeca AG (GE) 189,641
---------
PAPER & FOREST PRODUCTS-0.5%
10,375 Metsa-Serla Oyj Class B (FI) 80,974
---------
PHARMACEUTICALS-8.0%
7,000 Glaxo Wellcome PLC Sponsored ADR (UK] 335,125
265 Novartis AG Registered (SZ) 430,614
36 Roche Holding AG Dividend
Right Certificate (SZ) 358,025
2,000 Schwarz Pharma AG (GE) 134,594
---------
1,258,358
---------
PUBLISHING & BROADCASTING-5.3%
25,000 Carlton Communications PLC (UK) 193,352
14,000 Pearson PLC (UK) 182,228
16,250 Ver Ned Uitgeversbedr Ver
Bezit NV (NE) 458,514
---------
834,094
---------
RETAIL-4.2%
30,600 Dixons Group PLC (UK) 307,662
2,075 Douglas Holdings AG (GE) 62,665
575 Guilbert SA (FR) 82,009
18,400 Next PLC (UK) 209,524
---------
661,860
---------
34
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
TELECOMMUNICATION SERVICES-7.1%
50,000 Cable and Wireless PLC (UK)* $ 217,212
2,050 Compania Anonima Nacional Telefonos
Sponsored ADR representing seven
Class D shares (VZ) 85,331
4,200 France Telecom SA (FR)* 152,409
8,250 Netcom Systems AB Class B (SW)* 177,284
30 Nippon Telegraph and Telephone
Corporation (JA) 258,420
1,000 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 116,438
3,100 Telefonica de Argentina SA Sponsored
ADR representing ten Class B ordinary
shares (AR) 115,475
----------
1,122,569
----------
TELECOMMUNICATIONS EQUIPMENT-1.0%
2,250 Nokia Corporation Sponsored ADR (FI) 157,500
----------
UTILITIES-0.4%
120,200 Beijing Datang Power Generation
Company 144A (HK)*+ 55,072
----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$12,897,183) 13,906,367
----------
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-10.8%
$700,000 American Express Credit Corporation
6.25% 01/02/98 $ 699,878
300,000 Chevron USA, Inc. 6.00% 01/06/98 299,750
700,000 Ford Motor Credit Company 6.01%
01/05/98 699,533
----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$1,699,161)
1,699,161
----------
TOTAL INVESTMENTS-102.3%
(COST-$14,937,548) 16,096,351
OTHER ASSETS & LIABILITIES-(2.3%)
(356,138)
----------
NET ASSETS-100.0% $15,740,213
===========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
- --------------------------------------------------------------------------------
FOUNDERS WORLDWIDE GROWTH FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders MSCI Lipper Consumer
Worldwide World Global Price
Growth Fund Index Fund Index Index
----------- ------- ---------- --------
12/89 ......... $10,000 $10,000 $10,000 $10,000
12/90 ......... $10,667 $ 8,298 $ 9,076 $10,610
12/91 ......... $14,379 $ 9,815 $10,918 $10,936
12/92 ......... $14,596 $ 9,303 $10,924 $11,251
12/93 ......... $18,959 $11,396 $14,506 $11,561
12/94 ......... $18,550 $11,975 $14,191 $11,870
12/95 ......... $22,377 $14,455 $16,265 $12,171
12/96 ......... $25,499 $16,404 $18,909 $12,576
12/97 ......... $28,188 $18,990 $21,558 $12,790
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997*
1 Year 5 Years Since Inception
------ ------- ---------------
10.55% 14.07% 13.83%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER MICHAEL GERDING
WHAT WAS WORLDWIDE GROWTH FUND'S PERFORMANCE IN 1997?
The Fund fell short of its market index, but still came out fairly well: a
10.55% total return for the one-year period ended December 31, 1997, compared to
15.77% for the unmanaged Morgan Stanley Capital International World Index.
HOW DID WORLD EVENTS IMPACT THE FUND'S HOLDINGS?
As you know, we travel the world to find the most attractive rapidly growing
companies regardless of where they are located. These become the building blocks
of our portfolio. Within that framework, certainly the Asian currency crisis and
international market volatility dominated investors' attention around the world
during the last few months of 1997.
We saw signs of problems in Asia as early as the summer of 1997 and
aggressively reduced our exposure to the region. Currently, with the exception
of Japan, Worldwide Growth has no holdings in Asia. Our Japanese exposure is
relatively limited,
36
<PAGE>
and we are still concerned about the health of the Japanese economy and
companies' ability to grow their earnings in 1998.
WHERE ARE YOU FINDING GROWTH OPPORTUNITIES?
As we look around the globe, we are finding many of the best investment
opportunities in Europe. We expect improving economic conditions in Europe for
the third
- ---------------------------------------------
TOP 10 HOLDINGS
1. Credito Italiano SPA 2.93%
2. Sony Corporation 2.89%
3. SAP preferred 2.86%
4. Ladbroke Group PLC 2.65%
5. VNU 2.45%
6. YPF Sociedad Anonima Sponsored
ADR representing one Class D
share 2.32%
7. Total SA Sponsored ADR 2.28%
8. MLP preferred 2.24%
9. Novartis AG Registered 2.16%
10. Merita Limited Series A 2.15%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
- ---------------------------------------------
straight year and have found many thriving companies. As was the case in the
United States, corporate restructuring in Europe will likely have a very broad
impact on both countries and companies, and will last for many years to come.
We're significantly overweighted in Europe, and are finding very attractive
companies across many diverse industries, ranging from banks to healthcare to
technology stocks.
We are also finding many good growth stocks in Latin America. Most of our
emerging markets exposure is in Latin America.
- -----------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $308.9 million
NAV ON DECEMBER 31, 1997: $21.11
EXPENSE RATIO: 1.47%
INCEPTION DATE: 12/31/89
- -----------------------------------
WHAT'S YOUR OUTLOOK FOR THE YEAR AHEAD?
We're still concerned about Asia. There has been limited progress in correcting
some of the problems there and some markets have rebounded off their lows. We're
watching the situation carefully, particularly as it impacts both economies and
markets around the world. We believe that the workout of the Asian crisis will
take longer and will cut more deeply than is currently anticipated, although the
stock markets may well discount the worst long before the economies actually
bottom.
37
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND (CONTINUED)
- ---------------------------------------------
PORTFOLIO COMPOSITION
United States 17.5%
United Kingdom 16.3%
Germany 11.4%
Netherlands 9.5%
Japan 6.2%
France 5.8%
Switzerland 4.7%
Argentina 4.1%
Italy 3.3%
Finland 2.9%
Canada 2.6%
Norway 1.5%
Other 3.8%
Cash & Equivalents 10.4%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
- ---------------------------------------------
In spite of this ongoing difficulty, our outlook for growth companies around
the world is positive. We'll continue to employ a bottom-up strategy to build a
portfolio one company at a time, without the constraints of indexes or top-down
models.
/s/ MICHAEL GERDING, CFA
Portfolio Manager
38
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
SHARES MARKET VALUE
- ------ ------------
PREFERRED STOCKS (FOREIGN)-7.3%
AUTOMOTIVE-1.1%
7,700 Volkswagen AG
non-voting preferred (GE) $3,305,440
----------
COMPUTER SOFTWARE/SERVICES-2.9%
27,000 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG
non-voting preferred (GE) 8,836,921
----------
FINANCIAL SERVICES-2.2%
27,325 Marschollek, Lautenschlaeger und
Partner AG non-voting preferred (GE) 6,914,620
----------
PUBLISHING & BROADCASTING-1.1%
69,600 ProSieben Media AG 144A (GE)*+ 3,251,613
----------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST-$12,231,106) 22,308,594
----------
COMMON STOCKS (DOMESTIC)-17.5%
APPAREL-2.5%
109,100 The Warnaco Group, Inc.
Class A 3,423,013
193,830 Wolverine World Wide, Inc. 4,385,404
----------
7,808,417
----------
AUTO PARTS & EQUIPMENT-0.9%
85,550 Autoliv, Inc. 2,801,763
----------
BUSINESS SERVICES-1.8%
155,825 Manpower, Inc. 5,492,831
----------
CHEMICALS-0.9%
76,625 Morton International, Inc. 2,633,984
----------
COMPUTER EQUIPMENT-0.5%
44,925 RadiSys Corporation* 1,667,841
----------
ELECTRONICS-1.4%
76,450 Emerson Electric Company 4,314,647
----------
FOOD & BEVERAGE-1.1%
94,425 Pepsico, Inc. 3,440,611
----------
HEALTHCARE SERVICES-0.9%
103,988 Quorum Health Group, Inc.* 2,716,687
----------
OIL & GAS-3.0%
134,950 Apache Corporation $4,731,684
100,600 Sonat, Inc. 4,602,450
----------
9,334,134
----------
PUBLISHING & BROADCASTING-1.5%
86,450 Jacor Communications, Inc.* 4,592,656
----------
RESTAURANTS-0.5%
56,842 Tricon Global Restaurants, Inc. 1,651,971
----------
RETAIL-0.5%
110,825 The Sports Authority, Inc.* 1,634,669
----------
SEMICONDUCTORS & EQUIPMENT-0.2%
38,700 SanDisk Corporation* 776,419
----------
TELECOMMUNICATION SERVICES-1.5%
147,950 WorldCom, Inc.* 4,475,488
----------
TELECOMMUNICATIONS EQUIPMENT-0.3%
57,600 Digital Microwave Corporation* 835,200
----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$48,912,901) 54,177,318
----------
COMMON STOCKS (FOREIGN)-64.8%
AIRLINES-1.4%
186,600 Deutsche Lufthansa AG
144A (GE)+ 3,580,478
48,000 SAS Danmark AS (DE) 701,016
----------
4,281,494
----------
APPAREL-0.7%
16,550 Adidas AG (GE) 2,177,825
----------
BANKING-3.2%
22,550 Banco de A. Edwards Sponsored ADR
representing Series A (CH) 383,350
75,800 Commerzbank AG (GE) 2,984,783
1,215,000 Merita Limited Series A (FI) 6,646,098
----------
10,014,231
----------
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED RESTRICTED
FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
SHARES MARKET VALUE
- ------ ------------
BUSINESS SERVICES-3.2%
434,000 Compass Group PLC (UK)* $5,349,120
1,000,000 WPP Group PLC (UK)* 4,459,437
----------
9,808,557
----------
CHEMICALS-4.1%
22,500 L'Air Liquide (FR) 3,523,222
63,750 Imperial Chemical Industries PLC
Sponsored ADR (UK) 4,139,766
60,000 Potash Corporation of Saskatchewan,
Inc. (CA) 4,980,000
----------
12,642,988
----------
COMPUTER SOFTWARE/SERVICES-4.4%
98,000 Baan Company NV Sponsored ADR (NE)* 3,209,500
166,000 Konami Company (JA) 4,097,258
100 NTT Data Corporation (JA) 5,406,551
28,200 Square Company Limited (JA) 785,135
----------
13,498,444
----------
CONSTRUCTION-0.7%
59,000 Brisa Auto-Estradas de Portugal SA
(PO)* 2,115,849
----------
CONSUMER PRODUCTS-1.6%
96,650 Benckiser NV Class B (NE)* 4,000,067
52,250 Industrie Natuzzi SPA Sponsored ADR
(IT) 1,077,656
----------
5,077,723
----------
ELECTRONICS-3.6%
35,525 Philips Electronics NV Sponsored ADR
(NE) 2,149,263
100,000 Sony Corporation (JA) 8,921,636
----------
11,070,899
----------
FINANCIAL SERVICES-4.7%
60,650 Banco Latinoamericano de
Exportaciones SA Class E Sponsored
ADR (PA) 2,509,394
2,931,575 Credito Italiano SPA (IT) 9,045,122
72,000 ING Groep NV (NE) 3,033,149
----------
14,587,665
----------
FOOD & BEVERAGE-1.5%
8,200 Groupe Danone (FR) $1,465,308
129,010 Quilmes Industrial SA Sponsored ADR
representing one non-voting preferred
share (AR) 1,765,824
122,020 Quilmes Industrial SA Registered
(AR)* 1,311,715
----------
4,542,847
----------
INSURANCE-1.1%
322,350 Royal & Sun Alliance Insurance Group
PLC (UK) 3,251,613
----------
LEISURE & ENTERTAINMENT-4.2%
41,250 Four Seasons Hotels, Inc. (CA) 1,304,531
1,881,925 Ladbroke Group PLC (UK) 8,175,550
73,700 Polygram NV Sponsored ADR (NE) 3,514,569
----------
12,994,650
----------
MACHINERY-0.5%
11,000 VA Technologie AG (AT) 1,667,721
----------
MEDICAL SUPPLIES & EQUIPMENT-0.5%
5,950 Sulzer Medica AG (SZ)* 1,427,837
----------
OFFICE SUPPLIES & EQUIPMENT-1.9%
55,000 OCE Van Der Grinten NV (NE) 5,995,955
----------
OIL & GAS-5.2%
256,625 Gulf Canada Resources Limited (CA)* 1,796,375
126,905 Total SA Sponsored ADR (FR) 7,043,228
209,800 YPF Sociedad Anonima
Sponsored ADR
representing one Class D
share (AR) 7,172,538
----------
16,012,141
----------
40
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
OIL SERVICES-1.5%
83,525 Aker Maritime ASA (NW) $1,778,791
45,050 Petroleum Geological Services
Sponsored ADR (NW)* 2,916,988
----------
4,695,779
----------
PAPER & FOREST PRODUCTS-0.5%
200,850 Metsa-Serla Oyj Class B (FI) 1,567,585
----------
PHARMACEUTICALS-6.7%
74,500 Glaxo Wellcome PLC Sponsored ADR (UK) 3,566,688
4,100 Novartis AG Registered (SZ) 6,662,324
650 Roche Holding AG Dividend Right
Certificate (SZ) 6,464,072
60,000 Schwarz Pharma AG (GE) 4,037,315
----------
20,730,399
----------
PUBLISHING & BROADCASTING-5.4%
686,175 Carlton Communications PLC (UK) 5,306,932
301,550 Pearson PLC (UK) 3,925,063
268,225 Ver Ned Uitgeversbedr Ver Bezit NV
(NE) 7,568,306
----------
16,800,301
----------
RETAIL-4.8%
650,000 Dixons Group PLC (UK) 6,535,297
19,150 Guilbert SA (FR) 2,730,578
485,150 Next PLC (UK) 5,523,281
----------
14,789,156
----------
TELECOMMUNICATION SERVICES-2.8%
41,350 Compania Anonima Nacional Telefonos
Sponsored ADR representing seven
Class D shares (VZ) 1,721,194
84,600 France Telecom SA (FR)* 3,069,946
11,725 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 1,365,230
67,400 Telefonica de Argentina SA Sponsored
ADR representing ten Class B ordinary
shares (AR) 2,510,650
----------
8,667,020
----------
TELECOMMUNICATIONS EQUIPMENT-0.2%
8,350 Nokia Corporation Sponsored ADR (FI) $ 584,500
-----------
UTILITIES-0.4%
2,490,000 Beijing Datang Power Generation
Company 144A (HK)*+ 1,140,846
-----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$165,911,402) 200,144,025
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-9.7%
$ 4,000,000 American Express Credit Corporation
6.20% 01/06/98 $ 3,996,556
13,300,000 Ford Motor Credit Company 6.01%
01/05/98 13,291,119
12,700,000 G.E. Capital Corporation 6.10%
01/02/98 12,697,848
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$29,985,523) 29,985,523
-----------
TOTAL INVESTMENTS-99.3%
(COST-$257,040,932) 306,615,460
-----------
OTHER ASSETS & LIABILITIES-0.7%
2,261,421
-----------
NET ASSETS-100.0% $308,876,881
===========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
- --------------------------------------------------------------------------------
FOUNDERS GROWTH FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Standard & Lipper Consumer
Growth Poor's 500 Growth Price
Fund Index Fund Index Index
-------- ---------- ---------- --------
12/87 .......... $10,000 $10,000 $10,000 $10,000
12/88 .......... $10,481 $11,657 $11,413 $10,442
12/89 .......... $14,855 $15,346 $14,549 $10,926
12/90 .......... $13,280 $14,864 $13,760 $11,593
12/91 .......... $19,573 $19,390 $18,758 $10,936
12/92 .......... $20,418 $20,867 $20,191 $12,294
12/93 .......... $25,631 $22,967 $22,608 $12,632
12/94 .......... $24,773 $23,265 $23,265 $12,970
12/95 .......... $36,067 $31,998 $29,512 $13,299
12/96 .......... $42,043 $39,354 $34,671 $13,741
12/97 .......... $53,222 $52,477 $44,406 $13,975
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997*
1 Year 5 Years 10 Years 20 Years
------ ------- -------- ---------
26.59% 21.12% 18.20% 18.07%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER EDWARD KEELY
WHAT CONTRIBUTED TO GROWTH FUND'S SUCCESS IN 1997?
One thing we did early in the year was to reposition the portfolio for a greater
weighting in large-cap stocks. We did this to take advantage of the liquidity
and earnings consistency these stocks offered. By year-end, the portfolio had
approximately 70% large companies and 30% mid-caps.
We also reduced the number of companies in the portfolio to 75, down from the
100 stocks we held earlier in the year. This helped us stay focused on a smaller
group of holdings and to maintain a certain amount of liquidity in the Fund. At
the end of December, we were invested approximately 88% in equities with 12% in
cash.
As a result, the Growth Fund turned in an admirable total return of 26.59% for
the one-year period ended December 31, 1997.
42
<PAGE>
- --------------------------------------------
TOP 10 HOLDINGS
1. Eli Lilly & Company 3.12%
2. General Electric Company 3.11%
3. Microsoft Corporation 3.02%
4. Pfizer, Inc. 2.19%
5. Sunbeam Corporation 2.05%
6. MCI Communications Corporation 1.93%
7. Fiserv, Inc. 1.88%
8. Maytag Corporation 1.82%
9. Bristol-Myers Squibb Company 1.78%
10. Procter & Gamble Company 1.67%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------
HAS THE ASIAN CRISIS AFFECTED THE GROWTH FUND?
I think our Achilles heel with respect to the Asian crisis was our exposure to
technology. In October, we aggressively reduced our tech weighting but it was a
little late and impacted the performance of the Fund toward the end of the year.
Up until that time, we'd had a great nine months.
WHERE DO YOU CURRENTLY STAND ON TECHNOLOGY?
We've cut it dramatically, ending the year with about a 16% weighting. This is
the lowest tech weighting the Fund has seen in recent history. The technology
stocks we still own are those with limited foreign exposure that we have great
confidence in. One example is CIENA Corporation, which sells telecommunications
to long distance companies such as Sprint and AT&T. CIENA demonstrated good
resiliency while most technology stocks have moved lower. It was at 1.58% of the
portfolio at period-end.
- ----------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $1.76 billion
NAV ON DECEMBER 31, 1997: $17.28
EXPENSE RATIO: 1.12%
INCEPTION DATE: 1/5/62
- ----------------------------------
WHAT KIND OF COMPANIES DO YOU LOOK FOR?
We're still looking for mid-to-large-cap growth companies with the fundamental
strengths for growth in earnings. Right now, the market is at historically high
levels, which makes it a real challenge to find companies with good earnings
valuations and appreciation potential.
Historically, we've overweighted certain areas of the market--usually
healthcare and technology. But as I mentioned we've dramatically cut back in
tech. As a result, we've been adding new companies, which may not fit the
traditional definition of "growth stocks."
SUCH AS?
Ford Motor Co., as an example, has been going through fairly major lifecycle
changes. At year-end, it was 1.55% of the portfolio. Last year, Ford had a major
cost-cutting program, and the company has good product lines in its sport-
utility vehicles,
43
<PAGE>
FOUNDERS GROWTH FUND (CONTINUED)
the Expedition and Explorer.
We also like Maytag Corp., at 1.82% of the Fund. Maytag has the great new
Neptune high-efficiency washing machine and also owns Hoover vacuums. They
really have a major incremental opportunity for sales through their new product
cycles.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
Consumer ..................... 26.3%
Technology ................... 15.5
Financial .................... 14.9
Healthcare ................... 14.3
Cash & Equivalents ........... 13.3
Capital Goods ................ 5.0
Energy ....................... 3.7
Telecom Services ............. 2.7
Transportation ............... 2.6
Basic Materials .............. 1.7
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
WHAT DO YOU SEE GOING FORWARD IN 1998?
As we launch into 1998, the Asian crisis will continue to loom over the global
marketplace. We think it will cause a real slowdown in the growth of large-cap
companies, especially those that depend on Asia for a portion of their sales.
We'll know more by mid-'98.
We believe companies in the Standard & Poor's 500 will grow at a slower rate
than most people expect, probably around 5-7% this year. We also may see higher
wages erode profit margins. Whatever happens, it's clear that comparisons for
earnings growth will be more difficult in this economic environment.
In this environment, we will continue to rely on our bottom-up, company-by-
company research methods to seek companies that may see growth in almost any
market condition.
/s/ EDWARD KEELY, CFA
Portfolio Manager
44
<PAGE>
FOUNDERS GROWTH FUND STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (DOMESTIC)-81.9%
AEROSPACE-0.4%
260,000 Gulfstream Aerospace Corporation* $7,605,000
----------
AIRLINES-0.6%
449,600 Southwest Airlines Company 11,071,400
----------
AUTOMOTIVE-1.6%
559,000 Ford Motor Company 27,216,313
----------
BANKING-4.3%
176,900 BankAmerica Corporation 12,913,700
102,000 Chase Manhattan Corporation 11,169,000
324,225 H.F. Ahmanson & Company 21,702,811
183,000 Mellon Bank Corporation 11,094,375
290,622 Washington Mutual, Inc. 18,527,153
----------
75,407,039
----------
BUSINESS SERVICES-3.8%
297,500 Electronic Data Systems Corporation 13,071,406
672,625 Fiserv, Inc.* 33,042,703
767,975 Galileo International, Inc. 21,215,309
----------
67,329,418
----------
COMPUTER EQUIPMENT-0.7%
192,000 Hewlett-Packard Company 12,000,000
----------
COMPUTER NETWORKING-0.1%
73,000 Bay Networks, Inc.* 1,866,063
----------
COMPUTER SOFTWARE/SERVICES-4.3%
411,500 Microsoft Corporation* 53,160,656
405,250 PeopleSoft, Inc.* 15,703,438
130,000 Veritas Software Corporation 6,581,250
----------
75,445,344
----------
CONSUMER PRODUCTS-10.7%
848,975 The Dial Corporation $17,669,292
278,500 Gillette Company 27,971,844
857,500 Maytag Corporation 31,995,469
552,500 Philip Morris Companies, Inc. 25,035,156
367,500 Procter & Gamble Company 29,331,094
519,300 RJR Nabisco Holdings Corporation 19,473,750
857,300 Sunbeam Corporation 36,113,763
-----------
187,590,368
-----------
DIVERSIFIED-0.8%
322,000 Cognizant Corporation 14,349,125
-----------
ELECTRONICS-3.1%
745,000 General Electric Company 54,664,375
-----------
ENVIRONMENTAL SERVICES-0.4%
306,725 Allied Waste Industries, Inc.* 7,150,527
-----------
FINANCIAL SERVICES-6.0%
326,575 Associates First Capital Corporation
Class A 23,227,647
97,000 Beneficial Corporation 8,063,125
330,000 The CIT Group, Inc.* 10,642,500
306,500 Capital One Financial Corporation 16,608,469
369,500 Federal National Mortgage Association 21,084,594
189,000 Student Loan Marketing Association 26,294,625
-----------
105,920,960
-----------
FOOD & BEVERAGE-4.4%
663,900 Coca-Cola Enterprises, Inc. 23,609,944
530,000 Pepsico, Inc. 19,311,875
111,750 Ralston-Ralston Purina Group 10,385,766
438,000 Sara Lee Corporation 24,664,875
-----------
77,972,460
-----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
FOUNDERS GROWTH FUND
SHARES MARKET VALUE
- ------ ------------
HEALTHCARE SERVICES-0.9%
609,025 HealthSouth Corporation* $16,900,444
-----------
INSURANCE-4.6%
259,000 Allstate Corporation 23,536,625
334,375 Everest Reinsurance Holdings, Inc. 13,792,969
240,000 Hartford Financial Services Group,
Inc. 22,455,000
143,550 Marsh & McLennan Companies, Inc. 10,703,447
90,400 The Progressive Corporation 10,836,700
-----------
81,324,741
-----------
LEISURE & ENTERTAINMENT-2.4%
773,950 Mirage Resorts, Inc.* 17,607,363
242,500 The Walt Disney Company 24,022,656
-----------
41,630,019
-----------
MANUFACTURING-0.7%
282,725 Crane Company 12,263,197
-----------
MEDICAL SUPPLIES & EQUIPMENT-0.7%
355,475 Stryker Corporation 13,241,444
-----------
OIL SERVICES-3.7%
98,500 B.J. Services Company 7,085,844
499,000 Baker Hughes, Inc. 21,768,875
378,350 Reading & Bates Corporation* 15,843,406
259,000 Schlumberger Limited 20,849,500
-----------
65,547,625
-----------
PAPER & FOREST PRODUCTS-2.3%
380,000 Fort James Corporation 14,535,000
285,425 International Paper Company 12,308,953
490,000 Mead Corporation 13,720,000
-----------
40,563,953
-----------
PHARMACEUTICALS-10.3%
457,500 Alza Corporation* $14,554,219
98,250 American Home Products Corporation 7,516,125
330,000 Bristol-Myers Squibb Company 31,226,250
317,000 Dura Pharmaceuticals, Inc.* 14,542,375
787,000 Eli Lilly & Company 54,794,875
183,000 Merck & Company 19,443,750
516,500 Pfizer, Inc. 38,511,531
-----------
180,589,125
-----------
PUBLISHING & BROADCASTING-1.6%
757,500 CBS Corporation 22,298,906
103,150 Jacor Communications, Inc.* 5,479,844
-----------
27,778,750
-----------
RETAIL-3.2%
209,850 Dayton Hudson Corporation 14,164,875
544,000 Lowes Companies, Inc. 25,942,000
500,000 Toys "R" Us, Inc.* 15,718,750
-----------
55,825,625
-----------
SEMICONDUCTORS & EQUIPMENT-3.6%
556,900 Altera Corporation* 18,447,313
48,325 Lam Research Corporation* 1,407,466
712,850 Maxim Integrated
Products, Inc.* 24,593,325
521,150 Xilinx, Inc.* 18,240,250
-----------
62,688,354
-----------
TELECOMMUNICATION SERVICES-2.7%
209,450 AT&T Corporation 12,828,813
793,000 MCI Communications Corporation 33,950,313
-----------
46,779,126
-----------
46
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
TELECOMMUNICATIONS EQUIPMENT-3.1%
454,000 CIENA Corporation* $ 27,750,750
94,750 Lucent Technologies, Inc. 7,568,156
348,650 Tellabs, Inc.* 18,369,497
------------
53,688,403
------------
TRANSPORTATION-0.9%
398,000 CNF Transportation, Inc. 15,273,250
------------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$1,251,087,419) 1,439,682,448
------------
COMMON STOCKS (FOREIGN)-4.9%
AIRLINES-1.1%
976,000 Deutsche Lufthansa AG
144A (GE)+ 18,727,475
------------
BUILDING MATERIALS-0.4%
225,000 Hunter Douglas NV (NE) 7,880,328
------------
CHEMICALS-0.3%
70,000 Imperial Chemical Industries PLC
Sponsored ADR (UK) 4,545,625
------------
ELECTRONICS-0.4%
122,500 Philips Electronics NV Sponsored ADR
(NE) 7,411,250
------------
OFFICE SUPPLIES & EQUIPMENT-0.4%
60,000 OCE Van Der Grinten
NV (NE) 6,541,042
------------
PHARMACEUTICALS-2.3%
13,400 Novartis AG Registered (SZ) 21,774,426
370,000 Smithkline Beecham PLC Sponsored ADR
Class A (UK) 19,031,875
------------
40,806,301
------------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$74,068,048) 85,912,021
------------
PRINCIPAL VALUE AMORTIZED COST
- --------------- --------------
CORPORATE SHORT-TERM NOTES-14.2%
$20,000,000 American Express Credit Corporation
6.55% 01/02/98 $ 19,996,361
44,300,000 Associates Corporation NA 6.12%
01/02/98 44,292,469
49,900,000 Ciesco LP 5.90% 01/07/98 49,850,932
34,500,000 Chevron USA, Inc. 5.95% 01/08/98 34,460,085
50,000,000 Ford Motor Credit Company 6.15%
01/05/98 49,965,833
46,800,000 Household Finance Corporation 6.10%
01/06/98 46,760,350
4,690,000 Massachusetts Electric Company 6.50%
01/05/98 4,686,613
-------------
TOTAL CORPORATE SHORT-TERM
NOTES (AMORTIZED
COST-$250,012,643) 250,012,643
-------------
TOTAL INVESTMENTS-101.0%
(COST-$1,575,168,110) 1,775,607,112
OTHER ASSETS & LIABILITIES-(1.0%)
(18,157,959)
-------------
NET ASSETS-100% $1,757,449,153
=============
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE RESTRICTED
FOR RESALE
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
- --------------------------------------------------------------------------------
FOUNDERS BLUE CHIP FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Standard & Lipper Growth Consumer
Blue Chip Poor's and Income Price
Fund 500 Index Fund Index Index
--------- ----------- ------------- -----------
12/87 .......... $10,000 $10,000 $10,000 $10,000
12/88 .......... $11,007 $11,657 $11,835 $10,442
12/89 .......... $14,921 $15,346 $14,644 $10,926
12/90 .......... $14,987 $14,864 $13,766 $11,593
12/91 .......... $19,234 $19,390 $17,586 $11,949
12/92 .......... $19,185 $20,867 $19,282 $12,294
12/93 .......... $21,965 $22,967 $22,101 $12,632
12/94 .......... $22,080 $23,265 $22,010 $12,970
12/95 .......... $28,496 $31,998 $28,871 $13,299
12/96 .......... $35,440 $39,354 $34,846 $13,741
12/97 .......... $42,329 $52,477 $44,238 $13,975
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997*
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
19.44% 17.15% 15.52% 14.41%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER BRIAN KELLY
HOW DO YOU FEEL ABOUT BLUE CHIP'S PERFORMANCE THIS YEAR?
The year as a whole was quite positive for large-capitalization stocks, which in
general were driven by investors' move to more liquid and relatively stable
companies. Two elements in the market drove us to take a more conservative
stance: high valuations and market volatility.
With a conservative outlook on the market, the Blue Chip Fund was about 75%
invested in equities. With that conservative stance in mind, the Fund returned
19.44% for the one-year period ended December 31, 1997. This is somewhat
disappointing relative to the Standard & Poor's 500 Index, which returned 33.35%
for the same period. However, the Lipper Growth & Income Fund Index gained
26.96%, a more accurate comparison for the Blue Chip Fund.
48
<PAGE>
WHAT WERE THE FACTORS THAT IMPACTED THE FUND?
We thought some stocks were too expensive during the year, particularly in the
financial services and technology sectors. As a result, we didn't find the right
buying opportunities in those areas and underweighted the portfolio. But these
were exactly the two areas that did so well in the broader market. It was a
judgment call, and the Fund's fourth quarter performance really lagged as a
result.
- --------------------------------------------
TOP 10 HOLDINGS
1. U.S. West, Inc. 4.26%
2. Smithkline Beecham PLC Sponsored
ADR Class A 3.71%
3. Glaxo Wellcome PLC Sponsored ADR 3.65%
4. Novartis AG Registered 3.32%
5. Potash Corporation of
Saskatchewan, Inc. 3.23%
6. Allstate Corporation 2.82%
7. Pfizer, Inc. 2.24%
8. Newmont Mining Corporation 2.24%
9. Colgate-Palmolive Company 2.05%
10. Fort James Corporation 1.80%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------
WHERE WERE YOU FINDING OPPORTUNITIES?
Anyone comparing our holdings with the S&P 500 Index would see some striking
parallels--in fact, 74% of the stocks in the Fund at year-end were also found in
the S&P 500.
In particular, we are still enthused about pharmaceuticals, an area where we
see good growth and strong earnings. This industry should really soar as
America's population ages and spends even more money on drug prescriptions. We
had 20.06% of the Blue Chip Fund invested in pharmaceuticals at period-end, and
SmithKline Beecham PLC, the pharmaceutical giant, was our biggest drug holding.
- --------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $543.2 million
NAV ON DECEMBER 31, 1997: $6.92
EXPENSE RATIO: 1.11%
INCEPTION DATE: 7/5/38
- --------------------------------
WHAT'S YOUR OUTLOOK FOR THE YEAR AHEAD?
We're very cautious. We continue to be concerned about earnings and valuations
simply because the global economy makes it almost inevitable that the problems
in Asia
49
<PAGE>
FOUNDERS BLUE CHIP FUND (CONTINUED)
will impact us domestically. Plus, we see strong indications that the domestic
economy is slowing. The low inflation figures and low bond rates are perceived
positively, but we're watchful about the possibility of deflation. We'll be
maintaining a conservative posture in the Fund. We've also reduced the number of
companies in the portfolio making the Fund more concentrated and allowing us to
have a greater focus on the ability of the securities in the portfolio to meet
and exceed our long-term expectations.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
Bonds, Treasuries, Cash & Equivalents ... 27.1%
Healthcare .............................. 24.0
Consumer ................................ 10.9
Basic Materials ......................... 8.9
Energy .................................. 8.7
Financial ............................... 7.2
Telecom Services ........................ 4.3
Technology .............................. 2.6
Utilities ............................... 2.5
Transportation .......................... 1.9
Capital Goods ........................... 1.9
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
/s/ BRIAN KELLY
Portfolio Manager
50
<PAGE>
FOUNDERS BLUE CHIP FUND STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (DOMESTIC)-53.1%
BANKING-1.8%
75,000 BankAmerica Corporation $5,475,000
66,500 NationsBank Corporation 4,044,031
----------
9,519,031
----------
CHEMICALS-1.8%
156,000 Arco Chemical Company 7,283,250
43,800 E.I. du Pont de Nemours
and Company 2,630,738
----------
9,913,988
----------
COMPUTER EQUIPMENT-1.7%
60,000 Hewlett-Packard Company 3,750,000
50,100 International Business Machines
Corporation 5,238,581
----------
8,988,581
----------
COMPUTER SOFTWARE/SERVICES-0.5%
115,700 Oracle Systems Corporation 2,574,325
----------
CONSUMER PRODUCTS-3.7%
15,800 Avon Products, Inc. 969,725
151,400 Colgate-Palmolive Company 11,127,900
95,500 The Dial Corporation 1,987,594
62,100 Kimberly Clark Corporation 3,062,306
25,200 Revlon, Inc. Class A 889,875
52,975 RJR Nabisco Holdings Corporation 1,986,563
----------
20,023,963
----------
CONSUMER SERVICES-0.4%
55,975 Service Corporation International $2,067,577
----------
ELECTRONICS-1.3%
100,000 General Electric Company 7,337,500
----------
FINANCIAL SERVICES-0.3%
17,400 American Express Company 1,552,950
----------
FOOD & BEVERAGE-2.8%
144,000 The Coca-Cola Company 9,594,000
150,500 Pepsico, Inc. 5,483,844
1,050 Ralston-Ralston Purina Group 97,584
----------
15,175,428
----------
HEALTHCARE SERVICES-1.5%
93,000 Columbia/HCA Healthcare Corporation 2,755,125
87,200 EXEL Limited 5,526,300
----------
8,281,425
----------
INSURANCE-5.1%
168,800 Allstate Corporation 15,339,700
35,900 Marsh & McLennan Companies, Inc. 2,676,794
114,475 Safeco Corporation 5,566,347
101,250 W.R. Berkley Corporation 4,442,344
----------
28,025,185
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
FOUNDERS BLUE CHIP FUND
SHARES MARKET VALUE
- ------ ------------
LEISURE & ENTERTAINMENT-0.3%
34,625 Hilton Hotels Corporation $1,030,094
22,200 International Game Technology 560,550
----------
1,590,644
----------
MANUFACTURING-0.5%
33,700 Minnesota Mining and Manufacturing
Company 2,765,506
----------
MEDICAL SUPPLIES & EQUIPMENT-2.4%
85,200 Allegiance Corporation 3,019,275
88,000 Becton, Dickinson and Company 4,400,000
19,325 Boston Scientific Corporation* 886,534
74,200 Johnson & Johnson 4,887,925
----------
13,193,734
----------
METALS & MINING-2.2%
414,100 Newmont Mining Corporation 12,164,188
----------
OIL & GAS-6.7%
64,300 Amoco Corporation 5,473,538
120,700 Atlantic Richfield and Company 9,671,088
58,350 Chevron Corporation 4,492,950
56,000 Mobil Corporation 4,042,500
71,000 Phillips Petroleum Corporation 3,452,375
91,200 Sonat, Inc. 4,172,400
43,600 Texaco, Inc. 2,370,750
80,000 USX-Marathon Group 2,700,000
----------
36,375,601
----------
OIL SERVICES-1.0%
30,875 Baker Hughes, Inc. $1,346,922
84,600 Global Marine, Inc.* 2,072,700
33,950 Helmerich and Payne, Inc. 2,304,356
----------
5,723,978
----------
PAPER & FOREST PRODUCTS-1.8%
255,475 Fort James Corporation 9,771,919
----------
PHARMACEUTICALS-9.4%
72,400 Abbott Laboratories 4,746,725
89,475 Alza Corporation* 2,846,423
24,000 American Home Products Corporation 1,836,000
20,100 Bristol-Myers Squibb Company 1,901,963
90,125 Eli Lilly & Company 6,274,953
79,600 Merck & Company 8,457,500
84,300 Mylan Laboratories, Inc. 1,765,031
163,400 Pfizer, Inc. 12,183,513
47,900 Schering Plough Corporation 2,975,788
64,600 Warner Lambert Company 8,010,400
----------
50,998,296
----------
PUBLISHING & BROADCASTING-0.7%
38,100 Meredith Corporation 1,359,694
36,000 Tribune Company 2,241,000
----------
3,600,694
----------
52
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
SHARES MARKET VALUE
- ------ ------------
SEMICONDUCTORS & EQUIPMENT-0.5%
39,800 Intel Corporation $ 2,793,463
-----------
TELECOMMUNICATION SERVICES-4.3%
512,700 U.S. West, Inc. 23,135,588
-----------
UTILITIES-2.4%
49,200 Cinergy Corporation 1,884,975
58,325 Consolidated Edison Company of New
York, Inc. 2,391,325
106,109 Duke Energy Corporation 5,875,786
132,525 Public Service Company of New Mexico 3,139,186
-----------
13,291,272
-----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$254,427,171) 288,864,836
-----------
COMMON STOCKS (FOREIGN)-19.6%
AIRLINES-0.9%
509,600 Air Canada Class A (CA)* $ 4,857,944
-----------
CHEMICALS-4.8%
130,700 Imperial Chemical Industries PLC
Sponsored ADR (UK) 8,487,331
211,575 Potash Corporation of Saskatchewan,
Inc. (CA) 17,560,725
-----------
26,048,056
-----------
FOOD & BEVERAGE-1.2%
4,500 Nestle SA Registered (SZ) 6,753,295
-----------
OIL & GAS-1.0%
66,400 British Petroleum PLC Sponsored ADR
(UK) 5,291,250
-----------
PHARMACEUTICALS-10.7%
413,700 Glaxo Wellcome PLC Sponsored ADR (UK) 19,805,888
11,100 Novartis AG Registered (SZ) 18,037,151
391,700 Smithkline Beecham PLC Sponsored ADR
Class A (UK) 20,148,069
-----------
57,991,108
-----------
TRANSPORTATION-1.0%
200,000 Canadian Pacific Limited (CA) 5,450,000
-----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$92,241,926) 106,391,653
-----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
FOUNDERS BLUE CHIP FUND STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
PRINCIPAL AMOUNT MARKET VALUE
- ---------------- ------------
U.S. GOVERNMENT SECURITIES-24.3%
U.S. TREASURY BONDS-8.1%
$22,700,000 U.S. Treasury Bond 6.625% Due
02/15/27 $24,636,605
18,300,000 U.S. Treasury Bond 6.375% Due
08/15/27 19,295,063
-----------
43,931,668
-----------
U.S. TREASURY NOTES-16.2%
14,500,000 U.S. Treasury Note 5.625% Due
11/30/99 14,486,414
3,500,000 U.S. Treasury Note 6.375% Due
05/15/00 3,552,500
37,900,000 U.S. Treasury Note 6.00% Due 08/15/00 38,172,425
5,400,000 U.S. Treasury Note 5.75% Due 10/31/00 5,406,750
5,500,000 U.S. Treasury Note 5.75% Due 11/15/00 5,510,313
6,300,000 U.S. Treasury Note 5.875% Due
09/30/02 6,337,409
5,400,000 U.S. Treasury Note 5.75% Due 10/31/02 5,406,750
8,700,000 U.S. Treasury Note 6.25% Due 02/15/07 8,980,036
-----------
87,852,597
-----------
TOTAL U.S. GOVERNMENT
SECURITIES
(COST-$128,228,157) 131,784,265
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-2.2%
$11,800,000 Chevron USA, Inc. 6.60% 01/02/98 $11,797,837
-----------
TOTAL CORPORATE
SHORT-TERM NOTES (AMORTIZED
COST-$11,797,837) 11,797,837
-----------
TOTAL INVESTMENTS-99.2%
(COST-$486,695,091) 538,838,591
OTHER ASSETS &
LIABILITIES-0.8% 4,329,329
-----------
NET ASSETS-100.0% $543,167,920
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
- --------------------------------------------------------------------------------
FOUNDERS BALANCED FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper
Standard & Balanced Consumer
Balanced Poors Fund Price
Fund 500 Index Index Index
-------- ---------- -------- --------
12/87 ........... $10,000 $10,000 $10,000 $10,000
12/88 ........... $11,109 $11,657 $11,118 $10,442
12/89 ........... $13,916 $15,346 $13,308 $10,926
12/90 ........... $13,221 $14,864 $13,395 $10,610
12/91 ........... $16,244 $19,390 $16,857 $11,949
12/92 ........... $17,222 $20,867 $18,116 $12,294
12/93 ........... $20,985 $22,967 $20,279 $12,632
12/94 ........... $20,579 $23,265 $19,865 $12,970
12/95 ........... $26,631 $31,998 $24,807 $13,299
12/96 ........... $31,626 $39,354 $28,036 $10,878
12/97 ........... $36,978 $52,477 $33,658 $13,975
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997*
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
16.92% 16.51% 13.97% 13.51%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER BRIAN KELLY
LOOKING BACK ON 1997, HOW DID THE FUND PERFORM?
Investors continued to put an emphasis on liquidity, to the benefit of
large-caps and to the Balanced Fund. However, the Balanced Fund is just that,
balanced, and we believe that is how investors expect the Fund to be managed.
Given the volatility in the market, we were anywhere from 55% to 65% invested in
the equity market. Additionally, the Fund had tremendous cash flows, more than
doubling the size of the Fund and giving us a lot of new money to put to work.
With our conservative stance and cash flows in mind, we were pleased with the
Fund's 16.92% total return for the year ended December 31, 1997.
TO WHAT DO YOU ATTRIBUTE THE OVERWHELMING INTEREST IN BALANCED FUND?
We really noticed a greater demand for conservatively positioned portfolios as
the year progressed. By early fall, the Southeast Asian currency crisis was
causing some domestic market volatility. A number of
55
<PAGE>
FOUNDERS BALANCED FUND (CONTINUED)
companies revised their earnings estimates downward, which seemed to indicate
the domestic economy was slowing. And although many investors welcomed the
historically low inflation figures and low bond rates, they almost seemed to
foreshadow the possibility of deflation.
- ---------------------------------------------
TOP 10 EQUITY HOLDINGS
1. U.S. West, Inc. 3.84%
2. Smithkline Beecham PLC Sponsored
ADR Class A 3.55%
3. Glaxo Wellcome PLC Sponsored ADR 3.50%
4. Novartis AG Registered 3.34%
5. Potash Corporation of
Saskatchewan, Inc. 2.84%
6. Allstate Corporation 2.43%
7. Pfizer, Inc. 2.22%
8. Newmont Mining Corporation 2.19%
9. Colgate-Palmolive Company 2.08%
10. Fort James Corporation 1.84%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
- ---------------------------------------------
As a result, we saw increased interest in more conservative investments like
the Founders Balanced Fund.
WHAT IS THE STRATEGY FOR THE FUND?
Our objective is to provide current income and capital appreciation through a
portfolio of equity and fixed income holdings. We believe the key is to remain
extremely flexible--to adjust the portfolio's composition based on market
dynamics. At year-end, we had positioned the Fund conservatively in response to
the market volatility we saw developing.
As part of that caution, we stuck with well-known growth companies, household
names. For example, Fort James Corp., a paper and forest products company.
We also held U.S. West, Inc.. Many of you may know the name, but you might not
realize just how well-situated U.S. West is to capitalize on growth in the
14-state geographic region it serves. And, U.S. West's 4.5% yield is also the
highest yield of any Baby Bell.
- ---------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $942.7million
NAV ON DECEMBER 31, 1997: $11.35
EXPENSE RATIO: 1.01%
INCEPTION DATE: 2/19/63
- ---------------------------------
WHAT DO YOU SEE GOING FORWARD?
As we've said, large-cap stocks in particular offer strong earnings potential
and liquidity that exceeds other investments. We believe they'll continue to
remain popular as the Southeast Asian crisis plays out. But at the same time,
we're monitoring the situation carefully. Valuations seem to be at the upper end
of their range and it's more challenging to find the right buying opportunities
within our price guidelines.
56
<PAGE>
We will continue to run the Fund in a truly "balanced" manner because that
is what we believe investors in this Fund are looking for. We will have fewer
companies in the Fund with higher concentrations to keep a keen eye on the
stocks' ability to meet and exceed our long-term expectations. This, we believe,
will be key to the future success of the Founders Balanced Fund.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
Treasury & Agency .................... 41.2%
Healthcare ........................... 21.3
Consumer ............................. 7.2
Energy ............................... 6.8
Financial ............................ 6.5
Basic Materials ...................... 6.3
Telecom Services ..................... 3.9
Technology ........................... 1.8
Utilities ............................ 1.7
Transportation ....................... 1.6
Cash & Equivalents ................... 1.2
Capital Goods ........................ 0.5
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
/s/ Brian Kelly
Portfolio Manager
57
<PAGE>
FOUNDERS BALANCED FUND
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS (DOMESTIC)-39.0%
BANKING-0.7%
115,000 NationsBank Corporation $6,993,438
----------
CHEMICALS-0.5%
75,200 E.I. du Pont de Nemours and
Company 4,516,700
----------
COMPUTER EQUIPMENT-1.0%
69,500 Hewlett-Packard Company 4,343,750
47,600 International Business Machines
Corporation 4,977,175
----------
9,320,925
----------
COMPUTER SOFTWARE/SERVICES-0.2%
102,000 Oracle Systems Corporation 2,269,500
----------
CONSUMER PRODUCTS-3.7%
28,100 Avon Products, Inc. 1,724,638
266,600 Colgate-Palmolive Company 19,595,100
169,100 The Dial Corporation 3,519,394
103,400 Kimberly Clark Corporation 5,098,913
44,500 Revlon, Inc. Class A 1,571,406
91,725 RJR Nabisco Holdings Corporation 3,439,688
----------
34,949,139
----------
FINANCIAL SERVICES-0.3%
30,400 American Express Company $2,713,200
----------
FOOD & BEVERAGE-0.7%
162,800 Pepsico, Inc. 5,932,025
1,850 Ralston-Ralston Purina Group 171,934
----------
6,103,959
----------
HEALTHCARE SERVICES-0.5%
143,325 Columbia/HCA Healthcare
Corporation 4,246,003
----------
INSURANCE-4.3%
251,900 Allstate Corporation 22,891,413
200,525 Safeco Corporation 9,750,528
168,725 W.R. Berkley Corporation 7,402,809
----------
40,044,750
----------
LEISURE & ENTERTAINMENT-0.3%
59,850 Hilton Hotels Corporation 1,780,538
39,200 International Game Technology 989,800
----------
2,770,338
----------
MANUFACTURING-0.5%
58,000 Minnesota Mining and
Manufacturing Company 4,759,625
----------
58
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
SHARES MARKET VALUE
- ------ ------------
MEDICAL SUPPLIES & EQUIPMENT-1.9%
153,900 Becton, Dickson and
Company $7,695,000
33,450 Boston Scientific Corporation* 1,534,519
130,300 Johnson & Johnson 8,583,513
----------
17,813,032
----------
METALS & MINING-2.2%
703,100 Newmont Mining Corporation 20,653,563
----------
OIL & GAS-5.2%
108,200 Amoco Corporation 9,210,525
180,000 Atlantic Richfield and
Company 14,422,500
100,850 Chevron Corporation 7,765,450
56,000 Mobil Corporation 4,042,500
92,700 Philips Petroleum Company 4,507,538
101,300 Sonat, Inc. 4,634,475
81,700 Texaco, Inc. 4,442,438
----------
49,025,426
----------
OIL SERVICES-0.8%
53,450 Baker Hughes, Inc. 2,331,756
143,300 Global Marine, Inc.* 3,510,850
27,000 Helmerich and Payne, Inc. 1,832,625
----------
7,675,231
----------
PAPER & FOREST PRODUCTS-1.8%
452,550 Fort James Corporation 17,310,038
----------
PHARMACEUTICALS-8.4%
77,100 Abbott Laboratories $5,054,869
168,850 Alza Corporation* 5,371,541
42,000 American Home Products
Corporation 3,213,000
37,800 Bristol-Myers Squibb
Company 3,576,825
159,525 Eli Lilly & Company 11,106,928
74,800 Merck & Company 7,947,500
149,400 Mylan Loboratories, Inc. 3,128,063
280,500 Pfizer, Inc. 20,914,781
79,200 Schering Plough Corporation 4,920,300
113,800 Warner Lambert Company 14,111,200
----------
79,345,007
----------
SEMICONDUCTORS & EQUIPMENT-0.5%
68,400 Intel Corporation 4,800,825
----------
TELECOMMUNICATION SERVICES-3.8%
801,200 U.S. West, Inc. 36,154,150
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
FOUNDERS BALANCED FUND
SHARES MARKET VALUE
- ------ ------------
UTILITIES-1.7%
183,775 Consolidated Edison
Company of New York, Inc. $ 7,534,775
151,500 Duke Energy Corporation 8,389,313
-----------
15,924,088
-----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$344,849,456) 367,388,937
-----------
COMMON STOCKS (FOREIGN)-18.2%
AIRLINES-0.7%
700,000 Air Canada Class A (CA)* 6,677,149
-----------
CHEMICALS-3.6%
111,000 Imperial Chemical Industries
PLC Sponsored ADR (UK) 7,208,063
322,360 Potash Corporation of
Saskatchewan, Inc. (CA) 26,755,880
-----------
33,963,943
-----------
FOOD & BEVERAGE-0.7%
4,300 Nestle SA Registered (SZ) 6,453,062
-----------
OIL AND GAS-0.7%
87,800 British Petroleum PLC Sponsored ADR
(UK) $ 6,996,563
-----------
PHARMACEUTICALS-10.4%
689,300 Glaxo Wellcome PLC
Sponsored ADR (UK) 33,000,238
19,400 Novartis AG Registered (SZ) 31,524,288
651,400 Smithkline Beecham PLC
Sponsored ADR Class A (UK) 33,506,388
-----------
98,030,914
-----------
PROPERTY-1.2%
1,593,200 Legacy Hotels Real Estate
Investment Trust 144A (CA)+ 10,796,817
-----------
TRANSPORTATION-0.9%
300,000 Canadian Pacific Limited (CA) 8,175,000
-----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$155,050,429) 171,093,448
-----------
60
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
(CONTINUED)
PRINCIPAL AMOUNT MARKET VALUE
- ---------------- ------------
U.S. GOVERNMENT SECURITIES-38.9%
U.S. TREASURY BONDS-8.4%
$19,200,000 U.S. Treasury Bond 6.625% Due
02/15/27 $20,838,010
46,500,000 U.S. Treasury Bond 6.375% Due
08/15/27 49,028,438
9,300,000 U.S. Treasury Bond 6.125% Due
11/15/27 9,555,750
----------
79,422,198
----------
U.S. TREASURY NOTES-30.5%
3,500,000 U.S. Treasury Note 5.875%
Due 04/30/98 3,505,471
12,000,000 U.S. Treasury Note 5.875%
Due 08/31/99 12,037,500
21,600,000 U.S. Treasury Note 5.625%
Due 11/30/99 21,579,761
20,500,000 U.S. Treasury Note 6.375%
Due 05/15/00 20,807,500
8,500,000 U.S. Treasury Note 6.125%
Due 07/31/00 8,585,000
66,600,000 U.S. Treasury Note 6.00% 67,078,721
Due 08/15/00
9,500,000 U.S. Treasury Note 5.75%
Due 10/31/00 9,511,875
18,800,000 U.S. Treasury Note 5.75% 18,835,250
Due 11/15/00
6,100,000 U.S. Treasury Note 6.25%
Due 02/28/02 6,214,375
12,700,000 U.S. Treasury Note 6.625%
Due 03/31/02 13,112,750
15,200,000 U.S. Treasury Note 6.625%
Due 04/30/02 15,708,258
9,000,000 U.S. Treasury Note 5.75% 9,011,250
Due 10/31/02
22,600,000 U.S. Treasury Note 5.75%
Due 11/30/02 22,621,199
9,000,000 U.S. Treasury Note 6.25%
Due 02/15/03 9,205,317
8,900,000 U.S. Treasury Note 6.875%
Due 05/15/06 9,525,786
U.S. TREASURY NOTES-(CONTINUED)
$ 1,500,000 U.S. Treasury Note 6.50% $ 1,570,782
Due 10/15/06
37,100,000 U.S. Treasury Note 6.25% 38,294,175
Due 02/15/07 -----------
287,204,970
-----------
TOTAL U.S. GOVERNMENT
SECURITIES
(COST-$355,116,842) 366,627,168
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-2.6%
$25,000,000 Chevron USA, Inc. 6.60% 01/02/98 $24,995,417
-----------
TOTAL CORPORATE SHORT-TERM
NOTES
(AMORTIZED COST-$24,995,417) 24,995,417
-----------
TOTAL INVESTMENTS-98.7%
(COST-$880,012,144) 930,104,970
OTHER ASSETS & LIABILITIES-1.3%
12,585,447
-----------
NET ASSETS-100.0% $942,690,417
===========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE RESTRICTED FOR
RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
- --------------------------------------------------------------------------------
FOUNDERS GOVERNMENT SECURITIES FUND
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lehman Bros.
Founders U.S. Lipper U.S.
Government Treasury Government Consumer
Securities Composite Fund Price
Fund Index Index Index
----------- ------------ ---------- ---------
03/01/88 ..... $10,000 $10,000 $10,000 $10,000
12/30/88 ..... $10,328 $10,353 $10,534 $10,343
12/29/89 ..... $11,703 $11,839 $11,455 $10,823
12/31/90 ..... $12,222 $12,858 $12,338 $11,483
12/31/91 ..... $14,039 $14,833 $13,038 $11,836
12/31/92 ..... $14,785 $15,905 $13,475 $12,178
12/31/93 ..... $16,159 $17,613 $13,835 $12,513
12/30/94 ..... $14,948 $17,010 $14,344 $12,847
12/29/95 ..... $16,610 $20,131 $15,123 $13,173
12/31/96 ..... $16,999 $20,690 $15,854 $13,612
12/31/97 ..... $18,339 $22,648 $16,536 $13,843
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997*
1 Year 5 Years Since Inception
------ ------- ---------------
7.88% 4.40% 6.36%
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH FIXED-INCOME MANAGER MARGARET DANUSER
HOW DID THE FUND DO IN 1997?
We're pleased with its total return of 7.88% for the one-year period ended
December 31, 1997.
WHAT HAPPENED IN THE BOND MARKET DURING THE YEAR?
We're always keeping an eye on the Federal Reserve since its moves influence
fixed-income securities so strongly. Early in 1997, it seemed likely the Fed
would tighten interest rates. But later on the Asian crisis progressed and all
indications were the Fed would stay on hold or possibly even ease interest
rates. From what we can tell, the Fed seemed to be weighing the impact Asia may
have on domestic earnings. At the end of the year, U.S. economic indicators
still seemed strong and we saw low inflation and strong employment.
62
<PAGE>
HOW DID THIS INFLUENCE THE FUND'S RETURN?
The bond market really benefited from the combination of the Asian crisis and
U.S. domestic strength with low inflation. The stock market's performance is
definitely colored now by the events in Asia. As a result, Treasuries are seen
as providing the last bastion against chaos and have become more attractive to
investors.
HOW IS THE PORTFOLIO POSITIONED?
As we looked for value on the yield curve, we lengthened the duration of bonds
held in the portfolio. Longer maturities did very well for the Fund.
/s/ MARGARET DANUSER
Fixed-Income Manager
- --------------------------------------------------------------------------------
FOUNDERS GOVERNMENT
SECURITIES FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
PRINCIPAL AMOUNT MARKET VALUE
- ---------------- ------------
U.S. GOVERNMENT SECURITIES-91.4%
FNMA POOLS-7.3%
$ 952,991 Federal National Mortgage
Association 7.00%
Due 03/01/12
Pool #373543 $ 967,305
----------
U.S. AGENCIES-15.6%
$1,000,000 Federal National Mortgage Association
6.70%
Due 08/10/01 $1,012,775
1,025,000 Federal Farm Credit
Bank 6.55%
Due 08/19/03 1,051,497
----------
2,064,272
----------
U.S. TREASURY BONDS-10.3%
1,300,000 U.S. Treasury Bond 6.375%
Due 08/15/27 1,370,688
----------
U.S. TREASURY NOTES-58.2%
3,250,000 U.S. Treasury Note 6.25%
Due 02/15/07 3,354,611
2,250,000 U.S. Treasury Note 6.50%
Due 10/15/06 2,356,173
1,000,000 U.S. Treasury Note 12.00%
Due 08/15/13 1,475,000
500,000 U.S. Treasury Note 6.875%
Due 05/15/06 535,157
----------
7,720,941
----------
TOTAL U.S. GOVERNMENT SECURITIES
(COST-$11,792,388)
12,123,206
----------
CORPORATE SHORT-TERM NOTES-3.0%
400,000 American Express Credit
Corporation 6.55%
01/02/98 399,927
----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$399,927) 399,927
----------
TOTAL INVESTMENTS-94.4%
(COST-$12,192,315) 12,523,133
OTHER ASSETS &
LIABILITIES-5.6% 735,706
----------
NET ASSETS-100.0% $13,258,839
==========
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
FOUNDERS MONEY MARKET FUND
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
CORPORATE SHORT-TERM NOTES-88.7%
CAPTIVE FINANCE
AUTOMOTIVE-3.9%
$3,000,000 Ford Motor Credit Company
6.00% 01/06/98 $2,997,500
1,100,000 Ford Motor Credit Corporation
6.15% 01/06/98 1,099,060
---------
4,096,560
---------
CAPTIVE FINANCE
DIVERSIFIED-4.4%
4,700,000 G.E. Capital Services
5.55% 01/13/98 4,691,305
---------
CAPTIVE FINANCE
INSURANCE-4.2%
4,500,000 Prudential Funding Corporation
5.60% 01/07/98 4,495,800
---------
CAPTIVE FINANCE
PHARMACEUTICALS-2.5%
2,667,000 Novartis Finance
Corporation
5.95% 01/23/98 2,657,303
---------
CAPTIVE FINANCE
TELECOMMUNICATIONS-2.9%
3,033,000 Bell Atlantic Financial Services
5.85% 01/27/98 3,020,186
---------
CAPTIVE FINANCE
UTILITIES-8.7%
4,300,000 National Rural Utilities
5.51% 02/03/98 4,278,282
2,000,000 Progress Capital Holdings
5.83% 01/14/98 1,995,789
3,000,000 Progress Capital Holdings
5.91% 01/16/98 2,992,613
---------
9,266,684
---------
CHEMICALS-4.8%
$3,500,000 Akzo Nobel, Inc.
5.57% 03/04/98 $3,466,425
1,600,000 Nalco Chemical Company
5.70% 03/09/98 1,583,027
----------
5,049,452
----------
COMPUTER EQUIPMENT-4.2%
4,500,000 Hewlett-Packard Company
5.72% 01/05/98 4,497,140
----------
ELECTRONICS-3.3%
3,500,000 Toshiba America, Inc.
5.55% 01/08/98 3,496,223
----------
ENTERTAINMENT-4.1%
4,300,000 The Walt Disney Company
5.88% 01/09/98 4,294,381
----------
FINANCIAL SERVICES-22.2%
4,800,000 American Express Credit Corporation
5.90% 01/21//98 4,784,267
5,000,000 American Family Financial Services
5.85% 01/29/98 4,977,250
5,000,000 Associates Corporation NA
5.80% 01/20/98 4,984,694
5,400,000 Household Finance Corporation
6.00% 01/02/98 5,399,100
1,300,000 Merrill Lynch & Company,
Inc. 5.85% 01/08/98 1,298,521
2,100,000 Merrill Lynch & Company,
Inc. 5.58% 03/27/98 2,072,333
----------
23,516,165
----------
64
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------- --------------
FOOD & BEVERAGE-4.7%
$5,000,000 H.J. Heinz Company
5.60% 02/23/98 $4,958,778
---------
INSURANCE-6.9%
4,900,000 General RE Corporation
5.77% 02/20/98 4,860,732
2,500,000 MetLife Funding, Inc.
5.75% 02/03/98 2,486,823
---------
7,347,555
---------
INVESTMENT COMPANIES-5.1%
5,400,000 Ciesco LP
5.80% 01/15/98 5,387,820
---------
TELECOMMUNICATION SERVICES-5.9%
4,400,000 AT&T Corporation
5.90% 01/12/98 4,392,068
1,900,000 Bellsouth Telephone, Inc.
5.70% 02/04/98 1,889,772
---------
6,281,840
---------
UTILITIES-0.9%
1,000,000 Georgia Power Company 5.90% 01/15/98 997,705
---------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-
$94,054,897) 94,054,897
---------
U.S. AGENCIES-10.9%
$5,300,000 Federal National Mortgage Association
Discount Note
5.50% 01/29/98 $ 5,277,327
6,300,000 Federal Home Loan Mortgage
Corporation Discount Note
5.64% 02/13/98 6,257,558
-----------
TOTAL U.S. AGENCIES
(AMORTIZED COST-$11,534,885) 11,534,885
-----------
TOTAL INVESTMENTS-99.6%
(AMORTIZED COST-
$105,589,782) 105,589,782
OTHER ASSETS &
LIABILITIES-0.4% 482,990
-----------
NET ASSETS-100.0% $106,072,772
===========
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
INTERNATIONAL
DECEMBER 31, 1997 DISCOVERY PASSPORT FRONTIER SPECIAL EQUITY
(In Thousands) FUND FUND FUND FUND FUND
--------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment securities, at market
(cost $196,425, $100,755, $182,971,
$264,863, $14,938, $257,041,
$1,575,168, $486,695, $880,812,
$12,192, $105,590, respectively)... $246,328 $122,431 $230,311 $319,257 $16,096
Cash................................. 774 361 0 1,122 52
Foreign currency (cost $385, $380,
$34, $1,156, $85, $81
respectively)...................... 0 384 0 379 34
Receivables:
Investment securities sold......... 2,981 193 1,793 167 157
Capital shares sold................ 1,935 294 431 339 94
Dividends and interest............. 8 146 24 66 10
Other assets......................... 1 2 1 1 7
--------- -------- -------- -------- -------------
Total Assets..................... 252,027 123,811 232,560 321,331 16,450
--------- -------- -------- -------- -------------
LIABILITIES
Bank overdraft....................... 0 0 6,008 0 157
Payables:
Investment securities purchased.... 3,078 72 3,157 373 532
Capital shares redeemed............ 2,401 940 1,033 464 4
Advisory fee....................... 206 109 190 208 13
Shareholder servicing fees......... 28 9 32 37 3
Accounting fees.................... 5 3 4 7 1
Other.............................. 28 32 32 56 0
Dividends.......................... 0 0 0 0 0
--------- -------- -------- -------- -------------
Total Liabilities................ 5,746 1,165 10,456 1,145 710
--------- -------- -------- -------- -------------
Net Assets........................... $246,281 $122,646 $222,104 $320,186 $15,740
========= ======== ======== ======== =============
Capital shares:
Authorized (Par value $0.01 per
share)........................... 100,000 100,000 100,000 180,000 100,000
========= ======== ======== ======== =============
Outstanding........................ 10,501 8,993 7,934 41,495 1,306
========= ======== ======== ======== =============
Net Asset Value, Offering and
Redemption Price Per Share......... $23.45 $13.64 $27.99 $7.72 $12.05
========= ======== ======== ======== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE GOVERNMENT MONEY
GROWTH GROWTH BLUE CHIP BALANCED SECURITIES MARKET
FUND FUND FUND FUND FUND FUND
--------- --------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities, at market
(cost $196,425, $100,755, $182,971,
$264,863, $14,938, $257,041,
$1,575,168, $486,695, $880,812,
$12,192, $105,590, respectively)... $306,615 $1,775,607 $538,839 $930,105 $ 12,523 $105,590
Cash................................. 1,134 4,593 1,382 3,046 28 97
Foreign currency (cost $385, $380,
$34, $1,156, $85, $81
respectively)...................... 1,146 0 80 126 0 0
Receivables:
Investment securities sold......... 1,683 2,695 16,753 21,365 0 0
Capital shares sold................ 2,899 10,306 961 7,430 552 1,273
Dividends and interest............. 204 1,547 3,034 6,858 246 0
Other assets......................... 1 2 1 1 0 1
--------- --------- --------- -------- ---------- --------
Total Assets..................... 313,682 1,794,750 561,050 968,931 13,349 106,961
--------- --------- --------- -------- ---------- --------
LIABILITIES
Bank overdraft....................... 1,683 0 0 0 0 0
Payables:
Investment securities purchased.... 1,689 28,921 16,756 23,881 0 0
Capital shares redeemed............ 1,112 6,873 686 1,556 27 357
Advisory fee....................... 253 996 286 467 7 47
Shareholder servicing fees......... 23 63 45 17 3 17
Accounting fees.................... 6 36 11 20 0 2
Other.............................. 39 412 98 300 6 10
Dividends.......................... 0 0 0 0 47 455
--------- --------- --------- -------- ---------- --------
Total Liabilities................ 4,805 37,301 17,882 26,241 90 888
--------- --------- --------- -------- ---------- --------
Net Assets........................... $308,877 $1,757,449 $543,168 $942,690 $13,259 $106,073
========= ========= ========= ======== ========== ========
Capital shares:
Authorized (Par value $0.01 per
share)........................... 100,000 400,000 400,000 500,000 20,000 1,000,000
========= ========= ========= ======== ========== ========
Outstanding........................ 14,633 101,702 78,442 83,084 1,429 106,073
========= ========= ========= ======== ========== ========
Net Asset Value, Offering and
Redemption Price Per Share......... $21.11 $17.28 $6.92 $11.35 $9.28 $1.00
========= ========= ========= ======== ========== ========
</TABLE>
67
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
INTERNATIONAL
DISCOVERY PASSPORT FRONTIER SPECIAL EQUITY
FUND FUND FUND FUND FUND
--------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends.......................... $ 483 $ 2,006 $ 712 $ 1,438 $ 145
Interest........................... 1,891 1,299 954 2,861 101
Foreign taxes withheld............. (3) (174) (48) (98) (13)
--------- -------- -------- -------- -------------
Total Investment Income.......... 2,371 3,131 1,618 4,201 233
--------- -------- -------- -------- -------------
Expenses:
Advisory fees...................... 2,427 1,808 2,547 2,577 142
Shareholder servicing fees......... 338 126 410 454 31
Accounting fees.................... 60 45 64 83 3
Distribution fees.................. 611 452 644 840 36
Transfer agency expenses........... 79 33 91 102 11
Registration fees.................. 35 68 30 28 16
Postage and mailing expenses....... 30 11 37 41 4
Custodian fees and expenses........ 26 151 37 83 34
Printing expenses.................. 82 33 96 108 8
Legal and audit fees............... 18 14 19 25 2
Directors' fees and expenses....... 14 11 16 20 1
Organization expenses.............. 0 2 0 0 0
Other expenses..................... 48 42 38 71 5
--------- -------- -------- -------- -------------
Total Expenses................... 3,768 2,796 4,029 4,432 293
Earnings Credits................. (60) (31) (59) (68) (7)
Reimbursed Expenses.............. 0 0 0 0 (23)
--------- -------- -------- -------- -------------
Net Expenses..................... 3,708 2,765 3,970 4,364 263
--------- -------- -------- -------- -------------
Net Investment Income (Loss)....... (1,337) 366 (2,352) (163) (30)
--------- -------- -------- -------- -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Gain (Loss) from
Security Transactions:
Proceeds from long-term securities
sold............................. 215,724 112,980 263,884 391,710 20,091
Proceeds from long-term U.S.
Government Obligations........... 0 0 0 0 0
Cost of securities sold............ 189,589 110,125 216,978 347,509 18,323
--------- -------- -------- -------- -------------
Net Realized Gain (Loss) from
Security Transactions.............. 26,135 2,855 46,906 44,201 1,768
Net Realized Gain from Options....... 0 0 0 0 0
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. 0 (144) (6) (131) (8)
Net Change in Unrealized
Appreciation/Depreciation.......... 243 1,747 (34,125) 4,371 169
--------- -------- -------- -------- -------------
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions............ 26,378 4,458 12,775 48,441 1,929
--------- -------- -------- -------- -------------
Net Increase in Net Assets Resulting
from Operations.................... $ 25,041 $ 4,824 $ 10,423 $ 48,278 $ 1,899
========= ======== ======== ======== =============
Purchases of long-term securities.... $188,265 $ 78,565 $130,321 $309,712 $23,214
========= ======== ======== ======== =============
Purchases of long-term U.S.
Government Obligations............. $ 0 $ 0 $ 0 $ 0 $ 0
========= ======== ======== ======== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE GOVERNMENT MONEY
GROWTH GROWTH BLUE CHIP BALANCED SECURITIES MARKET
FUND FUND FUND FUND FUND FUND
--------- --------- --------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends.......................... $ 3,890 $ 13,565 $ 9,474 $ 9,438 $ 0 $ 0
Interest........................... 1,909 10,018 6,878 19,328 867 6,823
Foreign taxes withheld............. (354) (165) (302) (274) 0 0
--------- --------- --------- --------- ---------- ------
Total Investment Income.......... 5,445 23,418 16,050 28,492 867 6,823
--------- --------- --------- --------- ---------- ------
Expenses:
Advisory fees...................... 3,177 10,051 3,384 4,490 90 611
Shareholder servicing fees......... 287 722 541 204 34 206
Accounting fees.................... 83 363 135 186 3 30
Distribution fees.................. 837 3,683 1,368 1,891 10 0
Transfer agency expenses........... 98 401 134 309 7 36
Registration fees.................. 65 393 85 144 12 55
Postage and mailing expenses....... 32 79 50 26 3 14
Custodian fees and expenses........ 156 157 93 123 6 11
Printing expenses.................. 74 246 135 68 8 35
Legal and audit fees............... 34 126 44 65 4 11
Directors' fees and expenses....... 20 91 33 45 1 8
Organization expenses.............. 0 0 0 0 0 0
Other expenses..................... 54 200 93 90 4 7
--------- --------- --------- --------- ---------- ------
Total Expenses................... 4,917 16,512 6,095 7,641 182 1,024
Earnings Credits................. (70) (227) (113) (120) (7) (28)
Reimbursed Expenses.............. 0 0 0 0 0 0
--------- --------- --------- --------- ---------- ------
Net Expenses..................... 4,847 16,285 5,982 7,521 175 996
--------- --------- --------- --------- ---------- ------
Net Investment Income (Loss)....... 598 7,133 10,068 20,971 692 5,827
--------- --------- --------- --------- ---------- ------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Gain (Loss) from
Security Transactions:
Proceeds from long-term securities
sold............................. 299,276 2,401,168 1,170,111 1,080,450 0 0
Proceeds from long-term U.S.
Government Obligations........... 0 0 210,631 348,316 19,297 0
Cost of securities sold............ 257,997 2,155,862 1,294,962 1,371,488 19,254 0
--------- --------- --------- --------- ---------- ------
Net Realized Gain (Loss) from
Security Transactions.............. 41,279 245,306 85,780 57,278 43 0
Net Realized Gain from Options....... 0 0 284 54 0 0
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. (327) (110) (389) (263) 0 0
Net Change in Unrealized
Appreciation/Depreciation.......... (7,643) 60,215 1,134 32,318 270 0
--------- --------- --------- --------- ---------- ------
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions............ 33,309 305,411 86,809 89,387 313 0
--------- --------- --------- --------- ---------- ------
Net Increase in Net Assets Resulting
from Operations.................... $ 33,907 $ 312,544 $ 96,877 $ 110,358 $ 1,005 $5,827
========= ========= ========= ========= ========== ======
Purchases of long-term securities.... $240,943 $2,705,387 $1,037,190 $1,254,920 $ 0 $ 0
========= ========= ========= ========= ========== ======
Purchases of long-term U.S.
Government Obligations............. $ 0 $ 0 $ 284,265 $ 635,535 $ 19,506 $ 0
========= ========= ========= ========= ========== ======
</TABLE>
69
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DISCOVERY PASSPORT FRONTIER
FUND FUND FUND
---------------------- ---------------------- -----------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
(In Thousands) 12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss)......... $ (1,337) $ (2,062) $ 366 $ 535 $ (2,352) $ (1,661)
Net Realized Gain (Loss) from
Security Transactions.............. 26,135 28,935 2,855 4,104 46,906 42,044
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. 0 (4) (144) (232) (6) (25)
Net Change in Unrealized
Appreciation/Depreciation.......... 243 12,543 1,747 15,369 (34,125) 4,816
--------- --------- --------- --------- --------- ---------
Net Increase in Net Assets
Resulting from Operations........ 25,041 39,412 4,824 19,776 10,423 45,174
--------- --------- --------- --------- --------- ---------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Net Investment Income................ 0 0 (241) (308) 0 0
Net Realized Gains from Security
Transactions and
Foreign Currency Transactions...... (32,226) (18,990) (4,261) (1,080) (40,788) (30,511)
--------- --------- --------- --------- --------- ---------
Net Decrease from Dividends and
Distributions.................... (32,226) (18,990) (4,502) (1,388) (40,788) (30,511)
--------- --------- --------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............ 222,480 239,294 127,954 214,884 79,622 130,929
Reinvested Dividends and
Distributions...................... 28,758 17,850 4,246 1,334 39,544 29,845
--------- --------- --------- --------- --------- ---------
251,238 257,144 132,200 216,218 119,166 160,774
Cost of Shares Redeemed.............. (245,266) (246,695) (187,797) (106,607 (217,558) (156,296)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) from
capital share transactions....... 5,972 10,449 (55,597) 109,611 (98,392) 4,478
--------- --------- --------- --------- --------- ---------
Net Increase (Decrease) in Net
Assets........................... (1,213) 30,871 (55,275) 127,999 (128,757) 19,141
NET ASSETS
Beginning of year.................. 247,494 216,623 177,921 49,922 350,861 331,720
--------- --------- --------- --------- --------- ---------
End of year........................ $ 246,281 $ 247,494 $ 122,646 $ 177,921 $ 222,104 $ 350,861
========= ========= ========= ========= ========= =========
Net Assets consist of:
Capital (par value and paid-in
surplus)........................... $ 194,640 $ 190,379 $ 101,319 $ 156,922 $ 157,275 $ 258,025
Accumulated undistributed
(distribution in excess of)
net investment income.............. 0 0 (13) 0 0 0
Accumulated undistributed net
realized gain (loss)
from security transactions......... 1,738 7,455 (335) 1,071 17,488 11,370
Unrealized appreciation
(depreciation) on investments
and foreign currency
transactions....................... 49,903 49,660 21,675 19,928 47,341 81,466
--------- --------- --------- --------- --------- ---------
Total.............................. $ 246,281 $ 247,494 $ 122,646 $ 177,921 $ 222,104 $ 350,861
========= ========= ========= ========= ========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
70
<PAGE>
<TABLE>
<CAPTION>
SPECIAL INTERNATIONAL WORLDWIDE
FUND EQUITY FUND GROWTH FUND
---------------------- --------------------- ----------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
-------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income (Loss)......... $ (163) $ (1,044) $ (30) $ (10) $ 598 $ 1,591
Net Realized Gain (Loss) from
Security Transactions.............. 44,201 25,374 1,768 75 41,279 9,552
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. (131) (180) (8) (16) (327) (409)
Net Change in Unrealized
Appreciation/Depreciation.......... 4,371 28,967 169 989 (7,643) 27,216
-------- --------- -------- -------- -------- ---------
Net Increase in Net Assets
Resulting from Operations........ 48,278 53,117 1,899 1,038 33,907 37,950
-------- --------- -------- -------- -------- ---------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Net Investment Income................ 0 0 0 0 (503) (1,143)
Net Realized Gains from Security
Transactions and
Foreign Currency Transactions...... (42,213) (20,770) (1,945) 0 (37,829) (11,387)
-------- --------- -------- -------- -------- ---------
Net Decrease from Dividends and
Distributions.................... (42,213) (20,770) (1,945) 0 (38,332) (12,530)
-------- --------- -------- -------- -------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............ 49,936 120,997 12,336 11,395 120,759 220,374
Reinvested Dividends and
Distributions...................... 40,236 19,816 1,835 0 34,492 11,322
-------- --------- -------- -------- -------- ---------
90,172 140,813 14,171 11,395 155,251 231,696
Cost of Shares Redeemed.............. (139,886) (198,079) (8,504) (3,081) (184,028) (143,632)
-------- --------- -------- -------- -------- ---------
Net increase (decrease) from
capital share transactions....... (49,714) (57,266) 5,667 8,314 (28,777) 88,064
-------- --------- -------- -------- -------- ---------
Net Increase (Decrease) in Net
Assets........................... (43,649) (24,919) 5,621 9,352 (33,202) 113,484
NET ASSETS
Beginning of year.................. 363,835 388,754 10,119 767 342,079 228,595
-------- --------- -------- -------- -------- ---------
End of year........................ $320,186 $ 363,835 $15,740 $10,119 $308,877 $ 342,079
======== ========= ======== ======== ======== =========
Net Assets consist of:
Capital (par value and paid-in
surplus)........................... $261,451 $ 311,172 $14,662 $ 9,081 $257,880 $ 286,659
Accumulated undistributed
(distribution in excess of)
net investment income.............. (7) (48) (1) (2) 60 1
Accumulated undistributed net
realized gain (loss)
from security transactions......... 4,349 2,689 (79) 51 1,363 (1,798)
Unrealized appreciation
(depreciation) on investments
and foreign currency
transactions....................... 54,393 50,022 1,158 989 49,574 57,217
-------- --------- -------- -------- -------- ---------
Total.............................. $320,186 $ 363,835 $15,740 $10,119 $308,877 $ 342,079
======== ========= ======== ======== ======== =========
</TABLE>
71
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
GROWTH BLUE CHIP
FUND FUND
------------------------ -----------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
(In Thousands) 12/31/97 12/31/96 12/31/97 12/31/96
----------- --------- ----------- --------
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income (Loss)......... $ 7,133 $ 1,245 $ 10,068 $ 6,450
Net Realized Gain (Loss) from
Security Transactions.............. 245,306 79,708 86,064 83,776
Net Realized Gain (Loss) from Foreign
Currency
Transactions....................... (110) (70) (389) (202)
Net Change in Unrealized
Appreciation/Depreciation.......... 60,215 25,598 1,134 5,927
----------- --------- ----------- --------
Net Increase in Net Assets
Resulting from Operations........ 312,544 106,481 96,877 95,951
----------- --------- ----------- --------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Net Investment Income................ (7,078) (1,034) (10,159) (6,304)
Net Realized Gains from Security
Transactions and Foreign Currency
Transactions....................... (234,890) (77,512) (101,087) (64,011)
----------- --------- ----------- --------
Net Decrease from Dividends and
Distributions.................... (241,968) (78,546) (111,246) (70,315)
----------- --------- ----------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold............ 847,812 856,521 71,377 211,850
Reinvested Dividends and
Distributions...................... 227,189 74,765 99,124 63,797
----------- --------- ----------- --------
1,075,001 931,286 170,501 275,647
Cost of Shares Redeemed.............. (506,451) (496,825) (148,830) (140,617)
----------- --------- ----------- --------
Net increase (decrease) from
capital share
transactions..................... 568,550 434,461 21,671 135,030
----------- --------- ----------- --------
Net Increase (Decrease) in Net
Assets........................... 639,126 462,396 7,302 160,666
NET ASSETS
Beginning of year.................. 1,118,323 655,927 535,866 375,200
----------- --------- ----------- --------
End of year........................ $1,757,449 $1,118,323 $ 543,168 $535,866
=========== ========= =========== ========
Net Assets consist of:
Capital (par value and paid-in
surplus)........................... $1,544,408 $ 975,859 $ 487,653 $465,983
Accumulated undistributed
(distribution in excess of)
net investment income.............. 0 227 145 (13)
Accumulated undistributed net
realized gain (loss)
from security transactions......... 12,603 2,014 3,226 18,886
Unrealized appreciation
(depreciation) on investments
and foreign currency tranactions... 200,438 140,223 52,144 51,010
----------- --------- ----------- --------
Total.............................. $1,757,449 $1,118,323 $ 543,168 $535,866
=========== ========= =========== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
<TABLE>
<CAPTION>
BALANCED GOVERNMENT MONEY MARKET
FUND SECURITIES FUND FUND
------------------------ ------------------------ --------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
----------- -------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss)......... $ 20,971 $ 7,398 $ 692 $ 909 $ 5,827 $ 6,938
Net Realized Gain (Loss) from
Security Transactions.............. 57,332 24,365 43 (97) 0 0
Net Realized Gain (Loss) from Foreign
Currency
Transactions....................... (263) (101) 0 0 0 0
Net Change in Unrealized
Appreciation/Depreciation.......... 32,318 7,811 270 (459) 0 0
----------- -------- ----------- -------- ----------- ----------
Net Increase in Net Assets
Resulting from Operations........ 110,358 39,473 1,005 353 5,827 6,938
----------- -------- ----------- -------- ----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Net Investment Income................ (21,476) (7,112) (692) (904) (5,856) (6,913)
Net Realized Gains from Security
Transactions and Foreign Currency
Transactions....................... (59,093) (16,854) 0 0 0 0
----------- -------- ----------- -------- ----------- ----------
Net Decrease from Dividends and
Distributions.................... (80,569) (23,966) (692) (904) (5,856) (6,913)
----------- -------- ----------- -------- ----------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold............ 697,431 323,317 7,807 17,018 258,171 440,366
Reinvested Dividends and
Distributions...................... 78,264 22,653 636 823 5,405 6,354
----------- -------- ----------- -------- ----------- ----------
775,695 345,970 8,443 17,841 263,576 446,720
Cost of Shares Redeemed.............. (257,690) (96,927) (10,687) (22,363) (267,340) (462,525)
----------- -------- ----------- -------- ----------- ----------
Net increase (decrease) from
capital share transactions....... 518,005 249,043 (2,244) (4,522) (3,764) (15,805)
----------- -------- ----------- -------- ----------- ----------
Net Increase (Decrease) in Net
Assets........................... 547,794 264,550 (1,931) (5,073) (3,793) (15,780)
NET ASSETS
Beginning of year.................. 394,896 130,346 15,190 20,263 109,866 125,646
----------- -------- ----------- -------- ----------- ----------
End of year........................ $ 942,690 $394,896 $13,259 $15,190 $ 106,073 $109,866
=========== ======== =========== ======== =========== ==========
Net Assets consist of:
Capital (par value and paid-in
surplus)........................... $ 887,526 $369,513 $16,201 $18,446 $ 106,071 $109,829
Accumulated undistributed
(distribution in excess of)
net investment income.............. 23 186 5 5 2 37
Accumulated undistributed net
realized gain (loss)
from security transactions......... 5,048 7,422 (3,278) (3,322) 0 0
Unrealized appreciation
(depreciation) on investments
and foreign currency tranactions... 50,093 17,775 331 61 0 0
----------- -------- ----------- -------- ----------- ----------
Total.............................. $ 942,690 $394,896 $13,259 $15,190 $ 106,073 $109,866
=========== ======== =========== ======== =========== ==========
</TABLE>
73
<PAGE>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes
Selected data for each share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------- LESS DIVIDENDS AND
NET REALIZED DISTRIBUTIONS
NET & UNREALIZED ---------------------
NAV INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME OR ON INVESTMENT INVESTMENT REALIZED
OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME GAINS
--------- -------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
DISCOVERY FUND
Year ended 12/31/97........... $ 24.22 0.07 2.69 2.76 0.00 (3.53)
Year ended 12/31/96........... 21.70 (0.20) 4.72 4.52 0.00 (2.00)
Year ended 12/31/95........... 19.88 (0.12) 6.29 6.17 0.00 (4.35)
Year ended 12/31/94........... 21.55 (0.12) (1.55) (1.67) 0.00 0.00
Year ended 12/31/93........... 19.93 (0.15) 2.29 2.14 0.00 (0.52)
PASSPORT FUND
Year ended 12/31/97........... $ 13.91 0.02 0.22 0.24 (0.03) (0.48)
Year ended 12/31/96........... 11.68 0.04 2.30 2.34 (0.02) (0.09)
Year ended 12/31/95........... 9.42 0.04 2.26 2.30 (0.04) 0.00
Year ended 12/31/94........... 10.53 0.02 (1.11) (1.09) (0.02) 0.00
11/16/93 (inception) to
12/31/93.................... 10.00 0.00 0.53 0.53 0.00 0.00
FRONTIER FUND
Year ended 12/31/97........... $ 32.34 (0.15) 1.90 1.75 0.00 (6.10)
Year ended 12/31/96........... 31.08 (0.15) 4.46 4.31 0.00 (3.05)
Year ended 12/31/95........... 26.50 (0.02) 9.76 9.74 0.00 (5.16)
Year ended 12/31/94........... 27.94 (0.07) (0.72) (0.79) 0.00 (0.65)
Year ended 12/31/93........... 25.03 (0.12) 4.23 4.11 0.00 (1.20)
SPECIAL FUND
Year ended 12/31/97........... $7.66 0.01 1.21 1.22 0.00 (1.16)
Year ended 12/31/96........... 7.05 (0.02) 1.09 1.07 0.00 (0.46)
Year ended 12/31/95........... 7.01 0.00 1.79 1.79 0.00 (1.75)
Year ended 12/31/94........... 7.67 (0.02) (0.36) (0.38) 0.00 (0.28)
Year ended 12/31/93........... 7.76 (0.01) 1.25 1.24 0.00 (1.33)
INTERNATIONAL EQUITY FUND
Year ended 12/31/97........... $ 11.86 (0.01) 1.89 1.88 0.00 (1.69)
Year ended 12/31/96........... 10.00 (0.01) 1.87 1.86 0.00 0.00
12/29/95 (inception) to
12/31/95.................... 10.00 0.00 0.00 0.00 0.00 0.00
WORLDWIDE GROWTH FUND
Year ended 12/31/97........... $ 21.79 0.02 2.22 2.24 (0.04) (2.88)
Year ended 12/31/96........... 19.87 0.10 2.64 2.74 (0.07) (0.75)
Year ended 12/31/95........... 17.09 0.09 3.43 3.52 (0.09) (0.65)
Year ended 12/31/94........... 17.94 (0.02) (0.37) (0.39) 0.00 (0.46)
Year ended 12/31/93........... 14.13 (0.02) 4.24 4.22 0.00 (0.41)
</TABLE>
* The average commission per share is calculated by taking agency commissions
paid on equity securities trades and dividing by the number of shares traded.
This is a new requirement under revised SEC regulations.
# Net Expenses include the custodial credits shown as Earnings credits on the
Statements of Operations. These credits are earned on uninvested cash held at
the custodian. Gross Expenses are grossed up by the earned credits as required
by the SEC.
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
--------------------------------------
NET ASSETS, NET
NAV END OF EXPENSES
TOTAL END TOTAL PERIOD TO AVERAGE
DISTRIBUTIONS OF PERIOD RETURN (THOUSANDS) NET ASSETS#
------------- --------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
DISCOVERY FUND
Year ended 12/31/97........... (3.53) $ 23.45 12.0% $246,281 1.52%
Year ended 12/31/96........... (2.00) 24.22 21.2% 247,494 1.58%
Year ended 12/31/95........... (4.35) 21.70 31.3% 216,623 1.58%
Year ended 12/31/94........... 0.00 19.88 (7.8%) 185,310 1.67%
Year ended 12/31/93........... (0.52) 21.55 10.8% 226,069 1.65%
PASSPORT FUND
Year ended 12/31/97........... (0.51) $ 13.64 1.7% $122,646 1.53%
Year ended 12/31/96........... (0.11) 13.91 20.1% 177,921 1.57%
Year ended 12/31/95........... (0.04) 11.68 24.4% 49,922 1.76%
Year ended 12/31/94........... (0.02) 9.42 (10.4%) 16,443 1.88%
11/16/93 (inception) to
12/31/93.................... 0.00 10.53 5.3% 18,567 1.70%**
FRONTIER FUND
Year ended 12/31/97........... (6.10) $ 27.99 6.2% $222,104 1.54%
Year ended 12/31/96........... (3.05) 32.34 14.3% 350,861 1.52%
Year ended 12/31/95........... (5.16) 31.08 37.0% 331,720 1.53%
Year ended 12/31/94........... (0.65) 26.50 (2.8%) 247,113 1.62%
Year ended 12/31/93........... (1.20) 27.94 16.5% 254,248 1.66%
SPECIAL FUND
Year ended 12/31/97........... (1.16) $7.72 16.4% $320,186 1.30%
Year ended 12/31/96........... (0.46) 7.66 15.3% 363,835 1.34%
Year ended 12/31/95........... (1.75) 7.05 25.7% 388,754 1.29%
Year ended 12/31/94........... (0.28) 7.01 (4.9%) 299,190 1.36%
Year ended 12/31/93........... (1.33) 7.67 16.0% 432,710 1.33%
INTERNATIONAL EQUITY FUND
Year ended 12/31/97........... (1.69) $ 12.05 16.1% $15,740 1.85%+
Year ended 12/31/96........... 0.00 11.86 18.6% 10,119 1.94%+
12/29/95 (inception) to
12/31/95.................... 0.00 10.00 0.0% 767 n/a
WORLDWIDE GROWTH FUND
Year ended 12/31/97........... (2.92) $ 21.11 10.6% $308,877 1.45%
Year ended 12/31/96........... (0.82) 21.79 14.0% 342,079 1.53%
Year ended 12/31/95........... (0.74) 19.87 20.6% 228,595 1.56%
Year ended 12/31/94........... (0.46) 17.09 (2.2%) 104,044 1.66%
Year ended 12/31/93........... (0.41) 17.94 29.9% 85,214 1.80%
TOTAL RETURN/RATIOS
-------------------------------------------------------
GROSS NET INVESTMENT
EXPENSES INCOME/(LOSS) PORTFOLIO AVERAGE
TO AVERAGE TO AVERAGE TURNOVER COMM.
NET ASSETS# NET ASSETS RATE PER SHARE*
----------- ---------- ---- ----------
DISCOVERY FUND
Year ended 12/31/97........... 1.54% (0.55%) 90% 0.0486
Year ended 12/31/96........... 1.59% (0.85%) 106% 0.0566
Year ended 12/31/95........... 1.63% (0.60%) 118% n/a
Year ended 12/31/94........... n/a (0.62%) 72% n/a
Year ended 12/31/93........... n/a (0.97%) 99% n/a
PASSPORT FUND
Year ended 12/31/97........... 1.55% 0.20% 51% 0.0103
Year ended 12/31/96........... 1.59% 0.40% 58% 0.0147
Year ended 12/31/95........... 1.84% 0.60% 37% n/a
Year ended 12/31/94........... n/a 0.12% 78% n/a
11/16/93 (inception) to
12/31/93.................... n/a 0.18%** 6% n/a
FRONTIER FUND
Year ended 12/31/97........... 1.57% (0.91%) 54% 0.0527
Year ended 12/31/96........... 1.53% (0.47%) 85% 0.0567
Year ended 12/31/95........... 1.57% (0.07%) 92% n/a
Year ended 12/31/94........... n/a (0.25%) 72% n/a
Year ended 12/31/93........... n/a (0.75%) 109% n/a
SPECIAL FUND
Year ended 12/31/97........... 1.32% (0.05%) 110% 0.0555
Year ended 12/31/96........... 1.36% (0.28%) 186% 0.0417
Year ended 12/31/95........... 1.35% 0.00% 263% n/a
Year ended 12/31/94........... n/a (0.27%) 272% n/a
Year ended 12/31/93........... n/a (0.14%) 285% n/a
INTERNATIONAL EQUITY FUND
Year ended 12/31/97........... 1.89%+ (0.21%)+ 164% 0.0145
Year ended 12/31/96........... 2.00%+ (0.15%)+ 71% 0.0189
12/29/95 (inception) to
12/31/95.................... n/a n/a n/a n/a
WORLDWIDE GROWTH FUND
Year ended 12/31/97........... 1.47% 0.18% 82% 0.0277
Year ended 12/31/96........... 1.55% 0.50% 72% 0.0247
Year ended 12/31/95........... 1.65% 0.61% 54% n/a
Year ended 12/31/94........... n/a (0.14%) 87% n/a
Year ended 12/31/93........... n/a (0.19%) 117% n/a
</TABLE>
+ Certain fees were waived by the management company. Had these fees not been
waived, the net expense ratios would have been 2.01% (1997) and 2.46% (1996)
and the gross expense ratios would have been 2.05% (1997) and 2.52% (1996)
for International Equity Fund. The net investment income ratios would have
been (0.37%) (1997) and (0.67%) (1996).
n/a Disclosure not applicable or not required in prior periods.
** Annualized.
75
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------- LESS DIVIDENDS AND
NET REALIZED DISTRIBUTIONS
NET & UNREALIZED ---------------------
NAV INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME OR ON INVESTMENT INVESTMENT REALIZED
OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME GAINS
--------- -------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
GROWTH FUND
Year ended 12/31/97........... $ 15.87 0.07 4.09 4.16 (0.07) (2.68)
Year ended 12/31/96........... 14.77 0.02 2.40 2.42 (0.02) (1.30)
Year ended 12/31/95........... 11.63 0.02 5.27 5.29 (0.02) (2.13)
Year ended 12/31/94........... 12.38 (0.02) (0.39) (0.41) 0.00 (0.34)
Year ended 12/31/93........... 10.54 (0.01) 2.70 2.69 0.00 (0.85)
BLUE CHIP FUND
Year ended 12/31/97........... $7.23 0.13 1.25 1.38 (0.13) (1.56)
Year ended 12/31/96........... 6.69 0.09 1.52 1.61 (0.09) (0.98)
Year ended 12/31/95........... 6.16 0.09 1.70 1.79 (0.09) (1.17)
Year ended 12/31/94........... 6.49 0.06 (0.02) 0.04 (0.06) (0.31)
Year ended 12/31/93........... 6.91 0.04 0.96 1.00 (0.04) (1.38)
BALANCED FUND
Year ended 12/31/97........... $ 10.61 0.29 1.48 1.77 (0.30) (0.73)
Year ended 12/31/96........... 9.58 0.28 1.50 1.78 (0.27) (0.48)
Year ended 12/31/95........... 8.56 0.28 2.21 2.49 (0.28) (1.19)
Year ended 12/31/94........... 8.93 0.20 (0.37) (0.17) (0.20) 0.00
Year ended 12/31/93........... 8.30 0.22 1.58 1.80 (0.21) (0.96)
GOVERNMENT SECURITIES FUND
Year ended 12/31/97........... $9.04 0.45 0.24 0.69 (0.45) 0.00
Year ended 12/31/96........... 9.29 0.46+ (0.25)+ 0.21 (0.46) 0.00
Year ended 12/31/95........... 8.78 0.45 0.51 0.96 (0.45) 0.00
Year ended 12/31/94........... 10.02 0.52 (1.26) (0.74) (0.50) 0.00
Year ended 12/31/93........... 10.19 0.46 0.47 0.93 (0.46) (0.64)
MONEY MARKET FUND
Year ended 12/31/97........... $1.00 0.05 0.00 0.05 (0.05) 0.00
Year ended 12/31/96........... 1.00 0.05 0.00 0.05 (0.05) 0.00
Year ended 12/31/95........... 1.00 0.05 0.00 0.05 (0.05) 0.00
Year ended 12/31/94........... 1.00 0.03 0.00 0.03 (0.03) 0.00
Year ended 12/31/93........... 1.00 0.02 0.00 0.02 (0.02) 0.00
</TABLE>
* The average commission per share is calculated by taking agency commissions
paid on equity securities trades and dividing by the number of shares
traded. This is a new requirement under revised SEC regulations.
# 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.
+ Restated.
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
--------------------------------------------------------------------------------
NET ASSETS, NET GROSS NET INVESTMENT
NAV END OF EXPENSES EXPENSES INCOME/(LOSS) PORTFOLIO AVERAGE
TOTAL END TOTAL PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TURNOVER COMM.
DISTRIBUTIONS OF PERIOD RETURN (THOUSANDS) NET ASSETS# NET ASSETS# NET ASSETS RATE PER SHARE*
------------- --------- ------ ----------- ----------- ----------- ---------- ---- ----------
GROWTH FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended 12/31/97....... (2.75) $ 17.28 26.6% $1,757,449 1.10% 1.12% 0.48% 189% 0.0615
Year ended 12/31/96....... (1.32) 15.87 16.6% 1,118,323 1.19% 1.20% 0.15% 134% 0.0649
Year ended 12/31/95....... (2.15) 14.77 45.6% 655,927 1.24% 1.28% 0.12% 130% n/a
Year ended 12/31/94....... (0.34) 11.63 (3.4%) 307,988 1.33% n/a (0.17%) 172% n/a
Year ended 12/31/93....... (0.85) 12.38 25.5% 343,423 1.32% n/a (0.15%) 131% n/a
BLUE CHIP FUND
Year ended 12/31/97....... (1.69) $6.92 19.4% $543,168 1.09% 1.11% 1.84% 256% 0.0597
Year ended 12/31/96....... (1.07) 7.23 24.4% 535,866 1.15% 1.16% 1.40% 195% 0.0613
Year ended 12/31/95....... (1.26) 6.69 29.1% 375,200 1.17% 1.22% 1.19% 235% n/a
Year ended 12/31/94....... (0.37) 6.16 0.5% 311,051 1.21% n/a 0.88% 239% n/a
Year ended 12/31/93....... (1.42) 6.49 14.5% 306,592 1.22% n/a 0.57% 212% n/a
BALANCED FUND
Year ended 12/31/97....... (1.03) $11.35 16.9% $942,690 0.99% 1.01% 2.77% 203% 0.0596
Year ended 12/31/96....... (0.75) 10.61 18.8% 394,896 1.10% 1.12% 3.09% 146% 0.0588
Year ended 12/31/95....... (1.47) 9.58 29.4% 130,346 1.19% 1.23% 2.92% 286% n/a
Year ended 12/31/94....... (0.20) 8.56 (1.9%) 95,226 1.26% n/a 2.37% 258% n/a
Year ended 12/31/93....... (1.17) 8.93 21.9% 72,859 1.34% n/a 2.30% 251% n/a
GOVERNMENT SECURITIES FUND
Year ended 12/31/97....... (0.45) $9.28 7.9% $13,259 1.26%+ 1.31%+ 4.99%+ 147% n/a
Year ended 12/31/96....... (0.46) 9.04 2.3% 15,190 1.26%+ 1.29%+ 5.06%+ 166% n/a
Year ended 12/31/95....... (0.45) 9.29 11.1% 20,263 1.30% 1.30% 4.92% 141% n/a
Year ended 12/31/94....... (0.50) 8.78 (7.5%) 21,323 1.34% n/a 5.52% 379% n/a
Year ended 12/31/93.......
MONEY MARKET FUND (1.10) 10.02 9.3% 30,465 1.18% n/a 4.33% 429% n/a
Year ended 12/31/97....... (0.05) $1.00 4.7% $106,073 0.82% 0.84% 4.77% n/a n/a
Year ended 12/31/96....... (0.05) 1.00 4.5% 109,866 0.86% 0.88% 4.58% n/a n/a
Year ended 12/31/95....... (0.05) 1.00 5.1% 125,646 0.89% 0.89% 5.11% n/a n/a
Year ended 12/31/94....... (0.03) 1.00 3.4% 201,342 0.91% n/a 3.49% n/a n/a
Year ended 12/31/93....... (0.02) 1.00 2.2% 142,399 0.95% n/a 2.26% n/a n/a
</TABLE>
+ Certain fees were waived by the management company. Had these fees not been
waived, the net expense ratios would have been 1.44% (1997) and 1.46% (1996)
and the gross expense ratios would have been 1.49% (1997) and 1.49% (1996)
for Government Securities Fund. The net investment income ratios would have
been 4.81% (1997) and 4.86% (1996).
n/a Disclosure not applicable or not required in prior periods.
** Annualized.
77
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Founders Funds, Inc. (the "Funds") is a diversified open-end management
investment company registered under the Investment Company Act of 1940. Eleven
series of shares are currently issued: Discovery, Passport, Frontier, Special,
International Equity, Worldwide Growth, Growth, Blue Chip, Balanced, Government
Securities and Money Market Funds (individually a "Fund"). The following
significant accounting policies have been consistently followed by the Funds in
the preparation of their financial statements.
SECURITIES VALUATION--With the exception of Money Market Fund, market value of
investments is determined from closing quotations on national security exchanges
or at the last current bid price in the case of securities traded
over-the-counter or by quotes from dealers making a market for securities not
listed on an exchange or traded over-the-counter. In the event that the closing
price of a foreign security is not available in time to calculate a Fund's net
asset value on a particular day, the Funds' 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 market quotations are not readily available,
securities will be valued at their fair values as determined in good faith by
the Funds' board of directors or pursuant to procedures approved by the board of
directors. London closing quotes for exchange rates are used to convert foreign
security values into US dollars. Short-term securities, with maturities of less
than 60 days and all securities held by Money Market Fund, are valued at
amortized cost, which approximates market.
FOREIGN SECURITIES--Foreign securities may carry more risk than US securities,
such as political, market and currency risks. All of the Funds may invest at
least a portion of their assets in foreign securities. In the event that a Fund
executes a foreign security transaction, the Fund will enter into a foreign
currency contract to settle the foreign security transaction. The resultant
foreign currency gain or loss from the contract is recorded as foreign currency
gain or loss and is presented as such in the Statements of Operations. Foreign
currency held at December 31, 1997 for settling foreign trades is included on
the Statements of Assets and Liabilities.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Funds to comply with the special provisions of the
Internal Revenue Code applicable to regulated investment companies, and to make
distributions of income and capital gains sufficient to relieve them from all
income taxes. Each Fund is treated as a separate tax entity for federal income
tax purposes.
78
<PAGE>
INVESTMENT INCOME--Dividend income is recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded as soon as the Fund
is informed of the dividend if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and amortization of premiums.
DISTRIBUTIONS TO SHAREHOLDERS--For Government Securities and Money Market
Funds, distributions are declared daily and paid monthly from net investment
income, and capital gains (if any) are distributed annually. For Balanced Fund,
distributions from income are declared and distributed quarterly and capital
gains (if any) are distributed annually. All other Funds declare and distribute
dividends and capital gains (if any) annually. All distributions are recorded on
the ex-dividend date.
EXPENSES--Each of the Funds bears expenses incurred specifically on its behalf
and, in addition, each Fund bears a portion of general expenses based on the
relative net assets, or accounts of each Fund. The type of expense determines
the allocation method.
OPTIONS--Premiums received by the Funds upon writing call options are recorded
as an asset with a corresponding liability which is subsequently adjusted to the
current market value of the option. When an option expires, is exercised, or is
closed, the Funds realize a gain or loss, and the liability is eliminated. The
Funds continue to bear the risk of adverse movements in the price of the
underlying asset during the period of the option, although any potential loss
during the period would be reduced by the amount of the option premium received.
The underlying securities are restricted from sale until the option is exercised
or expires.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
OTHER--Security transactions are recorded on the date the securities are
purchased or sold (trade date).
79
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. MANAGEMENT FEES AND OTHER TRANSACTIONS
In accordance with the investment advisory agreements between the Funds and
Founders Asset Management, Inc. ("FAMI"), the Funds compensate FAMI for its
services as investment adviser by the payment of fees computed daily and paid
monthly at the annual rate equal to a percentage of the average daily value of
the Funds' net assets. For Discovery, Passport, Frontier, International Equity
and Worldwide Growth Funds, the fee is 1% of the first $250 million of net
assets, 0.80% of the next $250 million of net assets, and 0.70% of net assets in
excess of $500 million. For Special and Growth Funds, the fee is 1% of the first
$30 million of net assets, 0.75% of the next $270 million of net assets, 0.70%
of the next $200 million of net assets and 0.65% of net assets in excess of $500
million. For Blue Chip and Balanced Funds, the fee is 0.65% of the first $250
million of net assets, 0.60% of the next $250 million of net assets, 0.55% of
the next $250 of net assets and 0.50% of net assets in excess of $750 million.
For Money Market Fund, the fee is 0.50% of the first $250 million of net assets,
0.45% of the next $250 million of net assets, 0.40% of the next $250 million of
net assets, and 0.35% of the net assets in excess of $750 million. For
Government Securities Fund, the fee is 0.65% of the first $250 million of net
assets, and 0.50% of the net assets in excess of $250 million.
During the six months ended June 30, 1997, FAMI limited International Equity
Fund's expenses to 2.00% of average daily net assets. Beginning July 1, 1997,
FAMI limited the Fund's expenses to 1.80% of average net assets. For the twelve
months ended December 31, 1997, $23,060 was reimbursed to the Fund.
Investors Fiduciary Trust Company ("IFTC") is the designated shareholder
accounting, transfer and dividend disbursing agent for each Fund. With the
exception of out of pocket charges, the fees charged by IFTC are paid by FAMI.
The out of pocket charges from IFTC are paid by the Funds. IFTC also serves as
custodian for the Funds. The fees for the custody services are subject to
reduction by credits earned on the cash balances of the Funds held by IFTC as
custodian.
80
<PAGE>
The Funds have agreed to compensate FAMI for providing certain shareholder
servicing functions in addition to those currently provided by IFTC. From
January through May 1997, the Funds paid FAMI a monthly fee equal on an annual
basis to $24.00 per shareholder account of the Funds considered to be an open
account at any time during a given month. Effective June 1, 1997, the annual fee
for providing these services was changed to $26.00.
The Funds have also agreed to compensate FAMI for providing accounting
services, administration, compliance monitoring, regulatory and shareholder
reporting, as well as facilities, equipment and clerical help as shall be
necessary to provide these services
to the Funds. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Funds from $0 to $500 million
and 0.02% of the net assets of the Funds in excess of $500 million. The fee so
computed is allocated to each Fund on a pro rata basis based on relative average
daily net assets.
Discovery, Passport, Frontier, Special, International Equity, Worldwide
Growth, Growth, Blue Chip, Balanced and Government Securities Funds each have
adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940. Each plan provides that
the Fund may pay distribution and related expenses of up to 0.25% each year on
its average daily net assets. During the year, FAMI elected not to collect the
full 0.25% from the Government Securities Fund, which resulted in the Fund
paying .07% under the plan.
Certain officers, directors and shareholders of the Funds are also officers
and/or directors of FAMI.
3. OTHER
FAMI and Bjorn K. Borgen, its Chairman, Chief Executive Officer, Chief
Investment Officer, sole director and controlling shareholder, have entered into
an Agreement and Plan of Reorganization, dated December 11, 1997 (the
"Reorganization Agreement"), with Mellon Bank, N.A. ("Mellon"). Pursuant to
the Reorganization Agreement, FAMI will be merged into a newly-created
subsidiary of Mellon ("New FAMI"), with New FAMI being the surviving entity.
Immediately following the merger, New FAMI will change its name to "Founders
Asset Management LLC." The merger is subject to certain regulatory and other
approvals, including approval of a new investment advisory agreement by the
shareholders of the Funds. Following the merger, the business, operations, and
personnel of New FAMI will be substantially identical to the current business,
operations, and personnel of FAMI. The precise date on which the merger will
occur has not been determined as of the date of this report. The Reorganization
Agreement may be terminated upon certain events, and may be terminated by either
party if the transactions thereunder have not been consummated on or before June
30, 1998.
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. WRITTEN CALL OPTIONS
During 1997, Balanced and Blue Chip held covered call options. A call option is
a contract that entitles the holder to buy, at his or her option, a specified
number of units of a particular security at a specified price at any time until
the stated expiration date of the contract.
Written Call Options activity during the year ended December 31, 1997:
<TABLE>
<CAPTION>
NO. OF NO. OF NO. OF NO. OF
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
BEGINNING OF PERIOD WRITTEN CLOSED END OF PERIOD
------------------- ------------------ ------------------- ------------------ REALIZED
FUND NUMBER PREMIUM NUMBER PREMIUM NUMBER PREMIUM NUMBER PREMIUM GAIN/(LOSS)
- --------------- ------- -------- ------ ------- ------ -------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Fund 608 $283,999 0 $ 0 608 $283,999 0 $ 0 $283,999
Balanced Fund 38 53,996 0 0 38 53,996 0 0 53,996
</TABLE>
5. FEDERAL INCOME TAX
Net investment income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards. Permanent
items identified in the period ended December 31, 1997 have been reclassified
among the components of net assets as follows:
<TABLE>
<CAPTION>
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT NET REALIZED PAID-IN
INCOME GAINS AND LOSSES CAPITAL
-------------- ---------------- ----------
<S> <C> <C> <C>
Discovery Fund...................... $1,337,038 $ 373,999 $(1,711,037)
Passport Fund....................... (137,900) 144,266 (6,366)
Frontier Fund....................... 2,352,414 5,737 (2,358,151)
Special Fund........................ 204,491 (195,915) (9,026)
International Equity Fund........... 31,369 55,655 (87,024)
Worldwide Growth Fund............... (37,736) 38,132 (396)
Growth Fund......................... (281,268) 283,853 (2,585)
Blue Chip Fund...................... 248,102 (248,102) 0
Balanced Fund....................... 343,964 (347,582) 3,618
Government Securities Fund.......... 0 0 0
Money Market Fund................... (6,288) 0 6,288
</TABLE>
82
<PAGE>
Net capital loss carryovers and post-October 31 capital losses noted below, if
any, as of December 31, 1997, are available to offset future realized capital
gains and thereby reduce future taxable gains distributions. Post-October 31
foreign currency losses noted below, if any will offset future net investment
income and thereby reduce future ordinary income distributions. The capital loss
carryover for the Government Securities Fund expires in the years 2002 through
2004. Net capital loss carryovers utilized in 1997 by the Government Securities
Fund amounted to $43,406. The aggregate cost of investments and the composition
of unrealized appreciation and depreciation of investment securities for federal
income tax purposes as of December 31, 1997 are below (in thousands):
<TABLE>
<CAPTION>
POST- POST-
NET OCTOBER OCTOBER
CAPITAL CAPITAL CURRENCY FEDERAL NET
LOSS LOSS LOSS TAX UNREALIZED UNREALIZED APPRECIATION/
CARRYOVERS DEFERRAL DEFERRAL COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
---------- ------- -------- --------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Discovery Fund....................... $ 0 $ 502 $ 0 $ 196,428 $ 58,622 $ (8,722) $ 49,900
Passport Fund........................ 0 422 13 100,755 28,867 (7,191) 21,676
Frontier Fund........................ 0 0 0 183,016 53,285 (5,990) 47,295
Special Fund......................... 0 0 0 265,102 62,668 (8,513) 54,155
International Equity Fund............ 0 59 0 14,958 1,631 (493) 1,138
Worldwide Growth Fund................ 0 79 0 257,559 55,834 (6,778) 49,056
Growth Fund.......................... 0 0 0 1,576,021 226,180 (26,594) 199,586
Blue Chip Fund....................... 0 0 0 485,513 61,457 (8,131) 53,326
Balanced Fund........................ 0 0 12 879,976 61,371 (11,242) 50,129
Government Securities Fund........... 3,278 0 0 12,192 331 0 331
Money Market Fund.................... 0 0 0 105,590 0 0 0
</TABLE>
83
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FUND SHARE TRANSACTIONS
Transactions in shares of the Funds for the periods indicated were as follows
(in thousands):
<TABLE>
<CAPTION>
REINVESTED
DIVIDENDS AND NET INCREASE
SOLD DISTRIBUTIONS REDEEMED (DECREASE)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Discovery Fund:
Year ended 12/31/97......................... 8,704 1,273 (9,695) 282
Year ended 12/31/96......................... 9,601 767 (10,129) 239
Passport Fund:
Year ended 12/31/97......................... 8,876 310 (12,977) (3,791)
Year ended 12/31/96......................... 16,459 98 (8,046) 8,511
Frontier Fund:
Year ended 12/31/97......................... 2,445 1,474 (6,837) (2,918)
Year ended 12/31/96......................... 3,958 968 (4,748) 178
Special Fund:
Year ended 12/31/97......................... 5,949 5,394 (17,345) (6,002)
Year ended 12/31/96......................... 15,920 2,631 (26,226) (7,675)
International Equity Fund:
Year ended 12/31/97......................... 939 155 (641) 453
Year ended 12/31/96......................... 1,051 0 (275) 776
Worldwide Growth Fund:
Year ended 12/31/97......................... 5,206 1,665 (7,939) (1,068)
Year ended 12/31/96......................... 10,382 537 (6,721) 4,198
Growth Fund:
Year ended 12/31/97......................... 46,375 13,366 (28,515) 31,226
Year ended 12/31/96......................... 52,751 4,809 (31,481) 26,079
Blue Chip Fund:
Year ended 12/31/97......................... 9,168 14,250 (19,054) 4,364
Year ended 12/31/96......................... 27,721 8,894 (18,585) 18,030
Balanced Fund:
Year ended 12/31/97......................... 61,542 6,889 (22,543) 45,888
Year ended 12/31/96......................... 30,655 2,148 (9,216) 23,587
Government Securities Fund:
Year ended 12/31/97......................... 862 70 (1,182) (250)
Year ended 12/31/96......................... 1,885 91 (2,478) (502)
Money Market Fund:
Year ended 12/31/97......................... 258,173 5,405 (267,340) (3,762)
Year ended 12/31/96......................... 440,366 6,354 (462,525) (15,805)
</TABLE>
84
<PAGE>
7. TRANSACTIONS IN SHARES OF AFFILIATED COMPANIES
An affiliated company represents ownership by the Funds of at least 5% of the
voting securities of the issuer during the period, as defined in the Investment
Company Act of 1940. A summary of the transactions during the year ended
December 31, 1997, in which the issuer was an affiliate of the Funds, is as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES REALIZED
---------------------- --------------------- DIVIDEND GAIN/(LOSS) ON VALUE AT
AFFILIATE SHARES COST SHARES COST INCOME INVESTMENTS 12/31/97
- --------------------------- -------- --------- ------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Founders Discovery Fund
Cutter and Buck, Inc.... 310,000 $5,636,877 47,500 $ 770,000 $ 0 $ 58,410 $4,856,250
Founders Balanced Fund
Ingles Market, Inc.
Class A............... 0 0 785,975 12,589,610 178,757 (1,705,818) 0
Legacy Hotels Real
Estate Investment
Trust 144A............ 1,720,625 11,985,305 127,425 887,600 47,906 (20,068) 10,796,817
</TABLE>
8. LINE OF CREDIT
Discovery, Passport, Frontier and Special Funds have a Line of Credit
Arrangement ("LOC") with State Street Bank and Trust Company, to be used for
extraordinary or emergency purposes, primarily for financing redemption
payments. For Discovery, Frontier, and Passport Funds, borrowings will be
limited to 10% of each Fund's net assets computed at the lesser of cost or
market value. Special Fund may borrow amounts up to 10% of the market value of
the net assets of the Fund. Combined borrowings will be subject to a $50 million
cap on the total Line of Credit. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At December 31, 1997 there were no such borrowings outstanding.
85
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Founders Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the portfolios constituting
Founders Funds, Inc. (the "Fund") at December 31, 1997, the results of each of
their operations for the year then ended, the changes in each of their net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and the application of
alternative auditing procedures where securities purchased had not been
received, provide a reasonable basis for the opinion expressed above. The
financial statements of the Fund for the year ended December 31, 1995 were
audited by other independent accountants whose report dated January 26, 1996
expressed an unqualified opinion on those statements.
PRICE WATERHOUSE LLP
Denver, Colorado
February 2, 1998
86
<PAGE>
CORPORATE DIVIDENDS-RECEIVED DEDUCTION (UNAUDITED)
Dividends paid by the Funds from net investment income and distributions of
net realized short term capital gains are, for federal income tax purposes,
taxable as ordinary income to shareholders. Of the ordinary income distributions
declared for the period ended December 31, 1997, the following amounts qualified
for the dividend received deduction available to the Funds' corporate
shareholders:
Discovery Fund.................................... 0.38%
Passport Fund..................................... 0.00%
Frontier Fund..................................... 0.00%
Special Fund...................................... 3.94%
International Equity Fund......................... 0.00%
Worldwide Growth Fund............................. 4.51%
Growth Fund....................................... 7.79%
Blue Chip Fund.................................... 8.80%
Balanced Fund..................................... 11.21%
87
<PAGE>
[Logo]
Founders Funds
Founders Asset Management, Inc.
2930 East Third Avenue
Denver, CO 80206-5002
1-800-525-2440
WWW.FOUNDERS.COM
FUND DIRECTORS
Jay A. Precourt, Chairman
William H. Baughn
Bjorn K. Borgen
Alan S. Danson
Trygve E. Myhren
Eugene H. Vaughan, Jr.
Jonathan F. Zeschin
John K. Langum, Chairman Emeritus
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus for Founders Funds, Inc., which
contains more complete information, including management fees and expenses.
Please read the prospectus carefully before you invest or send money.
1998 Founders Asset Management, Inc., Distributor. Founders Funds, the Founders
logo, and "Growth. Plain and Simple." are registered trademarks of Founders
Asset Management, Inc.
Date of first use: February 27, 1998
A-605-ANN
