FOUNDERS FUNDS INC, 497, 1999-04-30

FOUNDERS FUNDS INC
497, 1999-04-30

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Founders Funds, Inc.

PROSPECTUS

MAY 1, 1999

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

AGGRESSIVE GROWTH FUNDS
Founders Passport Fund
Founders Discovery Fund
Founders Frontier Fund
Founders Mid-Cap Growth Fund

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

GROWTH-AND-INCOME FUNDS
Founders Growth and Income Fund
Founders Balanced Fund

FIXED-INCOME FUND
Founders Government Securities Fund

MONEY MARKET FUND
Founders Money Market Fund
---------------------------------------------

As with other mutual funds, the Securities and Exchange Commission has not
approved or disapproved of these Funds' shares or determined whether the
information in this Prospectus is accurate or complete. Anyone who tells you
otherwise is committing a crime.

FOUNDERS FUNDS (LOGO)
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------

A SUMMARY OF THE FOUNDERS FUNDS.... 4
Welcome........................ 4
An Overview of the Funds....... 4
Fund by Fund Summaries......... 5
Founders Passport Fund...... 6
Founders Discovery Fund..... 8
Founders Frontier Fund...... 10
Founders Mid-Cap Growth
Fund...................... 12
Founders International
Equity Fund............... 14
Founders Worldwide Growth
Fund...................... 16
Founders Growth Fund........ 18
Founders Growth and Income
Fund...................... 20
Founders Balanced Fund...... 22
Founders Government
Securities Fund........... 24
Founders Money Market
Fund...................... 26
FEES AND EXPENSES OF THE FUNDS..... 28
MORE INFORMATION ABOUT INVESTMENT
OBJECTIVES, STRATEGIES, AND
RISKS............................ 30
Other Portfolio Investments and
Strategies.................. 32
Fixed-Income Securities..... 32
ADRs........................ 32
Securities That Are Not
Readily Marketable........ 32
Hedging and Derivative
Instruments............... 33
Temporary Defensive
Investments............... 33
Portfolio Turnover.......... 34
Investment Restrictions..... 34
The Income Funds' Foreign
Investments............... 34

2
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More about Risk................ 35
HOW THE FUNDS ARE MANAGED.......... 37
The Manager.................... 37
Founders' Investment Management
Team........................ 37
HOW TO BUY AND SELL SHARES......... 40
Calculating Share Price........ 40
Investing in the Founders
Funds....................... 41
Opening Your Account........... 41
Retirement Accounts............ 41
Minimum Initial Investments.... 43
Minimum Additional
Investments................. 43
CONDUCTING BUSINESS WITH
FOUNDERS......................... 44
Selling Shares of Founders
Funds....................... 48
Buying or Selling Shares
through a Broker............ 48
Signature Guarantee............ 48
Redemption Proceeds............ 49
Overall Policies Regarding
Transactions................ 49
For More Information on Your
Account..................... 52
Establishing Additional
Services.................... 52
DIVIDENDS AND DISTRIBUTIONS........ 54
TAXES.............................. 55
DISTRIBUTION (12B-1) PLANS......... 56
SHAREHOLDER AND TRANSFER AGENCY
SERVICES......................... 57
BROKERAGE ALLOCATION............... 57
FINANCIAL HIGHLIGHTS............... 58
Understanding Financial
Highlights.................. 70

<PAGE>

A SUMMARY OF THE FOUNDERS FUNDS
- -------------------------------------------------------------------------------

WELCOME

Founders Asset Management LLC ("Founders") manages the 11 no-load Founders
Funds. For easier reading, Founders will be referred to as "we," "us," or
"our" throughout this Prospectus.

AN OVERVIEW OF THE FUNDS

We manage the Funds using a "growth style" of investing. We use a bottom-up
approach to build equity portfolios, searching for companies whose fundamental
strengths give them the potential to provide superior earnings growth over time.
When a company's fundamentals are strong, we believe earnings growth will
follow. Using this disciplined approach, we look for companies having some or
all of the following characteristics:

o growth that is faster than a company's peers

o growth that is faster than the market as a whole and sustainable over the
long term

o strong management

o leading market positions and growing brand identities

o financial, marketing, and operating strength

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

FOUNDERS' AGGRESSIVE GROWTH FUNDS

The aggressive growth funds generally invest in faster-growing and more volatile
stocks. They may be suitable for your investment plan if you have a long time
horizon and are comfortable with short-term volatility.

o Founders Passport Fund
o Founders Discovery Fund
o Founders Frontier Fund
o Founders Mid-Cap Growth Fund

FOUNDERS' GROWTH FUNDS

Investors may use growth funds to form the core of their long-term investment
plan because they may be less volatile over time than aggressive growth funds,
while still maintaining the potential for growth. Growth funds may be suitable
for your investment plan if you have a long time horizon.

o Founders International Equity Fund
o Founders Worldwide Growth Fund
o Founders Growth Fund

FOUNDERS' GROWTH-AND-INCOME FUNDS

These funds invest in growth sectors of the market, in companies that tend to be
larger and more established, and that may pay dividends. For these reasons,
growth-and-income funds present less

4
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risk than aggressive growth or pure growth funds.

o Founders Growth and
Income Fund
o Founders Balanced Fund

FOUNDERS' INCOME FUNDS

These funds are the lowest-risk funds offered by Founders. They may be suitable
for you if you have a short-term investment horizon, desire more safety and
liquidity than may be available with equity funds, seek a modest level of
income, or consider yourself a "saver" rather than an investor.

o Founders Government
Securities Fund
o Founders Money Market Fund

FUND BY FUND SUMMARIES

The following descriptions provide an overview of each Fund's investment
objective and principal investment strategies, list the main risks of investing
in the Funds, and show historical investment performance. More detailed
information about the Funds' investment strategies and associated risks begins
on page 30. Please keep in mind that no Fund can guarantee that it will meet its
investment objective and that, as with any investment, you can lose money by
investing in the Funds.

Below each Fund's description are:

o a bar chart that shows how the investment returns of that Fund have varied
in the past 10 years, or in the years since the Fund began if it is less
than 10 years old

o the highest and lowest quarterly Fund return for the past 10 years or
since the Fund's inception if it is less than 10 years old, to indicate
the Fund's historical short-term volatility

o a table that shows how that Fund's average annual returns compare to
returns of a broad-based index

The comparative indexes included with each Fund's performance are included
to provide a basis for comparing a Fund's performance against a specific
securities market index and/or its peer group. Each index shown accounts for
both change in security price and reinvestment of dividends. The Lipper Balanced
Fund Index reflects the expenses of managing the mutual funds included in the
index. The other indexes are unmanaged groups of securities that do not reflect
the costs of managing a mutual fund. An investor may not invest directly in
these indexes.

An investment in the Funds is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

A Fund's Morningstar category is subject to change.

5
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FOUNDERS PASSPORT FUND
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TICKER SYMBOL: FPSSX MORNINGSTAR CATEGORY: Foreign Stock

INVESTMENT OBJECTIVE
Capital appreciation

PRINCIPAL INVESTMENT STRATEGY
Founders Passport Fund seeks aggressive growth through investments in equity
securities of companies outside the United States with market capitalizations or
annual revenues of $1 billion or less. Passport Fund mainly invests in
securities issued by foreign companies based in both developed and emerging
economies overseas. At least 65% of the Fund's total assets normally will be
invested in foreign securities from a minimum of three countries. The Fund may
invest in larger foreign companies or in U.S.-based companies if, in our
opinion, they represent better prospects for capital appreciation.

MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are small company risk, foreign
investment risk, including foreign currency exchange rate fluctuations, and
emerging markets risk.

- -------------------------------------------------------------------------------
The following information provides some indication of the risks of investing in
the Fund by showing changes in the Fund's performance from year to year and by
showing how the Fund's average annual returns compare with those of a broad
measure of market performance. Past performance is no guarantee of future
results.
- -------------------------------------------------------------------------------
Bar Chart: Year-by-Year Total Return

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-10.40% 24.39% 20.05% 1.70% 12.50%

BEST QUARTER: Q1 1998 14.30% WORST QUARTER: Q3 1998 -19.32%
- -------------------------------------------------------------------------------

6
<PAGE>
financial resources; and may lack management depth. These companies may be more
impacted by intense competition from larger companies, and the trading markets
for their securities may be less liquid and more volatile. This means that the
Fund could have greater difficulty selling a security of a small-cap issuer at
an acceptable price, especially in periods of market volatility. As a result,
investments in small companies involve greater risk than large and more
established companies. Also, it may take a substantial period of time before the
Fund realizes a gain on an investment in a small-cap company, if it realizes any
gain at all.

o FOREIGN INVESTMENT RISK. Investments in foreign securities involve different
risks than U.S. investments, including fluctuations in currency exchange
rates, potential unstable political and economic structures, reduced
availability of public information, and lack of uniform financial reporting
and regulatory practices similar to those that apply to U.S. issuers.

o CURRENCY EXCHANGE RISK. Since Passport Fund's assets are invested primarily
in foreign securities, and since substantially all of the Fund's revenues
are received in foreign currencies, the Fund's net asset value will be
affected by changes in currency exchange rates to a greater extent than most
of the other Funds. The Fund will pay dividends in dollars and will incur
currency conversion costs.

o EMERGING MARKETS RISK. A country that is in the initial stages of its
industrial cycle is considered to be an emerging markets country. Such
countries are subject to more economic, political, and business risk than
major industrialized nations, and the securities issued by companies located
in such a country may be more volatile, less liquid and more uncertain.

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Average Annual Total Return as of 12/31/98

1 Year 5 Years List of Fund*
- --------------------------------------------------------------------------------
PASSPORT FUND 12.50% 8.89% 9.77%
MORGAN STANLEY CAPITAL 18.77% 9.19% 10.50%
INTERNATIONAL WORLD EX.
U.S. INDEX

*INCEPTION DATE 11/16/93
- -------------------------------------------------------------------------------
THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD EX. U.S. INDEX IS AN AVERAGE OF
THE PERFORMANCE OF SELECTED SECURITIES LISTED ON THE STOCK EXCHANGES OF EUROPE,
CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST. THE LIFE OF FUND PERFORMANCE
DATA FOR THE INDEX IS FROM NOVEMBER 30, 1993 THROUGH DECEMBER 31, 1998.

7
<PAGE>

FOUNDERS DISCOVERY FUND
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TICKER SYMBOL: FDISX MORNINGSTAR CATEGORY: Small Growth

INVESTMENT OBJECTIVE
Capital appreciation

PRINCIPAL INVESTMENT STRATEGY
Founders Discovery Fund seeks to apply Founders' growth style by targeting small
and relatively unknown companies with high growth potential. Discovery Fund will
normally invest at least 65% of its total assets in common stocks of small,
rapidly growing U.S.-based companies with market capitalizations or annual
revenues between $10 million and $1.5 billion. Typically, these companies are
not listed on a national securities exchange, but trade on the over-the-counter
market. The Fund also may invest in larger companies if, in our opinion, they
represent better prospects for capital appreciation. Although the Fund normally
will invest in common stocks of U.S.-based companies, it may invest up to 30% of
its total assets in foreign securities.

MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are the risks associated with
investing in small companies.

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
13.20% 62.50% 15.20% 10.80% -7.80% 31.30% 21.20% 12.00% 14.19%

BEST QUARTER: Q4 1998 36.55% WORST QUARTER: Q3 1998 -22.73%
- -------------------------------------------------------------------------------

8
<PAGE>

o SMALL COMPANY RISK. While small companies may offer greater opportunity for
capital appreciation than larger and more established companies, they also
involve substantially greater risks of loss and price fluctuations. Small
companies may be in the early stages of development; have limited product
lines, markets or financial resources; and may lack management depth. These
companies may be more impacted by intense competition from larger companies,
and the trading markets for their securities may be less liquid and more
volatile. This means that the Fund could have greater difficulty selling a
security of a small-cap issuer at an acceptable price, especially in periods

DEFINITION OF TERMS

MARKET CAPITALIZATION is the value of a
corporation calculated by multiplying the
number of its outstanding shares of
common stock by the current market price of
a share.
Founders considers SMALL-CAP companies to
be those companies with market
capitalizations of $1.5 billion or less.

of market volatility. As a result, investments in small companies involve
greater risk than large and more established companies. Also, it may take a
substantial period of time before the Fund realizes a gain on an investment
in a small-cap company, if it realizes any gain at all.

- -------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year 5 Years List of Fund*
- --------------------------------------------------------------------------------
DISCOVERY FUND 14.19% 13.42% 17.91%
RUSSELL 2000 INDEX -2.55% 11.87% 12.50%

*INCEPTION DATE 12/31/89
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THE RUSSELL 2000 INDEX IS A WIDELY RECOGNIZED UNMANAGED SMALL-CAP INDEX
COMPRISING COMMON STOCKS OF THE 2,000 U.S. PUBLIC COMPANIES NEXT IN SIZE AFTER
THE LARGEST 1,000 PUBLICLY TRADED U.S. COMPANIES.

<PAGE>
FOUNDERS FRONTIER FUND
-------------------------------------------------------------------

TICKER SYMBOL: FOUNX MORNINGSTAR CATEGORY: Mid-Cap Growth

INVESTMENT OBJECTIVE
Capital appreciation

PRINCIPAL INVESTMENT STRATEGY
Founders Frontier Fund pursues its investment objective by taking an aggressive
approach to look for small companies with improving profits, increasing market
share, and a commitment to innovation. Frontier Fund will normally invest at
least 65% of its total assets in common stocks of U.S. and foreign companies
with market capitalizations or annual revenues between $200 million and $1.5
billion. Often, these companies are not listed on a national securities exchange
but trade on the over-the-counter market.

While the Fund normally will be at least 50% invested in U.S. companies, and
will have no more than 25% of its total assets invested in any one foreign
country, it also has the flexibility to be completely invested in U.S. or
foreign securities, depending on investment opportunities. The Fund also may
invest in large companies if, in our opinion, they represent better prospects
for capital appreciation.

MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are the risks associated with
investing in small companies.

o SMALL COMPANY RISK. While small companies may offer greater opportunity for
capital appreciation than larger and more established companies, they also

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

The following information provides some indication of the risks of investing in
the Fund by showing changes in the Fund's performance from year to year and by
showing how the Fund's average annual returns compare with those of a broad
measure of market performance. Past performance is no guarantee of future
results.
- -------------------------------------------------------------------------------
Bar Chart: Year-by-Year Total Return

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
44.30% -7.50% 49.30% 8.90% 16.50% -2.80% 37.00% 14.34% 6.20% 5.43%

BEST QUARTER: Q1 1991 26.32% WORST QUARTER: Q3 1998 -21.63%

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

10
<PAGE>

involve greater risks of loss and price fluctuations. Small companies may be in
the early stages of development; have limited product lines, markets or
financial resources; and may lack management depth. These companies may be more
impacted by intense competition from larger companies, and the trading markets
for their securities may be less liquid and more volatile. This means that the
Fund could have greater difficulty selling a security of a small-cap issuer at
an acceptable price, especially in periods of market volatility. As a result,
investments in small companies involve greater risk than large and more
established companies. Also, it may take a substantial period of time before the
Fund realizes a gain on an investment in a small-cap company, if it realizes any
gain at all.

MERGER OF FOUNDERS FRONTIER FUND INTO FOUNDERS DISCOVERY FUND
The Founders Funds' Board of Directors has approved a merger of Frontier Fund
into Discovery Fund, subject to shareholder approval (the "Merger Plan"). The
Merger Plan provides for the transfer of all assets and liabilities of Frontier
Fund to Discovery Fund, and the distribution of Discovery Fund shares to
Frontier Fund shareholders. The Frontier Fund would then cease to exist. The end
result would be that Frontier Fund shareholders would become Discovery Fund
shareholders, holding shares of equivalent value to the Frontier Fund shares
held by them immediately prior to the merger. The Funds will obtain an opinion
of counsel that the merger will constitute a tax-free reorganization for federal
income tax purposes.
It is currently expected that Frontier Fund shareholders will be asked to
approve the Merger Plan at a special meeting of shareholders to be held in or
about August 1999. A proxy statement will be mailed to Frontier Fund
shareholders before the meeting. If the Merger Plan is approved, the merger will
become effective in or about August 1999.

- -------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
FRONTIER FUND* 5.43% 11.26% 15.75%

RUSSELL 2000 INDEX -2.55% 11.87% 12.92%

*INCEPTION DATE 1/22/87

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

11
<PAGE>
FOUNDERS MID-CAP GROWTH FUND
---------------------------------------------------------------

TICKER SYMBOL: FRSPX MORNINGSTAR CATEGORY: Mid-Cap Growth

INVESTMENT OBJECTIVE
Capital appreciation

PRINCIPAL INVESTMENT STRATEGY
Founders Mid-Cap Growth Fund emphasizes investments in equity securities of
medium-sized companies that we believe have favorable growth prospects. Mid-Cap
Growth Fund will normally invest at least 65% of its total assets in equity
securities of companies having a market capitalization within the capitalization
range of companies comprising the Standard & Poor's MidCap 400 Index. The Fund
also may invest in larger or smaller companies if, in our opinion, they
represent better prospects for capital appreciation. The Fund may invest up to
30% of its total assets in foreign securities, with no more than 25% of its
total assets invested in the securities of any one foreign country.

The Fund may use derivative instruments to seek to reduce the risks of
market fluctuations that may affect the value of the securities the Fund holds
or may buy in the future. The Fund may invest in options, futures contracts, and
forward contracts. If these practices are used by the Fund, they would be used
for hedging purposes, rather than for speculative purposes.

MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are the risks of investing in
medium-

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

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Bar Chart: Year-by-Year Total Return

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

39.20% -10.40% 63.70% 8.30% 16.00% -4.90% 25.70% 15.33% 16.40% -1.73%

BEST QUARTER: Q1 1991 28.83% WORST QUARTER: Q3 1998 -29.87%
- ----------------------------------------------------------------------------------------
</TABLE>

12
<PAGE>
sized companies, and to a lesser extent small-sized companies, and the risks
associated with using hedging techniques and derivatives.

o SMALL- AND MEDIUM-SIZED COMPANY RISK. While small- and medium-sized
companies may offer greater opportunity for capital appreciation than larger
and more established companies, they also involve greater risks of loss and
price fluctuations. Small companies, and to an extent medium-sized
companies, may be in the early stages of development; have limited product
lines, markets or financial resources; and may lack management depth. These
companies may be more impacted by intense competition from larger companies,
and the trading markets for their securities may be less liquid and more
volatile. This means that the Fund

DEFINITION OF TERMS
We generally consider MEDIUM-SIZED
COMPANIES to be companies that have market
capitalizations between $1.5 billion and $8
billion. This range may, however, fluctuate
depending on changes in the value of the
stock market as a whole.

could have greater difficulty selling a security of a small- or medium-sized
issuer at an acceptable price, especially in periods of market volatility.
As a result, investments in small- and medium-sized companies involve
greater risk than large and more established companies. Also, it may take a
substantial period of time before the Fund realizes a gain on an investment
in a small- or medium-sized company, if it realizes any gain at all.

o HEDGING AND DERIVATIVES. The Fund may use derivatives to try to hedge
investment risk. The Fund has policies and limits on the use of derivatives.
However, using derivatives can cause the Fund to lose money on its
investments and/or increase the volatility of its share price. In addition,
the successful use of derivatives draws upon skills and experience that are
different from those needed to select the other securities in which the Fund
invests. Should interest rates or the prices of securities or financial
indexes move in an unexpected manner, the Fund may not achieve the desired
benefits of these instruments, or may realize losses and be in a worse
position than if the instruments had not been used.

FOUNDERS MID-CAP GROWTH FUND WAS FORMERLY KNOWN AS FOUNDERS SPECIAL FUND.

- -------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
MID-CAP GROWTH FUND* -1.73% 9.54% 15.00%
S&P MIDCAP 400 INDEX 19.11% 18.84% 19.29%

*INCEPTION DATE 9/18/61

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

THE STANDARD & POOR'S (S&P) MIDCAP 400 INDEX IS AN UNMANAGED GROUP OF 400
DOMESTIC STOCKS CHOSEN FOR THEIR MARKET SIZE, LIQUIDITY, AND INDUSTRY GROUP
REPRESENTATIONS.

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

TICKER SYMBOL: FOIEX MORNINGSTAR CATEGORY: Foreign Stock

INVESTMENT OBJECTIVE
Long-term growth of capital

PRINCIPAL INVESTMENT STRATEGY
Founders International Equity Fund normally invests at least 65% of its total
assets in foreign equity securities from a minimum of three countries outside
the United States, including both established and emerging economies. The Fund
will not invest more than 50% of its assets in the securities of any one foreign
country. Although the Fund intends to invest substantially all of its assets in
issuers located outside the United States, it may at times invest in U.S.-based
companies.

MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are foreign investment risks,
including foreign currency exchange rate fluctuations, and emerging markets
risk.

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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
18.60% 16.10% 17.01%

BEST QUARTER: Q1 1998 14.69% WORST QUARTER: Q3 1998 -14.58%

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

14
<PAGE>
o FOREIGN INVESTMENT RISK. Investments in foreign securities involve different
risks than U.S. investments, including fluctuations in currency exchange
rates, potential unstable political and economic structures, reduced
availability of public information, and lack of uniform financial reporting
and regulatory practices similar to those that apply to U.S. issuers.

o CURRENCY EXCHANGE RISK. Since International Equity Fund's assets are
invested primarily in foreign securities, and since substantially all of the
Fund's revenues are received in foreign currencies, the Fund's net asset
value will be affected by changes in currency exchange rates to a greater

DEFINITION OF TERMS

FOREIGN SECURITIES refers to securities
of issuers, wherever organized, that
have their principal business activities
outside of the United States. We consider
whether more than 50% of the issuer's
assets are located, or more than 50% of the
issuer's gross income is earned, outside of
the United States, or whether the issuer's
principal stock exchange listing is outside
of the United States.

extent than most of the other Funds. The Fund will pay dividends in dollars
and will incur currency conversion costs.

o EMERGING MARKETS RISK. A country that is in the initial stages of its
industrial cycle is considered to be an emerging markets country. Such
countries are subject to more economic, political, and business risk than
major industrialized nations, and the securities issued by companies located
there may be more volatile, less liquid and more uncertain.

- --------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year List of Fund*
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND 17.01% 17.18%
MORGAN STANELY CAPITAL
INTERNATIONAL WORLD EX. U.S. INDEX 18.77% 9.06%

*INCEPTION DATE 12/29/95

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

THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX EX. U.S. IS AN AVERAGE OF
THE PERFORMANCE OF SELECTED SECURITIES LISTED ON THE STOCK EXCHANGES OF EUROPE,
CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST. THE LIFE OF FUND PERFORMANCE
DATA FOR THE INDEX IS FROM DECEMBER 31, 1995 THROUGH DECEMBER 31, 1998.

15
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
-------------------------------------------------------------------

TICKER SYMBOL: FWWGX MORNINGSTAR CATEGORY: World Stock

INVESTMENT OBJECTIVE
Long-term growth of capital

PRINCIPAL INVESTMENT STRATEGY
Founders Worldwide Growth Fund, a global fund, normally invests at least 65% of
its total assets in equity securities of growth companies in a variety of
markets throughout the world. The Fund may purchase securities in any foreign
country, as well as in the United States, emphasizing common stocks of both
emerging and established growth companies that generally have proven performance
records and strong market positions. The Fund's portfolio will always invest at
least 65% of its total assets in three or more countries. The Fund will not
invest more than 50% of its total assets in the securities of any one foreign
country.

MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are foreign investment risks,
including foreign currency exchange rate fluctuations, and emerging markets
risk.

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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
6.70% 34.80% 1.50% 29.90% -2.20% 20.63% 13.95% 10.60% 9.63%

BEST QUARTER: Q4 1993 15.28% WORST QUARTER: Q3 1998-16.75%

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

16
<PAGE>
o FOREIGN INVESTMENT RISK. Investments in foreign securities involve different
risks than U.S. investments, including fluctuations in currency exchange
rates, potential unstable political and economic structures, reduced
availability of public information, and lack of uniform financial reporting
and regulatory practices similar to those that apply to U.S. issuers.

o CURRENCY EXCHANGE RISK. Since Worldwide Growth Fund's assets are invested
primarily in foreign securities, and since substantially all of the Fund's
revenues are received in foreign currencies, the Fund's net

DEFINITION OF TERMS

A GLOBAL FUND is a type of mutual
fund that may invest in securities
traded anywhere in the world,
including the United States.

asset value will be affected by changes in currency exchange rates to a
greater extent than most of the other Funds. The Fund will pay dividends in
dollars and will incur currency conversion costs.

o EMERGING MARKETS RISK. A country that is in the initial stages of its
industrial cycle is considered to be an emerging markets country. Such
countries are subject to more economic, political, and business risk than
major industrialized nations, and the securities issued by companies located
there may be more volatile, less liquid and more uncertain.

- --------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year 5 Years List of Fund*
- --------------------------------------------------------------------------------
WORLDWIDE GROWTH FUND 9.63% 10.26% 13.36%
MORGAN STANLEY CAPITAL 24.33% 15.68% 10.00%
INTERNATIONAL WORLD INDEX

*INCEPTION DATE 12/31/89

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

THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX IS AN AVERAGE OF THE
PERFORMANCE OF SELECTED SECURITIES LISTED ON THE STOCK EXCHANGES OF THE UNITED
STATES, EUROPE, CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST.

<PAGE>
FOUNDERS GROWTH FUND
-------------------------------------------------------------------

TICKER SYMBOL: FRGRX MORNINGSTAR CATEGORY: Large Growth

INVESTMENT OBJECTIVE
Long-term growth of capital

PRINCIPAL INVESTMENT STRATEGY
Founders Growth Fund normally invests at least 65% of its total assets in common
stocks of well-established, high-quality growth companies. These companies tend
to have strong performance records, solid market positions, reasonable financial
strength, and continuous operating records of three years or more. The Fund may
also invest up to 30% of its total assets in foreign securities, with no more
than 25% invested in any one foreign country.

MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are stock market risk and investment
style risk.

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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
41.70% -10.60% 47.40% 4.30% 25.50% -3.40% 45.59% 16.57% 26.60% 25.04%

BEST QUARTER: Q4 1998 21.11% WORST QUARTER: Q3 1990 -14.83%

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

18
<PAGE>

o STOCK MARKET RISK. The value of the stocks and other securities owned by
Growth Fund will fluctuate depending on the performance of the companies
that issued them, general market and economic conditions, and investor
confidence. In addition, if our assessment of a company's potential to
increase earnings faster than the rest of the market is not correct, the
securities in the portfolio may not increase in value, and could even
decrease in value.

o INVESTMENT STYLE RISK. Market performance tends to be cyclical, and during
various cycles, certain investment styles may fall in and out of favor. If
the market is not

DEFINITION OF TERMS

We generally considerLARGE COMPANIES to be
companies that have market capitalizations
of more than $8 billion. This range may,
however, fluctuate depending on changes in
the value of the stock market as a whole.

favoring the Fund's growth style of investing, the Fund's gains may not be
as big as, or its losses may be bigger than, other equity funds using
different investment styles.

- --------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
GROWTH FUND* 25.03% 21.02% 20.30%
S&P 500 INDEX 28.57% 24.05% 19.19%

*INCEPTION DATE 1/5/62

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

THE STANDARD & POOR'S (S&P) 500 INDEX IS A WIDELY RECOGNIZED UNMANAGED INDEX OF
500 COMMON STOCKS.

19
<PAGE>
FOUNDERS GROWTH AND INCOME FUND
-------------------------------------------------------------------

TICKER SYMBOL: FRMUX MORNINGSTAR CATEGORY: Large Blend

INVESTMENT OBJECTIVE
Long-term growth of capital and income

PRINCIPAL INVESTMENT STRATEGY
Founders Growth and Income Fund, a large-company fund, primarily invests in
common stocks of large, well-established, stable and mature companies of great
financial strength, commonly known as "blue chip" companies. These companies
generally have long records of profitability and dividend payments and a
reputation for high-quality management, products, and services. The Fund
normally invests at least 65% of its total assets in "blue chip" stocks that:

o are included in a widely recognized index of stock market performance, such
as the Dow Jones Industrial Average or the Standard & Poor's 500 Index
o generally pay regular dividends
o have a market capitalization of at least $1 billion

The Fund may invest in non-dividend-paying companies if, in our opinion,
they offer better prospects for capital appreciation. The Fund may also invest
up to 30% of its total assets in foreign securities.

MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are stock market risk and investment
style risk.

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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
35.60% 0.40% 28.30% -0.30% 14.50% 0.50% 29.06% 24.37% 19.40% 17.78%

BEST QUARTER: Q1 1991 12.68% WORST QUARTER: Q3 1990-11.26%

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

20
<PAGE>
o STOCK MARKET RISK. The value of the stocks and other securities owned by
Growth and Income Fund will fluctuate depending on the performance of the
companies that issued them, general market and economic conditions, and
investor confidence. In addition, if our assessment of a company's potential
to increase earnings faster than the rest of the market is not correct, the
securities in the portfolio may not increase in value, and could even
decrease in value.

DEFINITION OF TERMS

DIVIDEND is a payment of stock or cash from
a company's profits to its stockholders.

o INVESTMENT STYLE RISK. Market performance tends to be cyclical, and during
various cycles, certain investment styles may fall in and out of favor. If
the market is not favoring the Fund's growth style of investing, the Fund's
gains may not be as big as, or its losses may be bigger than, other equity
funds using different investment styles.

FOUNDERS GROWTH AND INCOME FUND WAS FORMERLY KNOWN AS FOUNDERS BLUE CHIP FUND.

- -------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND* 17.78% 17.81% 16.31%
S&P 500 INDEX 28.57% 24.05% 19.19%

*INCEPTION DATE 7/15/38

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

THE STANDARD & POOR'S (S&P) 500 INDEX IS A WIDELY RECOGNIZED UNMANAGED INDEX OF
500 COMMON STOCKS.

<PAGE>
FOUNDERS BALANCED FUND
-------------------------------------------------------------------

TICKER SYMBOL: FRINX MORNINGSTAR CATEGORY: Domestic Hybrid

INVESTMENT OBJECTIVE
Current income and capital appreciation

PRINCIPAL INVESTMENT STRATEGY
Founders Balanced Fund normally invests in a balanced portfolio of common
stocks, U.S. and foreign government securities, and a variety of corporate
fixed-income obligations.

o For the equity portion of its portfolio, the Fund emphasizes investments in
common stocks with the potential for capital appreciation. These stocks
generally pay regular dividends, although the Fund also may invest in
non-dividend-paying companies if, in our opinion, they offer better
prospects for capital appreciation. Normally, the Fund will invest a
significant percentage (up to 75%) of its total assets in equity securities.
o The Fund will maintain a minimum of 25% of its total assets in fixed-income,
investment-grade securities rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's ("S&P").
There is no maximum limit on the amount of straight debt securities in which
the Fund may invest, and the Fund may invest up to 100% of its assets in
such securities for temporary defensive purposes.
o The Fund also may invest up to 30% of its total assets in foreign
securities, with no more than 25% of its total assets invested in the
securities of any one foreign country.

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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
25.30% -5.00% 22.90% 6.00% 21.90% -1.90% 29.40% 18.76% 16.90% 13.96%

BEST QUARTER: Q2 1997 10.06% WORST QUARTER: Q3 1990 -7.33%

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

22
<PAGE>
MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are stock market risk, interest rate
risk, credit risk, and foreign investment risk.

o STOCK MARKET RISK. The value of the stocks and other securities owned by
Balanced Fund will fluctuate depending on the performance of the companies
that issued them, general market and economic conditions, and investor
confidence. In addition, if our assessment of a company's potential to
increase earnings faster than the rest of the market is not correct, the
securities in the portfolio may not increase in value, and could even
decrease in value. o INTEREST RATE RISK. When interest rates change, the
value of the fixed-income portion of the Fund will be affected. An increase
in interest rates

DEFINITION OF TERMS

DEBT SECURITY is a security representing
money borrowed that must be repaid to the
lender at a future date. Bonds, notes,
bills, and money market instruments are all
debt securities.

tends to reduce the market value of debt securities, while a decline in
interest rates tends to increase their values.

o CREDIT RISK. The value of the debt securities held by the Fund fluctuates
with the credit quality of the issuers of those securities. Credit risk
relates to the ability of the issuer to make payments of principal and
interest when due, including default risk.
o FOREIGN INVESTMENT RISK. Investments in foreign securities involve different
risks than U.S. investments, including fluctuations in currency exchange
rates, potential unstable political and economic structures, reduced
availability of public information and lack of uniform financial reporting
and regulatory practices similar to those that apply to U.S. issuers.

- -------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
BALANCED FUND* 13.96% 14.96% 14.26%
S&P 500 INDEX 28.57% 24.05% 19.19%
LIPPER BALANCED FUND INDEX 15.09% 13.87% 13.32%

*INCEPTION DATE 2/29/63

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

THE STANDARD & POOR'S (S&P) 500 INDEX IS A WIDELY RECOGNIZED UNMANAGED INDEX OF
500 COMMON STOCKS. THE LIPPER BALANCED FUND INDEX IS AN AVERAGE OF THE
PERFORMANCE OF THE 30 LARGEST BALANCED FUNDS TRACKED BY LIPPER ANALYTICAL
SERVICES.

23
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND
-------------------------------------------------------------------

TICKER SYMBOL: FGVSXMORNINGSTAR CATEGORY: Intermediate Government

INVESTMENT OBJECTIVE
Current income

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

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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
13.30% 4.40% 14.90% 5.30% 9.30% -7.50% 11.10% 2.34% 7.90% 9.76%

BEST QUARTER: Q2 1989 7.95% WORST QUARTER: Q1 1994 -4.40%

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

24
<PAGE>
MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are interest rate risk, credit risk,
and prepayment risk.

o INTEREST RATE RISK. When interest rates change, the value of the Fund's
holdings will be affected. An increase in interest rates tends to reduce the
market value of debt securities, while a decline in interest rates tends to
increase their values.

o PREPAYMENT RISK is present primarily with mortgage-backed securities. During
a period of declining interest rates, home-

DEFINITION OF TERMS

BOND is an IOU (debt security) issued by a
government or corporation that pays a
stated rate of interest and returns the
face value on the maturity date.

MATURITY is the length of time until
a bond or other debt instrument "matures"
or becomes due and
payable.

owners may refinance their high-rate mortgages and prepay the principal.
Cash from these prepayments flows through to prepay the mortgage-backed
securities, necessitating reinvestment in bonds with lower interest rates,
which may lower the return of the Fund.

- -------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND* 9.76% 4.49% 6.90%
LEHMAN BROTHERS U.S. TREASURY 10.03% 7.19% 9.18%
COMPOSITE INDEX

*INCEPTION DATE 3/1/88

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

THE LEHMAN BROTHERS U.S. TREASURY COMPOSITE INDEX IS COMPOSED OF ALL PUBLIC
OBLIGATIONS OF THE U.S. TREASURY, EXCLUDING CERTAIN SECURITIES, THAT HAVE AT
LEAST ONE YEAR TO MATURITY AND AN OUTSTANDING PAR VALUE OF AT LEAST $100
MILLION.

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

TICKER SYMBOL: FMMXX

INVESTMENT OBJECTIVE
Maximum current income consistent with the preservation of capital and liquidity

PRINCIPAL INVESTMENT STRATEGY
Founders Money Market Fund invests in high-quality money market instruments with
minimal credit risks and remaining maturities of 397 calendar days or less
including those issued by:

o Corporate issuers
o U.S. government and its agencies and instrumentalities
o U.S. and foreign banks

Money market funds are subject to strict federal requirements and must
maintain an average dollar-weighted portfolio maturity of 90 days or less.

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

The following information provides some indication of the risks of investing in
the Fund by showing changes in the Fund's performance from year to year. Past
performance is no guarantee of future results.
- -------------------------------------------------------------------------------
Bar Chart: Year-by-Year Total Return

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
8.10% 7.30% 5.10% 2.80% 2.20% 3.40% 5.10% 4.51% 4.70% 4.67%

BEST QUARTER: Q2 1989 2.19% WORST QUARTER: Q2 1993 0.50%

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

26
<PAGE>
MAIN RISKS OF INVESTING
The primary risks of investing in this Fund are interest rate risk, credit risk,
and inflation risk.

o INTEREST RATE RISK. When interest rates change, the Fund's yield will be
affected. An increase in interest rates tends to increase the Fund's yield,
while a decline in interest rates tends to reduce its yield.

o INFLATION RISK is the risk that your investment will not provide enough
income to keep pace with inflation.

DEFINITION OF TERMS

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

An investment in the Money Market Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund.

- -------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/98

1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
MONEY MARKET FUND* 4.67% 4.47% 4.77%

*INCEPTION DATE 6/23/81

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

FOUNDERS MONEY MARKET FUND'S MOST CURRENT SEVEN-DAY YIELD IS AVAILABLE BY
CALLING 1-800-232-8088.

27
<PAGE>
FEES AND EXPENSES OF THE FUNDS
- -------------------------------------------------------------------------------
The following table will help you better understand the various costs and
expenses you will incur directly or indirectly as an investor in the Funds. The
Funds are "no-load" which means we don't charge you any fees to buy, sell, or
exchange shares (although a $6 fee will be assessed for wire redemptions). Fund
expenses are paid out of Fund assets and are reflected in each Fund's share
price and dividend. The following figures show actual expenses during the year
ended December 31, 1998, and are calculated as a percentage of average net
assets.

ANNUAL FUND OPERATING EXPENSES

<TABLE>
<CAPTION>
TOTAL
TOTAL ANNUAL
ANNUAL FUND
FUND OPERATING
OPERATING EXPENSES
OTHER EXPENSES (WITH
EXPENSES (WITHOUT REIMBURSE-
DISTRIBUTION (WITHOUT REIMBURSE- MENTS/
(12B-1) FEES REIMBURSE- MENTS/ WAIVERS
MANAGE- WITHOUT MENTS/ WAIVERS OR
FUND NAME MENT FEE WAIVERS1 WAIVERS)2 OR CREDITS) CREDITS)3
- ------------------------------------- -------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balanced Fund 0.57% 0.25% 0.18% 1.00% 0.99%
Discovery Fund 1.00% 0.25% 0.32% 1.57% 1.55%
Frontier Fund 1.00% 0.25% 0.40% 1.65% 1.62%
Government Securities Fund 0.65% 0.25%4 0.59% 1.49% 1.25%
Growth Fund 0.67% 0.25% 0.18% 1.10% 1.08%
Growth and Income Fund 0.62% 0.25% 0.23% 1.10% 1.08%
International Equity Fund 1.00% 0.25% 0.67%5 1.92% 1.80%
Mid-Cap Growth Fund 0.77% 0.25% 0.33% 1.35% 1.33%
Money Market Fund 0.50% N/A 0.37% 0.87% 0.85%
Passport Fund 1.00% 0.25% 0.29% 1.54% 1.52%

Worldwide Growth Fund 0.96% 0.25% 0.27% 1.49% 1.47%

</TABLE>

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

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

2 THESE EXPENSES INCLUDE CUSTODIAN, TRANSFER AGENCY AND ACCOUNTING AGENT FEES,
AND OTHER CUSTOMARY FUND EXPENSES.

3 EXPENSES AFTER WAIVERS AND CREDITS INCLUDE EXPENSE OFFSETS FROM CREDITS EARNED
ON UNINVESTED CASH HELD OVERNIGHT AT THE CUSTODIAN, AND WAIVERS OF CERTAIN
12B-1 FEES AND OTHER EXPENSES BY FOUNDERS (SEE FOOTNOTES 4 AND 5 BELOW).

4 FOUNDERS HAS WAIVED CERTAIN 12B-1 FEES OF THE GOVERNMENT SECURITIES FUND
PURSUANT TO A CONTRACTUAL COMMITMENT TO THE FUND. AFTER THE WAIVER, 12B-1 FEES
FOR THAT FUND WERE 0.04%. THIS WAIVER WILL EXTEND THROUGH AT LEAST MAY 31,
2000 AND WILL NOT BE TERMINATED WITHOUT THE PRIOR APPROVAL OF THE FUND'S BOARD
OF DIRECTORS.

5 FOUNDERS HAS AGREED TO LIMIT THE TOTAL EXPENSES OF THE INTERNATIONAL EQUITY
FUND PURSUANT TO A CONTRACTUAL COMMITMENT TO THE FUND, SO THAT THE ACTUAL
OTHER EXPENSES PAID BY THE FUND DURING THE YEAR ENDED DECEMBER 31, 1998 WERE
0.58% OF AVERAGE NET ASSETS. THIS LIMIT WILL EXTEND THROUGH AT LEAST MAY 31,
2000, AND WILL NOT BE TERMINATED WITHOUT THE PRIOR APPROVAL OF THE FUNDS'
BOARD OF DIRECTORS.

28
<PAGE>
EXAMPLE
The following example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example assumes
that:

o you invest $10,000 in a Fund for the time period indicated and then redeem
all of your shares at the end of those periods.
o your investment earns a 5% return each year and that each Fund's operating
expenses remain the same.

Although your actual costs, and the Fund's performance, may be higher or lower
based on these assumptions, your costs would be:

FUND NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------- ------ ------- ------- --------
Balanced Fund $103 $ 320 $ 555 $1,229
Discovery Fund $161 $ 499 $ 861 $1,878
Frontier Fund $169 $ 524 $ 903 $1,967
Government Securities Fund $153 $ 474 $ 819 $1,789
Growth Fund $112 $ 348 $ 604 $1,334
Growth and Income Fund $113 $ 352 $ 609 $1,346
International Equity Fund $197 $ 608 $1,046 $2,259
Mid-Cap Growth Fund $138 $ 430 $ 744 $1,632
Money Market Fund $ 89 $ 279 $ 484 $1,076
Passport Fund $158 $ 490 $ 845 $1,845
Worldwide Growth Fund $152 $ 471 $ 813 $1,778

<PAGE>

MORE INFORMATION ABOUT INVESTMENT OBJECTIVES, STRATEGIES, AND RISKS
- -------------------------------------------------------------------------------

Each of the Founders Funds seeks to achieve its investment objective through its
unique investment strategies. The principal investment strategies and risks of
each Fund have been described in the Fund by Fund Summaries. This section of the
Prospectus discusses other investment strategies used by the Funds and provides
in more detail the risks associated with those strategies. Although we might not
always use all of the different techniques and investments described below, some
of these techniques are designed to help reduce investment or market risks. The
Statement of Additional Information contains more detailed information about the
Funds' investment policies and risks.
Founders offers a wide spectrum of mutual funds covering a range of
potential rewards and risks: aggressive growth, growth, international, growth
and income, fixed-income, and money market funds.
The spectrum at right shows our assessment of the potential volatility of
the Founders Funds relative to one another and should not be used to compare the
Funds to other mutual funds or other types of investments. Each Fund has its own
strategy and risk/reward profile, and a Fund's position on the spectrum is
subject to change. It is important to read all risk discussions carefully before
investing.

30
<PAGE>

Higher Risk/
Higher Return Potential

International Small Cap Passport Fund
Micro/Small Cap Discovery Fund
Small Cap Frontier Fund
Mid Cap Mid-Cap Growth Fund
Core International International Equity Fund
Global Equity Worldwide Growth Fund
Large Cap Growth Fund
Growth and Income Growth and Income Fund
Balanced Balanced Fund
Fixed Income Government Securities Fund
Money Market Money Market Fund

Lower Risk/
Lower Return Potential

31
<PAGE>

OTHER PORTFOLIO INVESTMENTS AND STRATEGIES

Balanced, Discovery, Frontier, International Equity, Growth, Growth and Income,
Mid-Cap Growth, Passport, and Worldwide Growth are the Equity Funds. The other
two Founders Funds, the Government Securities Fund and the Money Market Fund,
are the Income Funds.

FIXED-INCOME SECURITIES. While the Equity Funds generally emphasize investments
in equity securities, such as common stocks and preferred stocks, they also may
invest in fixed-income securities when we believe that these investments offer
opportunities for capital appreciation. Fixed-income securities in which the
Equity Funds might invest include bonds, debentures, and other corporate or
government obligations. For Balanced Fund, we also consider current income in
the selection of these securities.

ADRS. The Equity Funds may invest without limit in American Depositary Receipts
and American Depositary Shares (collectively, "ADRs"). ADRs are receipts
representing shares of a foreign corporation held by a U.S. bank that entitle
the holder to all dividends and capital gains on the underlying foreign shares.
ADRs are denominated in U.S. dollars and trade in the U.S. securities markets.

ADRs are subject to some of the same risks as direct investments in foreign
securities, including the risk that material information about the issuer may
not be disclosed in the United States and the risk that currency fluctuations
may adversely affect the value of the ADR.

SECURITIES THAT ARE NOT READILY MARKETABLE. A security is not "readily
marketable" if it cannot be disposed of within seven days in the ordinary
course of business for approximately the amount it is valued. We will not invest
more than 15% of any Fund's net assets in securities that are not readily
marketable. For the Money Market Fund, this limit is 10%.

A restricted security is one that has a contractual restriction on its
resale or which cannot be sold publicly until it is registered under the
Securities Act of 1933. Certain restricted securities are eligible for resale to
qualified institutional purchasers (Rule 144A securities) and may be readily
marketable. Rule 144A securities that are readily marketable are not subject to
the 15%/10% limits discussed above. We monitor holdings of securities that are
not readily marketable on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity. However, it is possible that the market
for 144A securities can change and it may become difficult to sell these
securities, or to sell them at a reasonable price, if institutional purchasers
lose interest in the investment.

Investments in illiquid securities, which may include restricted securities,
involve certain risks to the extent that a Fund may be unable to dispose of such
a security at the time desired or at a

32
<PAGE>
reasonable price. In addition, in order to sell a restricted security, a Fund
might have to bear the expense and incur the delays associated with registering
the shares under the Securities Act of 1933.

HEDGING AND DERIVATIVE INSTRUMENTS. All of the Funds except the Money Market
Fund can enter into futures contracts and forward contracts, and may purchase
and/or write (sell) put and call options on securities indexes, futures
contracts and foreign currencies. These are sometimes referred to as
"derivative" instruments. The Funds do not use derivative instruments for
speculative purposes. The Funds have limits on their use and are not required to
use them in seeking their investment objectives.

Some of these strategies may hedge a Fund's portfolio against price
fluctuations. Other hedging strategies, such as buying futures and call options,
would tend to increase a Fund's exposure to the securities market. Forward
contracts may be used to try to manage foreign currency risks on a Fund's
foreign investments. Options trading involves the payment of premiums and has
special tax effects on a Fund.

There are special risks in using particular hedging strategies. Using
derivatives can cause a Fund to lose money on its investments and/or increase
the volatility of its share prices. In addition, the successful use of
derivatives draws upon skills and experience that are different from those
needed to select the other securities in which the Funds invest. Should interest
rates or the prices of securities or financial indexes move in an unexpected
manner, a Fund may not achieve the desired benefit of these instruments, or may
realize losses and be in a worse position than if the instruments had not been
used. A Fund could also experience losses if the prices of its derivative
positions were not correlated with its other investments or if it could not
close out a position because of an illiquid market.

The Funds' investments in derivatives are subject to the Funds' internal
Derivatives Policy, which may be changed by the Funds' Board of Directors
without shareholder approval.

TEMPORARY DEFENSIVE INVESTMENTS. In times of unstable or adverse market or
economic conditions, up to 100% of the assets of the Funds can be invested in
temporary defensive instruments in an effort to enhance liquidity or preserve
capital. Temporary defensive investments generally would include cash, cash
equivalents such as commercial paper, money market instruments, short-term debt
securities, U.S. government securities, or repurchase agreements. The Funds
could also hold these types of securities pending the investment of proceeds
from the sale of Fund shares or portfolio securities, or to meet anticipated
redemptions of Fund shares. To the extent a Fund invests defensively in these
securities, it might not achieve its investment objective.

33
<PAGE>
PORTFOLIO TURNOVER. The Funds do not have any limitations regarding portfolio
turnover. A Fund may engage in short-term trading to try to achieve its
objective and may have portfolio turnover rates in excess of 100%. A portfolio
turnover rate of 100% is equivalent to a Fund buying and selling all of the
securities in its portfolio once during the course of a year. The portfolio
turnover rates of the Funds may be higher than some other mutual funds with the
same investment objectives. Higher portfolio turnover rates increase the
brokerage costs a Fund pays and may adversely affect its performance. If a Fund
realizes capital gains when it sells portfolio investments, it generally must
pay those gains out to shareholders, increasing their taxable distributions.
This may adversely affect the after-tax performance of the Funds for
shareholders with taxable accounts. The portfolio turnover rates of all the
Funds (other than the Money Market Fund) for prior years are found under
"Financial Highlights."

INVESTMENT RESTRICTIONS. The investment objective of each Fund is fundamental
and may not be changed without a vote of the Fund's shareholders. In addition,
certain restrictions set forth in the Statement of Additional Information may
not be changed without the approval of the Fund's shareholders. Except for those
fundamental restrictions, the strategies and policies used by the Funds in
pursuing their objectives may be changed by the Funds' Board of Directors
without shareholder approval.

THE INCOME FUNDS' FOREIGN INVESTMENTS. Money Market Fund's foreign investments
are limited to dollar-denominated obligations of foreign depository institutions
or their U.S. branches, or foreign branches of U.S. depository institutions. The
Government Securities Fund's foreign investments are limited to securities
issued by foreign governments and/or their agencies. Foreign investments of
Money Market and Government Securities Funds will be limited primarily to
securities of issuers from the major industrialized nations.

34
<PAGE>
MORE ABOUT RISK

Like all investments in securities, you risk losing money by investing in the
Funds. The Funds' investments are subject to changes in their value from a
number of factors.

o STOCK MARKET RISK. The value of the stocks and other securities owned by
the Funds will fluctuate depending on the performance of the companies that
issued them, general market and economic conditions, and investor
confidence.

o COMPANY RISK. The stocks in the Funds' portfolios may not perform as
expected. Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers or management team
members, major litigation against the issuer, or changes in government
regulations affecting the issuer or its industry.

o OPPORTUNITY RISK. There is the risk of missing out on an investment
opportunity because the assets necessary to take advantage of the
opportunity are tied up in less advantageous investments.

o INVESTMENT STYLE RISK. Market performance tends to be cyclical, and during
various cycles, certain investment styles may fall in and out of favor. If
the market is not favoring the Funds' growth style of investing, a Fund's
gains may not be as big as, or its losses may be bigger than, other funds
using different investment styles.

o FOREIGN INVESTMENT RISK. Investments in foreign securities involve
different risks than U.S. investments. These risks include:

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

o REGULATORY RISK. There may be less governmental supervision of foreign
stock exchanges, security brokers, and issuers of securities, and less
public information about foreign companies. Also, accounting, auditing
and financial reporting standards are less uniform than in the United
States. Exchange control regulations or currency restrictions could
prevent cash from being brought back to the United States. The Funds
may be subject to withholding taxes and could experience difficulties
in pursuing legal remedies and collecting judgments.

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

35
<PAGE>
o POLITICAL RISK. Foreign investments may be subject to the possibility
of expropriation or confiscatory taxation; limitations on the removal
of funds or other assets of the Fund; and political, economic or
social instability.

o RISK OF FIXED-INCOME INVESTMENTS. The Funds' investments in fixed-income
securities are subject to interest rate risk and credit risk.

o INTEREST RATE RISK. When interest rates change, the value of the
fixed-income portion of a Fund will be affected. An increase in
interest rates tends to reduce the market value of debt securities,
while a decline in interest rates tends to increase their values.

o CREDIT RISK. The value of the debt securities held by a Fund
fluctuates with the credit quality of the issuers of those securities.
Credit risk relates to the ability of the issuer to make payments of
principal and interest when due, including default risk.

o YEAR 2000 RISK. The Funds could be adversely affected if the computer
systems used by Founders and the Funds' other service providers do not
properly process and calculate date-related information on or after January
1, 2000. We are working to avoid Year 2000-related problems in our systems
and to obtain assurances from other service providers that they are taking
similar steps. In addition, issuers of securities in which the Funds invest
may be adversely affected by Year 2000-related problems. This could have an
impact on the value of the Funds' investments and the Funds' share prices.

36
<PAGE>
HOW THE FUNDS ARE MANAGED
- -------------------------------------------------------------------------------

THE MANAGER. Founders serves as investment adviser to each of the Funds and is
responsible for selecting the Funds' investments and handling their day-to-day
business. Founders' corporate offices are located at 2930 East Third Avenue,
Denver, Colorado 80206.

Founders and its predecessor companies have operated as investment advisers
since 1938. Founders also serves as investment adviser or sub-adviser to a
number of other investment companies and private accounts. Founders is a
subsidiary of Mellon Bank, N.A. and a member of Dreyfus Investment Services.

In addition to managing each Fund's investments, Founders also provides
certain related administrative services to each Fund. For these investment and
administrative services, each Fund pays Founders a management fee. Each Fund's
management fee for the last fiscal year was the following percentage of the
respective Fund's average daily net assets:

Balanced Fund 0.57%
Discovery Fund 1.00%
Frontier Fund 1.00%
Government Securities Fund 0.65%
Growth Fund 0.67%
Growth and Income Fund 0.62%
International Equity Fund 1.00%
Mid-Cap Growth Fund 0.77%
Money Market Fund 0.50%
Passport Fund 1.00%
Worldwide Growth Fund 0.96%

FOUNDERS' INVESTMENT MANAGEMENT TEAM. To facilitate day-to-day Fund management,
we use a unique lead manager and team system for our Funds. There are three
teams, each targeted toward a particular area of the market: small- to
mid-capitalization, large-capitalization, and international investments. Each
team is composed of several members of our Investment Department, including lead
portfolio managers, portfolio traders, and research analysts.

Each of these individuals brings ideas, information, knowledge, and
expertise to the table to help in the management of the Funds. Daily decisions
on security selection for each Fund rest with a lead portfolio manager assigned
to the Fund. Through participation in the team process, the manager uses the
input, research, and advice of the rest of the management team in making
purchase and sale decisions.

ROBERT T. AMMANN, VICE PRESIDENT OF INVESTMENTS. Mr. Ammann is a Chartered
Financial Analyst who has been lead portfolio manager for Founders Discovery
Fund since 1997 and for Founders Frontier Fund since February 1999. Mr. Ammann
joined Founders in 1993 as a research analyst, and became a senior research
analyst in 1996. Prior to joining Founders, he was a financial statistician for
Standard & Poor's CompuStat Services, Inc. A graduate of Colorado State
University, Mr. Ammann holds a bachelor's degree in finance.

37
<PAGE>

THOMAS M. ARRINGTON, VICE PRESIDENT OF INVESTMENTS. Mr. Arrington is a Chartered
Financial Analyst who has been co-portfolio manager, along with Scott Chapman,
of Founders Growth Fund since December 1998, and the lead portfolio manager of
Founders Growth and Income Fund since February 1999. Mr. Arrington has also
served as a portfolio manager for The Dreyfus Corporation since March 1999.
Prior to joining Founders, he was vice president and director of income equity
strategy at HighMark Capital Management, Inc., a subsidiary of Union BanCal
Corporation. He received a bachelor's degree in economics from the University of
California, Los Angeles and an MBA from San Francisco State University.

SCOTT A. CHAPMAN, VICE PRESIDENT OF INVESTMENTS AND DIRECTOR OF RESEARCH. Mr.
Chapman is a Chartered Financial Analyst who has been the co-portfolio manager,
along with Thomas Arrington, of Founders Growth Fund since December 1998. Mr.
Chapman has also served as a portfolio manager for The Dreyfus Corporation since
February 1999. Before joining Founders, Mr. Chapman was vice president and
director of growth strategy for HighMark Capital Management, Inc., a subsidiary
of Union BanCal Corporation. He has more than 10 years' experience in equity
investment management, including security analysis positions with McCullough,
Andrews & Cappiello and Cooper Development Co. Mr. Chapman received a bachelor
of science degree in accounting from Santa Clara University and an MBA in
finance from Golden Gate University.

MARGARET R. DANUSER, FIXED-INCOME MANAGER. Ms. Danuser has been the lead
portfolio manager for Founders Government Securities and Money Market Funds
since 1996, and has served as Founders' fixed-income specialist since 1995.
Previously, she was an investment officer with LaSalle Street Capital Management
from 1989 to 1994. Ms. Danuser received a bachelor of arts degree in
international affairs from the University of Colorado, and pursued MBA studies
at Loyola University, Chicago.

MICHAEL W. GERDING, SENIOR VICE PRESIDENT OF INVESTMENTS. Mr. Gerding is a
Chartered Financial Analyst who has been part of Founders' investment department
since 1990. Mr. Gerding has served as the lead portfolio manager for Founders
Passport Fund since its inception in 1993, and for Founders Worldwide Growth
Fund since 1990. He also served as portfolio manager or co-portfolio manager for
Founders International Equity Fund from its inception in 1995 until 1997. Prior
to joining Founders, he served as a portfolio manager and research analyst with
NCNB Texas from 1985 to 1990. Mr. Gerding earned a BBA and an MBA in finance
from Texas Christian University.

38
<PAGE>

BRIAN F. KELLY, VICE PRESIDENT OF INVESTMENTS. Mr. Kelly joined Founders in 1996
as the lead portfolio manager of Founders Balanced Fund. He also served as
portfolio manager of Founders Growth and Income Fund from 1996 through January
1999. Prior to joining Founders, Mr. Kelly served as a portfolio manager for
INVESCO Trust Company from 1993 to 1996, and as a senior equity investment
analyst for Sears Investment Management Company from 1986 to 1993. A graduate of
the University of Notre Dame, Mr. Kelly received an MBA and JD from the
University of Iowa. He is also a Certified Public Accountant.

PAUL A. LAROCCO, VICE PRESIDENT OF INVESTMENTS. Mr. LaRocco is a Chartered
Financial Analyst who became lead portfolio manager for Founders Mid-Cap Growth
Fund in March 1998. Before joining Founders, Mr. LaRocco was a vice president
and portfolio manager with OppenheimerFunds, Inc. from 1993 to 1998 and a
securities analyst with Columbus Circle Investors from 1990 to 1993. Since April
1998, Mr. LaRocco has also served as a portfolio manager for The Dreyfus
Corporation. A graduate of the University of California at Santa Barbara, Mr.
LaRocco received an MBA with a concentration in finance from the University of
Chicago.

DOUGLAS A. LOEFFLER, VICE PRESIDENT OF INVESTMENTS. Mr. Loeffler is a Chartered
Financial Analyst who has been lead portfolio manager for Founders International
Equity Fund since 1997. Mr. Loeffler also served as co-lead portfolio manager
for Founders Mid-Cap Growth Fund from 1997 until March 1998. He joined Founders
in 1995 as a senior international equities analyst and previously served as
assistant portfolio manager for Founders International Equity Fund. Mr. Loeffler
has also served as a portfolio manager for The Dreyfus Corporation since
February 1999. Before joining Founders, he spent seven years with Scudder,
Stevens & Clark as an international equities analyst and quantitative analyst. A
graduate of Washington State University, Mr. Loeffler received an MBA in finance
from the University of Chicago.

39
<PAGE>
HOW TO BUY AND SELL SHARES
- -------------------------------------------------------------------------------

CALCULATING SHARE PRICE. The price you pay for a share of a Fund, and the price
you receive upon selling or redeeming a share of a Fund, is called the Fund's
net asset value (NAV). We calculate NAV by dividing the current market value of
a Fund's total assets, less all liabilities, by the total number of shares
outstanding. We determine each Fund's NAV as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time) on each day that the
Exchange is open. The Funds use pricing services to determine the market value
of the securities in the Funds' portfolios. If market quotations are not readily
available, we value the Funds' securities or other assets at fair value as
determined in good faith by the Funds' Board of Directors, or pursuant to
procedures approved by the directors. The NAV of your shares when you redeem
them may be more or less than the price you originally paid, depending primarily
upon the Fund's investment performance.

We will price your purchase, exchange, or redemption of Fund shares at the
next NAV calculated after your order is received in good order by us or by
certain other agents of the Funds or their distributor.

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

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

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

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

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

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

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

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

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

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

o ROTH IRA. Allows for two types of purchases:
- CONTRIBUTIONS. Any adult who has earned income below certain income
limits may contribute up to $2,000 (or 100% of compensation, whichever is
less) to a Roth IRA per tax year. If your spouse is not employed, you can
contribute up to $4,000 annually to two Roth IRAs, as long as no more
than $2,000 is contributed to a single account.

41
<PAGE>
Contributions to a Roth IRA are NOT tax-deductible, but distributions,
including earnings, may be withdrawn tax-free after five years for
qualified events such as retirement.

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

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

o SEP-IRA. Allows self-employed persons or small business owners to make
direct contributions to employees' IRAs with minimal reporting and
disclosure requirements.

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

o PROFIT-SHARING AND MONEY PURCHASE PENSION PLAN. A retirement plan that
allows self-employed persons or small business owners and their employees
to make tax-deductible contributions for themselves and any eligible
employees.

o 401(K) PLAN. A retirement plan that allows employees of corporations of any
size to contribute a percentage of their wages on a tax-deferred basis.

Call 1-800-934-GOLD (4653) for additional information about Founders'
retirement accounts.

WE RECOMMEND THAT YOU CONSULT YOUR TAX ADVISER REGARDING THE PARTICULAR TAX
CONSEQUENCES OF THESE RETIREMENT PLAN OPTIONS.

42
<PAGE>
MINIMUM INITIAL INVESTMENTS
To open a Founders account, please enclose a check payable to "Founders Funds,
Inc." for one of the following amounts:

o $1,000 minimum for most regular accounts
o $500 minimum for IRA and UGMA/UTMA accounts
o No minimum if you begin an Automatic Investment Plan or payroll deduction
of $50 or more per month or per pay period

MINIMUM ADDITIONAL INVESTMENTS

o $100 for payments made by mail, TeleTransfer, wire and online
o $50 for Automatic Investment Plan payments
o $50 for payroll deduction

<PAGE>
CONDUCTING BUSINESS WITH FOUNDERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
HOW TO HOW TO HOW TO
BY PHONE OPEN AN ACCOUNT ADD TO AN ACCOUNT SELL SHARES
- -------------------------------------------------------------------------------------------------------------------
1-800-525-2440 If you already have an TeleTransfer allows you to We can send proceeds only
account with us and have make electronic purchases to the address or bank of
exchange privileges, you directly from a checking record. Minimum
can call to open an account or savings account at your redemption - $100; $1,000
in another Fund by request. You may establish minimum for a redemption
exchange. The names and TeleTransfer when your by wire. Phone redemption
registrations need to be account is opened, or add is not available on
identical on both accounts. it later by completing an retirement accounts and
Otherwise, you must Account Changes Form. We certain other accounts.
complete a New Account charge no fee for You may add phone
Application and send it in TeleTransfer transactions. redemption privileges by
with your investment check. completing an Account
Changes Form.
BY MAIL
- -------------------------------------------------------------------------------------------------------------------
Founders Funds Complete the proper Make your check payable to In a letter, please tell
P.O. Box 173655 application. Make your "Founders Funds, Inc." us the number of shares or
Denver, CO 80217-3655 check payable to "Founders Enclose the purchase stub dollars you wish to
Funds, Inc." We cannot (from your most recent redeem, the name(s) of the
If you are using certified or establish new accounts with confirmation or quarterly account owner(s), the Fund
registered mail or an third-party checks. statement); if you do not and account number, and
overnight delivery service, have one, write the Fund your Social Security or
send your correspondence to: name and your account tax iden-
Founders Funds number on the check. For tification number. All
2930 East Third Avenue IRAs, please state the account owners need to
Denver, CO 80206-5002 contribution year. sign the request exactly
Founders Funds does not as their names appear on
normally accept the account. We can send
third-party checks. proceeds only to the
address or bank of record.
IN PERSON
- -------------------------------------------------------------------------------------------------------------------
Founders Investor Center Visit the Founders Investor Visit the Founders Visit the Founders
Founders Financial Center Center. Hours are 8 a.m. to Investors Center. Hours Investor Center, 8 a.m. to
2930 East Third Avenue 5 p.m. Mountain time, are 8 a.m. to 5 p.m. 5 p.m., Mountain time,
(at Milwaukee) Monday through Friday. Call Mountain time, Monday Monday through Friday.
Denver, CO us at 1-800-525-2440 to through Friday. Call us at Call us at
make an appointment and for 1-800-525-2440 to make an 1-800-525-2440 to make an
directions. appointment, or for appointment, for
directions. directions, and to ask
whether all account owners
need to be present.
</TABLE>
HOW TO
BY PHONE EXCHANGE SHARES
- --------------------------------------------------------------------------------
1-800-525-2440 If you have telephone
exchange privileges, you
may exchange from one fund
to another. The names and
registrations need to be
identical on both
accounts.
BY MAIL
- --------------------------------------------------------------------------------
Founders Funds In a letter, include the
P.O. Box 173655 name(s) of the account
Denver, CO 80217-3655 owner(s), the Fund and
account number you wish to
If you are using certified or exchange from, your Social
registered mail or an Security or tax
overnight delivery service, identification number, the
send your correspondence to: dollar or share amount,
Founders Funds and the account you wish
2930 East Third Avenue to exchange into. All
Denver, CO 80206-5002 account owners need to
sign the request exactly
as their names appear on
the account. Exchange
requests may be faxed to
us at (303) 394-4021.
IN PERSON
- --------------------------------------------------------------------------------
Founders Investor Center Visit the Founders
Founders Financial Center Investor Center, 8 a.m. to
2930 East Third Avenue 5 p.m., Mountain time,
(at Milwaukee) Monday through Friday.
Denver, CO Call us at 1-800-525-2440
to make an appointment,
for directions, and to ask
whether all account owners
need to be present.
44 45
<PAGE>
CONDUCTING BUSINESS WITH FOUNDERS (CONT'D)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
HOW TO HOW TO HOW TO
BY WIRE OPEN AN ACCOUNT ADD TO AN ACCOUNT SELL SHARES
- -------------------------------------------------------------------------------------------------------------------
Complete and mail the Wire funds to: $6 fee; $1,000 minimum.
proper application. Wire Investors Fiduciary Trust Monies are usually
funds to: Company received the business day
Investors Fiduciary Trust ABA # 101003621 after the date you sell.
Company For Credit to Account # Unless otherwise
ABA # 101003621 890751-842-0 specified, we will deduct
For Credit to Account Please indicate the Fund the fee from your
# 890751-842-0 name, your account number, redemption proceeds.
Please indicate the Fund and the name(s) of the
name, your account number, account owner(s).
and the name(s) of the
account owner(s).
THROUGH OUR WEBSITE
- -------------------------------------------------------------------------------------------------------------------
www.founders.com Download, complete and mail You may purchase shares You may redeem shares
a signed copy of the proper using our website if you using our website if you
application. have TeleTransfer. have TeleTransfer. We can
only send proceeds to your
bank of record.
Online redemptions are not
available on retirement
accounts and certain other
accounts.
THROUGH AUTOMATIC
TRANSACTION PLANS
- -------------------------------------------------------------------------------------------------------------------
Automatic Investment Plan Automatic Investment Plan Systematic Withdrawal Plan
(AIP) allows you to make (AIP) allows you to make permits you to receive a
electronic purchases electronic purchases fixed sum on a monthly,
directly from a checking or directly from a checking quarterly or annual basis
savings account. The or savings account. The from accounts with a value
minimum to open an account minimum to open an account of $5,000 or more.
is $50 per month. is $50 per month. Payments may be sent
Once established, AIP Once established, AIP electronically to your
purchases take place purchases take place bank or to you in check
automatically on automatically on form.
approximately the 5th approximately the 5th
and/or 20th of the month. and/or 20th of the month.
We charge no fee for AIP. We charge no fee for AIP.
FASTLINEE
- -------------------------------------------------------------------------------------------------------------------
1-800-947-FAST (3278) Follow instructions Follow instructions We can send proceeds only
Automated telephone provided when you call to provided when you call to to the bank of record.
account access service open an account in a new add to your account via Minimum redemption - $100.
Fund by exchange. TeleTransfer. Phone redemption is not
available on retirement
accounts and certain other
accounts. You may add
phone redemption
privileges by completing
an Account Changes Form.

</TABLE>
HOW TO
BY WIRE EXCHANGE SHARES
- --------------------------------------------------------------------------------
Not applicable.
THROUGH OUR WEBSITE
- --------------------------------------------------------------------------------
www.founders.com You may exchange shares
using our website if you
have telephone exchange
privileges.
THROUGH AUTOMATIC
TRANSACTION PLANS
- --------------------------------------------------------------------------------
Fund-to-Fund Investment
Plan allows you to
automatically exchange a
fixed dollar amount from
one Fund to purchase
shares in another Fund.
FASTLINEE
- --------------------------------------------------------------------------------
1-800-947-FAST (3278) Follow instructions
Automated telephone provided when you call.
account access service $100 minimum.

46 47

<PAGE>
SELLING SHARES OF FOUNDERS FUNDS

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

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

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

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

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

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

SIGNATURE GUARANTEE. For your protection, we require a guaranteed signature if
you request:

o a redemption check made payable to anyone other than the shareholder(s) of
record

o a redemption check mailed to an address other than the address of record

o a redemption check or wire sent to a bank other than the bank we have on
file

o a redemption check mailed to an address that has been changed within 30
days of your request

o a redemption for $50,000 or more (excluding accounts held by a corporation)

You can have your signature guaranteed at a:

o bank

o broker/dealer

o credit union (if authorized under state law)

o securities exchange/association

o clearing agency

o savings association

Please note that a notary public cannot provide a signature guarantee.

48
<PAGE>
REDEMPTION PROCEEDS. We can deliver redemption proceeds to you:

o BY CHECK. Checks are sent to the address of record. If you request that a
check be sent to another address, we require a signature guarantee. (See
"Signature Guarantee.") If you don't specify, we will deliver proceeds
via check. No interest will accrue on amounts represented by uncashed
redemption checks.

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

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

OVERALL POLICIES REGARDING TRANSACTIONS. We can execute transaction requests
only if they are in good order. You will be contacted in writing if we encounter
processing problems. Call 1-800-525-2440 if you have any questions about these
procedures.

We cannot accept conditional transactions requesting that a transaction
occur on a specific date or at a specific share price. However, we reserve the
right to allow shareholders to exchange from the Money Market Fund to another
fund of their choice

on a predetermined date, such as the day after distributions are paid.

TRANSACTIONS CONDUCTED BY PHONE, FAX, FASTLINE, OR THROUGH FOUNDERS' WEBSITE.
The Funds, Founders, and their agents are not responsible for the authenticity
of purchase, exchange, or redemption instructions received by phone, fax,
FASTLINE, or through Founders' website.

By signing a New Account Application or an IRA Application (unless
specifically declined on the Application), by providing other written (for
redemptions), verbal (for exchanges), or electronic authorization, or by
requesting Automatic Investment Plan or payroll deduction privileges, you agree
to release the Funds, Founders, and their agents from any and all liability for
acts or omissions done in good faith under the authorizations contained in the
application or provided through Founders' website, including their possibly
effecting unauthorized or fraudulent transactions.

As a result of your executing such a release, you bear the risk of loss from
an unauthorized or fraudulent transaction. However, if the Fund fails to employ
reasonable procedures to attempt to confirm that telephone or Internet
instructions are genuine, the Fund may be liable for any resulting losses. These
procedures include, but are not necessarily limited to, one or more of the
following:

o requiring personal identification prior to acting upon instructions

49
<PAGE>
o providing written confirmation of such transactions

o tape-recording telephone instructions

o EXCESSIVE TRADING. To maintain competitive expense ratios and to avoid
disrupting the management of each Fund's portfolio, we reserve the right to
suspend or terminate the exchange privilege for any shareholder (including
a shareholder whose account is managed by an adviser) when the total
exchanges out of any one of the Funds exceed four in any 12-month period.
We will provide written notification to any investor whose exchange
privilege is being revoked and will provide an effective date of
revocation, which will not be less than 15 calendar days after the
notification date.

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

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

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

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

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

o CONFIRMATION STATEMENTS. We will send you a confirmation after each
transaction, except in certain retirement accounts and where the only
transaction is a dividend or capital gain reinvestment or an

50
<PAGE>
Automatic Investment Plan purchase. In those cases, your quarterly account
statement serves as your confirmation.

o TAX IDENTIFICATION NUMBER. If you do not provide your Social Security or
tax identification number when you open your account, federal law requires
the Fund to withhold 31% of all dividends, capital gain distributions,
redemption and exchange proceeds. We also may refuse to sell shares to
anyone not furnishing these numbers, or may take such other action as
deemed necessary, including redeeming some or all of the shareholder's
shares. In addition, a shareholder's account may be reduced by $50 to
reimburse the Fund for the penalty imposed by the Internal Revenue Service
for failure to report the investor's taxpayer identification number on
information reports.

o ACCOUNT MINIMUMS. The Funds require you to maintain a minimum of $1,000 per
account ($500 for IRAs and UGMAs/UTMAs), unless you are investing under an
Automatic Investment Plan or payroll deduction. If at any time, due to
redemptions or exchanges, or upon the discontinuance of an Automatic
Investment Plan or payroll deduction, the total value of your account falls
below this minimum, we may either charge a fee of $10, which will be
automatically deducted from your account, or close your account and mail
the proceeds to the address of record.

We will base the decision to levy the fee or close the account on our
determination of what is best for the Fund. We will give you at least 60
days' written notice informing you that your account will be closed or that
the $10 fee will be charged, so that you may make an additional investment
to bring the account up to the required minimum balance.

WE RESERVE THE RIGHT TO:

o reject any investment or application

o cancel any purchase due to nonpayment

o modify the conditions of purchase at any time

o waive or lower investment minimums

o limit the amount that may be purchased

o perform a credit check on shareholders establishing a new account or
requesting checkwriting privileges

51
<PAGE>
FOR MORE INFORMATION ON YOUR ACCOUNT

INVESTOR SERVICES. Our Investor Services Representatives are available to assist
you. For your protection, we record calls to Investor Services. Call
1-800-525-2440.

24-HOUR ACCOUNT INFORMATION

o BY PHONE: 1-800-947-FAST (3278) FASTLINE, our automated telephone service,
enables you to access account information, conduct exchanges and purchases
and request duplicate statements and tax forms 24 hours a day with a Touch-
tone phone.

o BY ONLINE COMPUTER SERVICES: By visiting Founders InvestorSITET on the
World Wide Web, you can access the latest Fund performance returns, daily
prices, portfolio manager commentaries, news articles about the Funds, and
much more. Shareholders may access account transaction histories and
account balances, and conduct purchase, exchange, and redemption
transactions. Our address is www.founders.com.

DAILY CLOSING PRICES. Founders QUOTELINE features the latest closing prices for
the Funds, updated each business day. Call 1-800-232-8088 24 hours a day, or
reach us on the Internet at www.founders.com.

Fund prices for the prior business day are listed in the business section of
most major daily newspapers. Look in the Mutual Funds section under
"Founders."

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

ESTABLISHING ADDITIONAL SERVICES

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

o AUTOMATIC INVESTMENT PLAN (AIP). Allows you to make automatic purchases of
at least $50 from a bank account once or twice a month. See "How to Add to
an Account Through Automatic Transaction Plans" on page 47.

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

o TELEPHONE/ONLINE REDEMPTIONS. Available for regular (non-retirement)
accounts only.

52
<PAGE>
o TELEPHONE/ONLINE EXCHANGES. Allows you to exchange money between
identically registered accounts.

o CHECKWRITING

- Available on Government Securities and Money Market Funds

- May be established with a minimum account balance of $1,000

- No fee for this service

- Minimum amount per check: $500

- Maximum amount per check: $250,000

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

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

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

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

o PAYROLL DEDUCTION. Allows you to make automatic purchases of at least $50
per pay period through payroll deduction.

53
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- -------------------------------------------------------------------------------

Discovery, Frontier, Growth, Growth and Income, International Equity, Mid-Cap
Growth, Passport and Worldwide Growth Funds intend to distribute net realized
investment income on an annual basis each December. Balanced Fund intends to
distribute net realized investment income on a quarterly basis every March,
June, September, and December. Government Securities Fund intends to declare
dividends daily and distribute net realized investment income on the last
business day of every month. Money Market Fund declares dividends daily, which
are paid on the last business day of every month. Shares of Government
Securities and Money Market Funds begin receiving dividends no later than the
next business day following the day when funds are received by us.
All Funds intend to distribute any net realized capital gains each December.
The Government Securities and Money Market Funds are not likely to distribute
capital gains. From time to time, the Funds may make distributions in addition
to those described above.
You have the option of reinvesting income dividends and capital gain
distributions in shares of the Funds or receiving these distributions in cash.
Dividends and any distributions from the Funds are automatically reinvested in
additional shares unless you elect to receive these distributions in cash. If
you have elected to receive your dividends or capital gains in cash and the
Postal Service cannot deliver your checks, or if your checks remain uncashed for
six months, we reserve the right to reinvest your distribution checks in your
account at the then-current net asset value and to reinvest all the account's
subsequent distributions in shares of that Fund. No interest will accrue on
amounts represented by uncashed distribution checks.

54
<PAGE>
TAXES
- -------------------------------------------------------------------------------

The Funds distribute to their shareholders any net investment income and net
realized capital gains they receive. You must include all dividends and capital
gain distributions in your taxable income for federal, state, and local income
tax purposes, unless your account is not subject to income taxes. Dividends and
other distributions are taxable whether they are received in cash or reinvested
in the same or another Fund.
All dividends of net investment income from the Funds, such as dividends and
interest on their investments, will be taxable to you as ordinary income. A
portion of such dividends may qualify for the dividends-received deduction for
corporations, although distributions from Government Securities and Money Market
Funds generally are not expected to qualify.
In addition, the Funds realize capital gains and losses when they sell
securities for more or less than they paid. If total gains on sales exceed total
losses (including losses carried forward from prior years), the Fund has a net
realized capital gain. Net realized capital gains are divided into short-term
and long-term capital gains depending on how long the Fund held the security
that gave rise to the gains. The Funds' capital gain distributions consist of
long-term capital gains that are taxable at the applicable capital gains rates.
All distributions of short-term capital gains will be taxable to you as ordinary
income and included in your dividends.
You also may realize capital gains or losses when you sell Fund shares at
more or less than the price you originally paid. Likewise, exchanges from one
Fund to another represent a sale from one Fund and a purchase of another, and
may result in a gain or loss that you will need to recognize on your tax return.
Foreign shareholders may be subject to federal income tax rules that differ from
those described above.
We advise you to consult your own tax adviser regarding the particular tax
consequences of an investment in a Fund.

55
<PAGE>
DISTRIBUTION (12B-1) PLANS
- -------------------------------------------------------------------------------

All of the Funds except the Money Market Fund have adopted Distribution (12b-1)
Plans. These Plans permit each of these Funds to pay distribution and other fees
for the sale of its shares and for services provided to shareholders. Each Plan
provides that the Fund may pay distribution and service-related expenses of up
to 0.25% each year of its average daily net assets. Because these fees are paid
out of a Fund's assets on an ongoing basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
These fees pay for a variety of promotional, marketing, sales, and servicing
activities associated with the distribution of Fund shares. These activities
include, but are not limited to:

o preparing, printing, and mailing prospectuses, sales literature, and
other promotional materials to prospective investors
o direct-mail solicitations
o advertising
o public relations
o compensation of sales personnel, brokers, financial planners, or others
for their assistance in selling and distributing the Funds' shares
(including personnel of Founders or of affiliates of Founders)
o payments to financial intermediaries for shareholder support services

56
<PAGE>
SHAREHOLDER AND TRANSFER AGENCY SERVICES
- -------------------------------------------------------------------------------

The Funds have entered into shareholder services agreements with Founders
pursuant to which Founders provides certain shareholder-related and transfer
agency services to the Funds. The Funds pay Founders a monthly fee for these
services. Out of this fee, Founders pays the fees charged by the Funds' transfer
agent, Investors Fiduciary Trust Company (IFTC).

Registered broker/dealers, third-party administrators of tax-qualified
retirement plans, and other entities which establish omnibus accounts with the
Funds may provide sub-transfer agency, recordkeeping, or similar services to
participants in the omnibus accounts based on the number of participants in the
entity's omnibus account. This reduces or eliminates the need for those services
to be provided by Founders and/or IFTC. In such cases, Founders is authorized to
pay the entity a sub-transfer agency or recordkeeping fee, and to be reimbursed
for such payments by the Fund. Entities receiving such fees may also receive
12b-1 fees.

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

BROKERAGE ALLOCATION
- -------------------------------------------------------------------------------

Subject to the policy of seeking the best execution of orders at the most
favorable prices, sales of Fund shares may be considered as a factor in the
selection of brokerage firms to execute Fund portfolio transactions. The
Statement of Additional Information further explains the selection of brokerage
firms.

<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The Financial Highlights tables are intended to help you understand each Fund's
financial performance for the past five years (or, for the period of a Fund's
operations, if less than five years.) Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned (or lost) on an investment in the Fund,
assuming reinvestment of all dividends and distributions.

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

The Financial Highlights information for the three years ended December 31, 1998
has been audited by PricewaterhouseCoopers LLP, independent accountants. Another
independent accounting firm audited the prior years' information.
PricewaterhouseCoopers LLP's report, along with the Funds' financial statements,
are included in the Funds' 1998 Annual Report to Shareholders, which is
available upon request.

FOUNDERS BALANCED FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $11.35 $10.61 $9.58 $8.56 $8.93
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.30 0.29 0.28 0.28 0.20
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.27 1.48 1.50 2.21 (0.37)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.57 1.77 1.78 2.49 (0.17)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income # (0.30) (0.30) (0.27) (0.28) (0.20)
From Net Realized Gains (0.43) (0.73) (0.48) (1.19) 0.00
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.73) (1.03) (0.75) (1.47) (0.20)
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $12.19 $11.35 $10.61 $9.58 $8.56
========= ========= ========= ========= =========

TOTAL RETURN 13.96% 16.90% 18.76% 29.40% (1.90%)

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $1,244,221 $942,690 $394,896 $130,346 $95,226
Net Expenses to Average Net Assets 0.99% 0.99% 1.10% 1.19% 1.26%
Gross Expenses to Average Net Assets 1.00% 1.01% 1.12% 1.23% --
Ratio of Net Investment Income to
Average Net Assets 2.51% 2.77% 3.09% 2.92% 2.37%
Portfolio Turnover Rate 211% 203% 146% 286% 258%
</TABLE>

# DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER
31, 1998 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.

58 59
<PAGE>
FOUNDERS DISCOVERY FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $23.45 $24.22 $21.70 $19.88 $21.55
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) (0.07) 0.07 (0.20) (0.12) (0.12)
Net Gains or Losses on Securities
(Both Realized and Unrealized) 3.15 2.69 4.72 6.29 (1.55)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 3.08 2.76 4.52 6.17 (1.67)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income 0.00 0.00 0.00 0.00 0.00
From Net Realized Gains (2.16) (3.53) (2.00) (4.35) 0.00
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (2.16) (3.53) (2.00) (4.35) 0.00
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $24.37 $23.45 $24.22 $21.70 $19.88
========= ========= ========= ========= =========

TOTAL RETURN 14.19% 12.00% 21.20% 31.30% (7.80%)

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $241,124 $246,281 $247,494 $216,623 $185,310
Net Expenses to Average Net Assets 1.55% 1.52% 1.58% 1.58% 1.67%
Gross Expenses to Average Net Assets 1.57% 1.54% 1.59% 1.63% --
Ratio of Net Investment Income to
Average Net Assets (0.91%) (0.55%) (0.85%) (0.60%) (0.62%)
Portfolio Turnover Rate 121% 90% 106% 118% 72%
</TABLE>

FOUNDERS FRONTIER FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $27.99 $32.34 $31.08 $26.50 $27.94
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.06 (0.15) (0.15) (0.02) (0.07)
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.01 1.90 4.46 9.76 (0.72)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.07 1.75 4.31 9.74 (0.79)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income 0.00 0.00 0.00 0.00 0.00
From Net Realized Gains (3.56) (6.10) (3.05) (5.16) (0.65)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (3.56) (6.10) (3.05) (5.16) (0.65)
--------- --------- --------- --------- ---------

Net Asset Value - End of Period $25.50 $27.99 $32.34 $31.08 $26.50
========= ========= ========= ========= =========
TOTAL RETURN 5.43% 6.20% 14.34% 37.00% (2.80%)

RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (000s
Omitted) $167,423 $222,104 $350,861 $331,720 $247,113
Net Expenses to Average Net Assets 1.62% 1.54% 1.52% 1.53% 1.62%
Gross Expenses to Average Net Assets 1.65% 1.57% 1.53% 1.57% --
Ratio of Net Investment Income to
Average Net Assets (0.83%) (0.91%) (0.47%) (0.07%) (0.25%)
Portfolio Turnover Rate 112% 54% 85% 92% 72%
</TABLE>

60 61
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $9.28 $9.04 $9.29 $8.78 $10.02
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.43 0.45 0.46 0.45 0.52
Net Gains or Losses on Securities
(Both Realized and Unrealized) 0.46 0.24 (0.25) 0.51 (1.26)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.89 0.69 0.21 0.96 (0.74)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.43) (0.45) (0.46) (0.45) (0.50)
From Net Realized Gains 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.43) (0.45) (0.46) (0.45) (0.50)
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $9.74 $9.28 $9.04 $9.29 $8.78
========= ========= ========= ========= =========

TOTAL RETURN 9.76% 7.90% 2.34% 11.10% (7.50%)

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $15,220 $13,259 $15,190 $20,263 $21,323
Net Expenses to Average Net Assets * 1.25% 1.26% 1.26% 1.30% 1.34%
Gross Expenses to Average Net Assets * 1.28% 1.31% 1.29% 1.30% --
Ratio of Net Investment Income to
Average Net Assets * 4.46% 4.99% 5.06% 4.92% 5.52%
Portfolio Turnover Rate 90% 147% 166% 141% 379%
</TABLE>

* IN THE ABSENCE OF VOLUNTARY EXPENSE WAIVERS FROM FOUNDERS, THE RATIOS OF NET
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.46% (1998), 1.44% (1997), AND
1.46% (1996), THE RATIOS OF GROSS EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN
1.49% (1998), 1.49% (1997), AND 1.49% (1996), AND THE RATIOS OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 4.25% (1998), 4.81% (1997) AND
4.86% (1996).

FOUNDERS GROWTH FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $17.28 $15.87 $14.77 $11.63 $12.38
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.01 0.07 0.02 0.02 (0.02)
Net Gains or Losses on Securities
(Both Realized and Unrealized) 4.26 4.09 2.40 5.27 (0.39)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 4.27 4.16 2.42 5.29 (0.41)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income # (0.01) (0.07) (0.02) (0.02) 0.00
From Net Realized Gains (1.13) (2.68) (1.30) (2.13) (0.34)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (1.14) (2.75) (1.32) (2.15) (0.34)
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $20.41 $17.28 $15.87 $14.77 $11.63
========= ========= ========= ========= =========

TOTAL RETURN 25.04% 26.60% 16.57% 45.59% (3.40%)

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $2,360,180 $1,757,449 $1,118,323 $655,927 $307,988
Net Expenses to Average Net Assets 1.08% 1.10% 1.19% 1.24% 1.33%
Gross Expenses to Average Net Assets 1.10% 1.12% 1.20% 1.28% --
Ratio of Net Investment Income to
Average Net Assets 0.05% 0.48% 0.15% 0.12% (0.17%)
Portfolio Turnover Rate 143% 189% 134% 130% 172%
</TABLE>

# DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER
31, 1998 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.

62 63

<PAGE>
FOUNDERS GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $6.92 $7.23 $6.69 $6.16 $6.49
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.71 0.13 0.09 0.09 0.06
Net Gains or Losses on Securities
(Both Realized and Unrealized) 0.51 1.25 1.52 1.70 (0.02)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.22 1.38 1.61 1.79 0.04
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income # (0.11) (0.13) (0.09) (0.09) (0.06)
From Net Realized Gains (0.71) (1.56) (0.98) (1.17) (0.31)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.82) (1.69) (1.07) (1.26) (0.37)
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $7.32 $6.92 $7.23 $6.69 $6.16
========= ========= ========= ========= =========

TOTAL RETURN 17.78% 19.40% 24.37% 29.06% 0.50%

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $542,307 $543,168 $535,866 $375,200 $311,051
Net Expenses to Average Net Assets 1.08% 1.09% 1.15% 1.17% 1.21%
Gross Expenses to Average Net Assets 1.10% 1.11% 1.16% 1.22% --
Ratio of Net Investment Income to
Average Net Assets 1.38% 1.84% 1.40% 1.19% 0.88%
Portfolio Turnover Rate 259% 256% 195% 235% 239%
</TABLE>

# DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER
31, 1998 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.

FOUNDERS INTERNATIONAL EQUITY FUND

<TABLE>
<CAPTION>
PERIOD OF
YEARS ENDED DECEMBER 31 12/29/95
(INCEPTION) -
1998 1997 1996 12/31/95
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $12.05 $11.86 $10.00 $ 10.00
--------- --------- --------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.03 (0.01) (0.01) 0.00
Net Gains or Losses on Securities
(Both Realized and Unrealized) 2.02 1.89 1.87 0.00
--------- --------- --------- -------------
TOTAL FROM INVESTMENT OPERATIONS 2.05 1.88 1.86 0.00
--------- --------- --------- -------------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income 0.00 0.00 0.00 0.00
From Net Realized Gains (0.07) (1.69) 0.00 0.00
--------- --------- --------- -------------
TOTAL DISTRIBUTIONS (0.07) (1.69) 0.00 0.00
--------- --------- --------- -------------
Net Asset Value - End of Period $14.03 $12.05 $11.86 $ 10.00
========= ========= ========= =============

TOTAL RETURN 17.01% 16.10% 18.60% 0.00%

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $18,938 $15,740 $10,119 $ 767
Net Expenses to Average Net Assets 1.80% 1.85% 1.94% n/a
Gross Expenses to Average Net Assets 1.83% 1.89% 2.00% n/a

Ratio of Net Investment Income to
Average Net Assets * 0.02% (0.21%) (0.15%) n/a

Portfolio Turnover Rate 148% 164% 71% n/a
</TABLE>

* IN THE ABSENCE OF VOLUNTARY EXPENSE REIMBURSEMENTS FROM FOUNDERS, THE RATIOS
OF NET EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.89% (1998), 2.01% (1997)
AND 2.46% (1996), THE RATIOS OF GROSS EXPENSES TO AVERAGE NET ASSETS WOULD HAVE
BEEN 1.92% (1998), 2.05% (1997) AND 2.52% (1996), AND THE RATIOS OF NET
INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN (0.07%) (1998), (0.37%)
(1997) AND (0.67%) (1996).

64 65
<PAGE>
FOUNDERS MID-CAP GROWTH FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $7.72 $7.66 $7.05 $7.01 $7.67
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) (0.03) 0.01 (0.02) 0.00 (0.02)
Net Gains or Losses on Securities
(Both Realized and Unrealized) (0.11) 1.21 1.09 1.79 (0.36)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS (0.14) 1.22 1.07 1.79 (0.38)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income 0.00 0.00 0.00 0.00 0.00
From Net Realized Gains (0.14) (1.16) (0.46) (1.75) (0.28)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.14) (1.16) (0.46) (1.75) (0.28)
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $7.44 $7.72 $7.66 $7.05 $7.01
========= ========= ========= ========= =========

TOTAL RETURN (1.73%) 16.40% 15.33% 25.70% (4.90%)

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $252,855 $320,186 $363,835 $388,754 $299,190
Net Expenses to Average Net Assets 1.33% 1.30% 1.34% 1.29% 1.36%
Gross Expenses to Average Net Assets 1.35% 1.32% 1.36% 1.35% --
Ratio of Net Investment Income to
Average Net Assets (0.39%) (0.05%) (0.28%) 0.00% (0.27%)
Portfolio Turnover Rate 152% 110% 186% 263% 272%
</TABLE>

FOUNDERS MONEY MARKET FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.05 0.05 0.05 0.05 0.03
Net Gains or Losses on Securities
(Both Realized and Unrealized) 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.05 0.05 0.05 0.05 0.03
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.05) (0.05) (0.05) (0.05) (0.03)
From Net Realized Gains 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.05) (0.05) (0.05) (0.05) (0.03)
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $1.00 $1.00 $1.00 $1.00 $1.00
========= ========= ========= ========= =========

TOTAL RETURN 4.67% 4.70% 4.51% 5.10% 3.40%

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $91,415 $106,073 $109,866 $125,646 $201,342
Net Expenses to Average Net Assets 0.85% 0.82% 0.86% 0.89% 0.91%
Gross Expenses to Average Net Assets 0.87% 0.84% 0.88% 0.89% --
Ratio of Net Investment Income to
Average Net Assets 4.67% 4.77% 4.58% 5.11% 3.49%
</TABLE>

66 67
<PAGE>
FOUNDERS PASSPORT FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $13.64 $13.91 $11.68 $9.42 $10.53
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.00 0.02 0.04 0.04 0.02
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.68 0.22 2.30 2.26 (1.11)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.68 0.24 2.34 2.30 (1.09)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income (0.01) (0.03) (0.02) (0.04) (0.02)
From Net Realized Gains (0.38) (0.48) (0.09) 0.00 0.00
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.39) (0.51) (0.11) (0.04) (0.02)
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $14.93 $13.64 $13.91 $11.68 $9.42
========= ========= ========= ========= =========

TOTAL RETURN 12.50% 1.70% 20.05% 24.39% (10.40%)

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $124,572 $122,646 $177,921 $49,922 $16,443
Net Expenses to Average Net Assets 1.52% 1.53% 1.57% 1.76% 1.88%
Gross Expenses to Average Net Assets 1.54% 1.55% 1.59% 1.84% --
Ratio of Net Investment Income to
Average Net Assets 0.09% 0.20% 0.40% 0.60% 0.12%
Portfolio Turnover Rate 34% 51% 58% 37% 78%
</TABLE>

FOUNDERS WORLDWIDE GROWTH FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $21.11 $21.79 $19.87 $17.09 $17.94
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income or (Loss) 0.08 0.02 0.10 0.09 (0.02)
Net Gains or Losses on Securities
(Both Realized and Unrealized) 1.90 2.22 2.64 3.43 (0.37)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.98 2.24 2.74 3.52 (0.39)
--------- --------- --------- --------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS
From Net Investment Income # (0.09) (0.04) (0.07) (0.09) 0.00
From Net Realized Gains (0.94) (2.88) (0.75) (0.65) (0.46)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (1.03) (2.92) (0.82) (0.74) (0.46)
--------- --------- --------- --------- ---------
Net Asset Value - End of Period $22.06 $21.11 $21.79 $19.87 $17.09
========= ========= ========= ========= =========

TOTAL RETURN 9.63% 10.60% 13.95% 20.63% (2.20%)

RATIOS/SUPPLEMENTAL DATA
Net Assets - End of Period (000s
Omitted) $272,053 $308,877 $342,079 $228,595 $104,044
Net Expenses to Average Net Assets 1.47% 1.45% 1.53% 1.56% 1.66%
Gross Expenses to Average Net Assets 1.49% 1.47% 1.55% 1.65% --
Ratio of Net Investment Income to
Average Net Assets 0.33% 0.18% 0.50% 0.61% (0.14%)
Portfolio Turnover Rate 86% 82% 72% 54% 87%
</TABLE>

# DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME FOR THE YEAR ENDED DECEMBER
31, 1998 AGGREGATED LESS THAN $0.01 ON A PER SHARE BASIS.

68 69
<PAGE>
UNDERSTANDING FINANCIAL HIGHLIGHTS

The Financial Highlights tables appearing on pgs. 58-69 list financial
information for each Fund. Below are definitions of the items in the tables.

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

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

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

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

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

70
<PAGE>
4. NET ASSET VALUE -- END OF PERIOD. The value of one share of the Fund at the
end of the year.

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

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

7. NET EXPENSES TO AVERAGE NET ASSETS. Reflects reductions in a Fund's
expenses through the use of brokerage commissions and custodial and
transfer agent credits.

8. GROSS EXPENSES TO AVERAGE NET ASSETS. The total of a Fund's operating
expenses before expense offset arrangements and earnings credits, divided
by its average net assets for the stated period.

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

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

<PAGE>
[LOGO]

FOUNDERS FUNDS

FOR FURTHER INFORMATION

More information about the Funds is available to you free of charge. The Funds'
Annual and Semiannual Reports contain the Funds' financial statements, portfolio
holdings, and historical performance. You will also find a discussion of the
market conditions and investment strategies that significantly affected the
Funds' performance in these reports. In addition, a current Statement of
Additional Information (SAI) containing more detailed information about the
Funds and their policies has been filed with the Securities and Exchange
Commission and is incorporated by reference as part of this Prospectus. You can
request copies of the Annual and Semiannual Reports and the SAI:

BY TELEPHONE Call 1-800-525-2440

IN PERSON 2930 East Third Avenue
Denver, Colorado 80206

BY MAIL P.O. Box 173655
Denver, Colorado 80217-3655

BY E-MAIL Send your request to
[email protected]

ON THE INTERNET www.founders.com or text-only
versions of fund documents can be
viewed or downloaded from the
Securities and Exchange Commission's
internet site at www.sec.gov

BY MAIL OR IN PERSON FROM THE Visit or write:
SECURITIES AND EXCHANGE COMMISSION SEC's Public Reference Section
(YOU WILL PAY A COPYING FEE) Washington, D.C. 20549-6009
1-800-SEC-0330

Founders Funds is a registered trademark and the logo is a trademark of Founders
Asset Management LLC. "Dreyfus" is the umbrella designation for the investment
products and services available from affiliates of Mellon Bank Corporation,
including Founders Asset Management LLC.

A-236-PRS (5/99)
FMDPROSP499 Founders Funds' SEC File No. 811-01018

<PAGE>

FOUNDERS
FUNDS, INC.
- --------------------------------------------------------------------------------

Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1999

- --------------------------------------------------------------------------------
FOUNDERS ASSET MANAGEMENT LLC, INVESTMENT ADVISER
- --------------------------------------------------------------------------------

This Statement of Additional Information ("SAI") relates to the eleven
investment portfolios (the "Funds") of Founders Funds, Inc. (the "Company"):

Aggressive Growth Funds
- -----------------------
Founders Passport Fund
Founders Discovery Fund
Founders Frontier Fund
Founders Mid-Cap Growth Fund

Growth Funds
- ------------
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund

Growth-and-Income Funds
- -----------------------
Founders Growth and Income Fund
Founders Balanced Fund

Fixed-Income Fund
- -----------------
Founders Government Securities Fund

Money Market Fund
- -----------------
Founders Money Market Fund

A Prospectus for the Funds dated May 1, 1999 provides basic information you
should know before investing and may be obtained without charge from the Funds'
adviser, Founders Asset Management LLC ("Founders"), at the telephone number and
address shown above. This SAI, which is not a prospectus, contains information
in addition to

<PAGE>

and in more detail than in the Prospectus. It is intended to provide you with
additional information regarding the activities and operations of the Funds, and
should be read in conjunction with the Prospectus.

The Funds' audited financial statements and accompanying notes for the fiscal
year ended December 31, 1998, and the report of PricewaterhouseCoopers LLP with
respect to such financial statements, are incorporated by reference in this SAI.
The Funds' annual and semi-annual reports contain additional performance
information and are available without charge from Founders at the telephone
number and address shown above.

<PAGE>

TABLE OF CONTENTS

FOUNDERS FUNDS, INC..........................................................1

INVESTMENT RESTRICTIONS......................................................1

FUNDAMENTAL INVESTMENT RESTRICTIONS........................................1
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS....................................2

INVESTMENT STRATEGIES AND RISKS..............................................4

TEMPORARY DEFENSIVE INVESTMENTS............................................4
PORTFOLIO TURNOVER.........................................................4
HEDGING TECHNIQUES.........................................................5
OPTIONS ON STOCK INDICES AND STOCKS......................................5
FUTURES CONTRACTS........................................................8
OPTIONS ON FUTURES CONTRACTS............................................11
OPTIONS ON FOREIGN CURRENCIES...........................................12
RISK FACTORS OF INVESTING IN FUTURES AND OPTIONS........................13
FOREIGN SECURITIES AND ADRS...............................................14
FORWARD CONTRACTS FOR PURCHASE OR SALE OF FOREIGN CURRENCIES..............16
ILLIQUID SECURITIES.......................................................18
RULE 144A SECURITIES......................................................19
FIXED-INCOME SECURITIES...................................................19
FOREIGN BANK OBLIGATIONS..................................................21
REPURCHASE AGREEMENTS.....................................................22
CONVERTIBLE SECURITIES....................................................22
GOVERNMENT SECURITIES.....................................................23
MORTGAGE-RELATED SECURITIES...............................................23
MORTGAGE PASS-THROUGH SECURITIES........................................24
COLLATERALIZED MORTGAGE OBLIGATIONS.....................................25
FHLMC CMOS..............................................................25
RISKS OF MORTGAGE-RELATED SECURITIES....................................26
COMMERCIAL PAPER AND OTHER CASH SECURITIES................................27
WHEN-ISSUED SECURITIES....................................................28
BORROWING.................................................................28
SECURITIES OF OTHER INVESTMENT COMPANIES..................................28

DIRECTORS AND OFFICERS......................................................29

DIRECTORS.................................................................29
COMMITTEES................................................................31
DIRECTOR COMPENSATION.....................................................32
OFFICERS..................................................................32

INVESTMENT ADVISER, DISTRIBUTOR AND OTHER SERVICE PROVIDERS.................35

INVESTMENT ADVISER........................................................35

i
<PAGE>

DISTRIBUTOR...............................................................39
DISTRIBUTION PLANS........................................................40

SHAREHOLDER SERVICING.....................................................42
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT...................42
SHAREHOLDER SERVICES AGREEMENT..........................................43
TRANSFER AGENCY AGREEMENT...............................................44
CUSTODIAN...............................................................44

BROKERAGE ALLOCATION........................................................44

CAPITAL STOCK...............................................................49

PRICING OF SHARES...........................................................52

PURCHASES AND REDEMPTIONS...................................................54

TRANSACTIONS THROUGH THIRD PARTIES........................................54
REDEMPTIONS...............................................................54

DIVIDENDS, DISTRIBUTION AND TAXES...........................................55

YIELD AND PERFORMANCE INFORMATION...........................................60

ADDITIONAL INFORMATION......................................................64

CODE OF ETHICS............................................................64
INDEPENDENT ACCOUNTANTS...................................................65
REGISTRATION STATEMENT....................................................65

APPENDIX....................................................................66

RATINGS OF CORPORATE BONDS................................................66
RATINGS OF COMMERCIAL PAPER...............................................68
RATINGS OF PREFERRED STOCK................................................69

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

Founders Funds, Inc. is a no-load mutual fund, registered with the
Securities and Exchange Commission ("SEC") as a diversified, open-end
management investment company. Founders Funds, Inc. was incorporated on June
19, 1987 under the laws of Maryland.

On April 30, 1999, Founders Blue Chip Fund changed its name to Founders
Growth and Income Fund, and Founders Special Fund changed its name to Founders
Mid-Cap Growth Fund.

- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

Each Fund has adopted investment restrictions numbered 1 through 7 below
as fundamental policies. These restrictions cannot be changed, as to a Fund,
without approval by the holders of a majority, as defined in the Investment
Company Act of 1940 (the "1940 Act"), of such Fund's outstanding voting shares.
Investment restrictions number 8 through 14 below are non-fundamental policies
and may be changed, as to a Fund, by vote of a majority of the Company's Board
members at any time. If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage beyond the specified
limits that results from a change in values or net assets will not be considered
a violation.

Fundamental Investment Restrictions

No Fund may:

1 Invest 25% or more of the value of its total assets in the
securities of issuers having their principal business activities in the same
industry, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and, with respect to Money Market Fund, the limitation shall
not apply to obligations of domestic commercial banks.

2 Invest in physical commodities, except that a Fund may purchase and
sell foreign currency, options, forward contracts, futures contracts (including
those relating to indices), options on futures contracts or indices, and other
financial instruments, and may invest in securities of issuers which invest in
physical commodities or such instruments.

1
<PAGE>

3 Invest in real estate, real estate mortgage loans or other illiquid
interests in real estate, including limited partnership interests therein,
except that a Fund may invest in securities of issuers which invest in real
estate, real estate mortgage loans, or other illiquid interests in real estate.
A Fund may also invest in readily marketable interests in real estate investment
trusts.

4 Borrow money, except to the extent permitted under the 1940 Act,
which currently limits borrowing to no more than 33 1/3% of the value of the
Fund's total assets. For purposes of this investment restriction, investments in
options, forward contracts, futures contracts (including those relating to
indices), options on futures contracts or indices, and other financial
instruments or transactions for which assets are required to be segregated
including, without limitation, reverse repurchase agreements, shall not
constitute borrowing.

5 Lend any security or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this limitation
does not apply to the purchase of debt securities or to repurchase agreements.

6 Act as an underwriter of securities of other issuers, except to the
extent a Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, in connection with disposing of portfolio securities.

7 Issue any senior security, except as permitted under the 1940 Act
and except to the extent that the activities permitted by the Fund's other
investment restrictions may be deemed to give rise to a senior security.

Non-Fundamental Investment Restrictions

No Fund may:

8 Purchase the securities of any issuer if, as a result, more than 5%
of its total assets would be invested in the securities of that issuer, except
that obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities may be purchased without regard to any such limitation.

9 Purchase the securities of any issuer if such purchase would cause
the Fund to hold more than 10% of the outstanding voting securities of such
issuer.

10 Purchase securities on margin, except to obtain such short-term
credits as may be necessary for the clearance of transactions, and except that a
Fund may make margin deposits in connection with transactions in forward
contracts, futures contracts (including those relating to indices), options on
futures contracts or indices, and other financial instruments, and to the extent
necessary to effect transactions in foreign jurisdictions.

2
<PAGE>

11 Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts (including those relating to
indices) and options on futures contracts or indices.

12 Enter into repurchase agreements providing for settlement in more
than seven days or purchase securities which are not readily marketable if, in
the aggregate, more than 15% of the value of its net assets would be so invested
(10% in the case of Founders Money Market Fund).

13 Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short; provided,
however, that this restriction shall not prevent a Fund from entering into short
positions in foreign currency, futures contracts, options, forward contracts,
and other financial instruments.

14 The Government Securities Fund may not invest more than 5% of the
value of its net assets in equity securities.

In applying the limitations on investments in any one industry set forth
in restriction 1, above, the Funds use industry classifications based, where
applicable, on Baseline, Bridge Information Systems, Reuters, the S&P Stock
Guide published by Standard & Poor's, information obtained from Bloomberg L.P.
and Moody's International, and/or the prospectus of the issuing company.
Selection of an appropriate industry classification resource will be made by
Founders in the exercise of its reasonable discretion.

3
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

The Prospectus discusses the principal investment strategies and risks of
the Funds. This section of the SAI explains certain of these strategies and
their associated risks in more detail. This section also explains other
strategies used in managing the Funds that may not be considered "principal
investment strategies" and discusses the risks associated with these strategies.

TEMPORARY DEFENSIVE INVESTMENTS

In times of unstable or adverse market or economic conditions, up to 100%
of the assets of the Funds can be invested in temporary defensive instruments in
an effort to enhance liquidity or preserve capital. Temporary defensive
investments generally would include cash, cash equivalents such as commercial
paper, money market instruments, short-term debt securities, U.S. government
securities, or repurchase agreements. The Funds could also hold these types of
securities pending the investment of proceeds from the sale of Fund shares or
portfolio securities, or to meet anticipated redemptions of Fund shares. To the
extent a Fund invests defensively in these securities, it might not achieve its
investment objective.

PORTFOLIO TURNOVER

During the fiscal years ended 1998 and 1997, respectively, the portfolio
turnover rate for each of the Funds was as follows: Balanced Fund - 211% and
203%; Discovery Fund - 121% and 90%; Frontier Fund - 112% and 54%; Government
Securities Fund - 90% and 147%; Growth Fund - 143% and 189%; Growth and Income
Fund - 259% and 256%; International Equity - 148% and 164%; Mid-Cap Growth Fund
- - 152% and 110%; Passport Fund - 34% and 51%; and Worldwide Growth Fund - 86%
and 82%. Volatility in the financial markets, particularly the small-cap market,
resulted in higher portfolio turnover in the Frontier Fund in 1998 as compared
to 1997. The sustained performance of holdings in the Government Securities Fund
in 1998 resulted in lower portfolio turnover for that Fund in 1998 as compared
to 1997.

A 100% portfolio turnover rate would occur if all of the securities in
the portfolio were replaced during the period. Portfolio turnover rates for
certain of the Funds are higher than those of other mutual funds. Although each
Fund purchases and holds securities with the goal of meeting its investment
objectives, portfolio changes are made whenever Founders believes they are
advisable, usually without reference to the length of time that a security has
been held. The Funds may, therefore, engage in a significant number of
short-term transactions. Portfolio turnover rates may also increase as a result
of the need for a Fund to effect significant amounts of purchases or redemptions
of portfolio securities due to economic, market, or other factors that are not

4
<PAGE>

within Founders' control. Balanced Fund does not anticipate any significant
differences between the portfolio turnover rates of the common stock portion of
its investment portfolios and the rate of turnover of the remainder of its
securities holdings.

HEDGING TECHNIQUES

In order to hedge their portfolios, the Funds may enter into futures contracts
(including those related to indices) and forward contracts, and may purchase
and/or write (sell) options on securities, securities indices, futures contracts
and foreign currencies. Each of the these instruments is sometimes referred to
as a "derivative," since its value is derived from an underlying security, index
or other financial instrument.

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

So long as a secondary market remains available on an exchange, the writer
of an option traded on that exchange ordinarily may terminate his obligation
prior to the assignment of an exercise notice by entering into a closing
purchase transaction. The cost of a closing purchase transaction, plus
transaction costs, may be greater than the premium received upon writing the
original option, in which event the writer will incur a loss on the transaction.
However, because an increase in the market price of an option generally reflects
an increase in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by appreciation of the underlying security that the writer continues to own.

All of the Funds (except the Money Market Fund) may write (sell) options
on their portfolio securities. The Funds retain the freedom to write options on
any or all of their portfolio securities and at such time and from time to time
as Founders shall determine to be appropriate. The extent of a Fund's option
writing activities will vary from time to

5
<PAGE>

time depending upon Founders' evaluation of market, economic and monetary
conditions.

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

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

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

All of the Funds (except the Money Market Fund) may purchase options on
securities indices. A securities index measures the movement of a certain group
of securities by assigning relative values to the stocks included in the index.
Options on securities indices are similar to options on securities. However,
because options on securities indices do not involve the delivery of an
underlying security, the option represents the holder's right to obtain from the
writer in cash a fixed multiple of the amount by which the exercise price
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the exercise date. The Funds purchase
put options on stock indices to protect the Funds' portfolios against decline in
value. The Funds purchase call options on stock indices to establish a position
in equities as a temporary substitute for purchasing individual stocks that then
may be acquired over the option period in a manner designed to minimize adverse
price movements. Purchasing put and call options on securities indices also
permits greater time for evaluation of investment alternatives. When Founders
believes that the trend of stock prices may be downward, particularly for a
short period of time, the purchase of put options on securities indices may
eliminate the need to sell less liquid securities and possibly repurchase them
later. The purpose of these transactions is not to generate gain, but to "hedge"
against possible loss. Therefore, successful hedging activity will not produce
net gain to the Funds. Any gain in the price of a call option is likely to be
offset by higher prices a Fund must pay in rising markets, as cash reserves are

6
<PAGE>

invested. In declining markets, any increase in the price of a put option is
likely to be offset by lower prices of stocks owned by a Fund.

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

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

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

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

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<PAGE>

historical volatility of the prices of the securities being hedged is different
from the historical volatility of the securities index.

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

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

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

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

8
<PAGE>

that time, the futures contracts could be liquidated and the Fund could buy
equity securities on the cash market.

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

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

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

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

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<PAGE>

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

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

Unlike the situation in which a Fund purchases or sells a security, no
price is paid or received by a Fund upon the purchase or sale of a futures
contract. Instead, the Fund is required to deposit in a segregated asset account
an amount of cash or qualifying securities (currently U.S. Treasury bills),
currently in a minimum amount of $15,000. This is called "initial margin." Such
initial margin is in the nature of a performance bond or good faith deposit on
the contract. However, since losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Fund may be
required to make additional payments during the term of a

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<PAGE>

contract to its broker. Such payments would be required, for example, when,
during the term of an interest rate futures contract purchased by the Fund,
there was a general increase in interest rates, thereby making the Fund's
portfolio securities less valuable. In all instances involving the purchase of
financial futures contracts by a Fund, an amount of cash together with such
other securities as permitted by applicable regulatory authorities to be
utilized for such purpose, at least equal to the market value of the future
contracts, will be deposited in a segregated account with the Fund's custodian
to collateralize the position. At any time prior to the expiration of a futures
contract, the Fund may elect to close its position by taking an opposite
position that will operate to terminate the Fund's position in the futures
contract.

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

OPTIONS ON FUTURES CONTRACTS. All of the Funds (except the Money Market Fund)
may purchase put and call options on futures contracts. An option on a futures
contract provides the holder with the right to enter into a "long" position in
the underlying futures contract, in the case of a call option, or a "short"
position in the underlying futures contract, in the case of a put option, at a
fixed exercise price to a stated expiration date. Upon exercise of the option by
the holder, a contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position, in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of variation margin
deposits.

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

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<PAGE>

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

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

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

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

OPTIONS ON FOREIGN CURRENCIES. All of the Funds (except the Money Market Fund)
may buy and sell options on foreign currencies for hedging purposes in a manner
similar to that in which futures on foreign currencies would be utilized. For
example, a decline in the U.S. dollar value of a foreign currency in which
portfolio securities are denominated would reduce the U.S. dollar value of such
securities, even if their value in the foreign currency remained constant. In
order to protect against such diminutions in the value of portfolio securities,
a Fund could buy put options on the foreign currency. If the value of the
currency declines, the Fund would have the right to sell such currency for a
fixed amount in U.S. dollars and would thereby offset, in whole or in part, the
adverse effect on its portfolio that otherwise would have resulted. Conversely,
when a rise is projected in the U.S. dollar value of a currency in which
securities to be acquired are denominated, thereby increasing the cost of such
securities, the Fund could buy call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates.

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<PAGE>

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

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

RISK FACTORS OF INVESTING IN FUTURES AND OPTIONS. The successful use of the
investment practices described above with respect to futures contracts, options
on futures contracts, and options on securities indices, securities, and foreign
currencies draws upon skills and experience that are different from those needed
to select the other instruments in which the Funds invest. All such practices
entail risks and can be highly volatile. Should interest or exchange rates or
the prices of securities or financial indices move in an unexpected manner, the
Funds may not achieve the desired benefits of futures and options or may realize
losses and thus be in a worse position than if such strategies had not been
used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to options
on currencies and negotiated or over-the-counter instruments, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
In addition, the correlation between movements in the price of the securities
and currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.

A Fund's ability to dispose of its positions in the foregoing instruments
will depend on the availability of liquid markets in the instruments. Markets in
a number of the instruments are relatively new and still developing and it is
impossible to predict

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<PAGE>

the amount of trading interest that may exist in those instruments in the
future. Particular risks exist with respect to the use of each of the foregoing
instruments and could result in such adverse consequences to the Funds as the
possible loss of the entire premium paid for an option bought by a Fund, the
inability of a Fund, as the writer of a covered call option, to benefit from the
appreciation of the underlying securities above the exercise price of the
option, and the possible need to defer closing out positions in certain
instruments to avoid adverse tax consequences. As a result, no assurance can be
given that the Funds will be able to use those instruments effectively for the
purposes set forth above.

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

FOREIGN SECURITIES AND ADRS

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

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

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<PAGE>

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

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

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

In addition, Passport, Worldwide Growth, and International Equity Funds
may invest in securities issued by companies located in countries not considered
to be major industrialized nations. Such countries are subject to more economic,
political and business risk than major industrialized nations, and the
securities issued by companies located there are expected to be more volatile,
less liquid and more uncertain as to payments of dividends, interest and
principal. Such countries may include (but are not limited to) Argentina,
Australia, Austria, Belgium, Bolivia, Brazil, Chile, China, Colombia, Costa
Rica, Croatia, Czech Republic, Denmark, Ecuador, Egypt, Finland, Greece, Hong
Kong, Hungary, India, Indonesia, Ireland, Italy, Israel, Jordan, Malaysia,
Mexico, Netherlands, New Zealand, Nigeria, North Korea, Norway, Pakistan,
Paraguay, Peru, Philippines, Poland, Portugal, Romania, Singapore, Slovak
Republic, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland,
Taiwan, Thailand, Turkey, Uruguay, Venezuela, Vietnam and the countries of the
former Soviet Union.

American Depositary Receipts and American Depositary Shares (collectively,
"ADRs") are receipts representing shares of a foreign corporation held by a U.S.
bank that entitle the holder to all dividends and capital gains on the
underlying foreign

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<PAGE>

shares. ADRs are denominated in U.S. dollars and trade in the U.S. securities
markets. ADRs may be issued in sponsored or unsponsored programs. In sponsored
programs, the issuer makes arrangements to have its securities traded in the
form of ADRs; in unsponsored programs, the issuer may not be directly involved
in the creation of the program. Although the regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, the issuers
of unsponsored ADRs are not obligated to disclose material information in the
United States and, therefore, such information may not be reflected in the
market value of the ADRs.

The percentage limitations on a Fund's ability to invest in foreign
securities do not apply to dollar-denominated ADRs that are traded in the U.S.
on exchanges or over-the-counter.

FORWARD CONTRACTS FOR PURCHASE OR SALE OF FOREIGN CURRENCIES

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

Forward contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Generally a forward contract has no deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the difference between
the prices at which they buy and sell various currencies. When Founders believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar (or sometimes against another currency), the
Funds may each enter into forward contracts to sell, for a fixed-dollar or other
currency amount, foreign currency approximating the value of some or all of the
Funds' portfolio securities denominated in that currency. In addition, these
Funds may engage in "proxy hedging" (i.e., entering into forward contracts to
sell a different foreign currency than the one in which the underlying
investments are denominated), with the expectation that the value of the hedged

16
<PAGE>

currency will correlate with the value of the underlying currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible. The future value of such securities in
foreign currencies changes as a consequence of market movements in the value of
those securities between the date on which the contract is entered into and the
date it expires. Frontier Fund does not intend to sell such foreign currencies
on a regular or continuous basis, and will not do so if, as a result, the Fund
will have more than 15% of the value of its total assets committed to the
consummation of such foreign currency sales. The Funds generally will not enter
into forward contracts with a term greater than one year. In addition, the Funds
generally will not enter into such forward contracts or maintain a net exposure
to such contracts where the fulfillment of the contracts would require the Funds
to deliver an amount of foreign currency or a proxy currency in excess of the
value of the Funds' portfolio securities or other assets denominated in the
currency being hedged. Under normal circumstances, consideration of the
possibility of changes in currency exchange rates will be incorporated into the
Funds' long-term investment strategies. Forward contracts may, from time to
time, be considered illiquid, in which case they would be subject to the
respective Funds' limitation on investing in illiquid securities, as discussed
below.

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

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

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<PAGE>

the extent the price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell.

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

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

ILLIQUID SECURITIES

As discussed in the Prospectus, the Funds may invest up to 15% of the
value of their net assets, measured at the time of investment, in investments
that are not readily marketable (10% in the case of the Money Market Fund). A
security which is not "readily marketable" is generally considered to be a
security that cannot be disposed of within seven days in the ordinary course of
business at approximately the amount at which it is valued. Subject to the
foregoing 15% and 10% limitations, the Funds may invest in restricted
securities. "Restricted" securities generally include securities that are not
registered under the Securities Act of 1933 (the "1933 Act") and are subject to
legal or contractual restrictions upon resale. Restricted securities
nevertheless may be "readily marketable" and can often be sold in privately
negotiated transactions or in a registered public offering. There are an
increasing number of securities being issued without registration under the 1933
Act for which a liquid secondary market exists among institutional investors
such as the Funds. These securities are often called "Rule 144A" securities (see
discussion below).

A Fund may not be able to dispose of a security that is not "readily
marketable" at the time desired or at a reasonable price. In addition, in order
to resell such a security, a Fund might have to bear the expense and incur the
delays associated with effecting registration. In purchasing such securities, no
Fund intends to engage in

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<PAGE>

underwriting activities, except to the extent a Fund may be deemed to be a
statutory underwriter under the 1933 Act in disposing of such securities.

SECURITIES THAT ARE NOT READILY MARKETABLE

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

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

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

FIXED-INCOME SECURITIES

Discovery, Passport, Frontier, Mid-Cap Growth, International Equity,
Worldwide Growth, Growth, Growth and Income and Balanced Funds are the "Equity
Funds." The Equity Funds may purchase convertible securities and preferred
stocks rated in medium and lower categories by Moody's or S&P (Ba or lower by
Moody's and BB or lower by

19
<PAGE>

S&P), but none rated lower than B. The Equity Funds also may invest in unrated
convertible securities and preferred stocks if Founders believes they are
equivalent in quality to the rated securities that the Funds may buy.

The Equity Funds will invest in bonds, debentures, and corporate
obligations - other than convertible securities and preferred stock - only if
they are rated investment grade (Baa, BBB or higher) at the time of purchase,
although the Balanced Fund may invest up to 5% of its total assets in
lower-grade debt securities. Founders will not invest more than 5% of a Fund's
total assets in bonds, debentures, convertible securities, and corporate
obligations rated below investment grade, either at the time of purchase or as a
result of a rating reduction after purchase, or in unrated securities believed
by Founders to be equivalent in quality to securities rated below investment
grade. This 5% limitation does not apply to preferred stocks. Government
Securities and Money Market Funds do not invest in such lower-grade securities.

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

Interest rate risk relates to the fact that the market values of debt
securities in which a Fund invests generally will be affected by changes in the
level of interest rates. An increase in interest rates will tend to reduce the
market values of such securities, whereas a decline in interest rates will tend
to increase their values. Medium and lower rated securities (Baa or BBB and
lower) and non-rated securities of comparable quality tend to be subject to
wider fluctuations in yields and market values than higher rated securities and
may have speculative characteristics. The Funds are not required to dispose of
debt securities whose ratings are downgraded below these ratings subsequent to a
Fund's purchase of the securities, unless such a disposition is necessary to
reduce a Fund's holdings of such securities to less than 5% of its total assets.
In order to decrease the risk in investing in debt securities, in no event will
a Fund ever invest in a debt security rated below B by Moody's or by S&P. Of
course, relying in part on ratings assigned by credit agencies in making
investments will not protect the Funds from the risk that the securities in
which they invest will decline in value, since credit ratings represent
evaluations of the safety of principal, dividend, and interest payments on
preferred stocks and debt securities, and not the market values of such
securities, and such ratings may not be changed on a timely basis to reflect
subsequent events.

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<PAGE>

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

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

FOREIGN BANK OBLIGATIONS

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

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<PAGE>

Obligations of U.S. branches of foreign depository institutions may be
general obligations of the parent depository institution in addition to being an
obligation of the issuing branch, or may be limited by the terms of a specific
foreign regulation applicable to the depository institutions and by government
regulation (both domestic and foreign).

REPURCHASE AGREEMENTS

A repurchase agreement is a transaction under which a Fund acquires a
security and simultaneously promises to sell that same security back to the
seller at a higher price, usually within a seven-day period. The Funds may enter
into repurchase agreements with banks or well-established securities dealers
meeting criteria established by the Funds' Board of Directors. A repurchase
agreement may be considered a loan collateralized by securities. The resale
price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the collateral securities acquired
by a Fund (including accrued interest earned thereon) must have a total value at
least equal to the value of the repurchase agreement, and are held as collateral
by the Funds' custodian bank until the repurchase agreement is completed. All
repurchase agreements entered into by the Funds are marked to market daily. In
the event of default by the seller under a repurchase agreement, the Fund may
experience difficulties in exercising its rights to the underlying security and
may incur costs in connection with the disposition of that security.

Repurchase agreements maturing in more than seven days are considered
illiquid and will be subject to each Fund's limitation with respect to illiquid
securities. For a further explanation, see "Investment Strategies and Risks -
Illiquid Securities."

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

CONVERTIBLE SECURITIES

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

22
<PAGE>

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

GOVERNMENT SECURITIES

U.S. government obligations include Treasury bills, notes and bonds;
Government National Mortgage Association (GNMA) pass-through securities; and
issues of U.S. agencies, authorities, and instrumentalities. Obligations of
other agencies and instrumentalities of the U.S. government include securities
issued by the Federal Farm Credit Bank System (FFCB), the Federal Agricultural
Mortgage Corporation ("Farmer Mac"), the Federal Home Loan Bank System (FHLB),
the Financing Corporation (FICO), Federal Home Loan Mortgage Corporation
(FHLMC), Fannie Mae, the Student Loan Marketing Association (SLMA), and the U.S.
Small Business Administration (SBA). Some government obligations, such as GNMA
pass-through certificates, are supported by the full faith and credit of the
United States Treasury. Other obligations, such as securities of the FHLB, are
supported by the right of the issuer to borrow from the United States Treasury;
and others, such as bonds issued by FNMA (a private corporation), are supported
only by the credit of the agency, authority or instrumentality. The Funds also
may invest in obligations issued by the International Bank for Reconstruction
and Development (IBRD or "World Bank").

All of the Funds with the exception of the Money Market Fund may also
purchase U.S. Treasury STRIPS (Separate Trading of Registered Interest and
Principal of Securities). STRIPS essentially are zero-coupon bonds that are
direct obligations of the U.S. Treasury. These bonds do not make regular
interest payments; rather, they are sold at a discount from face value, and
principal and accrued interest are paid at maturity. STRIPS may experience
greater fluctuations in market value due to changes in interest rates and other
factors than debt securities that make regular interest payments. A Fund will
accrue income on STRIPS for tax and accounting purposes which must be
distributed to Fund shareholders even though no cash is received at the time of
accrual. Therefore, the Fund may be required to liquidate other portfolio
securities in order to meet the Fund's distribution obligations.

MORTGAGE-RELATED SECURITIES

The Government Securities and Balanced Funds may invest in
mortgage-related securities, which are interests in pools of mortgage loans made
to residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental
and government-related

23
<PAGE>

organizations (see "Mortgage Pass-Through Securities"). Other Funds also may
invest in such securities for temporary defensive purposes. The Government
Securities Fund also may invest in debt securities that are secured with
collateral consisting of mortgage-related securities (see "Collateralized
Mortgage Obligations"), and in other types of mortgage-related securities.

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

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

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

FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") that

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<PAGE>

represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.

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

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

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

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

FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates that are secured by the pledge of a pool
of

25
<PAGE>

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

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

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

RISKS OF MORTGAGE-RELATED SECURITIES. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, which may adversely affect the investment's average life
and yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Accordingly, amounts available for reinvestment by a Fund are likely
to be greater during a period of declining interest rates and, as a result,
likely to be reinvested at lower interest rates than during a period of rising
interest rates. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.

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

26
<PAGE>

of cash flows of lower tranche CMOs, the market prices of and yield on those
tranches generally are more volatile.

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

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

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

COMMERCIAL PAPER AND OTHER CASH SECURITIES

Commercial paper purchased by Money Market Fund must be rated by any two
nationally recognized statistical rating organizations (NRSROs), or by the only
NRSRO that has rated the security, in one of the two highest short-term rating
categories, or be comparable unrated securities. However, the Fund may not
invest more than 5% of its total assets in securities rated in the second
highest rating category. For a list of NRSROs and a description of their
ratings, see the Appendix to this SAI.

A Fund may also acquire certificates of deposit and bankers' acceptances
of banks which meet criteria established by the Funds' Board of Directors. A
certificate of deposit is a short-term obligation of a bank. A banker's
acceptance is a time draft drawn by a borrower on a bank, usually relating to an
international commercial transaction.

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<PAGE>

WHEN-ISSUED SECURITIES

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

BORROWING

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

SECURITIES OF OTHER INVESTMENT COMPANIES

Each of the Funds may acquire securities of other investment companies,
subject to the limitations of the 1940 Act. As of the date of this Statement of
Additional Information, no Fund intends to purchase such securities during the
coming year in excess of the following limitations: (a) no more than 3% of the
voting securities of any one investment company may be owned in the aggregate by
the Fund and all other Funds, (b) no more than 5% of the value of the total
assets of the Fund may be invested in any one investment company, and (c) no
more than 10% of the value of the total assets of the Fund and all other Funds
may be invested in the securities of all such investment companies. Should a
Fund purchase securities of other investment companies, shareholders may incur
additional management, advisory, and distribution fees.

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<PAGE>

- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------

The business and affairs of the Funds are subject to the supervision and
general oversight of the Company's Board of Directors. The Directors and
officers of the Company, and their principal occupations for the last five years
and their affiliations, if any, with Founders, are as follows:

DIRECTORS

JAY A. PRECOURT 1,2
328 Mill Creek Circle
Vail, CO 81657
Chairman of the Board of the Company
Retired. Formerly (1988 to 1998), President, Chief Executive Officer,
Vice Chairman and Director, Tejas Energy, L.L.C., Houston, Texas.
Director, Halliburton Company, Dallas, Texas; Director, The Timken
Company, Canton, Ohio. Until 1988, President of the Energy Related
Group and Director, Hamilton Oil Corporation, Denver, Colorado. Born:
July 12, 1937.

EUGENE H. VAUGHAN, JR., CFA 1,3

6300 Texas Commerce Tower
Houston, Texas
Vice Chairman of the Board and Director of the Company President and Chief
Executive Officer, Vaughan, Nelson, Scarborough & McCullough, L.P., an
investment counseling firm, Houston, Texas. Founding Chairman and
Governor, Association for Investment Management and Research; Past
Chairman and Trustee, Institute of Chartered Financial Analysts; Past

Chairman and Director, Financial Analysts Federation; Trustee, Vanderbilt
University. Born: October 5, 1933.

ALAN S. DANSON 3,4
3005A Booth Falls Road
Vail, Colorado
Director of the Company
Director and Senior Vice President, OptiMark Technologies, Inc.
(computerized securities trading services), and President, D.H.
Management, Inc. (general partner of limited partnership with
technology company holdings). Between March 1, 1992, and June 30,
1993, Mr. Danson was President and Chief Executive Officer of ACCI
Securities, Inc., a wholly-owned subsidiary of Acciones y Valores de
Mexico, S.A. de C.V., a Mexican brokerage firm. Mr. Danson was

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<PAGE>

Director of International Relations of Acciones y Valores between March
1, 1990, and February 28, 1992. Prior to joining Acciones y Valores,
Mr. Danson was President of Integrated Medical Systems, Inc., a
privately held company based in Golden, Colorado. Born: June 15, 1939.

JOAN D. MANLEY 2
0031 Wild Irishman Lane
Keystone, Colorado
Director of the Company
Retired. Formerly (1960 to 1984), Ms. Manley served in several
executive capacities with Time Incorporated, most recently as Group
Vice President, Director, and Chairman of Time-Life Books, Inc. and
Book of the Month Club, Inc. Director, Sara Lee Corporation,
Chicago, Illinois. Director, Big Flower Holdings, Inc., New York,
New York. Born: September 23, 1932.

ROBERT P. MASTROVITA *3,4

88 Upland Road
Duxbury, Massachusetts
Director of the Company
Private investor; Chairman of private foundation. Formerly (1982 to
1997), Chairman and Director, Hagler, Mastrovita & Hewitt, Inc.,
Boston, Massachusetts, a registered investment adviser. Member, Boston
Society of Security Analysts. Overseer and Investment Committee
Member, Boston Children's Hospital. Born: November 6, 1944.

TRYGVE E. MYHREN 1,2,4

2280 Detroit Street, Suite 200
Denver, Colorado
Director of the Company
President, Myhren Media, Inc., Denver, Colorado, a firm that invests in
and advises media, telecommunications, internet and software companies.
Director, Advanced Marketing Services, Inc., LaJolla, California;
Director, Peapod, Ltd., Evanston, Illinois; Director, J.D. Edwards,
Denver, Colorado; and Director, Verio Inc., Englewood, Colorado. Formerly,
President of The Providence Journal Company, a diversified media and
communications company, Providence, Rhode Island, from 1990 to 1996;
Chairman and Chief Executive Officer of American Television and
Communications Corporation, a cable television company, Denver, Colorado,
from 1981 to 1988; and Chairman, National Cable Television Association,
from 1986 to 1987. Mr. Myhren also serves on the boards of the University
of Denver and National Jewish Medical Center, both of which are in Denver,
Colorado. Born: January 3, 1937.

30
<PAGE>

GEORGE W. PHILLIPS 2
101 Chestnut Street
Boston, Massachusetts
Director of the Company
Retired. Director and Chairman, Strategic Planning Committee, Warren
Bancorp, Inc., Peabody, Massachusetts, a state-chartered bank holding
company. Formerly (1991 to 1997), Mr. Phillips was President and Chief
Executive Officer of Warren Bancorp, Inc. and Warren Five Cents Savings
Bank. Trustee and Chairman of the Finance and Investment Committees,
Children's Medical Center of Boston, Boston, Massachusetts. Born:
April 5, 1938.

* Mr. Mastrovita served as a non-employee director of The Boston Company,
Inc. and Boston Safe Deposit and Trust Company until March 15, 1998.
During 1998, Mr. Mastrovita received $10,250 for his service in these
capacities. In addition, since July 1998, he has received directors'
retirement benefits from these companies at a rate of $15,000 per year.
Since both of these companies are indirect subsidiaries of Mellon Bank
Corporation, Founders' ultimate parent company, it is possible that Mr.
Mastrovita might be determined to be an interested director as defined in
the 1940 Act. However, the Company does not concede that these prior
directorships or Mr. Mastrovita's receipt of directors' retirement
benefits would make him an interested director of the Funds.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Portfolio Transactions Committee
4 Member of Valuation Committee

COMMITTEES

The committees of the Board are the Executive Committee, Audit Committee,
Portfolio Transactions Committee and Valuation Committee. The Company also has a
Committee on Directors, composed of all of the non-interested ("independent")
directors and chaired by Mr. Precourt, which serves as a nominating committee.
For at least so long as the plans of distribution pursuant to Rule 12b-1 under
the 1940 Act of certain of the Company's Funds remain in effect, the selection
and nomination of the Company's independent directors will be a matter left to
the discretion of such independent directors. Except for certain powers that,
under applicable law, may only be exercised by the full Board of Directors, the
Executive Committee may exercise all powers and authority of the Board of
Directors in the management of the business of the Company.

The Audit Committee meets periodically with the Company's independent
accountants and the executive officers of Founders. This Committee reviews the
accounting principles being applied by the Company in financial reporting, the
scope and adequacy of internal controls, the responsibilities and fees of the
Company's independent accountants and other matters. The Portfolio Transactions
Committee monitors compliance with several Fund policies, including those
governing brokerage, trade allocations, proxy voting, cross trades, and the
Funds' Code of Ethics. The

31
<PAGE>

Valuation Committee is responsible for determining the methods used to value
Fund securities for which market quotations are not readily available, subject
to the approval of the Board.

DIRECTOR COMPENSATION

The following table sets forth, for the fiscal year ended December 31,
1998, the compensation paid by the Company to its directors for services
rendered in their capacities as directors of the Company. The Company has no
plan or other arrangement pursuant to which any of the Company's directors
receive pension or retirement benefits. Therefore, none of the Company's
directors has estimated annual benefits to be paid by the Company upon
retirement.

Compensation Table
Total compensation
from Company (11 Funds
Name of Person, Position1 total) paid to directors 1
----------------------------------------------------------------------------
Jay A. Precourt, Chairman and Director $ 47,500
Eugene H. Vaughan, Jr., Vice Chairman and Director $ 31,250
William H. Baughn, Director 2 $ 37,750
Bjorn K. Borgen, Director 3 $ 26,000
Alan S. Danson, Director $ 34,500
Robert P. Mastrovita, Director 4 $ 25,000
Trygve E. Myhren, Director $ 35,000
George W. Phillips, Director 4 $ 27,500
----------------------------------------------------------------------------
TOTAL5 $264,500

1 The Chairman of the Board, the Chairmen of the Company's Audit and Portfolio
Transactions Committees, and the members of the Audit and Portfolio
Transactions Committees each received compensation for serving in such
capacities in addition to the compensation paid to all directors.
2 Mr. Baughn retired as a director of the Company effective December 31, 1998.
3 Mr. Borgen began receiving compensation for his service as a director of the
Company in April 1998. His term as director expired March 2, 1999.
4 Messrs. Mastrovita and Phillips were elected to the Board of Directors in May
1998.
5 Joan D. Manley was elected to the Board of Directors in mid-December 1998,
and began receiving director's compensation in 1999.

OFFICERS

The officers of the Company and their principal occupations for the last
five years appear below. All of the Company's officers are affiliated with its
principal underwriter,

32
<PAGE>

Premier Mutual Fund Services, Inc. ("Premier"), or Premier's affiliate, Funds
Distributor, Inc. ("FDI"). None of these individuals is affiliated with
Founders.

MARIE E. CONNOLLY
60 State Street
Boston, Massachusetts 02109
President and Treasurer
President (since January 1992); Chief Executive Officer (since April
1995); Treasurer (July 1993 to April 1994); Chief Operating Officer
(April 1994 to April 1995); Chief Compliance Officer (April 1994 to
September 1998); and Director (since June 1992) of FDI; President,
Chief Operating Officer and Director of Premier (since April 1994);
Chief Executive Officer of Premier (since July 1995); Chief Compliance
Officer of Premier (June 1995 to September 1998). Born:
August 1, 1957.

MARGARET W. CHAMBERS
60 State Street
Boston, Massachusetts 02109
Vice President and Secretary
Senior Vice President, General Counsel, Secretary and Clerk of FDI
(since April 1998); Senior Vice President, General Counsel and
Secretary of Premier (since April 1998); Chief Compliance Officer of
FDI and Premier (since September 1998). Formerly, Vice President and
Assistant General Counsel for Loomis, Sayles & Company, L.P. (August
1996 to March 1998) and associate with the law firm of Ropes & Gray
(January 1986 to July 1996). Born: October 12, 1959.

DOUGLAS C. CONROY
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Secretary
Vice President and Client Services Manager of FDI (since June 1998);
Supervisor of Treasury Services and Administration of FDI (January
1995 to June 1998). Formerly (April 1993 to January 1995), Senior
Fund Accountant for Investors Bank & Trust Company. Born: March
31, 1969.

CHRISTOPHER J. KELLEY
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Secretary
Vice President and Senior Associate General Counsel of FDI (since
August 1996). Formerly, Assistant Counsel at Forum Financial Group
(April 1994 to July 1996) and employed by Putnam Investments in legal
and compliance capacities (October 1992 to March 1994).
Born: December 24, 1964.

33
<PAGE>

KATHLEEN K. MORRISEY
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Secretary
Assistant Vice President of FDI (since November 1998); Manager of
Treasury Operations of FDI (since December 1995). Formerly (July
1994 to November 1995), Fund Accountant II for Investors Bank &
Trust Company. Born: July 5, 1972.

MARY A. NELSON
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Treasurer
Vice President and Manager of Treasury Services and Administration of
FDI and Premier (since March 1996); Assistant Treasurer of FDI (August
1994 to March 1996). Formerly (September 1989 to July 1994), Assistant
Vice President and Client Manager for The Boston Company. Born: April
22, 1964.

MICHAEL S. PETRUCELLI
200 Park Avenue
New York, New York 10166
Vice President, Assistant Treasurer and Assistant Secretary Senior Vice
President and Director of Strategic Client Initiatives for FDI (since
December 1996); Senior Vice President of Premier (since June 1998).
Formerly (December 1989 to November 1996), employed by GE Investment
Services in various financial, business development and compliance
positions. Born: May 18, 1961.

STEPHANIE D. PIERCE
200 Park Avenue
New York, NY 10166
Vice President, Assistant Treasurer and Assistant Secretary Vice President
(since June 1998) and Client Development Manager (since April 1998) of
FDI. Formerly, Relationship Manager on the Business and Professional
Banking team at Citibank, NA (April 1997 to March 1998); Assistant Vice
President for Hudson Valley Bank (August 1995 to April 1997); and
Second Vice President for Chase Manhattan Bank (September 1990 to
August 1995). Born: August 18, 1968.

GEORGE A. RIO
60 State Street
Boston, MA 02109
Vice President and Assistant Treasurer
Executive Vice President and Client Service Director of FDI and Premier

34
<PAGE>

(since April 1998). Formerly, Senior Vice President, Senior Key Account
Manager for Putnam Mutual Funds (June 1995 to March 1998), Director of
Business Development for First Data Corporation (May 1994 to June
1995), and Senior Vice President and Manager of Client Services and
Director of Internal Audit at The Boston Company (September 1983 to May
1994). Born: January 2, 1955.

JOSEPH F. TOWER, III
60 State Street
Boston, Massachusetts 02109
Vice President and Assistant Treasurer
Senior Vice President (since November 1994), Treasurer and Chief
Financial Officer (since April 1994) and Director (since January 1997)
of FDI; Vice President of FDI (November 1993 to November 1994); Senior
Vice President (since June 1995), Treasurer and Chief Financial Officer
(since April 1994) and Director (since January 1997) of Premier; Vice
President of Premier (April 1994 to June 1995). Formerly (July 1988 to
August 1994), employed by The Boston Company, Inc. in various
management positions in the Corporate Finance and Treasury areas. Born:
June 13, 1962.

ELBA VASQUEZ
200 Park Avenue
New York, New York 10166
Vice President and Assistant Secretary
Assistant Vice President (since June 1997) and Sales Associate (since
May 1996) of FDI. Formerly (March 1990 to May 1996), employed in
various mutual fund sales and marketing positions by U.S. Trust Company
of New York. Born: December 14, 1961.

As of January 29, 1999, the Company's directors and officers as a group
owned less than 1% of the outstanding shares of each Fund, with the exception of
the International Equity and Money Market Funds, in which the ownership
interests of the group totaled 1.3% and 6.1%, respectively.

- --------------------------------------------------------------------------------
INVESTMENT ADVISER, DISTRIBUTOR AND OTHER SERVICE PROVIDERS
- --------------------------------------------------------------------------------

INVESTMENT ADVISER

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

35
<PAGE>

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

MBC's principal wholly-owned subsidiaries are Mellon, The Boston Company,
Inc., Mellon Bank (DE) National Association, Mellon Bank (MD) National
Association, and a number of companies known as Mellon Financial Services
Corporation. MBC also owns a federal savings bank headquartered in Pennsylvania,
Mellon Bank, F.S.B. The Dreyfus Corporation ("Dreyfus"), one of the nation's
largest mutual fund companies, is a wholly-owned subsidiary of Mellon. MBC's
banking subsidiaries engage in retail financial services, commercial banking,
trust and investment management services, residential real estate loan
financing, mortgage servicing, equipment leasing, mutual fund activities and
various securities-related activities. Through its subsidiaries, MBC managed
more than $389 billion in assets as of December 31, 1998. As of that date
various subsidiaries of MBC provided non-investment services, such as custodial
or administration services, for approximately $1.9 trillion in assets.

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

Mid-Cap Growth and Growth Funds
-------------------------------

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

36
<PAGE>

Growth and Income and Balanced Funds
------------------------------------

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

Money Market Fund
-----------------

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

Government Securities Fund
--------------------------

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

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

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

The net assets of the Funds at the end of fiscal year 1998 were as
follows: Balanced Fund - $1,244,221,142; Discovery Fund - $241,123,717; Frontier
Fund - $167,422,894; Government Securities Fund - $15,220,129; Growth Fund -
$2,360,179,531; Growth and Income Fund - $542,306,718; International Equity Fund
- - $18,937,507; Mid-Cap Growth Fund - $252,854,647; Money Market Fund -

37
<PAGE>

$91,414,543; Passport Fund - $124,572,151; and Worldwide Growth Fund -
$272,053,390.

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

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

During the fiscal years ended in 1998, 1997, and 1996 the gross investment
advisory fees paid by the Funds were as follows:

Fund 1998 1997 1996
------------------------------------------------------------------
Balanced $6,446,156 $4,489,769 $1,538,236
Discovery $2,169,358 $2,426,658 $2,405,895
Frontier $1,846,914 $2,546,507 $3,298,000
Government Securities $91,928 $90,247 $116,875
Growth $14,121,732 $10,050,831 $5,728,768
Growth and Income $3,423,449 $3,383,816 $2,891,784
International Equity $190,413 $142,381 $68,791
Mid-Cap Growth $2,241,440 $2,576,530 $2,839,655
Money Market $568,719 $610,538 $757,666
Passport $1,317,075 $1,808,142 $1,343,963
Worldwide Growth $2,935,009 $3,177,452 $3,022,945

38
<PAGE>

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

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

Founders and its predecessor companies have been providing investment
management services since 1938. In addition to serving as adviser to the Funds,
Founders serves as investment adviser or sub-adviser to various other mutual
funds and private accounts. The officers of Founders include Christopher M.
Condron, Chairman, Richard W. Sabo, President and Chief Executive Officer;
Robert T. Ammann, Vice President; Thomas M. Arrington, Vice President; Angelo
Barr, Vice President and National Sales Manager; Scott A. Chapman, Vice
President; Kenneth R. Christoffersen, Vice President, General Counsel and
Secretary; Gregory P. Contillo, Senior Vice President and Chief Marketing
Officer; Francis P. Gaffney, Vice President; Roberto

Galindo, Jr., Vice President; Laurine Garrity, Vice President; Michael W.
Gerding, Senior Vice President; Brian F. Kelly, Vice President; Paul A. LaRocco,
Vice President; Douglas A. Loeffler, Vice President; David L. Ray, Senior Vice
President and Treasurer; and Linda M. Ripley, Vice President.

DISTRIBUTOR

The Company's shares are sold on a continuous basis at the net asset value
per share next calculated after receipt of a purchase order in proper order. See
"Pricing of Shares." Effective April 1, 1998, Premier Mutual Fund Services Inc.
("Premier") became the Funds' distributor. Premier is located at 60 State
Street, Boston, Massachusetts 02109. Prior to April 1, 1998, Founders Asset
Management, Inc., Founders' predecessor corporation ("Old Founders"), acted as
the Funds' distributor at no charge to the Funds. Premier acts as agent of the
Company in the sale of shares of

39
<PAGE>

the Funds under an underwriting agreement approved by the Company's directors on
November 18, 1997 for an initial term ending May 31, 1999. Premier is required
to use its best efforts to promote the sale of shares of the Funds, but is not
obligated to sell any specific number of shares. Premier's compensation for
services rendered pursuant to the underwriting agreement is paid by Founders,
not the Funds. The provisions for the continuation, termination and assignment
of this agreement are identical to those described above with regard to the
investment advisory agreement, except that termination other than upon
assignment or mutual agreement requires six months notice by either party. As
discussed above under "Directors and Officers," all of the Funds' officers are
affiliated with Premier or with affiliates of Premier.

DISTRIBUTION PLANS

Pursuant to Distribution Plans adopted by Balanced Fund, Discovery Fund,
Frontier Fund, Government Securities Fund, Growth Fund, Growth and Income Fund,
International Equity Fund, Mid-Cap Growth Fund, Passport Fund, and Worldwide
Growth Fund, (the "12b-1 Funds"), the 12b-1 Funds pay for distribution and
related services at an annual rate that may be less than, but that may not
exceed, 0.25% of each Fund's average daily net assets. These fees may be used to
pay directly, or to reimburse Premier for paying, expenses in connection with
distribution of the 12b-1 Funds' shares and related activities including:
preparation, printing and mailing of prospectuses, reports to shareholders (such
as semiannual and annual reports, performance reports and newsletters), sales
literature and other promotional material to prospective investors; direct mail
solicitation; advertising; public relations; compensation of sales personnel,
brokers, financial planners, or others for their assistance with respect to the
distribution of the Funds' shares, including compensation for such services to
personnel of Founders or of affiliates of Founders; providing payments to any
financial intermediary for shareholder support, administrative, and accounting
services with respect to the shareholders of the Fund; and such other expenses
as may be approved from time to time by the Funds' Board of Directors and as may
be permitted by applicable statute, rule or regulation.

Payments made by a particular 12b-1 Fund under its Plan may not be used to
finance the distribution of shares of any other Fund. In the event that an
expenditure may benefit more than one Fund, it is allocated among the applicable
Funds on an equitable basis.

Plan payments may be made only to reimburse expenses incurred during a
rolling twelve-month period, subject to the annual limitation of 0.25% of
average daily net assets. Any reimbursable expenses incurred by Premier in
excess of this limitation are not reimbursable and will be borne by Founders. As
of December 31, 1998, Founders had incurred the following distribution-related
expenses on behalf of the 12b-1 Funds, which have not been reimbursed pursuant
to the Plans:

40
<PAGE>

% of Average
Fund Amount Net Assets
---------------------------------------------------------------------
Balanced $562,015 0.05%
Discovery $198,166 0.09%
Frontier $368,582 0.20%
Government Securities $0 0.00%
Growth $3,453,651 0.16%
Growth and Income $1,080,851 0.19%
International Equity $53,658 0.28%
Mid-Cap Growth $513,553 0.18%
Passport $289,740 0.22%
Worldwide Growth $190,979 0.06%
--------------------------------------------------
TOTAL $6,711,195

A report of the amounts expended pursuant to the Distribution Plans, and
the purposes for which such expenditures occurred, must be made to the Board of
Directors at least quarterly. During the fiscal year ended December 31, 1998,
Premier expended the following amounts in marketing the shares of the 12b-1
Funds: advertising, $3,949,893; printing and mailing of prospectuses to persons
other than current shareholders, $3,030,197; payment of compensation to third
parties for distribution and shareholder support services, $7,635,679; and
public relations and trade shows, $632,822.*

Each Fund's plan was last approved on May 29, 1998, at a meeting called
for such purpose by a unanimous vote of the directors of the Company, including
all of the directors who are neither "interested persons" of the Company nor
have any financial interest in the operation of the plan ("12b-1 Directors").

Each Fund's plan provides that it shall continue in effect with respect to
each Fund for so long as such continuance is approved at least annually by the
vote of the Board of Directors of the Company cast in person at a meeting called
for the purpose of voting on such continuance. Each plan can be terminated at
any time with respect to any Fund, without penalty, if a majority of the 12b-1
Directors or shareholders of such Fund vote to terminate the plan. So long as
any Fund's plan is in effect, the selection

- --------
* These amounts include amounts paid by Old Founders which acted as the Funds'
distributor during the first quarter of 1998.

41
<PAGE>

and nomination of persons to serve as independent directors of the Company shall
be committed to the independent directors then in office at the time of such
selection or nomination. Each Fund's plan may not be amended to increase
materially the amount of any Fund's payments thereunder without approval of the
shareholders of that Fund, and all material amendments to the plan must be
approved by the Board of Directors of the Company, including a majority of the
12b-1 Directors.

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

SHAREHOLDER SERVICING

FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT

Founders performs administrative, accounting, and recordkeeping services
for the Funds pursuant to a Fund Accounting and Administrative Services
Agreement that was initially approved on November 18, 1997 by a vote cast in
person by all of the directors of the Company, including all of the directors
who are not "interested persons" of the Company or of Founders at a meeting
called for such purpose for an initial term ending May 31, 1998. The Agreement
may be continued from year to year thereafter as long as each such continuance
is specifically approved by the Board of Directors of the Company, including a
majority of the directors who are not parties to the Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting for the purpose of voting on such continuance. The agreement
was last renewed by the directors on May 29, 1998. The Agreement may be
terminated at any time without penalty by the Company upon ninety (90) days'
written notice, or by Founders upon ninety (90) days' written notice, and
terminates automatically in the event of its assignment unless the Company's
Board of Directors approves such assignment.

Pursuant to the Agreement, Founders maintains the portfolios, general
ledgers, and financial statements of the Funds; accumulates data from the Funds'
shareholder

42
<PAGE>

servicing and transfer agent, custodian, and manager and calculates daily the
net asset value of the Funds; monitors the data and transactions of the
custodian, transfer agent, shareholder servicing agent, and manager of the
Funds; monitors compliance with tax and federal securities rules and
regulations; provides reports and analyses of portfolio, transfer agent,
shareholder servicing agent, and custodial operations, performance and costs;
and reports on regulatory and other shareholder matters. The Funds pay a fee for
this service which is computed at an annual rate of 0.06 percent of the daily
net assets of the Funds from $0 to $500 million and at an annual rate of 0.02
percent of the daily net assets of the Funds in excess of $500 million, plus
reasonable out-of-pocket expenses. During the fiscal years ended December 31,
1998, 1997 and 1996, the Company paid Fund accounting and administrative
services fees of $1,213,611, $1,056,132, and $823,632, respectively.

SHAREHOLDER SERVICES AGREEMENT

Pursuant to a Shareholder Services Agreement, Founders performs certain
telephone, retirement plan, quality control, personnel training, shareholder
inquiry, shareholder account, and other shareholder-related and transfer agent
services for the Funds. The Agreement was approved on November 18, 1997 by a
vote cast in person by all of the directors of the Company, including all of the
directors who are not "interested persons" of the Company or Founders at a
meeting called for such purpose, for an initial term ending May 31, 1998. The
Agreement may be continued from year to year thereafter as long as such
continuance is specifically approved by the Board of Directors of the Company,
including a majority of the directors who are not parties to the Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such continuance. The
agreement was last renewed by the directors on May 29, 1998. The Agreement may
be terminated at any time without penalty by the Company upon ninety (90) days'
written notice to Founders or by Founders upon one hundred eighty (180) days'
written notice to the Company, and terminates automatically in the event of an
assignment unless the Company's Board of Directors approves such assignment. The
Funds pay to Founders a prorated monthly fee for such services equal on an
annual basis to $26 for each shareholder account of the Funds considered to be
an open account at any time during the applicable month (the "shareholder
servicing fee"). The fee provides for the payment not only of services rendered
and facilities furnished by Founders pursuant to the Agreement, but also for
services rendered and facilities furnished by Investors Fiduciary Trust Company
("IFTC") and DST Systems, Inc. ("DST") in performing transfer agent services and
in providing hardware and software system capabilities on behalf of the Funds.
In addition to the per account fee, Founders, IFTC, and DST are reimbursed for
all reasonable out-of-pocket expenses incurred in the performance of their
respective services. During the fiscal years ended December 31, 1998, 1997 and
1996, the Company paid shareholder servicing fees of $3,147,345, $3,353,527, and
$3,374,390, respectively.

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<PAGE>

TRANSFER AGENCY AGREEMENT

The Company has entered into a Transfer Agent Agreement with IFTC,
pursuant to which IFTC provides certain transfer agent services to the Funds
which are not provided to the Funds by Founders. DST provides hardware and
software system capabilities to IFTC and to Founders, to assist IFTC and
Founders in providing transfer agency and related shareholder services to the
Funds. The Transfer Agent Agreement between the Company and IFTC was initially
approved on November 12, 1993, and will continue until terminated at any time
without penalty by either party upon six months' written notice. The Agreement
may not be assigned by either party without the prior written consent of the
other. Under the Agreement, the Funds pay to IFTC and its affiliates various
transfer agency transaction fees and expenses that, in 1998, were in the amount
of $11.99 per shareholder account. The fees to IFTC are paid on behalf of the
Funds by Founders from the shareholder servicing fee of $26 per account per
annum received by Founders for providing shareholder services to the Funds. See
"Shareholder Services Agreement," above.

CUSTODIAN

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

IFTC also serves as the Funds' dividend disbursing agent and redemption
agent.

- --------------------------------------------------------------------------------
BROKERAGE ALLOCATION
- --------------------------------------------------------------------------------

It is the policy of the Company, in effecting transactions in portfolio
securities, to seek the best execution of orders at the most favorable prices.
The determination of what may constitute best execution in a securities
transaction involves a number of judgmental considerations, including, without
limitation, the overall direct net economic result to a Fund (involving both
price paid or received and any commissions and other costs), the efficiency with
which the transaction is effected, the ability to effect the transaction at all
where a large block is involved, the availability of the broker to stand

44
<PAGE>

ready to execute possibly difficult transactions for the Fund in the future, and
the financial strength and stability of the broker.

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

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

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

45
<PAGE>

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

As described in greater detail below, a significant proportion of the
total commissions paid by the Funds for portfolio transactions during the year
ended December 31, 1998 was paid to brokers that provided research services to
Founders, and it is expected that, in the future, a majority of each Fund's
brokerage business will be placed with firms that provide such services.

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

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

The staff of the Securities and Exchange Commission has been conducting an
investigation concerning possible violations of the federal securities laws in
connection with brokerage transactions old Founders (Founders' predecessor)
effected for certain private account clients during the period 1992 through
mid-1995. No determination has been made as to whether any violations have
occurred. Founders is currently engaged in discussions with the staff concerning
the staff's recommendations to the Commission. Founders believes that this
matter is not likely to have a material adverse effect on the Funds or on the
ability of Founders to perform services for the Funds.

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

46
<PAGE>

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

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

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

For the fiscal years ended 1998, 1997 and 1996, respectively, total
brokerage commissions paid by the Funds amounted to the following:

47
<PAGE>

Fund 1998 1997 1996
---------------------------------------------------------------
Balanced $3,728,558 $2,721,066 $943,355
Discovery $289,154 $232,098 $444,760
Frontier $328,968 $387,555 $540,893
Growth $5,620,455 $4,504,003 $2,090,847
Growth and Income $2,843,698 $2,577,069 $2,186,810
International Equity $114,163 $115,405 $48,594
Mid-Cap Growth $856,067 $1,018,305 $1,669,994
Passport $220,558 $603,752 $648,019
Worldwide Growth $927,388 $1,147,649 $1,031,931

The differences in the amounts of brokerage commissions paid by the Funds
during 1998 as compared to prior years are primarily attributable to changes in
the size of the Funds and differences in portfolio turnover rates.

During the fiscal year ended December 31, 1998, brokers providing research
services received the following commissions on the following amounts of
portfolio transactions in which the provision of research was a factor in the
selection of the broker to execute the transaction:

Aggregate Amount of
Fund Commissions Paid Portfolio Transactions
------------------------------------------------------------------------
Balanced $1,190,221 $966,378,761
Discovery $59,889 $21,176,625
Frontier $49,002 $21,496,139
Growth $1,559,563 $1,312,835,483
Growth and Income $894,968 $702,260,914
International Equity $86,644 $35,688,288
Mid-Cap Growth $333,360 $169,218,824
Passport $194,587 $65,536,145
Worldwide Growth $697,309 $317,852,745

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

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<PAGE>

At December 31, 1998, certain of the funds held securities of their
regular brokers or dealers as follows:

Fund Broker Value
--------------------------------------------------------------------------
Discovery Prudential Funding Corp. $10,991,292
Passport Prudential Funding Corp. $3,697,657
Money Market Prudential Funding Corp. $4,192,160

- --------------------------------------------------------------------------------
CAPITAL STOCK
- --------------------------------------------------------------------------------

The Company has 3,000,000,000 shares of capital stock authorized, with a
par value per share of $0.01. Of these shares, 500,000,000 shares have been
allocated to Balanced Fund, 100,000,000 to Discovery Fund, 100,000,000 to
Frontier Fund, 20,000,000 to Government Securities Fund, 400,000,000 to Growth
Fund, 400,000,000 to Growth and Income Fund, 100,000,000 to International Equity
Fund, 180,000,000 to Mid-Cap Growth Fund, 1,000,000,000 to Money Market Fund,
100,000,000 to Passport Fund, and 100,000,000 to Worldwide Growth Fund, The
Board of Directors is authorized to create additional series or classes of
shares, each with its own investment objectives and policies.

As of January 29, 1999, no person owned of record or, to the knowledge of
the Company, beneficially, more than 5% of the capital stock of any Fund then
outstanding except:

Fund Amount owned
---------------------------------------
Charles Schwab & Co., Inc., Balanced 17.10%
101 Montgomery Street Discovery 27.95%
San Francisco, CA 94104 Frontier 25.47%
(record owner) Government Securities 8.77%
Growth 16.31%
Growth and Income 9.13%
International Equity 23.03%
Passport 47.87%
Mid-Cap Growth 20.34%
Worldwide Growth 31.61%

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<PAGE>

National Financial Services Corp. Growth 5.33%
P.O. Box 3908 International Equity 5.65%
Church Street Station Passport 13.19%
New York, NY 10008 Worldwide Growth 9.44%

(record owner)

Donaldson, Lufkin & Jenrette Discovery 5.01%
Securities Corp. Worldwide Growth 6.21%
P.O. Box 2052
Jersey City, NJ 07303

(record owner)

Salomon Smith Barney Inc. Discovery 10.50%
388 Greenwich Street
New York, NY 10013

(record owner)

Mercantile Safe Deposit & Trust Co. Worldwide Growth 8.36%
Two Hopkins Plaza PAV2
Baltimore, MD 21201

(record and beneficial owner)

The Variable Annuity Life Insurance Growth 18.19%
Company (VALIC)
2929 Allen Parkway L7-01
Houston, TX 77019

(record and beneficial owner)

American Express Trust Company Balanced 16.06%
733 Marquette Avenue
Minneapolis, MN 55402

(record owner)

State of Michigan Plan 2 Balanced 6.56%
State Street Bank & Trust Company
200 Newport Avenue
Quincy, MA 02170

(record and beneficial owner)

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<PAGE>

Fidelity Investments Institutional Balanced 6.38%
Operations Company Growth 5.91%
100 Magellan Way
Covington, KY 41015

(record owner)

Eugene H. Vaughan, Jr. Money Market 5.92%
6300 Texas Commerce Tower
Houston, TX 77002

(record and beneficial owner)

Cigna Retirement & Investment Serv. Balanced 17.74%
One Commercial Plaza Growth 9.70%
280 Trumbull Street
Hartford, CT 06103

(record and beneficial owner)

Shares of each Fund are fully paid and nonassessable when issued. All
shares participate equally in dividends and other distributions by each Fund,
and in the residual assets of a Fund in the event of its liquidation. Shares of
each Fund are redeemable as described herein under "Purchases and Redemptions"
and under "Investing in the Founders Funds" in the Prospectus. Fractional shares
have the same rights proportionately as full shares. The Company does not issue
share certificates. Shares of the Company have no conversion, subscription or
preemptive rights.

Each full share of the Company has one vote and fractional shares have
proportionate fractional votes. Shares of the Funds are generally voted in the
aggregate except where separate voting by each Fund is required by law. The
Funds are not required to hold regular annual meetings of shareholders and do
not intend to do so; however, the Board of Directors will call special meetings
of shareholders if requested in writing generally by the holders of 10% or more
of the outstanding shares of each Fund or as may be required by applicable law
or the Funds' Articles of Incorporation. Each Fund will assist shareholders in
communicating with other shareholders as required by the 1940 Act. Directors may
be removed by action of the holders of a majority or more of the outstanding
shares of all of the Funds. Shares of the Company have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of directors can elect 100% of the directors if they choose to do
so and, in such an event, the holders of the remaining less than 50% of the
shares voting for the election of directors will not be able to elect any person
or persons to the Board of Directors.

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<PAGE>

- --------------------------------------------------------------------------------
PRICING OF SHARES
- --------------------------------------------------------------------------------

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

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

BALANCED, DISCOVERY, FRONTIER, GOVERNMENT SECURITIES, GROWTH AND INCOME
INTERNATIONAL EQUITY, MID-CAP GROWTH, PASSPORT, AND WORLDWIDE GROWTH FUNDS. The
net asset value per share of each Fund is calculated by dividing the value of
all securities held by that Fund and its other assets (including dividends and
interest accrued but not collected), less the Fund's liabilities (including
accrued expenses), by the number of outstanding shares of that Fund. Securities
traded on national securities exchanges and foreign markets are valued at their
last sale prices on the exchanges or markets where such securities are primarily
traded (except as described in the preceding paragraph). Securities traded in
the over-the counter market (including those traded on the NASDAQ National
Market System and the NASDAQ Small Cap Market), and listed securities for which
no sales were reported on a particular date, are valued at their last current
bid prices or, in the case of foreign securities, on the basis of the average of
at least two market maker quotes and/or the PORTAL system. If market quotations
are not readily available, securities will be valued at their fair values as
determined in good faith by the Company's Board of Directors or pursuant to
procedures approved by the Board of Directors. The above procedures may include
the use of valuations furnished by pricing services, including services that
employ a matrix to determine valuations for normal institutional-size trading
units of debt securities. The Company's Board of Directors periodically reviews
and approves the pricing services used to value the

52
<PAGE>

Funds' securities. Commercial paper with remaining maturities of sixty days or
less at the time of purchase will be valued at amortized cost, absent unusual
circumstances.

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

In connection with its use of the amortized cost method, Money Market Fund
must maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only portfolio securities having remaining maturities of 397 calendar
days or less, and invest only in securities, whether rated or unrated,
determined by the Board of Directors to be of high quality with minimal credit
risks. The Board of Directors also has established procedures designed to
stabilize, to the extent reasonably possible, the Fund's net asset value per
share, as computed for the purpose of sales and redemptions, at $1.00. Such
procedures include review of the Fund's portfolio holdings by the Board of
Directors at such intervals as it may deem appropriate to determine whether the
Fund's net asset value calculated by using available market quotations deviates
from $1.00 per share, and, if so, whether such deviation may result in material
dilution or may otherwise be unfair to existing shareholders. In the event the
Board of Directors determines that such a deviation exists, the Board will take
such corrective action as it deems necessary and appropriate, which action might
include selling portfolio securities prior to maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends, or
establishing a net asset value per share by using available market quotations.

OPTIONS.

When a Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset and an

53
<PAGE>

equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.

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

- --------------------------------------------------------------------------------
PURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------

TRANSACTIONS THROUGH THIRD PARTIES

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

REDEMPTIONS

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

54
<PAGE>

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

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

PURCHASES OF FUND SHARES BY FOUNDERS EMPLOYEES

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

- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTION AND TAXES
- --------------------------------------------------------------------------------

Each of the Funds intends to qualify annually as a regulated investment
company. Generally, regulated investment companies are relieved of federal
income tax on the net investment income and net capital gains that they earn and
distribute to their shareholders. Unless an account is not subject to income
taxes, shareholders must include all dividends and capital gains distributions
in taxable income for federal, state and local income tax purposes.

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

55
<PAGE>
share received equal to the net asset value of a share of that Fund on the
reinvestment date.

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

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

All dividends and distributions are regarded as taxable to the investor,
whether or not such dividends and distributions are reinvested in additional
shares. If the net asset value of Fund shares should be reduced below a
shareholder's cost as a result of a distribution of such realized capital gains,
such distribution would be taxable to the shareholder although a portion would
be, in effect, a return of invested capital. The net asset value of each Fund's
shares reflects accrued net investment income and undistributed realized capital
gains; therefore, when a distribution is made, the net asset value is reduced by
the amount of the distribution. Distributions generally are taxable in the year
in which they are received, regardless of whether received in cash or reinvested
in additional shares. However, dividends declared in October, November, or
December of a calendar year to shareholders of record on a date in such a month
and paid by a Fund during January of the following calendar year will be taxable
as though received by shareholders on December 31 of the calendar year in which
the dividends were declared.

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

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<PAGE>

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

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

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

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

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

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<PAGE>

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

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

Gains or losses attributable to fluctuations in foreign currency exchange
rates that occur between the time a Fund accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign currency and
the time a Fund actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, on disposition of debt
securities denominated in a foreign currency and on disposition of certain
options and forward contracts, gains or losses attributable to fluctuations in
the value of the foreign currency between the date of acquisition of the
position and the date of disposition also are treated as ordinary gain or loss.
These gains and losses, referred to under the Code as "section 988" gains or
losses, may increase or decrease the amount of a Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income, rather than increasing or decreasing the amount of the Fund's net
capital gain. If section 988 losses exceed other investment company taxable
income during a taxable year, a Fund generally would not be able to make any
ordinary income dividend distributions. Such distributions made before the
losses were realized generally would be recharacterized as a return of capital
to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares.

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

Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the amount of
foreign taxes that will be imposed on a Fund. If more than 50% of the value of a
Fund's total assets at the close of any taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the IRS that will enable its shareholders, in effect, to

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<PAGE>

receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions' income taxes paid by it. The Fund will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's income from sources within, and taxes paid to, foreign countries and U.S.
possessions if it makes this election.

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

Money Market Fund will declare a dividend of its investment company
taxable income on a daily basis, and shareholders of record begin receiving
dividends no later than the next day following the day when the purchase is
effected. The dividend declared at 4:00 p.m. Eastern time will be deducted
immediately before the net asset value calculation is made. Shareholders will
receive dividends in additional shares, unless they elect to receive cash by
notifying the Transfer Agent in writing. Dividends will be reinvested monthly on
the last business day of each month at the per share net asset value on that
date. If cash payment is requested, checks will be mailed as soon as possible
after the end of the month. If a shareholder redeems his entire account, all
dividends declared to the effective date of redemption will be paid at that
time. Shareholders will receive quarterly statements of account activity,
including information on dividends paid or reinvested. Shareholders also will
receive confirmations after each transaction, except as stated in the
Prospectus. Tax information will be provided annually.

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

Founders may provide the Funds' shareholders with information concerning
the average cost basis of their shares to assist them in preparing their tax
returns. This information is intended as a convenience to the Funds'
shareholders and will not be reported to the IRS. The IRS permits the use of
several methods in determining the cost basis of mutual fund shares. Cost basis
information provided by Founders will be computed using the single-category
average cost method, although neither Founders

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<PAGE>

nor the Company recommends any particular method of determining cost basis.
Other methods may result in different tax consequences. If a Fund's shareholder
has reported gains or losses from investments in the Fund in past years, the
shareholder must continue to use the method previously used, unless the
shareholder applies to the IRS for permission to change methods.

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

- --------------------------------------------------------------------------------
YIELD AND PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

The Company may, from time to time, include the yield or total return of
the Funds in advertisements or reports to shareholders or prospective investors.
Quotations of yield for the Government Securities and Balanced Funds will be
based on all investment income per share earned during a particular 30-day
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:

YIELD = 2[(1 + a-b)6 - 1]
cd
where a = dividends and interest earned during the period,

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

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

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

The yields of the Balanced and Government Securities Funds for the 30 days
ended December 31, 1998 were 2.27% and 4.55%, respectively.

For the seven day period ended December 31, 1998, the Money Market Fund's
yield was 4.45% and effective yield was 4.54%. The Money Market Fund's yield is
computed in accordance with a standardized method which involves determining the
net change in the value of a hypothetical pre-existing Fund account having a
balance of one share at the beginning of a seven day calendar period for which
yield is to be quoted, dividing the net change by the value of the account at
the beginning of the

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period to obtain the base period return, and annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of the
account reflects the value of additional shares purchased with dividends
declared on the original share and any such additional shares and fees that may
be charged to shareholder accounts, in proportion to the length of the base
period and the Fund's average account size, but does not include realized gains
and losses or unrealized appreciation and depreciation. Effective yield is
computed by adding 1 to the base period return, calculated as described above,
raising that sum to a power equal to 365/7, and subtracting 1 from the result,
according to the following formula:

EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)^365/7] -1

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

For the 1, 5, and 10 year periods ended December 31, 1998 the average
annual total returns of the Funds were:
10 year or
Fund 1 year 5 year Life of Fund
--------------------------------------------------------------------
Balanced 13.96% 14.96% 14.26%
Discovery 14.19% 13.42% 17.91%*
Frontier 5.43% 11.26% 15.75%
Government Securities 9.76% 4.49% 6.90%
Growth 25.04% 21.02% 20.30%
Growth and Income 17.78% 17.81% 16.31%
International Equity 17.01% 17.23%*** n/a
Mid-Cap Growth -1.73% 9.54% 15.00%
Money Market 4.67% 4.47% 4.77%
Passport 12.50% 8.89% 9.77%**
Worldwide Growth 9.63% 10.26% 13.36%*

* From inception on 12/31/89 to 12/31/98.
** From inception on 11/16/93 to 12/31/98.
*** From inception on 12/29/95 to 12/31/98.

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

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

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

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

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

American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week

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<PAGE>

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

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<PAGE>

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

CODE OF ETHICS

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

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

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

Sanctions may include verbal or written warnings, a letter of censure,
suspension, termination of employment, disgorgement of profits from improper
transactions, or other sanctions. The code of ethics requires maintenance of the
highest standards of integrity and conduct. In engaging in personal business
activities, personnel of the Company and of Founders must act in the best
interests of the

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<PAGE>

Company and its shareholders. The Company's shareholders may obtain a copy of
the code of ethics without charge by calling Founders at 1-800-525-2440.

INDEPENDENT ACCOUNTANTS

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

REGISTRATION STATEMENT

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

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<PAGE>

APPENDIX

RATINGS OF CORPORATE BONDS

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

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

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

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<PAGE>

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

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

RATINGS OF COMMERCIAL PAPER

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

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

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

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

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

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

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

RATINGS OF PREFERRED STOCK

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

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

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

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

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

"ba" -- An issue that is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.

"b" -- An issue that is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.

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

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<PAGE>

AAA -- This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.

AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.

A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.

BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.

BB, B -- Preferred stocks rated BB and B are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. BB indicates the lowest degree of speculation and B a higher
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

PLUS (+) OR MINUS (-): To provide more detailed indications of preferred
stock quality, the ratings from AA to B may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.