1998 SEMIANNUAL REPORT
For the Six Months Ended June 30, 1998
AGGRESSIVE GROWTH FUNDS
Founders Discovery Fund
Founders Passport Fund
Founders Frontier Fund
Founders Special Fund
GROWTH FUNDS
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund
GROWTH-AND-INCOME FUNDS
Founders Blue Chip Fund
Founders Balanced Fund
FIXED-INCOME FUND
Founders Government Securities Fund
MONEY MARKET FUND
Founders Money Market Fund
(LOGO)
Founders Funds (Registered Trademark)
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............ 64
Founders Money Market Fund
Statement of Investments............ 66
Statements of Assets and Liabilities.... 68
Statements of Operations................ 70
Statements of Changes in Net Assets..... 72
Financial Highlights.................... 76
Notes................................... 80
<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
CN People's Republic of China
DE Denmark
FI Finland
FR France
GE Germany
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
MX Mexico
NE Netherlands
NW Norway
PO Portugal
RU Russian Federation
SA South Africa
SP Spain
SW Sweden
SZ Switzerland
UK United Kingdom
3
<PAGE>
- ------------------------------------------------------
A MESSAGE FROM FOUNDERS
The bull continued to run in the first half of 1998, giving investors a good
reason to celebrate as both stock and bond markets hit new peaks. At Founders,
we're pleased to report solid overall performance in our funds for the six-month
period ended June 30, 1998. It's another milestone in our 60-year history of
strong, long-term performance.
As we approach the midway point of the year, it's natural to wonder just where
the markets may be headed. No matter what the market holds, a consistent
investment philosophy and strategy is the key. Because nothing's more important
than being comfortable with your long-term investment choices, you may find it
reassuring to understand the consistent investment strategy behind Founders'
solid performance.
COMMON SENSE PRINCIPLES
For decades, Founders has been committed to a growth-style investment
philosophy. Our approach draws on a common sense principle: that successful,
growing companies make the best investments since they have the potential to
grow regardless of what the market is doing. These are companies that are good
at what they do--companies with strong, visionary management; leading market
positions; financial, marketing and operating strength; and above-average
potential for earnings growth. Very often, as investor demand increases for
these high-quality companies, their stock prices may climb. Our goal is to find
and invest in these companies before Wall Street recognizes just how successful
they may become.
SEARCHING FOR SUCCESS
Finding these companies is a detailed process that takes time. That's why
patience and perseverance are two of the most important weapons in our growth
management arsenal. As a starting point, we focus on a company's earnings per
share (EPS), which represent a company's net profits. A company's earnings may
grow as its sales expand, or as the company streamlines operations. Growing
earnings can make a company a more attractive investment.
We also look at a company's fundamental strengths to determine whether its
growing earnings will propel the stock over the long term. We're looking for:
o AN IMPROVING BOTTOM LINE.
We want companies that are seeing growth in revenues and that can convert
those revenues to profits.
o INSIDER OWNERSHIP.
This is a good way to determine whether management believes in what the
company is trying to accomplish.
o LOW DEBT-TO-EQUITY RATIOS.
Successful companies know when and how much to borrow.
o REASONABLE VALUATIONS.
A company's price/earnings (P/E) ratio often indicates how investors value a
company's earnings potential. We compare the P/E to the earnings growth rate
of the company. Companies with higher P/Es than their earnings might be
considered "overvalued." But stocks with low P/Es may have potential to
appreciate.
4
<PAGE>
INTENSIVE RESEARCH
There's more to investing than just statistics. Intangibles can be just as
important as balance sheets when it comes to evaluating a company's potential.
That's why we roll up our sleeves to meet with the management of thousands of
companies throughout the year. It takes face-to-face contact and tough questions
to find the companies that are efficient, competitive, innovative, and above
all, smart. As we tour the facilities, sample the products, and quiz their
competitors, we're looking for companies that have:
o A DOMINANT OR GROWING MARKET POSITION.
Companies with established or growing market positions may also have the
advantage in pricing and distribution, which could lead to increased
profitability.
o OPERATE IN A NICHE MARKET.
Companies that offer a unique product or service are dominant almost by
default, especially if they operate in areas that are difficult to enter or
that have high start-up costs.
o TALENTED MANAGEMENT.
Small companies need management with both the bold vision and necessary
talent to guide the company through different stages of growth.
o INCREASING PRODUCTIVITY OR EFFICIENCY.
Companies that are improving their business may have great investment
potential, especially if they are pouring profits back into new technology,
research, or workforce training.
STAYING THE COURSE
In any market environment, conventional wisdom calls for a simple approach to
investing: make a plan and stick with it over the long term. Growth-stock
investing is uniquely suited to this mindset--there are always successful,
growing companies to be found even during periods of market volatility.
As Founders celebrates its 60-year anniversary and takes on the additional
responsibility of becoming Dreyfus' growth investment specialists, we will
continue to search the world for the best investment opportunities in the best
companies. As long as the world's entrepreneurial spirit continues to build
companies founded on hard work, dedication, and attention to the fundamentals,
you can be assured that we will continue to seek--and find--companies with the
potential to be successful investments.
5
<PAGE>
FOUNDERS DISCOVERY FUND
FOUNDERS DISCOVERY FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
1 Year 5 Year Since Inception
------ ------ ---------------
20.76% 14.47% 18.30%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders Russell Lipper Small Consumer
Discovery 2000 Company Growth Price
Fund Index Fund Index Index
---------- ---------- ---------- ----------
12/89 $ 10,000 $ 10,000 $ 10,000 $ 10,000
6/90 $ 11,179 $ 10,145 $ 10,361 $ 10,301
6/91 $ 13,577 $ 10,279 $ 10,539 $ 10,785
6/92 $ 16,762 $ 11,773 $ 11,859 $ 11,118
6/93 $ 21,241 $ 14,834 $ 14,841 $ 11,450
6/94 $ 19,614 $ 15,477 $ 15,173 $ 11,736
6/95 $ 25,454 $ 18,591 $ 19,111 $ 12,092
6/96 $ 33,988 $ 23,034 $ 24,856 $ 12,425
6/97 $ 34,579 $ 26,799 $ 26,434 $ 12,710
6/98 $ 41,756 $ 31,220 $ 30,532 $ 12,924
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER ROBERT AMMANN
HOW HAS DISCOVERY FUND PERFORMED SO FAR IN 1998?
We faced a difficult environment during the second quarter as investors
continued their "flight to quality" into large-cap stocks. Still, we
outperformed the unmanaged Russell 2000 Index for the six-month period ended
June 30, 1998, with a total return of 8.23% versus 4.93% for the Index.
HOW DID YOU POSITION THE PORTFOLIO DURING THE SECOND QUARTER?
The U.S. economy is still strong. We focused on a number of apparel and retail
companies, as they are beneficiaries of increased consumer spending. These
include catalog clothing retailers like DM Management, one of our top 10
holdings, and dELiA*s, which is capitalizing on today's current crop of
teenagers.
6
<PAGE>
TOP 10 HOLDINGS
1. Peregrine Systems, Inc. 2.64%
2. Hanger Orthopedic Group, Inc. 2.33%
3. Analytical Surveys, Inc. 2.23%
4. ResortQuest International, Inc. 2.23%
5. SteriGenics International, Inc. 2.04%
6. DM Management Company 1.98%
7. Travel Services International,
Inc. 1.95%
8. Computer Management Sciences,
Inc. 1.94%
9. Wolverine World Wide, Inc. 1.81%
10. American Xtal Technology, Inc. 1.76%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
Healthcare services stocks have been another dominant theme in the Fund and we
believe these stocks will hold up even if the economy slows. One group with
particularly exciting potential is the clinical research organizations, or CROs.
Firms like Parexel International help pharmaceutical companies manage the
process of FDA trials. Also in healthcare services, Boron Lepore functions as a
contract sales organization for pharmaceutical companies and educates doctors on
how new drugs work. Both CROs and contract sales organizations could benefit
from a huge pipeline of new pharmaceuticals coming to market over the next
several years.
HAVE YOU MADE ANY CHANGES TO FINE-TUNE THE DISCOVERY FUND?
Yes. You may recall we trimmed our technology weighting late last year as the
Asian crisis heated up. During the second quarter, we increased our tech
holdings to 22% of the portfolio, up from 17%. Last year we shifted away from
hardware-oriented companies since many of them were dependent on international
sales. Recently we've moved into software firms because their sales are more
domestically oriented. One company that's done particularly well is Peregrine
Systems, Inc. Peregrine Systems provides infrastructure management software that
helps companies keep track of their computer networks.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $227.0 million
NAV ON JUNE 30, 1998: $25.37
EXPENSE RATIO: 1.54%
INCEPTION DATE: 12/31/89
WHAT DO YOU EXPECT GOING FORWARD?
The economy has shown relatively strong growth year-to-date, but we believe it
will slow in the second half. Although there's still a valuation gap between
large- and small-cap stocks, earnings growth among select small companies is
actually exceeding earnings growth in large companies. Small-cap earnings have
held up better than large caps, partially because they have less international
7
<PAGE>
FOUNDERS DISCOVERY FUND (CONTINUED)
exposure than large caps. We believe the small-cap companies we own are in
attractive market niches and should be able to continue showing strong earnings
growth.
Over the short term, the small-cap market will continue to be volatile, but we
believe it's only a matter of time until investors are once again attracted to
the values in this area.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Technology 22.0%
Consumer 33.4%
Healthcare 13.6%
Financial 6.3%
Consumer Staples 5.7%
Capital Goods 3.1%
Energy 1.9%
Transportation 0.6%
Telecom Services 0.3%
Cash & Equivalents 13.1%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
Robert Ammann, CFA
Portfolio Manager
8
<PAGE>
FOUNDERS DISCOVERY FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
SHARES MARKET VALUE
- ------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-83.5%
APPAREL-5.4%
130,000 Candie's, Inc.* $ 999,375
135,000 Cutter and Buck, Inc.* 3,611,250
175,000 Maxwell Shoe Company, Inc.* 3,412,500
189,875 Wolverine World Wide, Inc. 4,117,914
----------
12,141,039
----------
AUTO PARTS & EQUIPMENT-0.7%
87,500 Aftermarket Technology Corporation* 1,640,625
----------
BUSINESS SERVICES-6.6%
36,050 Insight Enterprises, Inc.* 1,437,494
50,000 International Telecommunication Data
Systems, Inc.* 1,450,000
80,000 Lamalie Associates, Inc.* 1,470,000
83,000 The Metzler Group, Inc.* 3,039,875
115,000 PC Connection, Inc.* 1,753,750
63,000 Pre-Paid Legal Services, Inc.* 1,988,438
65,000 RWD Technologies, Inc.* 1,519,375
120,000 United Road Services, Inc.* 2,280,000
----------
14,938,932
----------
COMPUTER SOFTWARE/SERVICES-11.0%
280,000 4Front Technologies, Inc.* 3,517,500
120,000 Ansoft Corporation* 1,365,000
187,500 Computer Management Sciences, Inc.* 4,406,250
175,000 Datastream Systems, Inc.* 3,325,000
160,000 Egghead.com, Inc.* 1,340,000
100,000 Innovative Technology Systems, Inc.* 600,000
65,000 New Era of Networks, Inc.* 1,982,500
210,000 Peregrine Systems, Inc.* 5,985,000
108,000 TSI International Software Limited* 2,443,500
----------
24,964,750
----------
CONSUMER PRODUCTS-0.8%
84,650 Helen of Troy Limited* 1,841,138
----------
CONSUMER SERVICES-4.8%
55,000 EduTrek International, Inc.* $1,340,625
310,000 ResortQuest International, Inc.* 5,056,875
135,000 Travel Services International, Inc.* 4,421,250
----------
10,818,750
----------
ELECTRONICS-1.3%
125,000 Macrovision Corporation* 2,937,500
----------
ENVIRONMENTAL SERVICES-1.2%
200,000 ITEQ, Inc.* 1,462,500
62,000 KTI, Inc.* 1,340,750
----------
2,803,250
----------
FINANCIAL SERVICES-4.6%
100,000 Franchise Mortgage Acceptance
Company* 2,593,750
220,000 LINC Capital, Inc.* 3,795,000
87,825 Resource America, Inc. 2,546,925
158,250 United Panam Financial Corporation* 1,602,281
----------
10,537,956
----------
FOOD & BEVERAGE-1.1%
71,400 U.S. Foodservice, Inc.* 2,503,463
----------
HEALTHCARE SERVICES-12.1%
95,000 Boron LePore & Associates, Inc.* 3,598,125
70,000 Brookdale Living Communities, Inc.* 1,767,500
285,000 Capital Senior Living Corporation* 3,420,000
260,000 Hanger Orthopedic
Group, Inc.* 5,297,500
56,925 Henry Schein, Inc.* 2,604,319
140,000 Orthodontic Centers of America, Inc.* 2,931,250
57,500 Parexel International Corporation* 2,084,375
180,000 SteriGenics International, Inc.* 4,635,000
34,000 Sunrise Assisted Living, Inc.* 1,168,750
----------
27,506,819
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FOUNDERS DISCOVERY FUND
SHARES MARKET VALUE
- ------------------------------------------------------------
INSURANCE-1.1%
116,540 Annuity & Life Re Holdings Limited* $2,576,456
----------
LEISURE & ENTERTAINMENT-7.7%
65,000 Action Performance Companies, Inc.* 2,092,188
130,000 Equity Marketing, Inc.* 2,697,500
145,000 Fairfield Communities, Inc.* 2,782,188
160,000 Servico, Inc.* 2,400,000
240,400 Silverleaf Resorts, Inc.* 3,666,100
165,000 Surburban Lodges of
America, Inc.* 2,495,625
67,100 Vistana, Inc.* 1,224,575
----------
17,358,176
----------
MANUFACTURING-0.6%
170,000 Astro Power, Inc.* 1,391,876
----------
MEDICAL SUPPLIES & EQUIPMENT-1.6%
125,000 Anika Therapeutics, Inc.* 1,828,125
40,000 ResMed, Inc.* 1,820,000
----------
3,648,125
----------
OIL SERVICES-1.3%
42,000 National Oilwell, Inc.* 1,126,125
100,000 Offshore Logistics, Inc.* 1,775,000
----------
2,901,125
----------
PHOTOGRAPHY & IMAGING-2.2%
139,000 Analytical Surveys, Inc.* 5,073,500
----------
PROPERTY-0.6%
150,000 Bluegreen Corporation* 1,321,875
----------
RESTAURANTS-0.9%
82,500 Dave and Busters, Inc.* 2,052,188
----------
RETAIL-9.3%
73,000 dELiA*s, Inc.* $1,149,750
125,000 DM Management Company* 4,484,375
80,000 Hot Topic, Inc.* 1,900,000
48,000 The Men's Wearhouse, Inc.* 1,584,000
70,000 O'Reilly Automotive, Inc.* 2,502,500
84,750 Proffitt's, Inc.* 3,421,781
75,000 Rental Service Corporation* 2,521,875
46,000 Restoration Hardware, Inc.* 1,150,000
60,000 U. S. Rentals, Inc.* 2,366,250
----------
21,080,531
----------
SEMICONDUCTORS & EQUIPMENT-5.5%
277,500 American Xtal Technology, Inc.* 3,989,063
145,000 Applied Micro Circuits Corporation 3,760,938
110,000 Brooks Automation, Inc. 1,430,000
75,000 PRI Automation, Inc.* 1,275,000
54,175 SpeedFam International, Inc.* 995,466
37,000 Vitesse Semiconductor Corporation* 1,142,375
----------
12,592,842
----------
TELECOMMUNICATION SERVICES-0.3%
43,900 SmarTalk Teleservices, Inc.* 620,088
----------
TELECOMMUNICATIONS EQUIPMENT-2.2%
72,225 Brooktrout Technology, Inc.* 1,002,122
134,075 Digital Microwave Corporation* 972,044
185,000 REMEC, Inc.* 2,104,375
62,925 Sawtek, Inc.* 916,345
----------
4,994,886
----------
TRANSPORTATION-0.6%
125,000 Jevic Transportation, Inc.* 1,375,000
----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$161,579,577) 189,620,890
-----------
10
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- ------------------------------------------------------------
COMMON STOCKS (FOREIGN)-4.1%
APPAREL-1.3%
135,000 Tefron Limited Sponsored ADR (IS)* $ 2,970,000
-----------
COMPUTER SOFTWARE/SERVICES-0.6%
44,500 Smallworldwide PLC Sponsored ADR
(UK)* 1,273,813
-----------
OIL SERVICES-0.6%
25,000 Stolt Comex Seaway SA
Class A Sponsored ADR (UK)* 431,250
50,000 Stolt Comex Seaway SA Sponsored ADR
(UK)* 962,500
-----------
1,393,750
-----------
PUBLISHING & BROADCASTING-1.6%
200,000 Cinar Films, Inc. Class B
Sponsored ADR (CA)* 3,700,000
-----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$5,985,899) 9,337,563
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-12.6%
$10,000,000 American Express Credit Corporation
5.65% 07/01/98 $10,000,000
9,100,000 Associates Corporation NA 5.70%
07/01/98 9,092,796
9,500,000 Merrill Lynch and Company 5.95%
07/02/98 9,498,430
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$28,591,226) 28,591,226
-----------
TOTAL INVESTMENTS-100.2%
(COST-$196,156,702) 227,549,679
OTHER ASSETS &
LIABILITIES-(0.2%) (544,285)
-----------
NET ASSETS-100.0% $227,005,394
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FOUNDERS PASSPORT FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
1 Year Since Inception
------ ---------------
15.77% 13.03%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
MSCI World
Founders ex U.S. Consumer
Passport Fund Index Price Index
------------- ----- -----------
11/93 ............ $10,000 $10,000 $10,000
6/94 ............ $ 9,671 $11,576 $10,151
6/95 ............ $10,582 $11,840 $10,460
6/96 ............ $13,659 $13,421 $10,747
6/97 ............ $15,209 $15,234 $10,994
6/98 ............ $17,609 $16,192 $11,179
- --------------------------------------------------------------------------------
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER MICHAEL GERDING
HOW HAS PASSPORT'S PERFORMANCE FARED OVER THE FIRST SIX MONTHS?
International small-cap stocks, such as those in the Founders Passport Fund,
outperformed international large caps for the first six months of the year,
largely on the strength of the continuing European recovery. Based on this, our
total return performance for the six-month period ended June 30, 1998, was
22.95%.
Morningstar awarded Founders Passport Fund a .... overall rating for the
three-year period ended June 30, 1998, among 778 international equity funds.*
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect risk-adjusted performance through June 30, 1998. The top 10%
of the funds in an investment category receive 5 stars and the next 22.5%
receive 4 stars. Subject to change every month, a fund's rating is based on
its 3-, 5-, and [when available] 10-year average annual total returns [with
fee adjustments] in excess of 90-day Treasury bill returns, and a risk factor
that reflects fund performance below 90-day Treasury bill returns.
12
<PAGE>
TOP 10 HOLDINGS
1. TelePizza SA 4.64%
2. Altran Technologies SA 3.74%
3. Porsche AG non-voting preferred 3.26%
4. Raisio Group PLC Class V 3.21%
5. MLP preferred 2.84%
6. Pizza Express PLC 2.76%
7. Psion PLC 2.55%
8. Schmalbach Lubeca AG 2.54%
9. VTech Holdings Limited 2.24%
10. Dassault Systems SA 2.05%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
WHAT ARE SOME OF THE REASONS INTERNATIONAL SMALL CAPS HAVE DONE SO WELL THIS
YEAR?
Small-cap stocks are very sensitive to local economies and they tend to thrive
in the early stages of an economic recovery such as we're seeing in Europe.
Small caps are also less dependent on exports, and they've been relatively
unscathed by the crisis in Asia. As a result, they have shown stronger earnings
growth relative to their large-cap peers.
WHAT IS YOUR EUROPEAN WEIGHTING?
Europe represents over 85% of the equities in the portfolio now. Europe's
economies are still accelerating and our confidence in the companies that we own
there is strong. Consumer confidence is slowly rising in Europe and unemployment
rates in many countries, such as Germany, are dropping.
As a result, we believe the European economy may actually do better than the
U.S. in 1998. At any rate, the year will
almost certainly mark another year in Europe's accelerating economic recovery.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $154.4 million
NAV ON JUNE 30, 1998 $16.77
EXPENSE RATIO: 1.55%
INCEPTION DATE: 11/16/93
WHAT TYPE OF INVESTMENTS HAVE CAUGHT YOUR EYE?
European consumers are expressing confidence in the recovery by spending more
freely, although still at a modest rate, and we've seen a number of
consumer-sensitive industries there begin to pick up. Our top 10 holdings
consist of several familiar names, including the Spanish company TelePizza,
Pizza Express, and Raisio Group, the Finnish food company with a new margarine
that has been clinically proven to lower cholesterol.
We also have exposure to European telecommunication providers that are rapidly
growing, such as Global Telesystems Group. We also hold Netcomm Systems, the
largest privately-owned phone company in Sweden.
We hold several companies that are not in traditional growth industries, but
that show excellent earnings growth potential. One of these is Cinar Films, a
Canadian company that produces TV programs for kids. Cinar is building its
catalogue of TV shows to drive into syndication. We expect their program
pipeline may boost the company's profitability in the future.
13
<PAGE>
FOUNDERS PASSPORT FUND (CONTINUED)
DO YOU HAVE ANY ASIAN HOLDINGS?
Just a small weighting in Hong Kong and China, and only because these are
special situations -- companies that are impacted by markets outside of Asia
rather than their own backyards. In Hong Kong, we've owned shares of VTech
Holdings for a long time. VTech manufactures cordless phones and
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Germany 14.3%
United Kingdom 17.8%
Netherlands 6.2%
Spain 4.6%
Finland 4.3%
Sweden 3.0%
Italy 2.9%
Norway 2.8%
Japan 2.5%
France 6.8%
Other 14.7%
Cash & Equivalents 20.1%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
computer toys, and nearly all its sales are outside Asia, so it's insulated from
the crisis. We also have limited exposure to Japan.
We believe the situation in Asia today is worse than it was a month ago and it
continues to deteriorate. There is some good news coming out of Asia, however --
valuations are finally coming down and once they hit bottom, there could be some
good stock buys. We are also beginning to see corporate buyers from outside Asia
scouting for businesses they can buy within Asia. This could be an early sign
that the market is beginning to reflect more realistic valuations.
WHAT DO YOU EXPECT FOR THE REMAINDER OF THE YEAR?
International small-cap prices have outperformed international large caps this
year, and we expect this to continue. We'll remain focused 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 indices or top-down
models.
Michael Gerding, CFA
Portfolio Manager
14
<PAGE>
FOUNDERS PASSPORT FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
SHARES MARKET VALUE
- -----------------------------------------------------------
PREFERRED STOCKS (FOREIGN)-6.1%
AUTOMOTIVE-3.3%
1,750 Porsche AG non-voting preferred (GE) $5,041,551
---------
FINANCIAL SERVICES-2.8%
9,000 Marschollek, Lautenschlaeger und
Partner AG non-voting preferred (GE) 4,387,830
---------
TOTAL PREFERRED STOCKS
(FOREIGN)
(COST-$2,820,559) 9,429,381
---------
COMMON STOCKS (FOREIGN)-73.6%
AGRICULTURE-1.0%
42,200 Nutreco Holding NV (NE) 1,477,062
---------
AIRLINES-1.5%
52,100 Ryanair Holdings PLC
Sponsored ADR (IE)* 1,849,550
34,850 Virgin Express Holdings PLC Sponsored
ADR (BE)* 444,338
---------
2,293,888
---------
APPAREL-0.8%
58,300 Tefron Limited Sponsored ADR (IS)* 1,282,600
---------
AUTO PARTS & EQUIPMENT-0.6%
54,210 Haldex AB (SW)* 978,851
---------
BUILDING MATERIALS-1.6%
46,825 Hunter Douglas NV (NE)* 2,543,586
---------
BUSINESS SERVICES-8.1%
25,450 Altran Technologies SA (FR) $5,778,170
97,525 BTG PLC (UK) 1,355,554
33,975 Brunel International NV (NE)* 1,411,310
25,000 Paradigm Geophysical Limited
Sponsored ADR (IS)* 175,000
139,775 Select Appointments Holdings PLC (UK) 1,994,117
24,000 Semcon AB (SW) 236,241
10,200 Sixt AG (GE)* 1,570,970
----------
12,521,362
----------
COMPUTER EQUIPMENT-2.6%
366,375 Psion PLC (UK) 3,943,131
----------
COMPUTER SOFTWARE/SERVICES-7.6%
67,000 Dassault Systems SA (FR) 3,158,144
46,775 Eidos PLC Sponsored ADR (UK)* 625,616
29,900 Fuji Soft ABC, Inc. (JA) 1,016,410
215,150 JBA Holdings PLC (UK) 2,225,830
12,000 Meitec Corporation (JA) 415,030
36,835 Misys PLC (UK) 2,092,828
11,000 New Dimension Software Limited
Sponsored ADR (IS)* 367,125
44,000 Nippon Systems Development Company
(JA) 1,045,966
25,800 Smallworldwide PLC Sponsored ADR
(UK)* 738,525
----------
11,685,474
----------
CONSTRUCTION-1.0%
26,575 IHC Caland NV (NE) 1,495,840
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FOUNDERS PASSPORT FUND
SHARES MARKET VALUE
- ------------------------------------------------------------
CONSUMER PRODUCTS-4.1%
31,100 Dorel Industries, Inc. Class B (CA)* $1,004,590
73,700 Industrie Natuzzi
SPA Sponsored ADR (IT) 1,916,200
931,000 VTech Holdings
Limited (HK) 3,466,393
---------
6,387,183
---------
ELECTRONICS-0.8%
68,150 Rofin Sinar Technologies, Inc.
Sponsored ADR (GE)* 1,209,663
---------
ENVIRONMENTAL SERVICES-1.5%
76,725 Tomra Systems ASA (NW) 2,299,700
---------
FOOD & BEVERAGE-3.7%
33,850 Compania Cervecerias Unidas SA
Sponsored ADR (CH) 710,850
274,750 Raisio Group PLC Class V (FI) 4,957,759
---------
5,668,609
---------
HEALTHCARE SERVICES-0.3%
20,000 ICON PLC Sponsored ADR (UK)* 502,500
---------
LEISURE & ENTERTAINMENT-2.3%
2,501,285 Grupo Posadas SA Class A (MX)* 1,514,243
12,862 KTM Motorradholding AG (AT) 1,002,707
82,500 Metromedia International Group, Inc.
(CN)* 984,844
---------
3,501,794
---------
MACHINERY-3.1%
33,825 KCI Konecranes International PLC (FI) 1,713,938
19,575 Kverneland ASA (NW) 510,197
76,675 Toolex International NV (NE)* 1,428,563
54,000 Turbon International AG (GE) 1,169,751
---------
4,822,449
---------
MANUFACTURING-0.4%
17,100 Vestas Wind Systems AS 144A (DE)*` $ 675,098
----------
MEDICAL SUPPLIES & EQUIPMENT-0.5%
50,000 Ortivus AB Class B (SW)* 783,709
----------
OIL & GAS-1.6%
275,089 British-Borneo Petroleum
Syndicate PLC (UK) 1,374,757
226,775 Cairn Energy PLC (UK)* 1,038,707
----------
2,413,464
----------
OIL SERVICES-1.7%
24,400 Coflexip SA Sponsored ADR (FR) 1,488,400
36,950 Petroleum Geological Services
Sponsored ADR (NW)* 1,126,975
----------
2,615,375
----------
PACKAGING-2.5%
15,550 Schmalbach Lubeca AG (GE) 3,919,806
----------
PHARMACEUTICALS-1.9%
38,450 Schwarz Pharma AG (GE) 3,003,447
----------
PUBLISHING & BROADCASTING-4.5%
148,100 Capital Radio PLC (UK) 1,756,700
128,850 Cinar Films, Inc. Class B Sponsored
ADR (CA)* 2,383,725
229,625 Flextech PLC (UK)* 2,122,681
74,350 Gruppo Editoriale L'Espresso SPA (IT) 616,952
----------
6,880,058
----------
RESTAURANTS-9.5%
56,000 Doutor Coffee Company
Limited (JA) 1,427,819
388,850 J D Wetherspoon PLC (UK) 1,868,657
296,550 Pizza Express PLC (UK) 4,265,411
674,760 TelePizza SA (SP)* 7,162,355
----------
14,724,242
----------
16
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- --------------------------------------------------------------
RETAIL-3.4%
22,965 Beter Bed Holdings (NE) $ 835,419
362,025 Bulgari SPA (IT) 1,898,159
6,225 Ceteco Holding NV (NE) 338,149
33,650 Douglas Holding AG (GE) 1,791,312
16,525 Narvesen ASA (NW) 344,562
-----------
5,207,601
-----------
SUPERMARKETS-0.3%
25,625 Distribucion y Servicio D&S SA
Sponsored ADR (CH) 384,375
-----------
TELECOMMUNICATION SERVICES-4.8%
106,225 Energis PLC (UK)* 1,616,506
35,000 Global TeleSystems Group, Inc. (RU) 1,697,500
111,775 Grupo Iusacell Sponsored ADR
representing ten Class L shares (MX)* 1,536,906
68,000 Netcom Systems AB
Class B (SW)* 2,604,923
-----------
7,455,835
-----------
TELECOMMUNICATIONS EQUIPMENT-0.5%
20,000 NICE-Systems Limited Sponsored ADR
(IS)* 748,750
-----------
TRANSPORTATION-1.4%
18,050 Koebenhavns Lufthavne SA (DE) 2,189,694
-----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$77,738,412) 113,615,146
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-19.3%
$4,000,000 American Express Credit Corporation
5.57% 07/01/98 $ 4,000,000
3,000,000 American Express Credit Corporation
5.65% 07/01/98 3,000,000
6,800,000 Associates Corporation NA 5.60%
07/06/98 6,794,711
7,100,000 Ford Motor Credit Company 5.70%
07/02/98 7,098,876
7,500,000 Merrill Lynch and Company 5.82%
07/07/98 7,492,725
1,500,000 Sara Lee Corporation 5.75% 07/08/98 1,498,323
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$29,884,635) 29,884,635
-----------
TOTAL INVESTMENTS-99.0%
(COST-$110,443,606) 152,929,162
OTHER ASSETS &
LIABILITIES-1.0% 1,499,504
-----------
NET ASSETS-100.0% $154,428,666
===========
* NON-INCOME PRODUCING.
` SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE. SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
FOUNDERS FRONTIER FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
11.52% 14.32% 16.01% 17.86%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Small Company Consumer
Frontier Russell 2000 Growth Fund Index Price Index
-------- ------------ ----------------- -----------
6/88 ....... $10,000 $10,000 $10,000 $10,000
6/89 ....... $13,150 $11,281 $11,252 $10,516
6/90 ....... $15,151 $11,613 $12,305 $11,007
6/91 ....... $16,547 $11,767 $12,516 $11,524
6/92 ....... $18,648 $13,477 $14,084 $11,880
6/93 ....... $22,617 $16,980 $17,625 $12,234
6/94 ....... $22,382 $17,717 $18,020 $12,539
6/95 ....... $29,017 $21,281 $22,697 $12,921
6/96 ....... $39,697 $26,368 $29,519 $13,276
6/97 ....... $39,596 $30,677 $31,393 $13,580
6/98 ....... $44,161 $35,738 $36,261 $13,809
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER MICHAEL HAINES
HOW DID THE FRONTIER FUND PERFORM DURING THE FIRST HALF OF 1998?
Small-cap stocks remain embattled, but using our bottom-up strategy we have
found many good values among domestic small-cap companies. These holdings helped
us outperform the unmanaged Russell 2000 Index for the six-month period ended
June 30, 1998, with a total return of 6.68%, compared to 4.93% for the Index.
Longer term, the Frontier Fund outpaced its Lipper Analytical Services category
average for the 10-year period ended June 30, 1998.
WHAT'S GOING ON WITH SMALL-CAP STOCKS RIGHT NOW?
Small-cap performance has lagged for several years despite the fact that many of
these stocks actually have materially better profit growth than large-cap
stocks. Using our bottom-up strategy, we are finding some small-cap companies
growing 20% to 40% a year and trading at discounts to these growth rates.
Frankly, we're surprised that investors
18
<PAGE>
have continued favoring large caps, sacrificing value for liquidity.
The reality is that small-cap stocks have very attractive relative growth
rates and valuations. We believe that there are tremendous values being created
in the small-cap sphere and that it is only a matter of time until these
companies are recognized. The fact that small-cap performance has been poor for
several years relative to large caps makes us more optimistic that we are closer
to a turn in relative performance. The key, we believe, is to focus on the long
term.
TOP 10 HOLDINGS
1. Watson Pharmaceuticals, Inc. 3.27%
2. HNC Software, Inc. 2.80%
3. Sylvan Learning Systems, Inc. 2.44%
4. Mail-Well, Inc. 2.38%
5. CDW Computer Centers, Inc. 2.38%
6. CKE Restaurants 2.31%
7. Action Performance Companies, Inc. 1.95%
8. Reinsurance Group of America, Inc. 1.94%
9. Orthodontic Centers of America,
Inc. 1.92%
10. American Disposal Services, Inc. 1.92%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
WHERE ARE YOU FINDING OPPORTUNITIES?
We're finding opportunities as outgrowths of long-term demographic trends. For
example, as the Baby Boomers age they're demanding new leisure and healthcare
products. This means plenty of opportunity for small companies adept at
providing new products and services.
For example, one small-cap company in the leisure sector that's really taken
off is Action Performance Companies. This company has tapped into the growing
popularity of NASCAR racing by licensing and distributing motorsports
collectibles and other products. They also have contracts with most of the top
drivers in NASCAR. Action Performance has good fundamentals and we expect strong
earnings growth in the foreseeable future.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $196.7 million
NAV ON JUNE 30, 1998: $29.86
EXPENSE RATIO: 1.57%
INCEPTION DATE: 1/22/87
CheckFree Corp., another of our holdings, ties into the trend for on-demand
financial services. CheckFree is the preferred provider of transaction
processing for home banking. They service nine of the top 10 banks and 40 of the
top 50 banks. We believe we are at the beginning stages of adoption for at-home
banking
On the health side, we added to our positions in several pharmaceutical
companies, including Medicis Pharmaceuticals Corp. and Jones Pharma, since we
believe there will be a continued
19
<PAGE>
FOUNDERS FRONTIER FUND (CONTINUED)
demand for their products. Watson Pharmaceuticals, one of our top 10 holdings
and a long-term holding, has continued to do well for Frontier Fund.
WHAT WILL IT TAKE FOR SMALL-CAP PERFORMANCE TO TURN AROUND?
Large caps are still providing surprisingly strong earnings growth and
liquidity, causing money to flow into them. But sooner or later the values being
created on the small-cap side will be recognized. The important thing to
remember is that small-cap performance is made up of short periods of time with
bursts of outperformance. It can happen fairly quickly, which means it's
important to view small caps as a long-term portfolio holding.
Michael Haines
Portfolio Manager
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Technology 15.4%
Consumer Cyclicals 20.7%
Healthcare 21.1%
Capital Goods 8.1%
Consumer Staples 8.0%
Financial 7.5%
Telecom Services 4.2%
Transportation 2.6%
Energy 2.2%
Basic Materials 1.1%
Cash & Equivalents 9.1%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
20
<PAGE>
FOUNDERS FRONTIER FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
SHARES MARKET VALUE
- -----------------------------------------------------------
COMMON STOCKS (DOMESTIC)-85.2%
APPAREL-4.0%
80,000 Jones Apparel Group, Inc.* $2,925,000
17,400 The Timberland Company Class A* 1,251,713
87,550 The Warnaco Group, Inc.
Class A 3,715,403
----------
7,892,116
----------
BANKING-1.0%
135,000 Friedman, Billings, Ramsey Group,
Inc.* 1,949,063
----------
BUSINESS SERVICES-10.9%
93,650 CDW Computer Centers, Inc.* 4,682,500
216,150 Mail-Well, Inc.* 4,687,753
88,000 Personnel Group of America, Inc.* 1,760,000
50,000 StaffMark, Inc.* 1,831,250
146,268 Sylvan Learning Systems, Inc.* 4,790,277
38,425 USWeb Corporation* 910,192
145,350 Unicapital Corporation* 2,779,819
----------
21,441,791
----------
BIOTECHNOLOGY-0.3%
23,950 IDEXX Laboratories, Inc.* 595,756
----------
CHEMICALS-1.1%
51,775 OM Group, Inc. 2,135,719
----------
COMPUTER SOFTWARE/SERVICES-12.2%
54,225 Aspen Technologies, Inc.* 2,738,363
10,200 EarthLink Network, Inc.* 782,850
134,775 HNC Software, Inc.* 5,500,505
108,525 Harbinger Corporation* 2,624,948
23,725 JDA Software Group, Inc.* 1,037,969
50,000 Legato Systems, Inc.* 1,950,000
76,175 Mastech Corporation* 2,123,378
81,750 Renaissance Worldwide, Inc.* 1,778,063
40,500 Software AG Systems, Inc.* 1,184,625
81,475 Sykes Enterprises, Inc.* 1,634,592
26,300 Transaction Systems
Architects, Inc.* 1,012,550
45,000 Wind River Systems, Inc.* 1,614,375
----------
23,982,218
----------
CONSUMER PRODUCTS-1.0%
52,800 Gemstar International Group Limited* $1,966,800
----------
ELECTRONICS-3.2%
133,300 Berg Electronics Corporation* 2,607,681
124,875 CheckFree Holdings Corporation* 3,676,008
----------
6,283,689
----------
ENVIRONMENTAL SERVICES-2.4%
80,700 American Disposal Services, Inc.* 3,782,813
34,875 Eastern Environmental Services, Inc.* 1,179,211
----------
4,962,024
----------
FINANCIAL SERVICES-0.8%
24,200 Affiliated Managers
Group, Inc.* 898,425
50,000 Cash America International, Inc. 762,500
----------
1,660,925
----------
FOOD & BEVERAGE-1.9%
42,100 American Italian Pasta Company* 1,568,225
61,850 U.S. Foodservice, Inc.* 2,168,616
----------
3,736,841
----------
HEALTHCARE SERVICES-9.9%
50,000 Andrx Corporation* 1,837,500
82,250 Cerner Corporation* 2,328,703
39,800 First Health Group Corporation* 1,134,300
62,500 Health Care & Retirement Corporation* 2,464,844
103,750 Health Management Associates, Inc.
Class A* 3,469,141
75,000 Henry Schein, Inc.* 3,431,250
180,700 Orthodontic Centers of America, Inc.* 3,783,406
50,000 Pharmaceutical Product Development,
Inc.* 1,100,000
----------
19,549,144
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
FOUNDERS FRONTIER FUND
SHARES MARKET VALUE
- ------------------------------------------------------------
INSURANCE-4.3%
22,945 Frontier Insurance Group, Inc. $ 517,694
54,150 HCC Insurance Holdings, Inc. 1,191,300
64,575 Reinsurance Group of
America, Inc. 3,817,997
60,000 Reliastar Financial Corporation 2,880,000
----------
8,406,991
----------
LEISURE & ENTERTAINMENT-3.3%
119,075 Action Performance
Companies, Inc.* 3,832,727
39,400 Premier Parks, Inc.* 2,625,025
----------
6,457,752
----------
MANUFACTURING-0.5%
48,400 Mettler-Toledo International, Inc.* 971,025
----------
MEDICAL SUPPLIES & EQUIPMENT-0.7%
87,225 Trex Medical Corporation* 1,439,213
----------
MISCELLANEOUS-0.8%
66,600 Wackenhut Corrections Corporation* 1,556,775
----------
OIL SERVICES-1.9%
33,800 Cal Dive International, Inc.* 929,500
163,710 Global Industries Limited* 2,752,374
----------
3,681,874
----------
PHARMACEUTICALS-9.0%
69,925 Dura Pharmaceuticals, Inc.* 1,564,572
70,000 Jones Medical Industries, Inc. 2,314,375
187,000 King Pharmaceuticals, Inc.* 2,618,000
89,125 Medicis Pharmaceutical Corporation* 3,230,781
16,625 R.P. Scherer Corporation* 1,473,391
137,650 Watson Pharmaceuticals, Inc.* 6,426,534
----------
17,627,653
----------
PUBLISHING & BROADCASTING-1.5%
50,000 The Petersen Companies, Inc.* 1,281,250
43,400 Univision Communications, Inc.* 1,616,650
----------
2,897,900
----------
RESTAURANTS-2.3%
110,000 CKE Restaurants, Inc. $ 4,537,500
-----------
RETAIL-2.5%
68,275 Stage Stores, Inc.* 3,089,444
45,600 United Rentals, Inc.* 1,915,200
-----------
5,004,644
-----------
SEMICONDUCTORS & EQUIPMENT-2.8%
55,525 ATMI,Inc.* 832,875
250,175 Amkor Technology, Inc.* 2,329,755
65,000 MRV Communications, Inc.* 1,348,750
44,300 SIPEX Corporation* 949,681
-----------
5,461,061
-----------
TELECOMMUNICATION SERVICES-4.3%
119,150 Allegiance Telecom, Inc.* 1,787,250
81,525 Espire Communications, Inc.* 1,839,408
34,025 ICG Communications, Inc.* 1,241,913
29,600 Intermedia Communications, Inc.* 1,239,500
60,000 NEXTLINK Communications, Inc.* 2,268,750
-----------
8,376,821
-----------
TRANSPORTATION-2.6%
60,000 Expeditors International of
Washington, Inc. 2,625,000
74,750 US Freightways Corporation 2,452,734
-----------
5,077,734
-----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$129,589,788) 167,653,029
-----------
22
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- -----------------------------------------------------------
COMMON STOCKS (FOREIGN)-6.1%
BUILDING MATERIALS-1.0%
35,000 Hunter Douglas NV (NE) $1,901,239
----------
CONSTRUCTION-1.0%
33,100 IHC Caland NV (NE) 1,863,116
----------
CONSUMER PRODUCTS-0.8%
62,000 Industrie Natuzzi SPA Sponsored ADR
(IT) 1,612,000
----------
LEISURE & ENTERTAINMENT-0.3%
51,600 Metromedia International Group,
Inc.(CN)* 615,975
----------
MEDICAL SUPPLIES & EQUIPMENT-1.3%
76,175 ESC Medical Systems Limited Sponsored
ADR (IS)* 2,575,667
----------
OIL SERVICES-0.4%
24,450 Petroleum Geological Services
Sponsored ADR (NW)* 745,725
----------
PUBLISHING & BROADCASTING-1.3%
286,175 Flextech PLC (UK)* 2,645,436
----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$10,230,010) 11,959,158
----------
PRINCIPAL VALUE AMORTIZED COST
- --------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-10.0%
$2,900,000 American Express Credit Corporation
5.65% 07/01/98 $ 2,900,000
7,700,000 Merrill Lynch and Company 6.00%
07/01/98 7,700,000
9,000,000 PHH Corporation 6.10% 07/02/98 8,998,475
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$19,598,475) 19,598,475
-----------
TOTAL INVESTMENTS-101.3%
(COST-$159,418,273) 199,210,662
OTHER ASSETS &
LIABILITIES-(1.3%) (2,497,173)
-----------
NET ASSETS-100.0% $196,713,489
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
FOUNDERS SPECIAL FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
1 Year 5 Year 10 Years Since Inception
------ ------ -------- ---------------
20.04% 15.15% 16.96% 16.53%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Capital
Appreciation Consumer
Special Fund Index S&P 500 Index Price Index
------- ---------- ------------- -----------
6/88 ....... $10,000 $10,000 $10,000 $10,000
6/89 ....... $12,052 $12,052 $12,213 $10,516
6/90 ....... $13,998 $14,035 $14,098 $11,007
6/91 ....... $16,504 $15,068 $15,910 $11,524
6/92 ....... $19,551 $17,086 $18,861 $11,880
6/93 ....... $23,654 $19,412 $23,138 $12,234
6/94 ....... $23,175 $19,686 $23,128 $12,539
6/95 ....... $30,025 $24,808 $28,293 $12,921
6/96 ....... $34,854 $31,248 $34,397 $13,276
6/97 ....... $39,877 $42,081 $42,433 $13,580
6/98 ....... $47,870 $54,770 $53,936 $13,809
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER
PAUL LAROCCO
HOW DID THE SPECIAL FUND PERFORM DURING THE FIRST HALF OF THE YEAR?
Although large-cap stocks continue to dominate the market, mid-cap stocks such
as those in the Special Fund are actually showing a higher rate of earnings
growth than large caps. This boosted the Fund's total return performance to
13.6% for the six-month period ended June 30, 1998.
WHERE ARE YOU FINDING INVESTMENT OPPORTUNITIES?
The continued fluctuations in the stock market have given us an opportunity to
take profits in several stocks that have had strong runs. We've used the cash to
add several new names that offer greater potential for growth at reasonable
prices.
The names we're adding are "new idea" companies with new products, new
services, or new business approaches. They are usually fairly mature in their
business development, yet still small enough to grow rapidly. We use our
bottom-up strategy to identify companies with revenue-driven growth,
24
<PAGE>
earnings that are meeting or beating expectations, and management teams that can
handle high growth rates.
TOP 10 HOLDINGS
1. Total Renal Care Holdings, Inc. 3.07%
2. Saville Systems PLC 2.70%
3. JDA Software Group, Inc. 2.53%
4. AXENT Technologies, Inc. 2.20%
5. Associates First Capital
Corporation Class A 2.19%
6. Cambridge Technology Partners,
Inc. 1.97%
7. Network Associates, Inc. 1.91%
8. Benckiser NV Class B 1.86%
9. CKE Restaurants, Inc. 1.84%
10. Green Tree Financial Corporation 1.82%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
CAN YOU GIVE US AN EXAMPLE?
JDA Software is a strong "new idea" company. It provides a broad suite of
software products that address all aspects of running a retail business. The
penetration rate of this type of software in the retail industry is very low,
and JDA Software could see significant growth over the next few years.
We've also concentrated additional assets in some of our favorite names,
including healthcare services companies. As the population ages, there will be
an increased need for better quality healthcare at lower cost. One example is
Healthsouth Corp., which provides rehabilitative facilities and outpatient
surgery services outside of hospitals. This means Healthsouth can provide higher
quality care at a lower cost.
LOOKING FORWARD, WHAT'S YOUR OUTLOOK FOR MID-CAP STOCKS?
Large-cap earnings growth has slowed, partly due to the impact of the Asian
crisis. However, this should actually benefit mid-cap companies as investors
move down the capitalization spectrum in search of good growth opportunities.
Mid caps should be attractive alternatives to large-cap stocks.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $327.0 million
NAV ON JUNE 30, 1998 $8.77
EXPENSE RATIO: 1.32%
INCEPTION DATE: 9/8/61
25
<PAGE>
FOUNDERS SPECIAL FUND (CONTINUED)
Our portfolio is full of rapidly growing companies that are meeting or beating
their earnings targets and trading at reasonable valuations. As investors focus
on growth at a reasonable price in a liquidity-driven market, we're optimistic
that our companies will be recognized in the marketplace.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Technology 31.3%
Consumer 14.8%
Financial 11.9%
Healthcare 10.4%
Energy 3.5%
Capital Goods 3.0%
Basic Materials 0.7%
Telecom Services 0.6%
Transportation 0.5%
Consumer Staples 14.4%
Cash & Equivalents 8.9%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
Paul LaRocco
Portfolio Manager
26
<PAGE>
FOUNDERS SPECIAL FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
SHARES MARKET VALUE
- -----------------------------------------------------------
COMMON STOCKS (DOMESTIC)-75.9%
APPAREL-1.3%
116,000 Jones Apparel Group, Inc.* $4,241,250
----------
BUSINESS SERVICES-3.8%
61,625 CDW Computer Centers, Inc.* 3,081,250
123,000 Fiserv, Inc.* 5,189,063
124,800 Young & Rubicam, Inc.* 3,993,600
----------
12,263,913
----------
COMPUTER EQUIPMENT-0.3%
30,150 Telxon Corporation 968,569
----------
COMPUTER SOFTWARE/SERVICES-18.4%
59,000 Affiliated Computer Services, Inc.
Class A* 2,271,500
102,000 Aspen Technology, Inc.* 5,151,000
235,000 AXENT Technologies, Inc.* 7,182,188
38,000 BMC Software, Inc.* 1,973,625
117,650 Cambridge Technology Partners, Inc.* 6,426,631
68,000 Compuware, Corporation* 3,472,250
150,000 Harbinger Corporation* 3,628,125
189,300 JDA Software Group, Inc.* 8,281,875
19,000 Microsoft Corporation* 2,059,125
130,500 Network Associates, Inc.* 6,239,531
207,000 Renaissance Worldwide, Inc.* 4,502,250
108,500 Sterling Commerce, Inc.* 5,262,250
100,000 SunGard Data Systems, Inc.* 3,837,500
----------
60,287,850
----------
CONSUMER PRODUCTS-1.3%
132,000 Blyth Industries, Inc.* 4,389,000
----------
CONSUMER SERVICES-1.5%
242,725 Cendant Corporation* 5,066,884
----------
ENVIRONMENTAL SERVICES-3.1%
50,500 Allied Waste Industries, Inc.* 1,208,844
85,000 American Disposal Services, Inc.* 3,984,375
97,000 USA Waste Services, Inc.* 4,789,375
----------
9,982,594
----------
FINANCIAL SERVICES-8.5%
93,000 Associates First Capital Corporation
Class A $7,149,375
19,000 Capital One Financial Corporation 2,359,563
40,000 The FINOVA Group, Inc. 2,265,000
139,000 Green Tree Financial Corporation 5,950,938
114,000 Nationwide Financial
Services, Inc. 5,814,000
147,825 Resource America, Inc. 4,286,925
----------
27,825,801
----------
HEALTHCARE SERVICES-8.1%
199,500 Concentra Managed Care, Inc.* 5,174,531
219,000 Healthsouth Corporation* 5,844,563
85,000 NCS Healthcare, Inc.* 2,422,500
59,050 Quintiles Transnational Corporation* 2,900,831
291,000 Total Renal Care Holdings, Inc.* 10,039,500
----------
26,381,925
----------
INSURANCE-0.9%
65,500 Conseco, Inc. 3,062,125
----------
LEISURE & ENTERTAINMENT-2.0%
147,100 Midway Games, Inc.* 2,298,438
61,600 Premier Parks, Inc.* 4,104,100
----------
6,402,538
----------
MISCELLANEOUS-0.8%
109,450 Wackenhut Corrections Corporation* 2,558,394
----------
OIL SERVICES-2.0%
60,000 EVI Weatherford, Inc.* 2,227,500
171,000 Global Industries Limited* 2,874,938
34,500 Halliburton Company 1,537,406
----------
6,639,844
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
FOUNDERS SPECIAL FUND
SHARES MARKET VALUE
- ------------------------------------------------------------
PHARMACEUTICALS-2.4%
72,000 Medicis Pharmaceutical Corporation* $ 2,610,000
172,725 Mylan Laboratories, Inc. 5,192,545
-----------
7,802,545
-----------
PUBLISHING & BROADCASTING-4.1%
103,000 Applied Graphics Technologies, Inc.* 4,692,938
113,000 Cox Radio, Inc.* 4,887,250
83,500 MediaOne Group, Inc.* 3,668,781
-----------
13,248,969
-----------
RESTAURANTS-3.1%
145,750 CKE Restaurants, Inc. 6,012,188
109,500 Outback Steakhouse, Inc.* 4,263,656
-----------
10,275,844
-----------
RETAIL-5.7%
87,125 Fred Meyer, Inc.* 3,702,813
112,450 Lowe's Companies, Inc. 4,561,253
96,800 Pier 1 Imports, Inc. 2,311,100
64,000 Stage Stores, Inc.* 2,896,000
131,425 U. S. Rentals, Inc. 5,183,073
-----------
18,654,239
-----------
SEMICONDUCTORS & EQUIPMENT-4.6%
363,200 Amkor Technology, Inc.* 3,382,300
50,000 Intel Corporation 3,703,125
23,300 Maxim Integrated
Products, Inc.* 736,863
60,000 Uniphase Corporation* 3,765,000
109,000 Vitesse Semiconductor Corporation* 3,365,375
-----------
14,952,663
-----------
TELECOMMUNICATION SERVICES-0.6%
49,000 WinStar Communications, Inc.* $ 2,103,938
-----------
TELECOMMUNICATIONS EQUIPMENT-2.9%
100,000 Advanced Fibre
Communications, Inc.* 4,006,250
50,000 Pairgain Technologies, Inc.* 868,750
54,250 Sawtek, Inc.* 790,016
53,675 Tellabs, Inc.* 3,841,117
-----------
9,506,133
-----------
TRANSPORTATION-0.5%
45,000 USFreightways Corporation 1,476,563
-----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$210,307,214) 248,091,581
-----------
COMMON STOCKS (FOREIGN)-15.5%
BANKING-1.1%
773,225 Banca di Roma (IT)* 1,609,101
21,000 Unidanmark AS Class A (DE) 1,887,220
----------
3,496,321
----------
BUSINESS SERVICES-1.4%
700,000 WPP Group PLC (UK) 4,587,808
----------
CHEMICALS-0.7%
13,500 Air Liquide (FR) 2,232,720
----------
COMPUTER SOFTWARE/SERVICES-3.6%
56,450 CBT Group PLC Sponsored ADR (UK)* 3,020,075
177,500 Saville Systems PLC Sponsored ADR
(IE)* 8,850,667
----------
11,870,742
----------
28
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- ------------------------------------------------------------
CONSUMER PRODUCTS-1.9%
98,725 Benckiser NV Class B (NE)* $6,071,427
----------
FINANCIAL SERVICES-1.4%
69,000 ING Groep NV (NE) 4,518,140
----------
FOOD & BEVERAGE-1.4%
15,650 Groupe Danone (FR) 4,312,924
45,050 Quilmes Industrial SA Registered
(AR)* 396,440
----------
4,709,364
----------
OIL SERVICES-1.4%
28,000 Petroleum Geological Services
Sponsored ADR (NW)* 854,000
70,000 Stolt Comex Seaway SA Class A
Sponsored ADR (UK)* 1,207,500
140,000 Stolt Comex Seaway SA Sponsored ADR
(UK)* 2,695,000
----------
4,756,500
----------
PUBLISHING & BROADCASTING-2.6%
250,000 Cinar Films, Inc. Class B Sponsored
ADR (CA)* 4,625,000
105,500 Ver Ned Uitgeversbedr Ver Bezit NV
(NE) 3,832,686
----------
8,457,686
----------
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$39,792,319) 50,700,708
-----------
CORPORATE SHORT-TERM NOTES-7.6%
$ 9,200,000 American Express Credit Corporation
5.95%
07/02/98 $ 9,198,479
15,700,000 Merrill Lynch and Company 6.00%
07/01/98 15,700,000
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$24,898,479) 24,898,479
-----------
TOTAL INVESTMENTS-99.0%
(COST-$274,998,012) 323,690,768
OTHER ASSETS & LIABILITIES-1.0%
3,310,465
-----------
NET ASSETS-100.0% $327,001,233
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
1 Year Since Inception
------ ---------------
22.05% 23.23%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
MSCI World
International ex U.S. Consumer
Equity Index Price Index
------ ----- -----------
12/95 ........... $10,000 $10,000 $10,000
06/96 ........... $11,460 $10,469 $10,209
12/96 ........... $11,862 $10,686 $10,333
06/97 ........... $13,814 $11,884 $10,443
12/97 ........... $13,776 $10,927 $10,509
06/98 ........... $16,863 $12,631 $10,618
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER DOUGLAS LOEFFLER
HOW DID THE INTERNATIONAL EQUITY FUND DO DURING THE FIRST SIX MONTHS OF 1998?
We're still heavily weighted in Europe at over 83% of the portfolio. These
holdings boosted our six-month total return to 22.41% for the period ended June
30, 1998. Further, THE WALL STREET JOURNAL awarded Founders International Equity
Fund an "A" rating based on average annual total return among 479
international stock funds reported by Lipper Analytical Services for the
one-year period ended June 30, 1998.*
WHAT'S DRIVEN THE EUROPEAN STOCKS IN THE PORTFOLIO?
There are several factors involved. As European countries begin converting to
the new Euro, we're seeing lower interest rates in several countries. We're also
seeing an
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. In THE WALL STREET
JOURNAL'S July 6, 1998 issue, an "A" rating reflected that the Fund was in
the top 20% of all international stock funds, as classified by Lipper
Analytical Services.
30
<PAGE>
increasing investor demand for equities. These two factors, combined with
Europe's generally steady or accelerating economic growth, have benefited many
European stocks.
One of the most significant recent European developments is the IMF's $22.6
billion financial aid package to Russia. This should ease Russia's interest
rates and currency problems. The aid package will also relieve pressure on
Germany's banks, since Germany is Russia's largest creditor and trading partner.
In fact, the day after the package was announced, Dresdner Bank was up 5%.
Finland should also benefit from the IMF package since it is another of Russia's
primary trading partners.
TOP 10 HOLDINGS
1. Merita Limited Series A 3.04%
2. Cable and Wireless Communications
PLC 2.24%
3. Compass Group PLC 2.18%
4. Oce NV 2.17%
5. Nokia Oyj Sponsored ADR 2.12%
6. KTM-Motorradholding AG 2.08%
7. WPP Group PLC 2.04%
8. Altran Technologies SA 2.02%
9. ING Groep NV 1.98%
10. Pearson PLC 1.95%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
WHERE ARE YOU FINDING THE BEST OPPORTUNITIES?
It's important to emphasize that we do not select stocks for the portfolio based
on index weightings or countries. Instead, we're using our bottom-up strategy to
identify growing companies throughout the world and currently are invested in
roughly 20 countries. As an example, we've found many good growth opportunities
in Finland, including Nokia, a telecommunications equipment company; Merita, a
Finnish bank; and Sponda, the leading Finnish property company. We also added
one of the world's leading elevator manufacturers, a Finnish company called Kone
Oyj.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $22.5 million
NAV ON JUNE 30, 1998: $14.75
EXPENSE RATIO: 1.80%
INCEPTION DATE: 12/29/95
WHAT'S YOUR VIEW ON ASIA?
The Asian economies have made positive steps forward, but problems still remain
and the crisis is definitely not a short-term problem. We just got back from a
week-long visit to Japan, where we looked for new additions to the portfolio.
Although roughly 3.1% of the Fund is invested in Japanese companies, it has been
difficult to identify stocks that will do well regardless of Japan's political
and economic problems. There are certainly opportunities for short-term
improvements, but we believe it could actually take years to correct many of
Japan's deep-seated problems. We are modestly encouraged that the pace of change
will pick up.
31
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND (CONTINUED)
WHAT'S YOUR OUTLOOK FOR THE REST OF THE YEAR?
Lately, stock markets around the world have flattened out, following a robust
first quarter that was liquidity driven. While this created a rising tide that
raised all boats, we're now seeing stronger performance from the better-quality,
high-growth companies such as those in the International Fund.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Netherlands 12.4%
Germany 15.4%
United Kingdom 17.4%
Finland 9.4%
France 9.0%
Italy 4.0%
Sweden 3.6%
Austria 3.1%
Japan 3.1%
Switzerland 3.0%
Other 15.0%
Cash & Equivalents 4.6%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
While we think Europe may be the biggest engine for international growth,
we'll continue searching the globe for new and exciting opportunities as
demonstrated by our holdings in many different countries.
Douglas Loeffler, CFA
Portfolio Manager
32
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
SHARES MARKET VALUE
- ----------------------------------------------------------
PREFERRED STOCKS (FOREIGN)-5.9%
AUTOMOTIVE-1.9%
150 Porsche AG non-voting
preferred (GE)* $ 432,133
---------
COMPUTER SOFTWARE/SERVICES-1.5%
500 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG non-voting
preferred (GE)* 339,320
---------
PUBLISHING & BROADCASTING-1.3%
5,600 ProSieben Media AG
144A preferred (GE) 290,083
---------
RETAIL-1.2%
3,000 Hornbach Holding AG
preferred (GE)* 274,238
---------
TOTAL PREFERRED STOCKS
(FOREIGN)
(COST-$1,052,819) 1,335,774
---------
COMMON STOCKS (FOREIGN)-89.5%
AIRLINES-2.3%
12,725 Deutsche Lufthansa AG 144A (GE)* 320,364
10,000 SAS Danmark AS (DE)* 200,655
---------
521,019
---------
APPAREL-1.4%
1,800 Adidas-Salomon AG (GE)* 313,625
---------
AUTOMOTIVE-1.7%
13,000 Volvo AB Class B (SW)* 387,152
---------
AUTO PARTS & EQUIPMENT-1.8%
7,000 Compagnie Generale des Etablissements
Michelin Class B (FR)* 404,069
---------
BANKING-5.8%
117,675 Banca di Roma (IT) 244,942
2,600 Dresdner Bank AG (GE)* 140,443
104,000 Merita Limited Series A (FI)* 686,206
2,600 Unidanmark AS Class A (DE)* 233,655
---------
1,305,246
---------
BUSINESS SERVICES-8.1%
950 Adecco SA (SZ)* $ 428,365
2,000 Altran Technologies SA (FR)* 454,170
42,825 Compass Group PLC (UK)* 492,348
70,000 WPP Group PLC (UK)* 458,745
---------
1,833,628
---------
CAPITAL GOODS-0.5%
150,000 Guangdong Kelon Electrical Holdings
Company Limited (CN)* 118,087
---------
CHEMICALS-1.1%
1,463 Air Liquide (FR)* 241,864
---------
COMPUTER SOFTWARE/SERVICES-5.8%
3,300 CBT Group PLC Sponsored ADR (UK) 176,550
25,000 Computacenter PLC 144A (UK) 314,116
8,500 Dr. Solomon's Group PLC Sponsored ADR
(UK) 295,375
23,600 JBA Holdings PLC (UK)* 244,152
10,000 Konami Company Limited (JA)* 215,081
2,000 Meitec Corporation (JA)* 69,172
---------
1,314,446
---------
CONSTRUCTION-1.4%
7,500 Brisa Auto-Estradas de Portugal
SA (PO)* 320,756
---------
CONSUMER PRODUCTS-5.7%
6,925 Benckiser NV Class B (NE) 425,876
9,300 Dorel Industries, Inc. Class B (CA) 300,408
6,025 Gucci Group NV Sponsored ADR (NE)* 319,325
15,000 Kao Corporation (JA)* 231,293
---------
1,276,902
---------
CONSUMER SERVICES-1.2%
86,200 Thomson Travel Group PLC (UK) 268,970
---------
ELECTRONICS-1.4%
3,725 Philips Electronics NV New York
Registered Shares (NE)* 316,625
---------
* 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
- ----------------------------------------------------------
FINANCIAL SERVICES-3.3%
22,425 Credito Italiano SPA (IT)* $ 117,389
6,800 ING Groep NV (NE)* 445,266
3,900 Takefuji Corporation (JA)* 179,847
---------
742,502
---------
FOOD & BEVERAGE-3.2%
1,500 Groupe Danone (FR)* 413,505
10,150 Panamerican Beverages, Inc. Class A
(MX)* 319,091
---------
732,596
---------
INSURANCE-1.3%
28,000 Royal & Sun Alliance Insurance Group
PLC (UK)* 289,438
---------
LEISURE & ENTERTAINMENT-3.6%
6,000 KTM Motorradholding AG (AT)* 467,753
63,675 Ladbroke Group PLC (UK)* 349,565
---------
817,318
---------
MACHINERY-8.9%
8,000 Alstom SA (FR) 263,285
4,050 KCI Konecranes International
PLC (FI)* 205,217
2,300 Kone Oyj B Shares (FI)* 322,798
700 Krones AG Preferred (GE)* 281,163
3,000 Mannesmann AG (GE)* 308,291
18,000 Toolex International NV (NE)* 335,365
1,900 VA Technologie AG (AT)* 236,391
2,950 Valmet Corporation Ordinary A (FI)* 50,866
---------
2,003,376
---------
OFFICE SUPPLIES & EQUIPMENT-2.2%
11,500 Oce NV (NE)* 489,578
---------
OIL & GAS-4.5%
4,025 Eni SPA Sponsored ADR (IT)* $ 261,625
25,000 Gulf Canada Resources
Limited (CA) 123,438
9,000 Gulf Indonesia Resources Limited (ID) 103,500
4,000 Total SA Sponsored ADR (FR)* 261,500
9,000 YPF Sociedad Anonima Sponsored ADR
representing one Class D share (AR)* 270,563
---------
1,020,626
---------
OIL SERVICES-1.0%
4,200 Aker Maritime ASA (NW)* 73,891
4,600 Petroleum Geological Services
Sponsored ADR (NW) 140,300
---------
214,191
---------
PACKAGING-1.3%
1,150 Schmalbach Lubeca AG (GE)* 289,889
---------
PAPER & FOREST PRODUCTS-0.7%
15,375 Metsa-Serla Oyj Class B (FI)* 148,526
---------
PHARMACEUTICALS-1.8%
150 Novartis AG Registered (SZ)* 249,598
2,000 Schwarz Pharma AG (GE)* 156,226
---------
405,824
---------
PROPERTY-1.0%
31,600 Sponda Oyj 144A (FI) 221,748
---------
PUBLISHING & BROADCASTING-5.2%
24,000 Pearson PLC (UK)* 439,711
17,000 Schibsted ASA (NW)* 285,789
12,075 Ver Ned Uitgeversbedr Ver
Bezit NV (NE)* 438,670
---------
1,164,170
---------
34
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- -----------------------------------------------------------
RETAIL-2.3%
525 Ceteco Holding NV (NE)* $ 28,519
11,475 Dixons Group PLC (UK)* 91,524
6,075 Douglas Holdings AG (GE)* 323,409
4,025 Narvesen ASA (NW)* 83,925
----------
527,377
----------
TELECOMMUNICATION SERVICES-8.9%
50,000 Cable and Wireless Communications PLC
(UK) 504,756
5,350 China Telecom Limited Sponsored ADR
(HK) 184,909
6,150 Global TeleSystems Group, Inc. (RU) 298,275
11,250 Netcom Systems AB Class B (SW) 430,962
1,450 Telecomunicacoes Brasileiras
Sponsored ADR (BR)* 158,322
12,500 Telecom Italia SPA (IT)* 92,016
40,000 Telecom Italia SPA Savings Share
(IT)* 193,637
4,700 Telefonica de Argentina SA Sponsored
ADR representing ten Class B ordinary
shares (AR)* 152,456
----------
2,015,333
----------
TELECOMMUNICATIONS EQUIPMENT-2.1%
6,600 Nokia Oyj Corporation Sponsored ADR
(FI)* 478,913
----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$17,004,332) 20,183,794
----------
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-11.5%
$600,000 Aluminum Company of America 6.20%
07/01/98 $ 600,000
900,000 American Express Credit Corporation
5.57% 07/01/98 900,000
500,000 Ford Motor Credit Company 5.70%
07/02/98 499,921
600,000 Merrill Lynch and Company 6.02%
07/02/98 599,900
----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$2,599,821)
2,599,821
----------
TOTAL INVESTMENTS-106.9%
(COST-$20,656,972) 24,119,389
OTHER ASSETS & LIABILITIES-(6.9%)
(1,580,497)
----------
NET ASSETS-100.0% $22,538,892
==========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
1 Year 5 Year Since Inception
------ ------ ---------------
14.96% 16.56% 14.85%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Founders MSCI Lipper Consumer
Worldwide World Global Price
Growth Fund Index Fund Index Index
---------- ---------- ---------- ---------
12/89 ....... $ 10,000 $ 10,000 $ 10,000 $ 10,000
06/90 ....... $ 11,050 $ 9,257 $ 10,316 $ 10,301
06/91 ....... $ 11,797 $ 8,804 $ 9,733 $ 10,785
06/92 ....... $ 14,090 $ 9,176 $ 11,033 $ 11,118
06/93 ....... $ 15,083 $ 10,714 $ 12,109 $ 11,450
06/94 ....... $ 17,703 $ 11,810 $ 14,032 $ 11,736
06/95 ....... $ 20,743 $ 13,069 $ 15,231 $ 12,092
06/96 ....... $ 24,920 $ 15,479 $ 17,863 $ 12,425
06/97 ....... $ 28,220 $ 18,925 $ 21,532 $ 12,710
06/98 ....... $ 32,444 $ 22,147 $ 24,661 $ 12,924
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER MICHAEL GERDING
HOW DID THE WORLDWIDE GROWTH FUND PERFORM DURING THE FIRST SIX MONTHS OF 1998?
Largely on the strength of our European holdings, Founders Worldwide Growth Fund
had a total return of 15.11% for the
six-month period ended June 30, 1998. Our confidence in the European economies
continues to be strong as demonstrated by the fact that 67% of the equities in
the portfolio are European.
The Fund has been recognized for its long-term performance with a .... overall
rating from Morningstar for the three- and five-year periods ended June 30,
1998, among 778 international equity funds rated for the three-year period, and
338 for the five-year period.*
WHAT'S DRIVING EUROPEAN STOCKS?
European economies are still accelerating, consumer confidence is slowly rising,
and
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect risk-adjusted performance through June 30, 1998. The top 10%
of the funds in an investment category receive 5 stars and the next 22.5%
receive 4 stars. Subject to change every month, a fund's rating is based on
its 3-, 5-, and [when available] 10-year average annual total returns [with
fee adjustments] in excess of 90-day Treasury bill returns, and a risk factor
that reflects fund performance below 90-day Treasury bill returns.
36
<PAGE>
unemployment rates in many countries, such as Germany, are dropping.
Investor interest is really driving the markets in Europe and companies are
realizing they must satisfy their shareholders to access the capital markets.
Many European companies are using share options as employee incentives. It's a
lot like the changes seen a few years ago in the United States, where employees
at companies across America became shareowners through 401(k)s or stock option
plans.
TOP 10 HOLDINGS
1. MLP Preferred 3.08%
2. Merita Limited Class A 2.61%
3. Oce NV 2.24%
4. Compass Group PLC 2.23%
5. Groupe Danone 2.22%
6. WorldCom, Inc. 2.16%
7. Ladbroke Group PLC 2.12%
8. VNU NV 2.01%
9. WPP Group PLC 1.97%
10. ING Groep NV 1.91%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
WHICH STOCKS ARE BENEFITING FROM THE CHANGES IN EUROPE?
Credito Italiano, an Italian financial services company, is a good example of
the developing European equity culture. Many financial services companies and
banks have been forced to expand their focus and Credito Italiano has grown its
business dramatically on the non-bank side by expanding into mutual funds.
We've also seen a number of European large-cap companies restructure to become
more competitive globally. For example, Volkswagen is streamlining its platforms
so that when finished nearly 60% of its parts will be common across all models.
This should positively impact its manu- facturing costs.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $332.8 million
NAV ON JUNE 30, 1998 $24.30
EXPENSE RATIO: 1.47%
INCEPTION DATE: 12/31/89
WHAT'S AHEAD FOR EUROPE?
Europe's corporate restructuring is likely to go on for a decade or more. We
believe the European economy may actually do better than the U.S. in 1998.
WHERE ELSE ARE YOU INVESTED?
We've identified growing companies in roughly 20 countries around the world.
However, we've had difficulty identifying good U.S. companies that meet our
criteria. Our U.S. weighting is relatively low at 17%. The U.S. economy is
slowing and it appears likely that growth will drop to 1 or 2%. We've also had a
long-lived economic recovery that is making it difficult for companies to grow
earnings.
WHAT ARE YOUR THOUGHTS ON ASIA?
We're amazed how optimistic people are toward Asia. We believe the situation
today is worse than it was a month ago or at the beginning of the year and it
continues to deteriorate. Many economic indicators are far worse than the data
that came out of the United States' Depression in the 1930s.
37
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND (CONTINUED)
We're also seeing signs that the crisis is affecting countries that previously
were more immune -- countries like Hong Kong and Taiwan. Based on performance,
these are two of the worst performing markets
year-to-date.
The good news from Asia is that valuations are finally coming down. Once they
hit the bottom, there could be some good stock buys
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
United Kingdom 14.4%
Germany 14.5%
United States 17.4%
Netherlands 10.6%
France 5.5%
Japan 4.6%
Italy 4.5%
Finland 3.7%
Argentina 2.8%
Norway 1.3%
Other 6.3%
Cash & Equivalents 14.4%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
provided we begin to see earnings growth. We are also beginning to see companies
outside Asia scouting for businesses within the region they can buy. This could
be an early sign that the market is beginning to reflect more realistic
valuations.
AND JAPAN?
We're underweight in Japan, at 4.6% of the Fund. We believe the Japanese
government is still avoiding many of the issues necessary to restore its
economy. We are just not finding many companies growing earnings there.
GIVEN YOUR OUTLOOK, HOW WILL YOU APPROACH THE REST OF THE YEAR?
As always, instead of focusing on a macroeconomic picture, or making country or
regional allocations, we'll continue to rely on our bottom-up strategy of
selecting individual stocks on a company-by-company basis. As we scour the globe
for these companies, we believe we will continue to find most of the values in
Europe, but we'll continue to watch for opportunities throughout the world.
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
SHARES MARKET VALUE
- ----------------------------------------------------------
PREFERRED STOCKS (FOREIGN)-7.6%
AUTOMOTIVE-1.6%
7,700 Volkswagen AG
non-voting preferred (GE) $5,305,755
----------
COMPUTER SOFTWARE/SERVICES-1.0%
4,800 Systeme, Anwendungen, Produkte in der
Datenverarbeitung AG
non-voting preferred (GE) 3,257,618
----------
FINANCIAL SERVICES-3.1%
21,025 Marschollek, Lautenschlaeger und
Partner AG non-voting preferred (GE) 10,250,082
----------
PUBLISHING & BROADCASTING-1.2%
79,700 ProSieben Media AG 144A preferred
(GE)` 4,128,504
----------
RETAIL-0.7%
26,000 Hornbach Holding AG preferred (GE) 2,376,731
----------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST-$11,329,102) 25,318,690
----------
COMMON STOCKS (DOMESTIC)-17.4%
APPAREL-2.6%
109,100 The Warnaco Group, Inc.
Class A 4,629,931
193,830 Wolverine World Wide, Inc. 4,203,688
----------
8,833,619
----------
BUSINESS SERVICES-1.4%
159,525 Manpower, Inc. 4,576,373
----------
ELECTRONICS-1.4%
76,550 Emerson Electric Company 4,621,706
----------
FINANCIAL SERVICES-1.9%
146,325 Green Tree Financial Corporation 6,264,539
----------
FOOD & BEVERAGE-1.7%
134,225 Pepsico, Inc. 5,528,392
----------
HEALTHCARE SERVICES-0.8%
103,988 Quorum Health Group, Inc.* $2,742,684
----------
OIL & GAS-1.3%
134,950 Apache Corporation 4,250,925
----------
OIL SERVICES-0.5%
36,250 Dresser Industries, Inc. 1,597,266
----------
PUBLISHING & BROADCASTING-1.8%
99,175 Jacor Communications, Inc.* 5,851,325
----------
RETAIL-1.5%
167,525 Guitar Center, Inc.* 5,046,691
----------
TELECOMMUNICATION SERVICES-2.1%
148,950 WorldCom, Inc.* 7,196,147
----------
TELECOMMUNICATIONS EQUIPMENT-0.4%
179,150 Digital Microwave Corporation* 1,298,838
----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$47,355,618) 57,808,505
----------
COMMON STOCKS (FOREIGN)-60.4%
AIRLINES-2.1%
203,600 Deutsche Lufthansa AG
144A (GE) 5,126,659
99,875 SAS Danmark AS (DE) 2,004,168
----------
7,130,827
----------
APPAREL-1.5%
29,225 Adidas-Salomon AG (GE) 5,092,013
----------
BANKING-4.9%
2,163,775 Banca di Roma (IT)* 4,503,934
60,000 Dresdner Bank AG (GE) 3,240,997
1,315,000 Merita Limited Series A (FI) 8,676,546
----------
16,421,477
----------
* 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-4.2%
646,900 Compass Group PLC (UK) $7,437,245
1,000,000 WPP Group PLC (UK) 6,554,012
----------
13,991,257
----------
CHEMICALS-2.5%
25,903 Air Liquide (FR) 4,282,106
63,750 Imperial Chemical Industries PLC
Sponsored ADR (UK) 4,111,875
----------
8,393,981
----------
COMPUTER SOFTWARE/SERVICES-4.2%
64,300 CBT Group PLC Sponsored ADR (UK)* 3,440,050
271,200 Computacenter PLC 144A (UK)* 3,407,535
50,000 Dr. Solomon's Group PLC Sponsored ADR
(UK) 1,737,500
166,000 Konami Company (JA) 3,568,672
18,000 Saville Systems PLC Sponsored ADR
(IE) 897,750
37,200 Square Company Limited (JA) 991,434
----------
14,042,941
----------
CONSTRUCTION-1.0%
74,500 Brisa Auto-Estradas de Portugal SA
(PO) 3,186,174
----------
CONSUMER PRODUCTS-4.4%
96,650 Benckiser NV Class B (NE)* 5,943,818
73,575 Gucci Group NV Sponsored ADR (NE) 3,899,475
52,250 Industrie Natuzzi SPA Sponsored ADR
(IT) 1,357,334
224,000 Kao Corporation (JA) 3,453,976
----------
14,654,603
----------
CONSUMER SERVICES-1.0%
1,073,700 Thomson Travel Group PLC (UK)* 3,350,274
----------
ELECTRONICS-1.5%
56,850 Philips Electronics NV New York
Registered Shares (NE) 4,832,250
----------
FINANCIAL SERVICES-3.7%
527,425 Credito Italiano SPA (IT)* 2,760,929
97,000 ING Groep NV (NE) 6,351,588
69,600 Takefuji Corporation (JA) 3,207,940
----------
12,320,457
----------
FOOD & BEVERAGE-3.5%
26,825 Groupe Danone (FR) $7,395,272
122,475 Panamerican Beverages, Inc. Class
A(MX) 3,850,308
27,170 Quilmes Industrial SA Registered
(AR)* 239,096
----------
11,484,676
----------
INSURANCE-1.0%
322,350 Royal & Sun Alliance Insurance Group
PLC (UK) 3,332,064
----------
LEISURE & ENTERTAINMENT-2.1%
1,286,225 Ladbroke Group PLC (UK) 7,060,862
----------
MACHINERY-3.1%
97,900 Alstom SA (FR) 3,222,312
45,250 Mannesmann AG (GE) 4,650,346
11,000 VA Technologie AG (AT) 1,368,576
57,600 Valmet Corporation Ordinary A (Fl) 993,176
----------
10,234,410
----------
OFFICE SUPPLIES & EQUIPMENT-2.2%
174,000 Oce NV (NE) 7,407,531
----------
OIL & GAS-4.4%
47,450 Eni SPA Sponsored ADR (IT) 3,084,250
410,000 Gulf Canada Resources Limited (CA)* 2,024,375
53,430 Total SA Sponsored ADR (FR) 3,492,986
205,500 YPF Sociedad Anonima
Sponsored ADR
representing one Class D
share (AR) 6,177,844
----------
14,779,455
----------
40
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- -----------------------------------------------------------
OIL SERVICES-1.3%
83,525 Aker Maritime ASA (NW) $1,469,457
90,100 Petroleum Geological Services
Sponsored ADR (NW)* 2,748,050
----------
4,217,507
----------
PAPER & FOREST PRODUCTS-0.8%
261,850 Metsa-Serla Oyj Class B (FI) 2,529,537
----------
PHARMACEUTICALS-2.4%
1,980 Novartis AG Registered (SZ) 3,292,492
60,000 Schwarz Pharma AG (GE) 4,686,784
----------
7,979,276
----------
PUBLISHING & BROADCASTING-3.7%
301,550 Pearson PLC (UK) 5,524,779
184,450 Ver Ned Uitgeversbedr Ver Bezit NV
(NE) 6,700,843
----------
12,225,622
----------
RETAIL-0.6%
246,875 Dixons Group PLC (UK) 1,970,282
----------
TELECOMMUNICATION SERVICES-4.3%
22,800 China Telecom Limited Sponsored ADR
(HK)* 788,025
500 Nippon Telegraph and Telephone
Corporation (JA) 4,143,099
29,950 Telecomunicacoes Brasileiras
Sponsored ADR (BR) 3,270,166
212,000 Telecom Italia SPA (IT) 1,560,586
330,000 Telecom Italia SPA Savings Share
(IT)* 1,597,508
92,400 Telefonica de Argentina SA Sponsored
ADR representing ten Class B ordinary
shares (AR) 2,997,225
----------
14,356,609
----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$161,598,865) 200,994,085
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-14.7%
$ 2,000,000 Aluminumn Company of America 6.20%
07/01/98 $ 2,000,000
14,100,000 American Express Credit Corporation
5.57% 07/01/98 14,100,000
16,100,000 Associates Corporation NA 5.70%
07/01/98 16,087,254
16,700,000 Merrill Lynch and Company 5.95%
07/02/98 16,697,240
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$48,884,494) 48,884,494
-----------
TOTAL INVESTMENTS-100.1%
(COST-$269,168,079) 333,005,774
OTHER ASSETS & LIABILITIES-(0.1)%
(231,476)
-----------
NET ASSETS-100.0% $332,774,298
===========
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
FOUNDERS GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
1 Year 5 Year 10 Years 20 Years
------ ------ -------- --------
27.91% 22.04% 19.83% 18.69%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Growth Consumer
Growth S&P 500 Index Fund Index Price Index
------ ------------- ---------- -----------
6/88 ....... $10,000 $10,000 $10,000 $10,000
6/89 ....... $12,758 $12,052 $11,770 $10,516
6/90 ....... $14,306 $14,035 $13,322 $11,007
6/91 ....... $14,661 $15,068 $14,014 $11,524
6/92 ....... $16,882 $17,086 $15,953 $11,880
6/93 ....... $22,558 $19,412 $18,594 $12,234
6/94 ....... $21,903 $19,686 $18,907 $12,539
6/95 ....... $29,056 $24,808 $23,281 $12,921
6/96 ....... $38,987 $31,248 $28,082 $13,276
6/97 ....... $47,735 $42,081 $35,266 $13,580
6/98 ....... $61,051 $54,770 $44,069 $13,809
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER EDWARD KEELY
HOW DID THE GROWTH FUND PERFORM DURING THE SECOND QUARTER?
Large-cap firms are still outperforming small- and mid-cap stocks on the
strength of
the economy. We've benefited by shifting toward the larger-cap names. As a
result, the Growth Fund had a total return of 5.46% for the second quarter ended
June 30, 1998, outperforming the Standard & Poor's 500 Index, which returned
3.24% for the same period. We also received a .... overall rating from
Morningstar for the three-, five-, and 10-year periods. As of June 30, 1998,
2,545 domestic equity funds were rated for the three-year period, 1,462 for the
five-year period, and 707 for the 10-year period.*
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect risk-adjusted performance through June 30, 1998. The top 10%
of the funds in an investment category receive 5 stars and the next 22.5%
receive 4 stars. Subject to change every month, a fund's rating is based on
its 3-, 5- and [when available] 10-year average annual total returns [with fee
adjustments] in excess of 90-day Treasury bill returns, and a risk factor that
reflects fund performance below 90-day Treasury bill returns.
42
<PAGE>
WHERE ARE YOU CURRENTLY FINDING YOUR BEST INVESTMENT OPPORTUNITIES?
Interestingly enough, many of the companies we've been invested in are actually
benefiting from two dominant themes. First, there's been a spate of corporate
acquisitions fueled by the increase in stock prices. Second, interest rates are
still low, and that's encouraged many American consumers to make credit
purchases. Consumer finance companies have benefited the most from these themes.
In this group, we have held Green Tree Financial Corp., which has just been
acquired by Conseco, Inc., one of the largest financial service companies in
America. We also own Beneficial Corp., which just announced a marriage with
Household International; and Citicorp, which plans to unite with Travelers.
TOP 10 HOLDINGS
1. Pfizer, Inc. 4.85%
2. MCI Communications Corporation 3.67%
3. Beneficial Corporation 3.11%
4. General Electric Company 2.90%
5. Microsoft Corporation 2.46%
6. Capital One Financial Corporation 2.30%
7. Monsanto Company 2.21%
8. Associates First Capital
Corporation Class A 2.18%
9. Intel Corporation 2.08%
10. Green Tree Financial Corporation 2.07%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
HOW DO YOU FEEL ABOUT LARGE-CAP VALUATIONS RIGHT NOW?
Valuations are high in general, but we've been able to find good opportunities
among companies that are undergoing significant restructuring. These are
companies that have made significant asset sales, reduced outstanding debt, or
made substantial stock buybacks to increase shareholder returns.
For example, Cognizant Corp. recently split into two companies: IMS Health and
Nielsen Media Research. IMS Health compiles data on pharmaceutical sales and
passes this information on to HMOs and pharmaceutical companies. Nielsen is the
company that polls people on their TV viewing habits. The split has unlocked the
value in IMS Health and the combined stock price of the two spin-offs has
doubled since we bought it in May of last year.
HOW HAS THE ONGOING SOUTHEAST ASIAN CRISIS IMPACTED THE GROWTH FUND?
The Asian crisis has actually benefited the U.S. by driving foreign investors
into domestic household name stocks such as Disney and Coca-Cola. In fact, it's
probably been one of the main factors behind the growth of the U.S. markets this
year. Moreover, the effects of Asia have contributed the stabilization necessary
to lower our interest rates and strengthen the domestic economy. This has
spurred consumers to borrow money, buy homes, refinance mortgages, and spend
money. It's had important repercussions for the rest of the economy.
43
<PAGE>
FOUNDERS GROWTH FUND (CONTINUED)
On the other hand, the situation has been a disaster for domestic technology
companies that export to Asia. Many of these companies are closely tied to the
growth of Southeast Asian markets and will probably continue to have difficulty
meeting analyst expectations for 1998. We actually trimmed our exposure to this
sector in the fourth quarter of 1997 and it's
only 15% of the Fund now.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $2.34 billion
NAV ON JUNE 30, 1998: $20.65
EXPENSE RATIO: 1.12%
INCEPTION DATE: 1/5/62
Looking forward, we think it's possible that Hong Kong and/or China will
devalue their currencies, which could cause a recession in these countries and
reduce China's ability to buy U.S. technology goods. However, if the Japanese
government is successful in pulling its economy out of recession, it could set
the stage for the economic recovery of the entire Southeast Asian region and
turn the tide for tech-
nology stocks.
PORTFOLIO COMPOSITION [PIE CHART]
---------------------
Technology 15.0%
Consumer Staples 17.7%
Financial 20.5%
Consumer Cyclicals 16.9%
Healthcare 10.9%
Telecom Services 4.9%
Capital Goods 3.7%
Basic Materials 2.2%
Transportation 1.0%
Cash & Equivalents 7.2%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
WHAT ARE YOUR EXPECTATIONS FOR THE REST OF THE YEAR?
We're cautious. The U.S. economy is healthy right now, but it's possible Asia's
problems will slow it down. Areas like California that are especially dependent
on exporting technology to Asia will probably feel the effects over the next six
to 12 months. As a byproduct, we expect earnings growth to slow for the Standard
& Poor's 500. However, companies that can grow in a slower growth environment
should outperform and be rewarded with higher valuations.
Edward Keely, CFA
Portfolio Manager
44
<PAGE>
FOUNDERS GROWTH FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
SHARES MARKET VALUE
- ------------------------------------------------------------
PREFERRED STOCKS (FOREIGN)-0.9%
PUBLISHING & BROADCASTING-0.9%
727,000 The News Corporation Limited
Sponsored ADR representing four
limited voting preferred shares (AU)* $20,537,750
-----------
TOTAL PREFERRED STOCKS
(FOREIGN)
(COST-$16,542,946) 20,537,750
-----------
COMMON STOCKS (DOMESTIC)-89.3%
BANKING-1.8%
288,000 Citicorp* 42,984,000
-----------
BUSINESS SERVICES-5.7%
868,800 Comdisco, Inc.* 16,507,200
570,000 Computer Sciences Corporation 36,480,000
834,687 Fiserv, Inc. 35,213,357
717,450 Galileo International, Inc.* 32,330,091
420,000 Viad Corporation* 11,655,000
------------
132,185,648
------------
CHEMICALS-2.2%
922,500 Monsanto Company* 51,544,688
------------
COMPUTER SOFTWARE/SERVICES-5.4%
447,900 Intuit, Inc. 27,433,875
530,000 Microsoft Corporation 57,438,750
124,750 PeopleSoft, Inc. 5,855,453
423,825 Sterling Commerce, Inc. 20,555,513
362,262 Veritas Software Corporation 14,965,949
------------
126,249,540
------------
CONSUMER PRODUCTS-10.9%
205,000 The Black & Decker Corporation* $12,505,000
305,000 Colgate-Palmolive Company* 26,840,000
1,015,475 The Dial Corporation* 26,338,883
702,000 Gillette Company* 39,794,625
440,000 Mattel, Inc.* 18,617,500
365,475 Maytag Corporation* 18,045,328
581,000 Newell Company* 28,941,063
814,500 Philip Morris Companies, Inc.* 32,070,938
329,000 The Procter & Gamble Company* 29,959,563
922,300 RJR Nabisco Holdings Corporation* 21,904,625
-----------
255,017,525
-----------
CONSUMER SERVICES-1.0%
1,138,700 Cendant Corporation 23,770,363
-----------
DIVERSIFIED-1.1%
414,500 Cognizant Corporation* 26,113,500
-----------
ELECTRONICS-2.9%
745,000 General Electric Company* 67,795,000
-----------
FINANCIAL SERVICES-13.3%
662,906 Associates First Capital Corporation
Class A* 50,960,899
474,525 Beneficial Corporation* 72,691,299
433,250 Capital One Financial Corporation* 53,804,235
562,500 Fannie Mae* 34,171,875
257,475 Golden West Financial Corporation* 27,372,811
1,130,000 Green Tree Financial Corporation* 48,378,125
115,500 Heller Financial, Inc. 3,465,000
395,500 SLM Holding Corporation* 19,379,500
-----------
310,223,744
-----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
FOUNDERS GROWTH FUND
SHARES MARKET VALUE
- ------------------------------------------------------------
FOOD & BEVERAGE-3.3%
738,900 Coca-Cola Enterprises, Inc.* $29,001,825
200,350 Ralston-Ralston Purina Group* 23,403,384
464,000 Sara Lee Corporation* 25,955,000
-----------
78,360,209
-----------
INSURANCE-5.4%
53,500 The Allstate Corporation* 4,898,594
474,000 Conseco, Inc.* 22,159,500
334,375 Everest Reinsurance Holdings, Inc.* 12,852,539
260,000 The Hartford Financial Services
Group, Inc.* 29,737,500
495,000 Marsh & McLennan Companies, Inc.* 29,916,563
193,800 The Progressive Corporation* 27,325,800
-----------
126,890,496
-----------
LEISURE & ENTERTAINMENT-4.8%
188,000 America Online, Inc. 19,928,000
810,000 Grand Casinos, Inc. 13,567,500
1,473,000 Hilton Hotels Corporation* 41,980,500
1,213,800 Mirage Resorts, Inc. 25,869,113
97,500 The Walt Disney Company* 10,243,594
-----------
111,588,707
-----------
MANUFACTURING-0.9%
410,000 Crane Company* 19,910,625
-----------
MEDICAL SUPPLIES & EQUIPMENT-1.0%
375,000 Medtronic, Inc.* 23,906,250
-----------
PAPER & FOREST PRODUCTS-0.7%
380,000 Fort James Corporation* 16,910,000
-----------
PHARMACEUTICALS-9.1%
185,000 ALZA Corporation $ 8,001,250
270,500 Bristol-Myers Squibb Company* 31,090,594
256,125 Eli Lilly & Company* 16,920,258
100,500 Merck & Company, Inc.* 13,441,875
1,043,425 Pfizer, Inc.* 113,407,255
422,000 Warner-Lambert Company* 29,276,250
-----------
212,137,482
-----------
PUBLISHING & BROADCASTING-4.8%
1,105,775 CBS Corporation* 35,108,356
362,550 Jacor Communications, Inc. 21,390,450
300,000 MediaOne Group, Inc. 13,181,250
1,132,250 Tele-Communications, Inc. Class A 43,450,094
-----------
113,130,150
-----------
RETAIL-6.4%
694,000 Circuit City Stores-Circuit City
Group* 32,531,250
691,350 Fred Meyer, Inc. 29,382,375
925,000 K-Mart Corporation 17,806,250
1,138,700 Lowe's Companies, Inc.* 46,188,519
1,444,400 OfficeMax, Inc. 23,832,600
-----------
149,740,994
-----------
SEMICONDUCTORS & EQUIPMENT-2.5%
657,800 Intel Corporation* 48,718,313
302,125 Maxim Integrated
Products, Inc. 9,554,703
-----------
58,273,016
-----------
TELECOMMUNICATION SERVICES-4.9%
615,000 Bell Atlantic Corporation* 28,059,375
1,478,000 MCI Communications Corporation* 85,816,375
5,462 U.S. West, Inc.* 256,714
-----------
114,132,464
-----------
46
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- -------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT-1.2%
239,300 Ascend Communications, Inc. $ 11,845,350
209,675 Tellabs, Inc. 15,004,868
-------------
26,850,218
-------------
TOTAL COMMON STOCKS
(DOMESTIC)-
(COST-$1,705,188,822) 2,087,714,619
-------------
COMMON STOCKS (FOREIGN)-2.8%
AIRLINES-1.1%
976,000 Deutsche Lufthansa AG
144A (GE)*` 24,575,537
-------------
BUILDING MATERIALS-0.5%
225,000 Hunter Douglas NV (NE)* 12,222,250
-------------
OFFICE SUPPLIES & EQUIPMENT-0.4%
240,000 Oce NV (NE)* 10,217,284
-------------
PHARMACEUTICALS-0.8%
11,100 Novartis AG Registered (SZ)* 18,469,005
-------------
TOTAL COMMON STOCKS (FOREIGN)-
(COST-$44,643,449)
65,484,076
-------------
CORPORATE SHORT-TERM NOTES-6.0%
$50,000,000 American Express Credit Corporation
5.51% 07/01/98 $ 50,000,000
46,700,000 American Express Credit Corporation
6.02% 07/02/98 46,692,191
43,600,000 Merrill Lynch and Company 5.82%
07/06/98 43,564,756
-------------
TOTAL CORPORATE SHORT-TERM
NOTES-(AMORTIZED
COST-$140,256,947) 140,256,947
-------------
TOTAL INVESTMENTS-99.0%
(COST-$1,906,632,164) 2,313,993,392
OTHER ASSETS & LIABILITIES-1.0%
22,725,549
-------------
NET ASSETS-100% $2,336,718,941
=============
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
FOUNDERS BLUE CHIP FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
1 Year 5 Year 10 Years 20 Years
------ ------ -------- --------
19.92% 19.05% 16.50% 15.09%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Growth
and Income Consumer
Blue Chip S&P 500 Index Fund Index Price Index
--------- ------------- ---------- -----------
6/88 ....... $10,000 $10,000 $10,000 $10,000
6/89 ....... $12,622 $12,052 $11,811 $10,516
6/90 ....... $15,111 $14,035 $12,889 $11,007
6/91 ....... $15,819 $15,068 $13,647 $11,524
6/92 ....... $16,950 $17,086 $15,479 $11,880
6/93 ....... $19,261 $19,412 $18,010 $12,234
6/94 ....... $20,261 $19,686 $18,716 $12,539
6/95 ....... $24,427 $24,808 $22,366 $12,921
6/96 ....... $31,673 $31,248 $27,266 $13,276
6/97 ....... $38,418 $42,081 $35,171 $13,580
6/98 ....... $46,073 $54,770 $44,129 $13,809
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER BRIAN KELLY
HOW HAS FOUNDERS BLUE CHIP FUND DONE SO FAR THIS YEAR?
Large-cap stocks are still popular with investors as sources of liquidity and
earnings potential. While large-cap stocks do offer better liquidity, we've been
concerned that their valuations are somewhat stretched. As a result, we
conservatively positioned the portfolio during the first and second quarters.
The Blue Chip Fund had a total return of 13.87% for the six-month period ended
June 30, 1998. Our strategy has paid off over the long run. Morningstar awarded
Founders Blue Chip Fund a .... overall rating for the three-, five- and 10-year
periods ended June 30, 1998 among 2,545, 1,462, and 707 domestic equity funds,
respectively.*
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect risk-adjusted performance through 6/30/98. The top 10% of the
funds in an investment category receive 5 stars and the next 22.5% receive 4
stars. Subject to change every month, a fund's rating is based on its 3-, 5-,
and [when available] 10-year average annual total returns [with fee
adjustments] in excess of 90-day Treasury bill returns, and a risk factor
that reflects fund performance below 90-day Treasury bill returns.
48
<PAGE>
WHERE HAVE YOU FOUND OPPORTUNITIES?
Given our concerns about large-cap valuations, we're conservatively positioned
with 89% of the portfolio in equities, 3% in U.S. government securities and
domestic corporate bonds, and 8% of the Fund in cash. Within our objective of
providing long-term growth of capital and income, we have concentrated our
equity holdings in a handful of stocks. Many of these stocks are especially
liquid names, such as General Electric, and Coca-Cola.
TOP 10 HOLDINGS
1. Atlantic Richfield Company 3.81%
2. Glaxo Wellcome PLC Sponsored ADR 3.45%
3. Smithkline Beecham PLC Sponsored
ADR Class A 2.94%
4. Travelers Property Casualty
Corporation Class A 2.69%
5. Marsh & McLennan Companies, Inc. 2.56%
6. Dole Food Company, Inc. 2.30%
7. Cinergy, Inc. 2.20%
8. The Coca-Cola Company 2.10%
9. Schering AG 1.86%
10. Bayer AG 1.80%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
Pharmaceutical companies dominate our top 10 holdings. These stocks are not
inexpensive, but they do have room for growth. In this category, we hold Glaxo
Wellcome, Smithkline Beecham, and Schering.
We've also found opportunity in some of the companies involved in the wave of
mergers and acquisitions currently sweeping the stock market. As stock prices
climb higher, many companies have used their stock gains as currency to buy
other companies. Although we do not specifically seek these companies out, we do
hold several in the Founders Blue Chip Fund portfolio, including Travelers
Property Casualty. Travelers is merging with Citicorp and Travelers has exceeded
its earnings expectations. We also own SBC Communications, and Ameritech, two
telecommunications companies that announced a merger during the quarter.
- -------------------------------------------
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $585.7 million
NAV ON JUNE 30, 1998: $7.88
EXPENSE RATIO: 1.11%
INCEPTION DATE: 7/5/38
WHAT'S YOUR OUTLOOK FOR THE REST OF THE YEAR?
It's possible the S&P 500 could continue to rise further this year if the push
into the largest, most liquid names continues. Although stock valuations and
prices are high, it seems that investors' push for quality is driving market
prices today.
49
<PAGE>
FOUNDERS BLUE CHIP FUND (CONTINUED)
We are closely watching the Asian crisis and the political climate in
Washington since both could have long-term impacts on the economy. Given our
concerns, our bottom-up strategy should continue to drive the Fund going forward
as we seek highly-liquid stocks that we believe will outperform regardless of
market or economic changes.
Brian Kelly
Portfolio Manager
PORTFOLIO COMPOSITION
--------------------------
Financial 11.7%
Consumer Staples 18.0%
Healthcare 24.6%
Basic Materials 7.4%
Utilities 4.6%
Capital Goods 3.6%
Telecom Services 3.6%
Technology 3.0%
Consumer Cyclicals 2.3%
Bonds & U.S. Treasuries 3.0%
Energy 9.8%
Cash & Equivalents 8.4%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
50
<PAGE>
FOUNDERS BLUE CHIP FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
SHARES MARKET VALUE
- ----------------------------------------------------------
COMMON STOCKS (DOMESTIC)-69.3%
AEROSPACE-0.5%
26,600 Lockheed Martin Corporation $2,816,275
----------
BANKING-2.2%
61,600 The Chase Manhattan Corporation 4,650,800
151,300 Firstar Corporation 5,749,400
51,800 Mercantile Bancorporation, Inc. 2,609,425
----------
13,009,625
----------
CHEMICALS-2.8%
100,000 Arco Chemical Company 5,737,500
58,600 The Dow Chemical Company 5,665,888
68,200 E.I. du Pont de Nemours and
Company 5,089,425
----------
16,492,813
----------
COMPUTER EQUIPMENT-1.8%
68,300 International Business Machines
Corporation 7,841,694
61,400 Sun Microsystems, inc. 2,667,063
----------
10,508,757
----------
COMPUTER SOFTWARE/SERVICES-0.5%
50,200 Computer Associates International,
Inc. 2,789,238
----------
CONSUMER PRODUCTS-4.5%
72,000 Colgate-Palmolive Company 6,336,000
250,900 The Dial Corporation 6,507,719
74,700 Kimberly Clark Corporation 3,426,863
108,525 Philip Morris Companies, Inc. 4,273,172
64,600 The Procter & Gamble Company 5,882,638
----------
26,426,392
----------
SHARES MARKET VALUE
- -----------------------------------------------------------
CONSUMER SERVICES-0.4%
55,975 Service Corporation International $2,399,928
----------
ELECTRONICS-1.6%
100,000 General Electric Company 9,100,000
----------
FOOD & BEVERAGE-5.6%
52,500 Campbell Soup Company 2,789,063
144,000 The Coca-Cola Company 12,312,000
60,800 Dean Foods Company 3,340,200
271,700 Dole Food Company, Inc. 13,500,094
12,500 Hershey Foods Corporation 862,500
----------
32,803,857
----------
INSURANCE-9.5%
64,275 The Allstate Corporation 5,885,180
72,300 The Chubb Corporation 5,811,113
248,550 Marsh & McLennan Companies, Inc. 15,021,741
137,700 Travelers Group, Inc. 8,348,063
367,100 Travelers Property Casualty
Corporation Class A 15,739,413
124,900 W.R. Berkley Corporation 5,003,806
----------
55,809,316
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
FOUNDERS BLUE CHIP FUND
SHARES MARKET VALUE
- -----------------------------------------------------------
LEISURE & ENTERTAINMENT-1.4%
280,300 Hilton Hotels Corporation $7,988,550
----------
MANUFACTURING-1.6%
116,400 Avery Dennison Corporation 6,256,500
89,100 Thermo Electron Corporation 3,046,106
----------
9,302,606
----------
MEDICAL SUPPLIES & EQUIPMENT-3.7%
134,600 Allegiance Corporation 6,898,250
82,700 Becton, Dickinson and Company 6,419,588
67,200 Johnson & Johnson 4,956,000
75,600 St. Jude Medical, Inc.* 2,783,025
----------
21,056,863
----------
METALS & MINING-0.5%
143,300 Homestake Mining Company 1,486,738
121,300 Placer Dome, Inc. 1,425,275
----------
2,912,013
----------
OIL & GAS-8.6%
68,000 Amoco Corporation 2,830,500
285,600 Atlantic Richfield Company 22,312,500
22,000 Chevron Corporation 1,827,375
53,500 Mobil Corporation 4,099,438
173,000 Phillips Petroleum Company 8,374,988
16,000 Sonat, Inc. 618,000
50,500 Texaco, Inc. 3,014,219
195,300 Unocal Corporation 6,981,975
----------
50,058,995
----------
SHARES MARKET VALUE
- -----------------------------------------------------------
PAPER & FOREST PRODUCTS-3.3%
202,000 Fort James Corporation $8,989,000
62,100 International Paper Company 2,670,300
279,800 Westvaco Corporation 7,904,350
----------
19,563,650
----------
PHARMACEUTICALS-7.8%
144,800 Abbott Laboratories 5,918,700
228,700 ALZA Corporation 9,891,275
125,525 Eli Lilly & Company 8,292,495
57,600 Merck & Company, Inc. 7,704,000
82,300 Pfizer, Inc. 8,944,981
73,500 Warner-Lambert Company 5,099,063
----------
45,850,514
----------
PUBLISHING & BROADCASTING-3.6%
20,200 The New York Times Company 1,600,850
95,100 Tele-Communications, Inc. Class A 3,649,463
19,600 Time Warner, Inc. 1,674,575
7,425 Tribune Company 510,933
280,600 Univision Communications, Inc.* 10,452,350
5,200 The Washington Post Company 2,995,200
----------
20,883,371
----------
52
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
SHARES MARKET VALUE
- ------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT-0.7%
56,900 Intel Corporation $ 4,214,156
-----------
SUPERMARKETS-0.5%
67,600 Hannaford Brothers Company 2,974,400
-----------
TELECOMMUNICATION SERVICES-3.6%
112,600 AT&T Corporation 6,432,275
68,000 Ameritech Corporation 3,051,500
55,700 Bell Atlantic Corporation 2,541,313
102,400 SBC Communications, Inc. 4,096,000
105,400 U.S. West, Inc. 4,953,800
-----------
21,074,888
-----------
UTILITIES-4.6%
198,875 Allegheny Energy, Inc. 5,991,109
198,300 Baltimore Gas & Electric Company 6,159,694
367,700 Cinergy Corporation 12,869,500
44,600 New Century Energies, Inc. 2,026,513
-----------
27,046,816
-----------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$358,108,028) 405,083,023
-----------
SHARES MARKET VALUE
- -----------------------------------------------------------
COMMON STOCKS (FOREIGN)-19.7%
CHEMICALS-3.5%
203,350 Bayer AG (GE) 10,521,830
135,300 Potash Corporation of Saskatchewan,
Inc. (CA) 10,223,606
-----------
20,745,436
-----------
ELECTRONICS-0.5%
34,900 Sony Corporation Sponsored ADR (JA) 3,003,581
-----------
FOOD & BEVERAGE-1.0%
1,500 Nestle SA Registered (SZ) $ 3,207,294
34,800 Unilever NV Sponsored ADR (NE) 2,747,025
-----------
5,954,319
-----------
METALS & MINING-0.2%
45,000 De Beers Consolidated Mines Sponsored
ADR (SA) 781,875
-----------
OIL & GAS-1.3%
105,200 Elf Aquitaine SA Sponsored ADR (FR) 7,469,200
-----------
PHARMACEUTICALS-13.2%
67,875 Glaxo Wellcome PLC (UK) 2,037,496
337,800 Glaxo Wellcome PLC Sponsored ADR (UK) 20,204,663
5,600 Novartis AG Registered (SZ) 9,316,043
92,550 Schering AG (GE) 10,895,640
491,175 Smithkline Beecham PLC (UK) 5,995,259
285,000 Smithkline Beecham PLC Sponsored ADR
Class A (UK) 17,242,500
34,200 Synthelabo SA (FR) 5,769,577
140,000 Zeneca Group PLC (UK) 6,008,343
-----------
77,469,521
-----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$100,509,924) 115,423,932
-----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
FOUNDERS BLUE CHIP FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
PRINCIPAL AMOUNT MARKET VALUE
- ------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)-0.5%
UTILITIES-0.5%
$1,332,000 Commonwealth Edison Company 7.625%
Due 01/15/07 $ 1,425,833
1,331,000 Sonat, Inc. 6.625% Due 02/01/08 1,356,183
-----------
TOTAL CORPORATE BONDS
(DOMESTIC-0.5%
(COST-$2,781,692) 2,782,016
-----------
U.S. GOVERNMENT SECURITIES-4.9%
U.S. TREASURY BONDS-2.5%
3,000,000 U.S. Treasury Bond 6.25% Due 08/15/23 3,210,939
7,500,000 U.S. Treasury Bond 6.625% Due
02/15/27 8,472,660
3,000,000 U.S. Treasury Bond 6.125% Due
11/15/27 3,214,689
-----------
14,898,288
-----------
U.S. GOVERNMENT AGENCIES-2.4%
5,700,000 Federal National Mortgage Association
6.35% Due 01/08/03 5,711,012
8,100,000 Federal National Mortgage Association
6.00% Due 05/15/08 8,236,542
-----------
13,947,554
-----------
TOTAL U.S. GOVERNMENT
SECURITIES
(COST-$27,387,613) 28,845,842
-----------
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-4.6%
$ 5,800,000 E.I. du Pont de Nemours and Company
5.37% 09/04/98 $ 5,741,234
21,400,000 Federal Home Loan Bank Discount Note
5.40% 07/01/98 21,400,000
-----------
TOTAL CORPORATE
SHORT-TERM NOTES (AMORTIZED
COST-$27,144,080) 27,141,234
-----------
TOTAL INVESTMENTS-99%
(COST-$515,931,337) 579,276,047
OTHER ASSETS &
LIABILITIES-1% 6,425,464
-----------
NET ASSETS-100.0% $585,701,511
===========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
FOUNDERS BALANCED FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
1 Year 5 Year 10 Years 20 Years
------ ------ -------- --------
15.31% 16.42% 14.26% 13.90%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Lipper Growth Consumer
Balanced S&P 500 Index Fund Index Price Index
-------- ------------- ---------- -----------
6/88 ....... $10,000 $10,000 $10,000 $10,000
6/89 ....... $12,004 $12,052 $11,422 $10,516
6/90 ....... $12,878 $14,035 $12,538 $11,007
6/91 ....... $13,349 $15,068 $13,674 $11,524
6/92 ....... $14,939 $17,086 $15,607 $11,880
6/93 ....... $17,734 $19,412 $17,847 $12,234
6/94 ....... $19,394 $19,686 $17,991 $12,539
6/95 ....... $21,838 $24,808 $20,781 $12,921
6/96 ....... $27,686 $31,248 $23,861 $13,276
6/97 ....... $32,893 $42,081 $28,744 $13,580
6/98 ....... $37,939 $54,770 $33,985 $13,809
MANAGEMENT OVERVIEW
A DISCUSSION WITH PORTFOLIO MANAGER BRIAN KELLY
HOW HAS THE FUND PERFORMED DURING THE FIRST SIX MONTHS OF 1998?
As a byproduct of domestic market volatility and the ongoing financial crisis in
Southeast Asia, investors have continued to seek large-cap stocks for their
liquidity and earnings potential. Yet, this popularity has driven stocks to
all-time highs. Our concern about the overall valuation of the market led us to
conservatively position the Balanced Fund during the first and second quarters,
which impacted our peformance. The Fund had a total return of 9.35% for the
six-month period ended June 30, 1998.
However, our conservative strategy has given the Balanced Fund a strong
long-term performance record: the Fund received a .... overall rating from
Morningstar for the three-, five-, and 10-year periods ended June 30, 1998 among
2,545, 1,462, and 707 domestic equity funds, respectively.*
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect risk-adjusted performance through 6/30/98. The top 10% of the
funds in an investment category receive 5 stars and the next 22.5% receive 4
stars. Subject to change every month, a fund's rating is based on its 3-, 5-,
and [when available] 10-year average annual total returns [with fee
adjustments] in excess of 90-day Treasury bill returns, and a risk factor that
reflects fund performance below 90-day Treasury bill returns.
55
<PAGE>
FOUNDERS BALANCED FUND (CONTINUED)
HOW HAVE YOU POSITIONED THE PORTFOLIO SO FAR THIS YEAR?
Our objective is to provide current income and capital appreciation, and toward
that end we maintain a portfolio of equity and fixed-income holdings. At the end
of second quarter, the Balanced Fund was 30% invested in U.S. government
securities and corporate bonds, with an average maturity of 9.71 years.
Approximately 12% of the portfolio was in cash with 57% in equities.
TOP 10 EQUITY HOLDINGS
1. Atlantic Richfield Company 3.57%
2. Glaxo Wellcome PLC sponsored ADR 2.69%
3. Travelers Property Casualty
Corporation Class A 1.90%
4. Schering AG 1.78%
5. Marsh & McLennan Companies, Inc. 1.74%
6. Bayer AG 1.71%
7. ALZA Corporation 1.70%
8. Novartis AG Registered 1.50%
9. Fort James Corporation 1.46%
10. Pfizer, Inc. 1.44%
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
We increased our positions in the most liquid names such as General Electric.
At the same time, we trimmed smaller, more illiquid positions as well as several
stocks that were underperformers. For example, we trimmed our position in oil
and gas stocks since this group has been underperforming.
We are still overweight in pharmaceuticals, including Glaxo Wellcome,
Schering, and ALZA Corp. Pharmaceutical stocks are not inexpensive, but we
believe there is still room for valuation growth.
We are also slightly over market weight in electric utilities, such as
Baltimore Gas and Electric. Over the next few years, we expect quality electric
utility issues to show earnings and dividend growth. Additionally, we believe
that as defensive issues they should outperform if there is a major market sell
off.
PORTFOLIO AT A GLANCE
TOTAL ASSETS: $1.19 billion
NAV ON JUNE 30, 1998: $12.26
EXPENSE RATIO: 1.01%
INCEPTION DATE: 2/19/63
We increased our position in Marsh & McLennan Companies, an insurance
brokerage company that also owns Putnam Funds. Marsh & McLennan's board recently
increased the company's quarterly dividend and declared a three-for-two stock
split. Additionally, the company announced it is buying back four million
shares. The news has been well received and the dividend increase in particular
has been viewed as management's vote of confidence in earnings. Right now we
believe the stock is a good value.
56
<PAGE>
WHAT'S YOUR OUTLOOK FOR THE REST OF 1998?
We still think stock valuations and prices are high. It seems to us that
investors' continuing "flight to quality" is one of the main factors driving
market prices today. Although the S&P 500 has already climbed nearly 20% this
year, we believe it could continue to grow on liquidity alone.
We're also keeping an eye on the Asian crisis and the political climate in
Washington, particularly the long-term impact these issues may have on the
economy. Based on this, we believe our bottom-up strategy of seeking
highly-liquid stocks with the potential to outperform regardless of market or
economic changes will serve our shareholders well going forward.
Brian Kelly
Portfolio Manager
PORTFOLIO COMPOSITION
-------------------
Bonds & U.S. Treasuries 30.2%
Healthcare 17.4%
Energy 6.9%
Basic Materials 4.0%
Technology 2.8%
Utilities 2.6%
Telecom Services 2.4%
Capital Goods 2.0%
Consumer Cyclicals 0.9%
Financial 8.6%
Consumer Staples 10.0%
Cash & Equivalents 12.2%
PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
57
<PAGE>
FOUNDERS BALANCED FUND
SHARES MARKET VALUE
- -----------------------------------------------------------
COMMON STOCKS (DOMESTIC)-43.4%
AEROSPACE-0.4%
51,300 Lockheed Martin Corporation $5,431,388
----------
BANKING-1.2%
125,400 The Chase Manhattan Corporation 9,467,700
99,300 Mercantile Bancorporation, Inc. 5,002,238
----------
14,469,938
----------
CHEMICALS-0.8%
125,100 E.I. du Pont de Nemours and
Company 9,335,588
----------
COMPUTER EQUIPMENT-1.6%
128,600 International Business Machines
Corporation 14,764,888
115,600 Sun Microsystems, Inc.* 5,021,375
----------
19,786,263
----------
COMPUTER SOFTWARE/SERVICES-0.5%
100,000 Computer Associates International,
Inc. 5,556,250
----------
CONSUMER PRODUCTS-4.0%
136,300 Colgate-Palmolive Company 11,994,400
475,600 The Dial Corporation 12,335,875
76,700 Kimberly Clark Corporation 3,518,613
217,300 Philip Morris Companies, Inc. 8,556,188
124,800 The Procter & Gamble Company 11,364,600
----------
47,769,676
----------
ELECTRONICS-1.0%
132,700 General Electric Company $12,075,700
----------
FOOD & BEVERAGE-2.2%
98,600 Campbell Soup Company 5,238,125
115,275 Dean Foods Company 6,332,920
296,300 Dole Food Company, Inc. 14,722,406
----------
26,293,451
----------
INSURANCE-7.2%
130,850 The Allstate Corporation 11,980,953
137,300 The Chubb Corporation 11,035,488
341,100 Marsh & McLennan Companies, Inc. 20,615,231
174,300 Travelers Group, Inc. 10,566,938
525,000 Travelers Property Casualty
Corporation Class A 22,509,375
203,025 W.R. Berkley Corporation 8,133,689
----------
84,841,674
----------
LEISURE & ENTERTAINMENT-1.0%
394,000 Hilton Hotels Corporation 11,229,000
----------
MANUFACTURING-0.5%
167,325 Thermo Electron Corporation* 5,720,423
----------
58
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
SHARES MARKET VALUE
- -----------------------------------------------------------
MEDICAL SUPPLIES & EQUIPMENT-0.8%
130,300 Johnson & Johnson $9,609,625
----------
OIL & GAS-6.9%
130,200 Amoco Corporation 5,419,575
541,300 Atlantic Richfield and
Company 42,289,063
40,000 Chevron Corporation 3,322,500
101,400 Mobil Corporation 7,769,775
332,700 Phillips Petroleum Company 16,031,981
30,000 Sonat, Inc. 1,158,750
95,600 Texaco, Inc. 5,706,125
----------
81,697,769
----------
PAPER & FOREST PRODUCTS-1.7%
390,200 Fort James Corporation 17,363,900
72,000 International Paper Company 3,096,000
----------
20,459,900
----------
PHARMACEUTICALS-6.4%
88,600 Abbott Laboratories 3,621,525
465,300 ALZA Corporation* 20,124,225
238,375 Eli Lilly & Company 15,747,648
74,800 Merck & Company 10,004,500
157,000 Pfizer, Inc. 17,063,938
140,700 Warner Lambert Company 9,761,063
----------
76,322,899
----------
PUBLISHING & BROADCASTING-1.0%
182,100 Tele-Communications, Inc. Class A* $6,988,088
37,200 Time Warner, Inc. 3,178,275
----------
10,166,363
----------
SEMICONDUCTORS & EQUIPMENT-0.7%
110,300 Intel Corporation 8,169,094
----------
SUPERMARKETS-0.5%
127,400 Hannaford Brothers Company 5,605,600
----------
TELECOMMUNICATION SERVICES-2.4%
229,100 AT&T Corporation 13,087,338
129,100 Ameritech Corporation 5,793,363
198,200 U.S. West, Inc. 9,315,400
----------
28,196,101
----------
UTILITIES-2.6%
400,000 Allegheny Energy, Inc. 12,050,000
215,400 Baltimore Gas & Electric Company 6,690,863
263,275 Cinergy Corporation 9,214,625
80,000 Unicom Corporation 2,805,000
----------
30,760,488
----------
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
FOUNDERS BALANCED FUND
SHARES MARKET VALUE
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(DOMESTIC)
(COST-$481,167,173) $513,497,190
-----------
COMMON STOCKS (FOREIGN)-14.3%
CHEMICALS-2.9%
392,875 Bayer AG (GE) 20,328,320
188,410 Potash Corporation of Saskatchewan,
Inc. (CA) 14,236,731
-----------
34,565,051
-----------
FOOD & BEVERAGE-0.9%
2,900 Nestle SA Registered (SZ) 6,205,768
64,800 Unilever NV Sponsored ADR (NE) 5,115,150
-----------
11,320,918
-----------
PHARMACEUTICALS-10.2%
204,450 Glaxo Wellcome PLC (UK) 6,137,253
533,500 Glaxo Wellcome PLC Sponsored ADR (UK) 31,909,969
10,700 Novartis AG Registered (SZ) 17,803,486
178,775 Schering AG (GE) 21,046,655
936,325 Smithkline Beecham PLC (UK) 11,428,741
240,575 Smithkline Beecham PLC Sponsored ADR
Class A (UK) 14,554,788
68,200 Synthelabo SA (FR) 11,505,414
138,000 Zeneca Group PLC (UK) 5,922,510
-----------
120,308,816
-----------
PROPERTY-0.3%
543,000 Legacy Hotels Real Estate
Investment Trust 144A (CA)` 3,175,462
-----------
TOTAL COMMON STOCKS
(FOREIGN)
(COST-$147,833,363) 169,370,247
-----------
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)-0.5%
UTILITIES-0.5%
$ 2,706,000 Commonwealth Edison Company 7.625%
Due 01/15/07 $ 2,896,624
2,705,000 Sonat, Inc. 6.628% Due 02/01/08 2,756,179
-----------
TOTAL CORPORATE BONDS
(DOMESTIC) (COST-$5,652,143) 5,652,803
-----------
U.S. GOVERNMENT SECURITIES-32.0%
U.S. AGENCIES-2.3%
10,500,000 Federal National Mortgage Association
6.35% Callable 01/08/99 Due 01/08/03 10,520,286
16,000,000 Federal National Mortgage Association
6.00% Due 05/15/08 16,269,712
-----------
26,789,998
-----------
U.S. TREASURY BONDS-10.5%
30,900,000 U.S. Treasury Bond 6.625% Due
08/15/23 33,072,672
19,200,000 U.S. Treasury Bond 6.625% Due
02/15/27 21,690,010
17,600,000 U.S. Treasury Bond 6.125% Due
11/15/27 18,859,509
46,500,000 U.S. Treasury Bond 6.375% Due
08/15/27 51,077,367
-----------
124,699,558
-----------
60
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
(CONTINUED)
PRINCIPAL AMOUNT MARKET VALUE
- ------------------------------------------------------------
U.S. TREASURY NOTES-19.2%
$ 5,300,000 U.S. Treasury Note 6.00%
Due 08/15/00 $5,349,688
37,100,000 U.S. Treasury Note 6.25%
Due 02/15/07 38,862,250
12,700,000 U.S. Treasury Note 6.625%
Due 03/31/02 13,152,438
20,500,000 U.S. Treasury Note 6.375%
Due 05/15/00 20,807,500
19,600,000 U.S. Treasury Note 5.875%
Due 11/15/05 19,979,750
15,200,000 U.S. Treasury Note 6.625%
Due 04/30/02 15,755,758
11,500,000 U.S. Treasury Note 6.25%
Due 04/30/01 11,712,037
20,500,000 U.S. Treasury Note 6.25%
Due 02/15/03 21,095,792
6,100,000 U.S. Treasury Note 6.25%
Due 02/28/02 6,239,159
21,600,000 U.S. Treasury Note 5,625%
Due 11/30/99 21,627,000
14,000,000 U.S. Treasury Note 5.75%
Due 11/15/00 14,070,000
9,500,000 U.S. Treasury Note 5.75% Due 10/31/00 9,547,500
12,000,000 U.S. Treasury Note 5.875%
Due 08/31/99 12,041,256
8,900,000 U.S. Treasury Note 6.875%
Due 05/15/06 9,639,813
8,700,000 U.S. Treasury Note 5.625%
Due 02/15/06 8,735,348
----------
228,615,289
----------
TOTAL U.S. GOVERNMENT
SECURITIES
(COST-$363,509,849) 380,104,845
----------
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-8.8%
$11,000,000 E.I. du Pont de Nemours and Company
5.37% 09/04/98 $ 10,888,548
93,400,000 Federal Home Loan
Bank Discount Note
5.40% 07/01/98 93,400,000
-------------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$104,293,945)
104,288,548
-------------
TOTAL INVESTMENTS-99.0%
(COST-$1,102,456,473) 1,172,913,633
OTHER ASSETS & LIABILITIES-1.0%
12,315,049
-------------
NET ASSETS-100.0% $1,185,228,682
=============
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURN [BAR GRAPH]
as of 6/30/98*
Since
1 Year 5 Year 10 Years Inception
------ ------ -------- ---------
10.08% 3.92% 6.53% 6.45%
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Government Lehman Bros U.S. Lipper U.S. Gov Consumer
Securities Treasury Comp. Index Fund Index Price Index
---------- -------------------- ---------------- -----------
6/88 ...... $10,000 $10,000 $10,000 $10,000
6/89 ...... $11,091 $11,232 $10,828 $10,516
6/90 ...... $11,475 $11,990 $11,710 $11,007
6/91 ...... $12,460 $13,192 $12,512 $11,524
6/92 ...... $14,065 $15,018 $13,076 $11,880
6/93 ...... $15,539 $16,970 $13,444 $12,234
6/94 ...... $14,856 $16,771 $13,826 $12,539
6/95 ...... $15,720 $18,765 $14,507 $12,921
6/96 ...... $16,179 $19,623 $15,248 $13,276
6/97 ...... $17,108 $21,029 $15,924 $13,580
6/98 ...... $18,832 $23,400 $16,649 $13,809
MANAGEMENT OVERVIEW
A DISCUSSION WITH FIXED-INCOME MANAGER MARGARET DANUSER
HOW DID THE FUND DO DURING THE FIRST HALF OF 1998?
Bond prices climbed this year as investors, worried about the Asian crisis and
the troubled Japanese economy, turned to Treasuries, bonds, and other dollar-
denominated assets as "safe havens." Against this background, the Government
Securities Fund had a total return of 4.07% for the six-month period ended June
30, 1998.
WHAT'S HAPPENED IN THE BOND MARKET THIS YEAR?
While bonds were strong during the first half of the year, we saw a subtle shift
in mid-summer when the IMF announced its $22.6 billion financial aid package to
Russia. At the same time, Japan indicated it would make necessary reforms. The
dollar fell against the yen as hopes grew that Japan could pull itself out of
recession.
As a result of this news, plus increased hopes for the Russian economy, bonds
fell a bit and Treasuries became less attractive to investors. However, we're
still near historic yield lows.
62
<PAGE>
HOW IS THE PORTFOLIO POSITIONED?
In this environment, we fine-tuned the Government Securities Fund's duration to
6.06 years at the end of June. Since the beginning of the year, we have
consistently lengthened the Fund's duration, from 5.77 years in January, on the
expectation that the Asian currency crisis would slow the domestic economy and
limit inflation. We have concentrated the portfolio in two sectors that we
believe show potential for price appreciation: issues with a four-to-seven year
maturity, and those in the 10- to 30-year sector. While interest rates have
remained low this year, they have impacted mortgage-backed securities as
homeowners are prepaying or refinancing their mortgages. As a result, we have
kept our mortgage holdings around 7% since the beginning of the year, holding
low-couponed mortgages which are less susceptible to prepayments.
WHAT'S YOUR OUTLOOK FOR THE REST OF THE YEAR?
Recent economic reports confirm that Asia's troubles are slowing U.S. growth by
decreasing demand for U.S. exports. The economy also seems to be feeling the
impact of the General Motors strike, as indicated by the drop in manufacturing
and industrial production as well as a drop in output at factories, mines, and
utilities. Further, we also expect labor markets will level off. These factors
could be good news for bonds in the third quarter.
Interest rates and inflation remain low and we expect the Federal Reserve will
keep interest rates steady. We've maintained our longer duration position to
take advantage of further flattening in the yield curve and will continue to
monitor the situation.
Margaret Danuser
Fixed-Income Manager
63
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
PRINCIPAL AMOUNT MARKET VALUE
- ------------------------------------------------------------
U.S. GOVERNMENT SECURITIES-97.5%
FNMA POOLS-7.1%
$ 915,432 Federal National Mortgage
Association 7.00%
Due 03/01/12 $ 931,946
----------
U.S. AGENCIES-40.0%
1,025,000 Federal Farm Credit Bank 6.55%
Due 08/19/03 1,062,817
815,000 Federal Farm Credit Bank 8.06%
Due 01/04/05 916,981
2,000,000 Federal Home Loan Mortgage
Corporation 8.065%
Due 01/27/05 2,255,058
1,000,000 Federal National Mortgage Association
6.70%
Due 08/10/01 1,010,313
----------
5,245,169
----------
U.S. TREASURY BONDS-15.6%
$ 400,000 U.S. Treasury Bond 6.25%
Due 08/15/23 $ 428,125
400,000 U.S. Treasury Bond 8.125%
Due 08/15/19 516,250
1,000,000 U.S. Treasury Bond 6.375%
Due 08/15/27 1,098,438
----------
2,042,813
----------
U.S. TREASURY NOTES-34.8%
400,000 U.S. Treasury Note 7.25%
Due 05/15/16 468,750
1,950,000 U.S. Treasury Note 6.50%
Due 10/15/06 2,071,267
1,000,000 U.S. Treasury Note 12.00%
Due 08/15/13 1,485,000
500,000 U.S. Treasury Note 6.875%
Due 05/15/06 541,563
----------
4,566,580
----------
TOTAL U.S. GOVERNMENT SECURITIES
(COST-$12,319,711)
12,786,508
----------
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
PRINCIPAL AMOUNT AMORTIZED COST
- -----------------------------------------------------------
CORPORATE SHORT-TERM NOTES-2.1%
$280,000 Aluminumn Company
of America 6.20%
07/01/98 $ 280,000
----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-$280,000) 280,000
----------
TOTAL INVESTMENTS-99.6%
(COST-$12,599,711) 13,066,508
OTHER ASSETS &
LIABILITIES-0.4% 43,548
----------
NET ASSETS-100.0% $13,110,056
==========
65
<PAGE>
FOUNDERS MONEY MARKET FUND
PRINCIPAL AMOUNT AMORTIZED COST
- -----------------------------------------------------------
CORPORATE SHORT-TERM NOTES-96.5%
BANKING-3.4%
$3,900,000 Bankers Trust New York
Corporation
5.45% 09/02/98 $3,862,804
---------
CAPTIVE FINANCE
DIVERSIFIED-0.6%
660,000 General Electric Capital Corporation
5.50% 07/13/98 658,790
---------
CAPTIVE FINANCE
INSURANCE-6.5%
2,800,000 Prudential Funding Corporation
5.58% 07/08/98 2,796,962
4,500,000 TransAmerica Finance Corporation
5.50% 07/15/98 4,490,375
---------
7,287,337
---------
CAPTIVE FINANCE
PHARMACEUTICALS-4.5%
5,000,000 Novartis Finance
Corporation
5.50% 07/10/98 4,993,125
---------
CAPTIVE FINANCE
TELECOMMUNICATIONS-4.7%
5,300,000 Bell Atlantic Network Funding
5.51% 07/06/98 5,295,944
---------
CAPTIVE FINANCE
UTILITIES-7.2%
$4,400,000 National Rural Utilities
Cooperative Finance
Corporation
5.50% 07/23/98 $4,385,211
3,700,000 Progress Capital Holdings
5.50% 07/01/98 3,700,000
---------
8,085,211
---------
CHEMICALS-8.3%
5,000,000 Monsanto Company
5.50% 09/10/98 4,945,764
4,300,000 Nalco Chemical Company
5.53% 07/14/98 4,291,413
----------
9,237,177
----------
CONSUMER PRODUCTS-3.9%
4,400,000 Hasbro, Inc.
5.60% 07/20/98 4,386,996
----------
ELECTRONICS-4.1%
4,600,000 Emerson Electric Company
5.53% 07/09/98 4,594,347
----------
FINANCIAL SERVICES-8.7%
5,000,000 American Family Financial Services
5.51% 08/06//98 4,972,450
4,800,000 Ciesco LP
5.65% 07/13/98 4,790,960
----------
9,763,410
----------
66
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
PRINCIPAL AMOUNT AMORTIZED COST
- -----------------------------------------------------------
FOOD & BEVERAGE-7.6%
$4,100,000 The Coca-Cola Company
5.47% 07/02/98 $4,099,377
4,400,000 H.J. Heinz Company
5.51% 07/27/98 4,382,490
---------
8,481,867
INSURANCE-8.8%
5,700,000 General RE Corporation
5.50% 08/20/98 5,656,458
4,200,000 MetLife Funding, Inc.
5.51% 07/07/98 4,196,143
---------
9,852,601
---------
MANUFACTURING-3.6%
4,000,000 Minnesota Mining &
Manufacturing Company
5.48% 07/22/98 3,987,213
---------
METALS & MINING-2.9%
3,200,000 Aluminum Company of America
6.20% 07/01/98 3,200,000
---------
OFFICE EQUIPMENT-5.3%
5,900,000 Pitney Bowes
Credit Corporation
5.52% 07/24/98 5,879,193
---------
OIL & GAS-2.6%
2,900,000 Amoco Company
5.53% 08/10/98 2,882,181
---------
PHOTOGRAPHY & IMAGING-1.9%
$2,100,000 Eastman Kodak Company
5.51% 07/22/98 $ 2,093,250
-----------
SUPERMARKETS-3.8%
4,300,000 Albertson's, Inc.
5.54% 07/08/98 4,295,368
-----------
UTILITIES-8.1%
4,100,000 Georgia Power Company 5.50% 07/16/98 4,090,604
5,000,000 Potomac Electric
Power Company
5.50% 07/27/98 4,980,139
-----------
9,070,743
-----------
TOTAL CORPORATE
SHORT-TERM NOTES
(AMORTIZED COST-
$107,907,557) 107,907,557
-----------
U.S. AGENCIES-3.7%
4,100,000 Federal Home Loan Mortgage
Corporation
5.40% 07/17/98 4,090,160
-----------
TOTAL U.S. AGENCIES
(AMORTIZED COST-$4,090,160) 4,090,160
-----------
TOTAL INVESTMENTS-100.2%
(AMORTIZED COST-
$111,997,717) 111,997,717
OTHER ASSETS &
LIABILITIES-(0.2%) (165,899)
-----------
NET ASSETS-100.0% $111,831,818
===========
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998 DISCOVERY PASSPORT FRONTIER
(In Thousands) FUND FUND FUND
--------- -------- --------
ASSETS
Investment securities, at market
(cost $196,157, $110,444, $159,418,
$274,998, $20,657, $269,168,
$1,906,632, $515,931, $1,102,456,
$12,600, $111,998, respectively)... $227,550 $152,929 $199,211
Cash................................. 577 606 590
Foreign currency (cost $13, $87, $480
respectively)...................... 0 0 0
Receivables:
Investment securities sold......... 4,618 1,611 721
Capital shares sold................ 2,028 513 26
Dividends and interest............. 18 171 57
Other assets......................... 0 13 0
--------- -------- --------
Total Assets..................... 234,791 155,843 200,605
--------- -------- --------
LIABILITIES
Bank overdraft....................... 0 310 0
Payables:
Investment securities purchased.... 5,570 676 2,797
Capital shares redeemed............ 1,905 217 851
Advisory fee....................... 181 125 158
Shareholder servicing fees......... 25 9 27
Accounting fees.................... 4 3 4
Distribution fees.................. 66 40 47
Other.............................. 35 34 8
Dividends.......................... 0 0 0
--------- -------- --------
Total Liabilities................ 7,786 1,414 3,892
--------- -------- --------
Net Assets........................... $227,005 $154,429 $196,713
========= ======== ========
Capital shares:
Authorized (Par value $0.01 per
share)........................... 100,000 100,000 100,000
========= ======== ========
Outstanding........................ 8,947 9,208 6,587
========= ======== ========
Net Asset Value, Offering and
Redemption Price Per Share......... $25.37 $16.77 $29.86
========= ======== ========
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL WORLDWIDE GOVERNMENT MONEY
SPECIAL EQUITY GROWTH GROWTH BLUE CHIP BALANCED SECURITIES MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
-------- ------------- --------- --------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$323,691 $24,119 $333,006 $2,313,993 $579,276 $1,172,914 $ 13,067 $111,998
901 72 906 5,974 1,504 3,041 1 66
12 90 472 0 1,975 9,153 0 0
6,079 0 40 19,173 11,778 15,858 40 0
1,457 143 887 16,685 291 6,645 0 861
118 45 706 1,629 1,445 7,378 241 0
6 7 48 94 9 7 0 7
-------- ------------- --------- --------- --------- --------- ---------- --------
332,264 24,476 336,065 2,357,548 596,278 1,214,996 13,349 112,932
-------- ------------- --------- --------- --------- --------- ---------- --------
0 0 0 0 0 0 0 0
3,989 1,857 2,090 9,813 8,496 25,743 0 0
887 52 699 8,574 1,471 2,801 186 566
200 18 262 1,234 293 542 7 48
34 3 21 68 44 17 3 15
6 1 7 44 11 23 0 2
78 5 107 880 138 471 4 0
69 1 105 216 123 17 1 0
0 0 0 0 0 153 38 469
-------- ------------- --------- --------- --------- --------- ---------- --------
5,263 1,937 3,291 20,829 10,576 29,767 239 1,100
-------- ------------- --------- --------- --------- --------- ---------- --------
$327,001 $22,539 $332,774 $2,336,719 $585,702 $1,185,229 $13,110 $111,832
======== ============= ========= ========= ========= ========= ========== ========
180,000 100,000 100,000 400,000 400,000 500,000 20,000 1,000,000
======== ============= ========= ========= ========= ========= ========== ========
37,274 1,528 13,695 113,179 74,366 96,651 1,385 111,832
======== ============= ========= ========= ========= ========= ========== ========
$8.77 $14.75 $24.30 $20.65 $7.88 $12.26 $9.46 $1.00
======== ============= ========= ========= ========= ========= ========== ========
</TABLE>
69
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
(In Thousands)
DISCOVERY PASSPORT FRONTIER
FUND FUND FUND
--------- -------- --------
INVESTMENT INCOME
Income:
Dividends.......................... $ 39 $ 700 $ 289
Interest........................... 682 501 503
Foreign taxes withheld............. (2) (109) (30)
--------- -------- --------
Total Investment Income.......... 719 1,098 762
--------- -------- --------
Expenses:
Advisory fees...................... 1,189 671 1,054
Shareholder servicing fees......... 154 52 172
Accounting fees.................... 28 16 25
Distribution fees.................. 297 168 263
Transfer agency expenses........... 41 12 38
Registration fees.................. 18 25 14
Postage and mailing expenses....... 15 5 15
Custodian fees and expenses........ 14 38 9
Printing expenses.................. 52 21 53
Legal and audit fees............... 10 5 5
Directors' fees and expenses....... 7 4 17
Line of Credit expenses............ 3 1 2
Organization expenses.............. 0 0 0
Other expenses..................... 24 16 14
--------- -------- --------
Total Expenses................... 1,852 1,034 1,671
Earnings Credits................. (17) (11) (16)
Reimbursed Expenses.............. 0 0 0
--------- -------- --------
Net Expenses..................... 1,835 1,023 1,655
--------- -------- --------
Net Investment Income (Loss)....... (1,116) 75 (893)
--------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Gain (Loss) from
Security Transactions:
Proceeds from long-term securities
sold............................. 155,108 40,069 128,783
Proceeds from long-term U.S.
Government Obligations........... 0 0 0
Cost of securities sold............ 115,999 33,905 106,128
--------- -------- --------
Net Realized Gain (Loss) from
Security Transactions.............. 39,109 6,164 22,655
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. 0 0 0
Net Change in Unrealized
Appreciation/Depreciation.......... (18,510) 20,810 (7,549)
--------- -------- --------
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions............ 20,599 26,974 15,106
--------- -------- --------
Net Increase in Net Assets Resulting
from Operations.................... $ 19,483 $27,049 $14,213
========= ======== ========
Purchases of long-term securities.... $115,631 $20,608 $94,214
========= ======== ========
Purchases of long-term U.S.
Government Obligations............. $ 0 $ 0 $ 0
========= ======== ========
SEE NOTES TO FINANCIAL STATEMENTS.
70
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL WORLDWIDE GOVERNMENT MONEY
SPECIAL EQUITY GROWTH GROWTH BLUE CHIP BALANCED SECURITIES MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
-------- ------------- --------- --------- --------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 761 $ 183 $ 2,764 $ 8,791 $ 5,170 $ 7,144 $ 0 $ 0
1,427 75 1,192 4,324 2,691 12,842 352 2,847
(34) (20) (276) 0 (116) (184) 0 0
-------- ------------- --------- --------- --------- -------- ---------- ------
2,154 238 3,680 13,115 7,745 19,802 352 2,847
-------- ------------- --------- --------- --------- -------- ---------- ------
1,277 93 1,545 6,839 1,760 3,104 43 254
241 20 132 399 265 102 16 88
46 2 39 243 68 131 2 12
416 23 405 2,540 715 1,366 5 0
50 4 48 210 72 327 3 17
18 9 17 207 45 42 11 29
20 1 77 40 30 9 1 6
26 11 65 77 50 44 1 4
66 6 47 161 85 48 5 25
12 1 10 78 22 25 0 2
10 1 10 60 20 32 1 3
4 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
21 2 22 102 53 21 1 (7)
-------- ------------- --------- --------- --------- -------- ---------- ------
2,207 173 2,417 10,956 3,185 5,251 89 433
(26) (3) (19) (109) (39) (51) (2) (8)
0 (4) 0 0 0 0 0 0
-------- ------------- --------- --------- --------- -------- ---------- ------
2,181 166 2,398 10,847 3,146 5,200 87 425
-------- ------------- --------- --------- --------- -------- ---------- ------
(27) 72 1,282 2,268 4,599 14,602 265 2,422
-------- ------------- --------- --------- --------- -------- ---------- ------
227,016 9,013 140,174 970,749 577,199 752,102 0 0
0 0 0 0 175,512 233,888 7,459 0
178,473 7,743 110,362 818,330 695,213 923,911 7,336 0
-------- ------------- --------- --------- --------- -------- ---------- ------
48,543 1,270 29,812 152,419 57,498 62,079 123 0
0 0 0 0 0 0 0 0
(5,700) 12,304 14,264 206,923 11,201 20,364 136 0
-------- ------------- --------- --------- --------- -------- ---------- ------
42,843 3,574 44,076 359,342 68,699 82,443 259 0
-------- ------------- --------- --------- --------- -------- ---------- ------
$ 42,816 $ 3,646 $ 45,358 $ 361,610 $ 73,298 $ 97,045 $ 524 $2,422
======== ============= ========= ========= ========= ======== ========== ======
$215,600 $12,562 $103,598 $1,259,562 $634,898 $825,343 $ 0 $ 0
======== ============= ========= ========= ========= ======== ========== ======
$ 0 $ 0 $ 0 $ 0 $ 74,229 $241,625 $7,899 $ 0
======== ============= ========= ========= ========= ======== ========== ======
</TABLE>
71
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
DISCOVERY PASSPORT
FUND FUND
----------------------- -----------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
(In Thousands) 06/30/98 12/31/97 06/30/98 12/31/97
---------- --------- ---------- ---------
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income (Loss)......... $ (1,116) $ (1,337) $ 75 $ 366
Net Realized Gain (Loss) from
Security Transactions.............. 39,109 26,135 6,164 2,855
Net Realized Gain (Loss) from Foreign
Currency Transactions.............. 0 0 0 (144)
Net Change in Unrealized
Appreciation/Depreciation.......... (18,510) 243 20,810 1,747
---------- --------- ---------- ---------
Net Increase (Decrease) in Net
Assets Resulting from
Operations....................... 19,483 25,041 27,049 4,824
---------- --------- ---------- ---------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Net Investment Income................ 0 0 0 (241)
Net Realized Gains from Security
Transactions and
Foreign Currency Transactions...... 0 (32,226) 0 (4,261)
---------- --------- ---------- ---------
Net Decrease from Dividends and
Distributions.................... 0 (32,226) 0 (4,502)
---------- --------- ---------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............ 74,154 222,480 84,373 127,954
Reinvested Distributions............. 0 28,758 0 4,246
---------- --------- ---------- ---------
74,154 251,238 84,373 132,000
Cost of Shares Redeemed.............. (112,913) (245,266) (79,639) (187,797)
---------- --------- ---------- ---------
Net increase (decrease) from
capital share
transactions..................... (38,759) 5,972 4,734 (55,597)
---------- --------- ---------- ---------
Net Increase (Decrease) in Net
Assets........................... (19,276) (1,213) 31,783 (55,275)
NET ASSETS
Beginning of year.................. 246,281 247,494 122,646 177,921
---------- --------- ---------- ---------
End of year........................ $ 227,005 $ 246,281 $ 154,429 $ 122,646
========== ========= ========== =========
Net Assets consist of:
Capital (par value and paid-in
surplus)........................... $ 155,537 $ 194,640 $ 105,831 $ 101,319
Accumulated undistributed
(distribution in excess of)
net investment income.............. (2,461) 0 582 (13)
Accumulated undistributed net
realized gain (loss)
from security transactions......... 42,536 1,738 5,531 (335)
Unrealized appreciation
(depreciation) on investments
and foreign currency
transactions....................... 31,393 49,903 42,485 21,675
---------- --------- ---------- ---------
Total.............................. $ 227,005 $ 246,281 $ 154,429 $ 122,646
========== ========= ========== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
<TABLE>
<CAPTION>
FRONTIER SPECIAL INTERNATIONAL WORLDWIDE
FUND FUND EQUITY FUND GROWTH FUND
------------------------ ------------------------ ----------------------- ------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
06/30/98 12/31/97 06/30/98 12/31/97 06/30/98 12/31/97 06/30/98 12/31/97
---------- --------- ---------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (893) $ (2,352) $ (27) $ (163) $ 72 $ (30) $ 1,282 $ 598
22,655 46,906 48,543 44,201 1,270 1,768 29,812 41,279
0 (6) 0 (131) 0 (8) 0 (327)
(7,549) (34,125) (5,700) 4,371 2,304 169 14,264 (7,643)
---------- --------- ---------- --------- ---------- -------- ---------- ---------
14,213 10,423 42,816 48,278 3,646 1,899 45,358 33,907
---------- --------- ---------- --------- ---------- -------- ---------- ---------
0 0 0 0 0 0 0 (503)
0 (40,788) 0 (42,213) 0 (1,945) 0 (37,829)
---------- --------- ---------- --------- ---------- -------- ---------- ---------
0 (40,788) 0 (42,213) 0 (1,945) 0 (38,332)
---------- --------- ---------- --------- ---------- -------- ---------- ---------
24,274 79,622 48,689 49,936 7,885 12,336 94,016 120,759
0 39,544 0 40,236 0 1,835 0 34,492
---------- --------- ---------- --------- ---------- -------- ---------- ---------
24,274 119,166 48,689 90,172 7,885 14,171 94,016 155,251
(63,878) (217,558) (84,690) (139,886) (4,732) (8,504) (115,477) (184,028)
---------- --------- ---------- --------- ---------- -------- ---------- ---------
(39,604) (98,392) (36,001) (49,714) 3,153 5,667 (21,461) (28,777)
---------- --------- ---------- --------- ---------- -------- ---------- ---------
(25,391) (128,757) 6,815 (43,649) 6,799 5,621 23,897 (33,202)
222,104 350,861 320,186 363,835 15,740 10,119 308,877 342,079
---------- --------- ---------- --------- ---------- -------- ---------- ---------
$196,713 $ 222,104 $327,001 $ 320,186 $ 22,539 $15,740 $ 332,774 $ 308,877
========== ========= ========== ========= ========== ======== ========== =========
$120,072 $ 157,275 $225,462 $ 261,451 $ 17,902 $14,662 $ 236,434 $ 257,880
(3,245) 0 (1,228) (7) 32 (1) 1,813 60
40,094 17,488 54,074 4,349 1,143 (79) 30,689 1,363
39,792 47,341 48,693 54,393 3,462 1,158 63,838 49,574
---------- --------- ---------- --------- ---------- -------- ---------- ---------
$196,713 $ 222,104 $327,001 $ 320,186 $ 22,539 $15,740 $ 332,774 $ 308,877
========== ========= ========== ========= ========== ======== ========== =========
</TABLE>
73
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
GROWTH BLUE CHIP
FUND FUND
------------------------ -----------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
(In Thousands) 6/30/98 12/31/97 6/30/98 12/31/97
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss)......... $ 2,268 $ 7,133 $ 4,599 $10,068
Net Realized Gain (Loss) from
Security Transactions.............. 152,419 245,306 57,498 86,064
Net Realized Gain (Loss) from Foreign
Currency
Transactions....................... 0 (110) 0 (389)
Net Change in Unrealized
Appreciation/Depreciation.......... 206,923 60,215 11,201 1,134
----------- --------- ----------- --------
Net Increase (Decrease) in Net
Assets Resulting from
Operations....................... 361,610 312,544 73,298 96,877
----------- --------- ----------- --------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Net Investment Income................ 0 (7,078) 0 (10,159)
Net Realized Gains from Security
Transactions and Foreign Currency
Transactions....................... 0 (234,890) 0 (101,087)
----------- --------- ----------- --------
Net Decrease from Dividends and
Distributions.................... 0 (241,968) 0 (111,246)
----------- --------- ----------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold............ 434,665 847,812 44,045 71,377
Reinvested Distributions............. 0 227,189 0 99,124
----------- --------- ----------- --------
434,655 1,075,001 44,045 170,501
Cost of Shares Redeemed.............. (217,005) (506,451) (74,809) (148,830)
----------- --------- ----------- --------
Net increase (decrease) from
capital share
transactions..................... 217,660 568,550 30,764 21,671
----------- --------- ----------- --------
Net Increase (Decrease) in Net
Assets........................... 579,270 639,126 42,534 7,302
NET ASSETS
Beginning of year.................. 1,757,449 1,118,323 543,168 535,866
----------- --------- ----------- --------
End of year........................ $2,336,719 $1,757,449 $ 585,702 $543,168
=========== ========= =========== ========
Net Assets consist of:
Capital (par value and paid-in
surplus)........................... $1,761,483 $1,544,408 $ 452,731 $487,653
Accumulated undistributed
(distribution in excess of)
net investment income.............. 3,209 0 8,816 145
Accumulated undistributed net
realized gain (loss)
from security transactions......... 164,666 12,603 60,810 3,226
Unrealized appreciation
(depreciation) on investments
and foreign currency tranactions... 407,361 200,438 63,345 52,144
----------- --------- ----------- --------
Total.............................. $2,336,719 $1,757,449 $ 585,702 $543,168
=========== ========= =========== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
<TABLE>
<CAPTION>
BALANCED GOVERNMENT MONEY MARKET
FUND SECURITIES FUND FUND
------------------------ ------------------------ --------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
06/30/98 12/30/97 06/30/98 12/31/97 06/30/98 12/31/97
----------- -------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 14,602 $20,971 $ 265 $ 692 $ 2,422 $ 5,827
62,079 57,332 123 43 0 0
0 (263) 0 0 0 0
20,364 32,318 136 270 0 0
----------- -------- ----------- -------- ----------- ----------
97,045 110,358 524 1,005 2,422 5,827
----------- -------- ----------- -------- ----------- ----------
(14,233) (21,476) (265) (692) (2,422) (5,856)
0 (59,093) 0 0 0 0
----------- -------- ----------- -------- ----------- ----------
(14,233) (80,569) (265) (692) (2,422) (5,856)
----------- -------- ----------- -------- ----------- ----------
297,601 697,431 3,644 7,807 106,633 258,171
13,804 78,264 233 636 2,297 5,405
----------- -------- ----------- -------- ----------- ----------
311,405 775,695 3,877 8,443 108,930 263,576
(151,678) (257,690) (4,285) (10,687) (103,171 (267,340)
----------- -------- ----------- -------- ----------- ----------
159,727 518,005 (408) (2,244) 5,759 (3,765)
----------- -------- ----------- -------- ----------- ----------
242,539 547,794 (149) (1,931) (5,759) (3,793)
942,690 394,896 13,259 15,190 106,073 109,866
----------- -------- ----------- -------- ----------- ----------
$1,185,229 $942,690 $13,110 $13,259 $ 111,832 $106,073
=========== ======== =========== ======== =========== ==========
$1,044,068 $887,526 $14,745 $16,201 $ 111,832 $106,071
3,324 23 1,058 5 0 2
67,380 5,048 (3,160) (3,278) 0 0
70,457 50,093 467 391 0 0
----------- -------- ----------- -------- ----------- ----------
$1,185,229 $942,690 $13,110 $13,259 $ 111,832 $106,073
=========== ======== =========== ======== =========== ==========
</TABLE>
75
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each period.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------- LESS DIVIDENDS AND
NET REALIZED DISTRIBUTIONS
NET & UNREALIZED ---------------------
NAV INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME OR ON INVESTMENT INVESTMENT REALIZED
OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME GAINS
--------- -------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
DISCOVERY FUND
Six months ended 06/30/98..... $ 23.45 (0.12) 2.04 1.92 0.00 0.00
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........... 19.33 (0.15) 2.29 2.14 0.00 (0.52)
PASSPORT FUND
Six months ended 06/30/98..... $ 13.64 0.01 3.12 3.13 0.00 0.00
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
Six months ended 06/30/98..... $ 27.99 (0.14) 2.01 1.87 0.00 0.00
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
Six months ended 06/30/98..... $7.72 0.00 1.05 1.05 0.00 0.00
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
Six months ended 06/30/98..... $ 12.05 0.05 2.65 2.70 0.00 0.00
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
Six months ended 06/30/98..... $ 21.11 0.09 3.10 3.19 0.00 0.00
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.
76
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
--------------------------------------------------------------------------------------
NET ASSETS, NET GROSS NET INVESTMENT
NAV END OF EXPENSES EXPENSES INCOME/(LOSS) PORTFOLIO
TOTAL END TOTAL PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TURNOVER
DISTRIBUTIONS OF PERIOD RETURN (THOUSANDS) NET ASSETS# NET ASSETS# NET ASSETS RATE@
------------- --------- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00 $ 25.37 8.23% $227,005 1.52%** 1.54%** (0.94%)** 114%
(3.53) 23.45 12.00% 246,281 1.52% 1.54% (0.55%) 90%
(2.00) 24.22 21.20% 247,494 1.58% 1.59% (0.85%) 106%
(4.35) 21.70 31.30% 216,623 1.58% 1.63% (0.60%) 118%
0.00 19.88 (7.8%) 185,310 1.67% n/a (0.62%) 72%
(0.52) 21.55 10.80% 226,069 1.65% n/a (0.97%) 99%
0.00 $ 16.77 22.95% $154,429 1.51%** 1.53%** 0.12%** 30%
(0.51) 13.64 1.70% 122,646 1.53% 1.55% 0.20% 51%
(0.11) 13.91 20.05% 177,921 1.57% 1.59% 0.40% 58%
(0.04) 11.68 24.39% 49,922 1.76% 1.84% 0.60% 37%
(0.02) 9.42 (10.4%) 16,443 1.88% n/a 0.12% 78%
0.00 10.53 5.30% 18,567 1.70%** n/a 0.18%** 6%
0.00 29.86 6.68% $196,713 1.56%** 1.57%** (0.84%)** 82%
(6.10) 27.99 6.20% 222,104 1.54% 1.57% (0.91%) 54%
(3.05) 32.34 14.34% 350,861 1.52% 1.53% (0.47%) 85%
(5.16) 31.08 37.00% 331,720 1.53%% 1.57% (0.07%) 92%
(0.65) 26.50 (2.8%) 247,113 1.62% n/a (0.25%) 72%
(1.20) 27.94 16.50% 254,248 1.66% n/a (0.75%) 109%
0.00 $8.77 13.60% $327,001 1.30%** 1.31%** (0.02%)** 114%
(1.16) 7.72 16.40% 320,186 1.30% 1.32% (0.05%) 110%
(0.46) 7.66 15.33% 363,835 1.34% 1.36% (0.28%) 1.86%
(1.75) 7.05 25.70% 388,754 1.29% 1.35% 0.00% 263%
(0.28) 7.01 (4.9%) 299,190 1.36% n/a (0.27%) 272%
(1.33) 7.67 16.00% 432,710 1.33% n/a (0.14%) 285%
0.00 $ 14.75 22.41% $22,539 1.77%+** 1.80%+** 0.77%+** 137%
(1.69) 12.05 16.10% 15,740 1.85%+ 1.89%+ (0.21%)+ 164%
0.00 11.86 18.60% 10,119 1.94%+ 2.00%+ (0.15%)+ 71%
0.00 10.00 0.00% 767 n/a n/a n/a n/a
0.00 $ 24.30 15.11% $332,774 1.47%** 1.48%** 0.78%** 81%
(2.92) 21.11 10.60% 308,877 1.45% 1.47% 0.18% 82%
(0.82) 21.79 13.95% 342,079 1.53% 1.55% 0.50% 72%
(0.74) 19.87 20.63% 228,595 1.56% 1.65% 0.61% 54%
(0.46) 17.09 (2.2%) 104,044 1.66% n/a (0.14%) 87%
(0.41) 17.94 29.90% 85, 214 1.80% n/a (0.19%) 117%
</TABLE>
AVERAGE
TOTAL COMM.
DISTRIBUTIONS PER SHARE*
- -------------
0.00 0.0550
(3.53) 0.0486
(2.00) 0.0566
(4.35) n/a
0.00 n/a
(0.52) n/a
0.00 0.0233
(0.51) 0.0103
(0.11) 0.0147
(0.04) n/a
(0.02) n/a
0.00 n/a
0.00 0.0569
(6.10) 0.0527
(3.05) 0.0567
(5.16) n/a
(0.65) n/a
(1.20) n/a
0.00 0.0403
(1.16) 0.0555
(0.46) 0.0417
(1.75) n/a
(0.28) n/a
(1.33) n/a
0.00 0.0336
(1.69) 0.0145
0.00 0.0189
0.00 n/a
0.00 0.0258
(2.92) 0.0277
(0.82) 0.0247
(0.74) n/a
(0.46) n/a
(0.41) n/a
+ Certain fees were waived by the management company. Had these fees not been
waived, the net expense ratios would have been 1.81% (1998), 2.01% (1997) and
2.46% (1996) for International Equity Fund. The gross expense ratios would
have been 1.84% (1998), 2.05% (1997) and 2.52% (1996) for International
Equity Fund. The net investment income ratios would have been 0.72% (1998),
(0.37%) (1997) and (0.67%) (1996).
@ Portfolio Turnover Rate is a measure of portfolio activity that is calculated
by the lesser of purchases or sales of securities, excluding securities
having maturity dates at acquisition of one year or less, by the average
value of the portfolio securities held during the period, which is a rolling
twelve-month period.
n/a Disclosure not applicable or not required in prior periods.
** Annualized.
77
<PAGE>
- ----------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each period.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------- LESS DIVIDENDS AND
NET REALIZED DISTRIBUTIONS
NET & UNREALIZED ---------------------
NAV INVESTMENT GAIN/(LOSS) TOTAL FROM FROM NET FROM NET
BEGINNING INCOME OR ON INVESTMENT INVESTMENT REALIZED
OF PERIOD (LOSS) SECURITIES OPERATIONS INCOME GAINS
--------- -------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
GROWTH FUND
Six months ended 06/30/98..... $ 17.28 0.02 3.35 3.37 0.00 0.00
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
Six months ended 06/30/98..... $6.92 0.06 0.90 0.96 0.00 0.00
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
Six months ended 06/30/98..... $ 11.35 0.15 0.91 1.06 (0.15) 0.00
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
Six months ended 06/30/98..... $9.28 0.18 0.18 0.36 (0.18) 0.00
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
Six months ended 06/30/98..... $1.00 0.02 0.00 0.02 (0.02) 0.00
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.
78
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN/RATIOS
--------------------------------------------------------------------------------------
NET ASSETS, NET GROSS NET INVESTMENT
NAV END OF EXPENSES EXPENSES INCOME/(LOSS) PORTFOLIO
TOTAL END TOTAL PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TURNOVER
DISTRIBUTIONS OF PERIOD RETURN (THOUSANDS) NET ASSETS# NET ASSETS# NET ASSETS RATE@
------------- --------- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00 $ 20.65 19.50% $2,336,719 1.06%** 1.07%** 0.22%* 141%
(2.75) 17.28 26.60% 1,757,449 1.10% 1.12% 0.48% 189%
(1.32) 15.87 16.57% 1,118,323 1.19% 1.20% 0.15% 134%
(2.15) 14.77 45.59% 655,927 1.24% 1.28% 0.12% 130%
(0.34) 11.63 (3.4%) 307,988 1.33% n/a (0.17%) 172%
(0.85) 12.38 25.50% 343,423 1.32% n/a (0.15%) 131%
0.00 $7.88 13.87% $585,702 1.09%** 1.10%** 1.59%** 251%
(1.69) 6.92 19.40% 543,168 1.09% 1.11% 1.84% 256%
(1.07) 7.23 24.37% 535,866 1.15% 1.16% 1.40% 195%
(1.26) 6.69 29.06% 375,200 1.17% 1.22% 1.19% 235%
(0.37) 6.16 0.50% 311,051 1.21% n/a 0.88% 239%
(1.42) 6.49 14.50% 306,592 1.22% n/a 0.57% 212%
(0.15) $12.26 9.35% $1,185,229 0.94%** 0.95%** 2.65%** 203%
(1.03) 11.35 16.90% 942,690 0.99% 1.01% 2.77% 203%
(0.75) 10.61 18.76% 394,896 1.10% 1.12% 3.09% 146%
(1.47) 9.58 29.40% 130,346 1.19% 1.23% 2.92% 286%
(0.20) 8.56 (1.9%) 95,226 1.26% n/a 2.37% 258%
(1.17) 8.93 21.90% 72,859 1.34% n/a 2.30% 251%
(0.18) $9.46 4.07% $13,110 1.29%+** 1.33%+** 3.93%+** 125%
(0.45) 9.28 7.90% 13,259 1.26%+ 1.31%+ 4.99%+ 147%
(0.46) 9.04 2.34% 15,190 1.26%+ 1.29%+ 5.06%+ 166%
(0.45) 9.29 11.10% 20,263 1.30% 1.30% 4.92% 141%
(0.50) 8.78 (7.5%) 21,323 1.34% n/a 5.52% 379%
(1.10) 10.02 9.30% 30,465 1.18% n/a 4.33% 429%
(0.02) $1.00 4.77% $111,832 0.83%** 0.85%** 4.73%** n/a
(0.05) 1.00 4.70% 106,073 0.82% 0.84% 4.77% n/a
(0.05) 1.00 4.51% 109,866 0.86% 0.88% 4.58% n/a
(0.05) 1.00 5.10% 125,646 0.89% 0.89% 5.11% n/a
(0.03) 1.00 3.40% 201,342 0.91% n/a 3.49% n/a
(0.02) 1.00 2.20% 142,399 0.95% n/a 2.26% n/a
</TABLE>
AVERAGE
TOTAL COMM.
DISTRIBUTIONS PER SHARE*
- -------------
0.00 0.0567
(2.75) 0.0615
(1.32) 0.0649
(2.15) n/a
(0.34) n/a
(0.85) n/a
0.00 0.0630
(1.69) 0.0597
(1.07) 0.0613
(1.26) n/a
(0.37) n/a
(1.42) n/a
(0.15) 0.0645
(1.03) 0.0596
(0.75) 0.0588
(1.47) n/a
(0.20) n/a
(1.17) n/a
(0.18) n/a
(0.45) n/a
(0.46) n/a
(0.45) n/a
(0.50) n/a
(1.10) n/a
(0.02) n/a
(0.05) n/a
(0.05) n/a
(0.05) n/a
(0.03) n/a
(0.02) n/a
+ Certain fees were waived by the management company. Had these fees not been
waived, the net expense ratios would have been 1.47% (1998) and 1.44% (1997)
and 1.46% (1996) for Government Securities Fund. The gross expense ratios
would have been 1.51% (1998), 1.49% (1997) and 1.49% (1996) for Government
Securities Fund. The net investment income ratios would have been 3.75%
(1998), 4.81% (1997) and 4.86% (1996).
@ Portfolio Turnover Rate is a measure of portfolio activity that is calculated
by the lesser of purchases or sales of securities, excluding securities
having maturity dates at acquisition of one year or less, by the average
value of the portfolio securities held during the period, which is a rolling
twelve-month period.
n/a Disclosure not applicable or not required in prior periods.
** Annualized.
79
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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 June 30, 1998 for settling foreign trades is listed on the
Statement 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 it from all
income taxes. Each Fund is treated as a separate tax entity for federal income
tax purposes.
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.
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.
80
<PAGE>
OTHER--Security transactions are recorded on the date the securities are
purchased or sold (trade date).
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
In accordance with the investment advisory agreements between the Funds and
Founders Asset Management LLC ("Founders"), the Funds compensate Founders 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.
Founders limited International Equity Fund's expenses to 1.80% of average net
assets. For the six months ended June 30, 1998, $3,853 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
Founders. 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.
The Funds have agreed to compensate Founders for providing certain shareholder
servicing functions in addition to those currently provided by IFTC. The Funds
paid Founders a monthly fee equal on an annual basis to $26.00 per shareholder
account of the Funds considered to be an open account at any time during a given
month.
The Funds have also agreed to compensate Founders 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 expenses of
up to 0.25% each year on its average daily net assets. During the period,
Founders elected not to seek reimbursement from the Government Securities Fund
of the full amount available under the plan, which resulted in the Fund paying
0.07% under the plan.
Certain officers and/or directors of Founders are also shareholders of the
Funds.
Founders serves as investment adviser to each of the Funds. Founders is a
90%-owned subsidiary of Mellon Bank, N.A., with the remaining 10% held by
certain Founders executives and portfolio managers. Mellon Bank is a
wholly-owned subsidiary of Mellon Bank Corporation, a publicly-owned multibank
holding company which provides a comprehensive range of financial products and
services in domestic and selected international markets. The affairs of
the Funds, including services provided by Founders,
are subject to the supervision and general oversight
of the Funds' board of directors.
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. OTHER INFORMATION
On February 17, 1998, a special meeting of the shareholders of the Funds was
held at which the shareholders of each Fund approved a new investment advisory
agreement between Founders Funds, Inc. and Founders. The need to approve a new
investment advisory contract was caused by the change in control of Founders
resulting from the acquisition of Founders by Mellon Bank, N.A. In addition, the
shareholders elected seven directors of the Funds. The following is a report on
the votes cast:
APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT
<TABLE>
<CAPTION>
SHARES SHARES SHARES BROKER
FUND FOR AGAINST ABSTAINING NON-VOTE
- ---------------------------------------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Discovery Fund.......................... 4,695,820.68 140,656.00 208,078.00 301.00
Passport Fund........................... 4,575,991.63 132,455.00 166,712.00 79,199.00
Frontier Fund........................... 3,341,145.54 128,864.00 203,477.82 1,698.00
Special Fund............................ 19,819,936.96 724,659.00 1,002,894.00 2,220.00
International Equity Fund............... 644,101.00 15,617.00 19,491.00 0
Worldwide Growth Fund................... 7,032,379.44 185,986.00 256,178.00 15,554.00
Growth Fund............................. 51,545,882.29 1,047,507.76 2,246,199.11 285,406.00
Blue Chip Fund.......................... 40,084,793.86 1,145,210.00 2,005,733.05 197,106.00
Balanced Fund........................... 39,166,406.25 449,081.76 3,483,822.92 51,833.09
Government Securities Fund.............. 739,717.00 39,728.00 34,423.00 0
Money Market Fund....................... 60,192,214.00 2,676,644.00 3,213,515.00 0
</TABLE>
ELECTION OF DIRECTORS
SHARES SHARES
CANDIDATE FOR WITHHELD
- ---------------------------------------- ------------ -----------
William H. Baughn....................... 239,649,661 12,348,985
Bjorn K. Borgen......................... 239,767,667 12,230,978
Alan S. Danson.......................... 239,783,238 12,215,407
Trygve E. Myhren........................ 239,811,714 12,186,931
Jay A. Precourt......................... 239,821,242 12,177,403
Eugene H. Vaughan, Jr................... 239,830,284 12,168,361
Jonathan F. Zeschin*.................... 239,820,635 12,178,010
* Mr. Zeschin subsequently resigned as a director of the Funds.
82
<PAGE>
4. FEDERAL INCOME TAXES
Net investment income distributions and capital gains distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sales, foreign currency
transactions, net operating losses, and capital loss carryforwards.
Net capital loss carryovers and post-October 31 capital losses noted below, if
any, as of December 31, 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. The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 1998 are as follows (in thousands). For Federal tax
purposes, the cost of investments owned at June 30, 1998 was the same as
identified cost.
<TABLE>
<CAPTION>
POST- POST-
NET OCTOBER OCTOBER
CAPITAL CAPITAL CURRENCY FEDERAL
LOSS LOSS LOSS TAX UNREALIZED UNREALIZED
CARRYOVERS DEFERRAL DEFERRAL COST APPRECIATION (DEPRECIATION)
---------- -------- -------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Discovery Fund.......................... $ 0 $502 $ 0 $ 196,157 $ 45,137 $(13,744)
Passport Fund........................... 0 422 13 110,444 45,331 (2,846)
Frontier Fund........................... 0 0 0 159,418 44,811 (5,019)
Special Fund............................ 0 0 0 274,998 59,243 (10,550)
International Equity Fund............... 0 59 0 20,657 4,113 (651)
Worldwide Growth Fund................... 0 79 0 259,168 71,572 (7,734)
Growth Fund............................. 0 0 0 1,906,632 445,034 (37,673)
Blue Chip Fund.......................... 0 0 0 515,931 70,678 (7,333)
Balanced Fund........................... 0 0 12 1,102,456 81,092 (10,635)
Government Securities Fund.............. 3,278 0 0 12,600 467 0
Money Market Fund....................... 0 0 0 111,998 0 0
</TABLE>
NET
APPRECIATION/
(DEPRECIATION)
--------------
Discovery Fund.......................... $ 31,393
Passport Fund........................... 42,485
Frontier Fund........................... 39,792
Special Fund............................ 48,693
International Equity Fund............... 3,462
Worldwide Growth Fund................... 63,838
Growth Fund............................. 407,361
Blue Chip Fund.......................... 63,345
Balanced Fund........................... 70,457
Government Securities Fund.............. 467
Money Market Fund....................... 0
83
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. FUND SHARE TRANSACTIONS
Transactions in shares of the Funds for the periods indicated were as follows
(in thousands):
<TABLE>
<CAPTION>
REINVESTED NET INCREASE
SOLD DISTRIBUTIONS REDEEMED (DECREASE)
--------------------------------------------------------------
Discovery Fund:
<S> <C> <C> <C> <C>
Six months ended 06/30/98........... 2,987 0 (4,541) (1,554)
Year ended 12/31/97................. 8,704 1,273 (9,695) 282
Passport Fund:
Six months ended 06/30/98........... 5,377 0 (5,162) 215
Year ended 12/31/97................. 8,876 310 (12,977) (3,791)
Frontier Fund:
Six months ended 06/30/98........... 828 0 (2,175) (1,347)
Year ended 12/31/97................. 2,445 1,474 (6,837) (2,918)
Special Fund:
Six months ended 06/30/98........... 5,864 0 (10,085) (4,221)
Year ended 12/31/97................. 5,949 5,394 (17,345) (6,002)
International Equity Fund:
Six months ended 06/30/98........... 576 0 (354) 222
Year ended 12/31/97................. 939 155 (641) 453
Worldwide Growth Fund:
Six months ended 06/30/98........... 4,062 0 (5,000) (938)
Year ended 12/31/97................. 5,206 1,665 (7,939) (1,068)
Growth Fund:
Six months ended 06/30/98........... 22,884 0 (11,407) 11,477
Year ended 12/31/97................. 46,375 13,366 (28,515) 31,226
Blue Chip Fund:
Six months ended 06/30/98........... 5,817 0 (9,893) (4,076)
Year ended 12/31/97................. 9,168 14,250 (19,054) 4,364
Balanced Fund:
Six months ended 06/30/98........... 24,975 1,134 (12,542) 13,567
Year ended 12/31/97................. 61,542 6,889 (22,543) 45,888
Government Securities Fund:
Six months ended 06/30/98........... 388 25 (457) (44)
Year ended 12/31/97................. 862 70 (1,182) (250)
Money Market Fund:
Six months ended 06/30/98........... 106,633 2,297 (103,171) 5,759
Year ended 12/31/97................. 258,173 5,405 (267,340) (3,762)
</TABLE>
84
<PAGE>
6. TRANSACTIONS WITH AFFILIATES AND 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 six months ended
June 30, 1998, 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 06/30/98
- --------------------------- ------ ---- ------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FOUNDERS DISCOVERY FUND
Cutter and Buck, Inc.... 0 $0 127,500 $2,212,422 $0 $986,846 $3,611,250
</TABLE>
7. LINE OF CREDIT
Discovery Fund, Passport Fund, Frontier Fund, and Special Fund have a Line of
Credit Agreement ("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 the $50
million cap on the Facility. Each Fund agrees to pay annual fees and interest on
the unpaid balance based on prevailing market rates as defined in the agreement.
At June 30, 1998 there were no such borrowings outstanding.
85
<PAGE>
[Logo]
Founders Funds
Founders Asset Management LLC
2930 East Third Avenue
Denver, CO 80206-5002
1-800-525-2440
WWW.FOUNDERS.COM
FUND DIRECTORS
Jay A. Precourt, Chairman
Eugene H. Vaughan, Jr., Vice Chairman
William H. Baughn
Bjorn K. Borgen
Alan S. Danson
Robert P. Mastrovita
Trygve E. Myhren
George W. Phillips
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.
"Dreyfus" is the umbrella designation for the investment products and services
available from affiliates of Mellon Bank Corporation, including Founders Asset
Management LLC. Founders Funds is a registered trademark, and the logo is a
trademark, of Founders Asset Management LLC. 1998 Founders Asset Management LLC.
Broker-Dealer. Premier Mutual Fund Services, Inc., Distributor.
Date of first use: August 21, 1998
A-616-SAR
