File No. 2-17531
File No. 811-1018
As filed on February 22, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. _____ _____
Post-Effective Amendment No. 64 X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 35 X
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FOUNDERS FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
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(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (303) 394-4404
Kenneth R. Christoffersen, Esq.
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after this post-effective amendment becomes effective.
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
___ on ______________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
X on May 1, 1999 pursuant to paragraph (a)(1)
- ---
___ 75 days after filing pursuant to paragraph (a)(2)
___ on ______________ pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has previously elected to register an indefinite number of shares of
its common stock pursuant to Rule 24f-2 under the Investment Company Act of
1940. Registrant's Rule 24f-2 Notice for the fiscal year ended December 31, 1998
will be filed on or about March 26, 1999.
Page 1 of 310
Exhibit index is located at page 151
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FOUNDERS FUNDS, INC.
CROSS REFERENCE SHEET
Form N-1A
Item No. Caption
Part A Prospectus
1....................Front Cover Page; Back Cover Page
2....................Welcome to Founders; Fund Summaries; More Information
About Investments Objectives, Strategies and Risks;
Other Portfolio Investments and Strategies;
More About Risk
3....................Fees and Expenses of the Funds
4....................Fund Summaries; More Information About Investments
Objectives, Strategies and Risks; Other Portfolio
Investments and Strategies; More About Risk
5....................Not Applicable
6....................How the Fund is Managed; For Further Information
7....................How to Buy and Sell Shares; Conducting Business with
Founders; For Further Information
8....................Conducting Business with Founders
9....................Financial Highlights
Part B Statement of Additional Information
10...................Cover Page; Table of Contents
11...................Founders Funds, Inc.
12...................Investment Restrictions; Investment Strategies and Risks
13...................Directors and Officers; Investment Adviser, Distributor
and Other Service Providers; Additional Information
14...................Directors and Officers; Capital Stock
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Form N-1A
Item No. Caption
15...................Investment Adviser, Distributor and Other Service
Providers; Additional Information
16...................Brokerage Allocation
17...................Capital Stock
18...................Pricing of Shares; Purchases and Redemptions
19...................Dividends, Distributions and Taxes
20...................Investment Adviser, Distributor and Other Service
Providers
21...................Yield and Performance Information
22...................Not Applicable
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
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FOUNDERS FUNDS, INC.
P R O S P E C T U S
May 1, 1999
AGGRESSIVE GROWTH FUNDS
Founders Discovery Fund
Founders Passport 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
Growth Specialists from Dreyfus [Logo]
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TABLE OF CONTENTS
WELCOME TO FOUNDERS..........................................................7
AN OVERVIEW OF THE FUNDS.....................................................7
FUND SUMMARIES...............................................................8
FOUNDERS AGGRESSIVE GROWTH FUNDS...........................................9
FOUNDERS DISCOVERY FUND..................................................9
FOUNDERS PASSPORT FUND..................................................11
FOUNDERS FRONTIER FUND..................................................13
FOUNDERS MID-CAP GROWTH FUND............................................15
FOUNDERS GROWTH FUNDS.....................................................17
FOUNDERS INTERNATIONAL EQUITY FUND......................................17
FOUNDERS WORLDWIDE GROWTH FUND..........................................19
FOUNDERS GROWTH FUND....................................................21
FOUNDERS GROWTH AND INCOME FUNDS..........................................23
FOUNDERS GROWTH & INCOME FUND...........................................23
FOUNDERS BALANCED FUND..................................................25
FOUNDERS INCOME FUNDS.....................................................28
FOUNDERS GOVERNMENT SECURITIES FUND.....................................28
FOUNDERS MONEY MARKET FUND..............................................29
FEES AND EXPENSES OF THE FUNDS..............................................31
MORE INFORMATION ABOUT INVESTMENTS OBJECTIVES, STRATEGIES AND RISKS.........33
OTHER PORTFOLIO INVESTMENTS AND STRATEGIES..................................33
FIXED-INCOME SECURITIES...................................................33
ADRS......................................................................33
SECURITIES THAT ARE NOT READILY MARKETABLE................................33
HEDGING AND DERIVATIVE INSTRUMENTS........................................34
TEMPORARY DEFENSIVE INVESTMENTS...........................................34
PORTFOLIO TURNOVER........................................................35
INVESTMENT RESTRICTIONS...................................................35
THE INCOME FUNDS' FOREIGN INVESTMENTS.....................................35
MORE ABOUT RISK.............................................................35
HOW THE FUND IS MANAGED.....................................................37
THE MANAGER...............................................................37
FOUNDERS' INVESTMENT MANAGEMENT TEAM......................................37
HOW TO BUY AND SELL SHARES..................................................38
CALCULATING SHARE PRICE...................................................38
INVESTING IN THE FOUNDERS FUNDS...........................................38
OPENING YOUR ACCOUNT......................................................38
RETIREMENT ACCOUNTS.......................................................39
MINIMUM INITIAL INVESTMENTS...............................................40
MINIMUM ADDITIONAL INVESTMENTS............................................40
CONDUCTING BUSINESS WITH FOUNDERS...........................................41
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SELLING SHARES OF FOUNDERS FUNDS..........................................44
BUYING OR SELLING SHARES THROUGH A BROKER.................................44
SIGNATURE GUARANTEE.......................................................44
REDEMPTION PROCEEDS.......................................................45
OVERALL POLICIES REGARDING TRANSACTIONS...................................45
FOR MORE INFORMATION ON YOUR ACCOUNT......................................47
ESTABLISHING ADDITIONAL SERVICES..........................................48
DIVIDENDS AND DISTRIBUTIONS...............................................49
TAXES.....................................................................50
DISTRIBUTION (12B-1) PLANS................................................50
SHAREHOLDER AND TRANSFER AGENT SERVICES.....................................51
BROKERAGE ALLOCATION........................................................51
FINANCIAL HIGHLIGHTS........................................................52
UNDERSTANDING FINANCIAL HIGHLIGHTS........................................63
FOR FURTHER INFORMATION.....................................................64
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[LOGO] FOUNDERS FUNDS, INC.
PROSPECTUS
MAY 1, 1999
WELCOME TO FOUNDERS
Founders Asset Management LLC ("Founders") manages the 11 no-load Founders
Funds. Founders and its predecessor companies have been committed to offering
tools to help investors pursue their financial goals since 1938. 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 offers a wide spectrum of mutual funds that cover a range of potential
rewards and risks: aggressive growth, growth, international, growth and income,
fixed-income, and money market funds.
High Risk/High Return Potential
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Micro/Small Cap Discovery Fund
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International Small Cap Passport Fund
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Small Cap Frontier Fund
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Capital Appreciation MidCap Growth Fund
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Core International International Equity Fund
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Global Equity Worldwide Growth Fund
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Large Cap Growth Fund
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Growth and Income Growth and Income Fund
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Balanced Balanced Fund
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Fixed Income Government Securities Fund
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Money Market Money Market Fund
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Lower Risk/Lower Return Potential
The spectrum 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.
As with any investment, it is possible for you to lose money on investments in
the Funds.
For the most current price and performance information on any of the Founders
Funds, you may access the Funds' website, Founders Investorsite(R) at
www.founders.com or call the Founders QuoteLine at 1-800-232-8088. You can also
find the most current price of your shares in the business section of your
newspaper in the mutual fund section under the heading FOUNDERS. It is important
to remember that past performance does not guarantee future results.
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 ___. Please keep in mind that no Fund can guarantee that it will meet
its investment objective.
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 return for each Fund, 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.
This information provides some indication of the risks of investing in the Funds
by showing changes in the Funds' performance from year to year and by showing
how the Funds' average annual returns compare with those of a broad measure of
market performance. The bar charts and the performance information are not
intended to indicate how the Funds may perform in the future.
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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.
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.
FOUNDERS DISCOVERY FUND [in margin: Ticker Symbol: FDISX; Lipper Category:
Small-Cap/Growth Equity; Morningstar Category: Small Growth]
INVESTMENT OBJECTIVE
Capital appreciation
PRINCIPAL INVESTMENT STRATEGY
The Discovery Fund seeks to apply Founders' growth style by targeting small and
relatively unknown companies with high growth potential. The 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
With a focus on small-cap companies, this is the most aggressive Fund in the
Founders family. 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 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 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.
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[On side panel:
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.]
DISCOVERY FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Return
1998 1997 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ---- ----
14.19% 12.00% 21.20% 31.30% -7.80% 10.80% 15.20% 62.50% 13.20%
Best quarter: 36.55% Quarter ended December 31, 1998
Worst quarter: -22.73% Quarter ended September 30, 1998
Founders Discovery Fund
Average Annual Total Returns as of 12/31/98
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Past One Year Past 5 Years Life of Fund*
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Discovery Fund 14.19% 13.42% 17.91%
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Russell 2000 Index -2.70% 11.83% 12.50%
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* Inception date 12/31/89
The Russell 2000 Index, a widely recognized small-cap index, is comprised of
common stocks of the 2,000 U.S. public companies next in size after the largest
1,000 publicly traded U.S. companies. The Index accounts for both changes in
security price and reinvestment of any dividends or coupon payments. The Index
is an unmanaged group of securities that does not reflect the costs of managing
a mutual fund. An investor may not invest directly in this Index.
[Picture of portfolio manager]
[On side panel: 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.]
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FOUNDERS PASSPORT FUND [in margin: Ticker Symbol: FPSSX; Lipper Category:
International Small Company Fund; 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. The 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.
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 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. The Fund invests primarily in foreign securities.
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'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.
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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.
[On side panel:
EXCHANGE RATE is the price at which one country's currency is converted into
the currency of another country.]
PASSPORT FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Return
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
12.50% 1.70% 20.10% 24.40% -10.40% 5.30%*
*From 11/16/93 (inception date) to 12/31/93
Best quarter: 14.30% Quarter ended March 31, 1998
Worst quarter: -19.32% Quarter ended September 30, 1998
Founders Passport Fund
Average Annual Total Returns as of 12/31/98
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One Year 5 Years Life of
Fund*
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Passport Fund 12.50% 8.89% 9.77%
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Morgan Stanley Capital 18.77% 9.19% 10.50%
International World ex.
U.S. Index
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* Inception date 11/16/93
The Morgan Stanley Capital International World ex. U.S. Index is an arithmetical
average of the performance of 1,138 securities listed on the stock exchanges of
Europe, Canada, Australia, New Zealand and the Far East. Total return figures
assume changes in share price and reinvestment of dividends after deduction of
local taxes. The Index is an unmanaged group of securities that does not reflect
the costs of managing a mutual fund. An investor may not invest directly in this
Index. The Life of Fund performance data for the Index is from November 30, 1993
through December 31, 1998.
[Picture of Portfolio Manager]
[On side panel: 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.]
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FOUNDERS FRONTIER FUND [in margin: Ticker Symbol: FOUNX; Lipper Category:
Mid-Cap/Growth Equity; 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 of $200 million-$1.5 billion.
Often, these companies are not listed on a national securities exchange but
trade on the over-the-counter market.
While the Fund normally will be at least 50% invested in U.S. companies, and
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 and medium sized companies.
o Small Company Risk. While small 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 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.
FRONTIER FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Return
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.43% 6.20% 14.30% 37.00% -2.80% 16.50% 8.90% 49.30% -7.50% 44.30%
<PAGE>
Best quarter: 26.32% Quarter ended March 31, 1991
Worst quarter: -21.63 Quarter ended September 30, 1998
Founders Frontier Fund
Average Annual Total Returns as of 12/31/98
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One Year 5 Years 10 Years
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Frontier Fund* 5.43% 11.26% 15.75%
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Russell 2000 Index -2.70% 11.83% 12.91%
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* Inception date 1/22/87
The Russell 2000 Index is an index comprised of common stocks of the 2,000 U.S.
public companies next in size after the largest 1,000 publicly traded U.S.
companies. The Russell 2000 index is a widely recognized small cap index. The
Index accounts for both changes in security price and reinvestment of any
dividends or coupon payments. The Index is an unmanaged group of securities that
does not reflect the costs of managing a mutual fund. An investor may not invest
directly in this Index.
[Picture of portfolio manager]
[On side panel: ROBERT T. AMMANN, VICE PRESIDENT OF INVESTMENTS. Mr. Ammann
is a Chartered Financial Analyst who has been lead portfolio manager for
Founders Frontier Fund since February 1999 and for Founders Discovery Fund
since 1997. Mr. Ammann joined Founders in 1993 as a research analyst, and
became a senior research analyst in 1996. Prior to joining Founders, he was
a financial statistician for Standard & Poor's CompuStat Services, Inc. A
graduate of Colorado State University, Mr. Ammann holds a bachelor's degree
in finance.]
<PAGE>
FOUNDERS MID-CAP GROWTH FUND [in margin: Ticker Symbol: FRSPX; Lipper
Category: Mid-Cap/Growth Equity; 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 the Mid-Cap Growth Fund are the risks of
investing in medium 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 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
<PAGE>
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 indices 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.
[On side panel: We generally consider MEDIUM SIZED COMPANIES to be companies
that have market capitalizations between $1 billion and $8 billion. This range
may, however, fluctuate depending on changes in the value of the stock market as
a whole. DERIVATIVE is an instrument whose value is derived from an underlying
security, index, or other financial instrument. HEDGING is a strategy used by
professional money managers to seek to offset investment risk.]
FOUNDERS MID-CAP GROWTH FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Return
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-1.73% 16.40% 15.30% 25.70% -4.90% 16.00% 8.30% 63.70% -10.40% 39.20%
Best quarter: 28.83% Quarter ended March 31, 1991
Worst quarter: -29.87% Quarter ended September 30, 1998
Founders Mid-Cap Growth Fund
Average Annual Total Returns as of 12/31/98
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One Year 5 Years 10 Years
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Mid-Cap Growth Fund* -1.73% 9.54% 15.00%
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S&P MidCap 400 Index 19.11% 18.84% 19.29%
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* Inception date 9/8/61
The Standard & Poor's (S&P) MidCap 400 Index is a market-value weighted index
composed of 400 common stocks from a wide range of industries that are traded on
the New York Stock Exchange (NYSE), the American Stock Exchange, and the NASDAQ.
The S&P 400 Index measures the performance of the mid-capitalization segment of
the U.S. market. The Index accounts for both changes in security price and
reinvestment of any dividends or coupon payments. The Index is an unmanaged
group of securities that does not reflect the costs of managing a mutual fund.
An investor may not invest directly in this Index.
The Founders MidCap Growth Fund was formerly known as the Founders Special Fund.
[Picture of Portfolio Manager] [On side panel: PAUL 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
Oppenheimer Funds Inc. from 1993 to 1998 and a securities analyst with Columbus
Circle Investors from 1990-1993. 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.]
<PAGE>
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.
FOUNDERS INTERNATIONAL EQUITY FUND [in margin: Ticker Symbol: FOIEX; Lipper
Category: International Funds; 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.
o Foreign Investment Risk. The Fund invests primarily in foreign securities.
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'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
there may be more volatile, less liquid and more uncertain.
<PAGE>
[On side panel:
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.]
INTERNATIONAL EQUITY FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Returns
1998 1997 1996
------ ----- ------
17.01% 16.10% 18.60%
Best quarter: 14.69% Quarter ended March 31, 1998
Worst quarter: -14.58% Quarter ended September 30, 1998
Founders International Equity Fund
Average Annual Total Returns as of 12/31/98
- --------------------------------------------------------------
One Year Life of Fund*
- --------------------------------------------------------------
International Equity Fund 17.01% 17.23%
- --------------------------------------------------------------
Morgan Stanley Capital 18.77% 9.00%
International World ex.
U.S. Index
- --------------------------------------------------------------
* Inception date 12/29/95
The Morgan Stanley Capital International World Index ex. U.S. is an arithmetical
average of the performance of 1,138 securities listed on the stock exchanges of
Europe, Canada, Australia, New Zealand and the Far East. Total return figures
assume changes in share price and reinvestment of dividends after deduction of
local taxes. The Index is an unmanaged group of securities that does not reflect
the costs of managing a mutual fund. An investor may not invest directly in this
Index. The Life of Fund performance data for the Index is from December 31, 1995
through December 31, 1998.
[Picture of Portfolio Manager] [On side panel: 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.]
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND [in margin: Ticker Symbol: FWWGX; Lipper
Category: Global Fund; 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.
o Foreign Investment Risk. The Fund invests in foreign securities. 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 asset value will
be affected by changes in currency exchange rates to a greater extent than
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.
[On side panel:
A GLOBAL FUND is a type of mutual fund that may invest in securities traded
anywhere in the world, including the United States.]
<PAGE>
WORLDWIDE GROWTH FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Returns
1998 1997 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ---- ----
9.63% 10.60% 14.00% 20.60% -2.20% 29.90% 1.50% 34.80% 6.70%
Best quarter: 15.28% Quarter ended December 31, 1993
Worst quarter: -16.75% Quarter ended September 30, 1998
Founders Worldwide Growth Fund
Average Annual Total Returns as of 12/31/98
- --------------------------------------------------------------------------
One Year 5 Years Life of Fund*
- --------------------------------------------------------------------------
Worldwide Growth Fund 9.63% 10.26% 13.36%
- --------------------------------------------------------------------------
Morgan Stanley Capital 24.33% 15.68% 10.00%
International World
- --------------------------------------------------------------------------
* Inception date 12/31/89
The Morgan Stanley Capital International World Index is an arithmetical average
of the performance of 1,472 securities listed on the stock exchanges of the
United States, Europe, Canada, Australia, New Zealand and the Far East. Total
return figures assume change in share price and reinvestment of dividends after
deduction of local taxes. The Index is an unmanaged group of securities that
does not reflect the costs of managing a mutual fund. An investor may not invest
directly in this Index.
[Picture of Portfolio Manager]
[On side panel: MICHAEL W. GERDING, SENIOR VICE PRESIDENT OF INVESTMENTS. Mr.
Gerding is a Chartered Financial Analyst who has been part of Founders'
investment department since 1990. Mr. Gerding has served as the lead
portfolio manager for Founders Worldwide Growth Fund since 1990 and for
Founders Passport Fund since its inception in 1993. He also served as
portfolio manager or co-portfolio manager for Founders International Equity
Fund from 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.]
<PAGE>
FOUNDERS GROWTH FUND [in margin: Ticker Symbol: FRGRX; Lipper Category:
Large-Cap/Growth Equity; 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 the Growth Fund are stock market risk and
investment style risk.
o Stock Market Risk. The value of the stocks and other securities owned by the
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 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.
[On side panel:
We generally consider LARGE 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. ]
GROWTH FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Return
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
25.04% 26.60% 16.60% 45.60% -3.40% 25.50% 4.30% 47.40% -10.60% 41.70%
Best quarter: 21.11% Quarter ended December 31, 1998
Worst quarter: -14.83% Quarter ended September 30, 1990
<PAGE>
Founders Growth Fund
Average Annual Total Returns as of 12/31/98
- -------------------------------------------------------------------
One Year 5 Years 10 Years
- -------------------------------------------------------------------
Growth Fund* 25.04% 21.02% 20.30%
- -------------------------------------------------------------------
S&P 500 Index 28.57% 24.05% 19.19%
- -------------------------------------------------------------------
* Inception date 1/5/62
The Standard & Poor's 500 Index measures the performance of the large
capitalization segment of the U.S. market. The Index is a widely recognized
large cap index. The Index accounts for both change in security price and
reinvestment of any dividends. The index is an unmanaged group of securities
that does not reflect the costs of managing a mutual fund. An investor may not
invest directly in this Index.
[Picture of Portfolio Managers]
[On side panel: 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 the 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 February 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 the 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.]
<PAGE>
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 risk than aggressive growth or pure growth
funds.
FOUNDERS GROWTH AND INCOME FUND [in margin: Ticker Symbol: FRMUX, Lipper
Category: Large-Cap/General Equity; 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.
o Stock Market Risk. The value of the stocks and other securities owned by the
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.
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.
<PAGE>
GROWTH AND INCOME FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Return
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
17.78% 19.40% 24.40% 29.10% 0.50% 14.50% -0.30% 28.30% 0.40% 35.60%
Best quarter: 12.68% Quarter ended March 31, 1991
Worst quarter: -11.26% Quarter ended September 30, 1990
Founders Growth and Income Fund
Average Annual Total Returns as of 12/31/98
- -------------------------------------------------------------------
One Year 5 Years 10 Years
- -------------------------------------------------------------------
Growth and Income 17.78% 17.81% 16.31%
Fund*
- -------------------------------------------------------------------
S&P 500 Index 28.57% 24.05% 19.19%
- -------------------------------------------------------------------
Dow Jones Industrial 18.14% 22.29% 18.84%
Average
- -------------------------------------------------------------------
* Inception date 7/5/38
The Standard & Poor's 500 Index measures the performance of the large
capitalization segment of the U.S. market. The Index is a widely recognized
large cap index. The Dow Jones Industrial Average is a price-weighted index that
tracks the performance of 30 major industrial companies traded on the New York
Stock Exchange. Both Indexes accounts for both change in security price and
reinvestment of any dividends. The Indexes are an unmanaged group of securities
that do not reflect the costs of managing a mutual fund. An investor may not
invest directly in these Indexes.
Founders Growth and Income Fund was formerly known as Founders Blue Chip Fund.
[Picture of Portfolio Manager]
[On side panel: THOMAS M. ARRINGTON, VICE PRESIDENT OF INVESTMENTS. Mr.
Arrington is a Chartered Financial Analyst who has been the lead portfolio
manager of Founders Growth and Income Fund since February 1999 and co-portfolio
manager, along with Scott Chapman, of the Founders Growth Fund since December
1998. Mr. Arrington has also served as a portfolio manager for The Dreyfus
Corporation since February 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.]
<PAGE>
FOUNDERS BALANCED FUND [in margin: Ticker Symbol: FRINX; Lipper Category:
Balanced Fund; 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.
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 the
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 tends to
reduce the market value of debt securities, while a decline in interest rates
tends to increase their values.
<PAGE>
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. The Fund invests in foreign securities. 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.
[On side panel:
DIVIDEND is a payment of stock or cash from a company's profits to its
stockholders. 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]
BALANCED FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Return
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
13.96% 16.90% 18.80% 29.40% -1.90% 21.90% 6.00% 22.90% -5.00% 25.30%
Best quarter: 10.06% Quarter ended June 30, 1997
Worst quarter: -7.33% Quarter ended September 30, 1990
Founders Balanced Fund
Average Annual Total Returns as of 12/31/98
- -------------------------------------------------------------------
One 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 15.09% 13.87% 13.32%
Index
- -------------------------------------------------------------------
* Inception date 2/19/63
The Standard & Poor's 500 Index (S&P 500) measures the performance of the large
capitalization segment of the U.S. market. The Index is a widely recognized
large cap index. The Lipper Balanced Fund Index is an average of the performance
of the 30 largest balanced funds tracked by Lipper Analytical Services, and
reflects the expenses of managing a mutual fund. The S&P 500 is an unmanaged
group of securities and does not reflect the costs of managing a mutual fund.
Both Indexes account for change in security price and reinvestment of any
dividends. An investor may not invest directly in these Indexes.
[Picture of Portfolio Manager]
[On side panel: 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 the 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.]
<PAGE>
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.
FOUNDERS GOVERNMENT SECURITIES FUND [in margin: Ticker Symbol: FGVSX; Lipper
Category: U.S. Government Fund; Morningstar 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.
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 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 Prepayment Risk is present primarily with mortgage-backed securities. During
a period of declining interest rates, homeowners 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.
<PAGE>
[On side panel:
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.]
GOVERNMENT SECURITIES FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Return
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.76% 7.90% 2.30% 11.10% -7.50% 9.30% 5.30% 14.90% 4.40% 13.30%
Best quarter: 7.95% Quarter ended June 30, 1989
Worst quarter: -4.40% Quarter ended March 31, 1994
Founders Government Securities Fund
Average Annual Total Returns as of 12/31/98
- -------------------------------------------------------------------
One Year 5 Years 10 Years
- -------------------------------------------------------------------
Government Securities 9.76% 4.49% 6.90%
Fund*
- -------------------------------------------------------------------
Lehman Brothers U.S. 10.03% 7.19% 9.18%
Treasury 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 flower bonds and foreign-targeted
issues, that have at least one year to maturity and an outstanding par value of
at least $100 million. The Index is an unmanaged group of securities that does
not reflect the costs of managing a mutual fund. An investor may not invest
directly in this Index.
[Picture of Portfolio Manager]
[On side panel: MARGARET DANUSER, FIXED-INCOME MANAGER. Ms. Danuser has
been the lead portfolio manager for Founders Government Securities and Money
Market Funds since 1996, and has served as Founders' fixed-income specialist
since 1995. Previously, she was an investment officer with LaSalle Street
Capital Management from 1989 to 1994. Ms. Danuser received a bachelor of
arts degree in international affairs from the University of Colorado, and
pursued MBA studies at Loyola University, Chicago.]
<PAGE>
FOUNDERS MONEY MARKET FUND [in margin: 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.
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 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 the Fund fluctuates
with the credit quality of the issuers of those securities. Credit risk
relates to the ability of the issuer to meet interest or principal payments,
or both, as they become due.
o Inflation Risk is the risk that your investment will not provide enough
income to keep pace with inflation.
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.
[On side panel:
MONEY MARKET is the economic market that exists to provide very short-term
funding to corporations, municipalities, and the U.S. government.]
<PAGE>
MONEY MARKET FUND'S PAST INVESTMENT PERFORMANCE
Bar Chart: Year by Year Total Return
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
4.67% 4.70% 4.50% 5.10% 3.40% 2.20% 2.80% 5.10% 7.30% 8.10%
Best quarter: 2.19% Quarter ended June 30, 1989
Worst quarter: 0.50% Quarter ended June 30, 1993
Founders Money Market Fund
Average Annual Total Returns as of 12/31/98
- -------------------------------------------------------------------
One 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 1-800-525-2440.
[Picture of Portfolio Manager]
[On side panel: MARGARET DANUSER, FIXED-INCOME MANAGER. Ms. Danuser has
been the lead portfolio manager for Founders Government Securities and Money
Market Funds since 1996, and has served as Founders' fixed-income specialist
since 1995. Previously, she was an investment officer with LaSalle Street
Capital Management from 1989 to 1994. Ms. Danuser received a bachelor of
arts degree in international affairs from the University of Colorado, and
pursued MBA studies at Loyola University, Chicago.]
<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 past
year ended December 31, 1998, and are calculated as a percentage of average net
assets.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FUND NAME MANAGEMENT DISTRIBUTION OTHER TOTAL TOTAL ANNUAL
FEE (12B-1) EXPENSES ANNUAL FUND FUND OPERATING
FEES (WITHOUT OPERATING EXPENSES (WITH
WITHOUT REIMBURSEMENT EXPENSES REIMBURSEMENTS/WAIVERS
WAIVERS1 WAIVERS) 2 (WITHOUT AND CREDITS)3
REIMBURSEMENTS/
WAIVERS OR
CREDITS)
<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 0.65% 0.25%(4) 0.59% 1.49% 1.25%
Fund
- -------------------------------------------------------------------------------------------------------
Growth Fund 0.67% 0.25% 0.18% 1.10% 1.08%
- -------------------------------------------------------------------------------------------------------
Growth & Income Fund 0.62% 0.25% 0.23% 1.10% 1.08%
- -------------------------------------------------------------------------------------------------------
International Equity 1.00% 0.25% 0.67%(5) 1.92% 1.80%
Fund
- -------------------------------------------------------------------------------------------------------
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% 1.48% 1.47%
- -------------------------------------------------------------------------------------------------------
<FN>
- --------
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 voluntarily waived certain 12b-1 fees of the Government
Securities Fund. After the voluntary waiver, 12b-1 fees for that Fund were
0.04%. Founders may terminate the waiver at any time upon notice to the
Government Securities Fund.
5 Founders has agreed to voluntarily limit the total expenses of International
Equity Fund, so that the actual Other Expenses paid by the International Equity
Fund was .58% of average net assets. Founders may terminate the waiver at any
time upon notice to the International Equity Fund.
</FN>
</TABLE>
<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 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.
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.
OTHER PORTFOLIO INVESTMENTS AND STRATEGIES
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 in 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
<PAGE>
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 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 indices, 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 indices 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
<PAGE>
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. 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.
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 Fund's 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.
<PAGE>
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.
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
<PAGE>
problems. This could have an impact on the value of the Funds'
investments and the Funds' share prices.
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 handles 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, the growth
specialists from Dreyfus, 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
<PAGE>
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.
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.
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.
<PAGE>
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 CONTRIBUTION IRA. Any adult who has earned income below certain
income limits may contribute up to $2,000 (or 100% of compensation,
whichever is less) to a Roth Contribution IRA per tax year. If your
spouse is not employed, you can contribute up to $4,000 annually to two
Roth Contribution IRAs, as long as no more than $2,000 is contributed to a
single account. Contributions to a Roth IRA are NOT tax-deductible, but
distributions, including earnings, may be withdrawn tax-free after five
years for qualified events such as retirement.
You may elect to have both traditional IRAs and Roth IRAs, provided that your
combined contributions do not exceed the $2,000 (or 100% of compensation,
whichever is less) annual limitation.
o ROTH CONVERSION IRA. Conversions/distributions from traditional IRAs to Roth
Conversion IRAs are taxable at the time of their conversion, but after five
years may then be distributed tax-free for qualified events such as
retirement. Only individuals with incomes below certain thresholds may
convert their traditional IRAs to Roth Conversion IRAs.
o SEP-IRA. Allows employers to make direct contributions to employees' IRAs
with minimal reporting and disclosure requirements.
WE RECOMMEND THAT YOU CONSULT YOUR TAX ADVISER REGARDING THE PARTICULAR TAX
CONSEQUENCES OF THESE IRA OPTIONS.
Each year you will be charged a single $10.00 custodial fee for all IRA accounts
maintained under your Social Security number. This fee will be waived if the
<PAGE>
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.
MINIMUM INITIAL INVESTMENTS
To open a Founders account, please enclose a check payable to "Founders Funds,
Inc." for one of the following amounts:
o $1,000 minimum for most regular accounts.
o $500 minimum for IRA and UGMA/UTMA accounts.
o No minimum if you begin an Automatic Investment Plan of $50 or more per
month.
MINIMUM ADDITIONAL INVESTMENT
o $100 for payments made by mail, TeleTransfer, wire and on-line
o $50 for Automatic Investment Plan payments
o $50 for payroll deduction
<PAGE>
CONDUCTING BUSINESS WITH FOUNDERS
- --------------------------------------------------------------------------------
HOW TO OPEN AN HOW TO ADD TO HOW TO SELL HOW TO
ACCOUNT AN ACCOUNT SHARES EXCHANGE
SHARES
- --------------------------------------------------------------------------------
BY PHONE If you already TeleTransfer We can send If you have
have an allows you to proceeds only telephone
1-800-525-2440 account with make to the exchange
us and have electronic address or privileges,
[Graphic: exchange purchases bank of you may
Telephone] privileges, directly from record. exchange from
you can call a checking or Minimum one fund to
to open an savings redemption - another. The
account in account at $100; $1,000 names and
another Fund your request. minimum for a registrations
by exchange. You may redemption by need to be
The names and establish wire. Phone identical on
registrations TeleTransfer redemption is both accounts.
need to be when your not available
identical on account is on retirement
both accounts. opened, or add accounts and
it later by certain other
Otherwise, you completing an accounts. You
must complete Account may add phone
a New Account Changes Form. redemption
Application We charge no privileges by
and send it in fee for completing an
with your TeleTransfer Account
investment transactions. Changes
check. Form.
- --------------------------------------------------------------------------------
BY MAIL Complete the Make your In a letter, In a letter,
proper check payable please tell include the
Founders Funds application. to "Founders us the number name(s) of
P.O. Box 173655 Make your Funds, Inc." of shares or the account
Denver, CO check payable Enclose the dollars you owner(s), the
80217-3655 to "Founders purchase stub wish to Fund and
Funds, Inc." (from your redeem, the account
If you are using We cannot most recent name(s) of number you
certified or establish new confirmation the account wish to
registered mail accounts with or quarterly owner(s), the exchange
or an overnight third-party statement); if Fund and from, your
delivery service, checks. you do not account Social
send your have one, number, and Security or
correspondence to: write the Fund your Social tax
Founders Funds name and your Security or identification
2930 East Third account number tax number, the
Ave. on the check. identification dollar or
Denver, CO For IRAs, number. All share amount,
80206-5002 please state account and the
the owners need account you
[Graphic: Mailbox] contribution to sign the wish to
year. request exchange
Founders Funds exactly as into. All
does not their names account
normally appear on the owners need
accept account. We to sign the
third-party can send request
checks. proceeds only exactly as
to the their names
address or appear on the
bank of account.
record. Exchange
requests may
be faxed to
us at (303)
394-4021.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HOW TO OPEN AN HOW TO ADD TO HOW TO SELL HOW TO
ACCOUNT AN ACCOUNT SHARES EXCHANGE
SHARES
- --------------------------------------------------------------------------------
IN PERSON Visit the Visit the Visit the Visit the
Founders Founders Founders Founders
Founders Investor Investor Investors Investor Investor
Center Center. Hours Center. Hours Center, 8 Center, 8
Founders are 8 a.m. to are 8 a.m. to a.m. to 5 a.m. to 5
Financial Center 5 p.m. 5 p.m. p.m., p.m.,
2930 East Third Mountain time, Mountain time, Mountain Mountain
Ave. (at Monday through Monday through time, Monday time, Monday
Milwaukee) Friday. Call Friday. Call through through
Denver, CO us at us at Friday. Call Friday. Call
1-800-525-2440 1-800-525-2440 us at us at
[Graphic: Two to make an to make an 1-800-525-2440 1-800-525-2440
hands shaking] appointment appointment to make an to make an
and for and for appointment, appointment,
directions. directions. for for
directions, directions,
and to ask and to ask
whether all whether all
account account
owners need owners need
to be present. to be present.
- --------------------------------------------------------------------------------
BY WIRE Complete and Wire funds to: $6 fee; Not
mail the Investors $1,000 applicable.
[Graphic: Tower proper Fiduciary minimum.
with dollar sign application. Trust Company Monies are
above] Wire funds to: ABA # 101003621 usually
Investors For Credit to received the
Fiduciary Acct # business day
Trust Company 751-842-0 after the
ABA # 101003621 Please date you
For Credit to indicate the sell. Unless
Account # Fund name and otherwise
751-842-0 your account specified, we
Please number, and will deduct
indicate the indicate the the fee from
Fund name and name(s) of the your
your account account redemption
number, and owner(s). proceeds.
indicate the
name(s) of the
account
owner(s).
- --------------------------------------------------------------------------------
THROUGH OUR Download, You may You may You may
WEBSITE complete and purchase redeem shares exchange
www.founders.com mail a signed shares using using our shares using
copy of the our website if website if our website
[Graphic: Person proper you have you have if you have
at computer application. TeleTransfer. TeleTransfer. telephone
terminal] We can only exchange
send proceeds privileges.
to your bank
of record.
Online
redemptions
are not
available on
retirement
accounts and
certain other
accounts.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HOW TO OPEN AN HOW TO ADD TO HOW TO SELL HOW TO
ACCOUNT AN ACCOUNT SHARES EXCHANGE
SHARES
- --------------------------------------------------------------------------------
THROUGH AUTOMATIC Automatic Automatic Systematic Fund to Fund
TRANSACTION PLANS Investment Investment Withdrawal Investment
Plan (AIP) Plan (AIP) Plan permits Plan allows
[Graphic: A allows you to allows you to you to you to
calendar] make make receive a automatically
electronic electronic fixed sum on exchange a
purchases purchases a monthly, fixed dollar
directly from directly from quarterly or amount from
a checking or a checking or annual basis one Fund to
savings savings from accounts purchase
account. The account. The with a value shares in
minimum to minimum to of $5,000 or another Fund.
open an open an more.
account is $50 account is $50 Payments may
per month. per month. be sent
Once Once electronically
established, established, to your bank
AIP purchases AIP purchases or to you in
take place take place check form.
automatically automatically
on on
approximately approximately
the 5th and/or the 5th and/or
20th of the 20th of the
month. month.
We charge no We charge no
fee for AIP. fee for AIP.
- --------------------------------------------------------------------------------
FASTLINE(TM) Follow Follow We can send Follow
instructions instructions proceeds only instructions
1-800-947-FAST provided when provided when to the bank provided when
(3278) you call to you call to of record. you call.
Automated open an add to your Minimum $100 minimum.
telephone account account in a account via redemption -
access service new Fund. TeleTransfer. $100. Phone
redemption is
[Graphic: not available
Telephone] on retirement
accounts and
certain other
accounts. You
may add phone
redemption
privileges by
completing an
Account
Changes Form.
- --------------------------------------------------------------------------------
<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.
<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(TM), 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.
<PAGE>
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
o providing written confirmation of such transactions o tape-recording telephone
instructions
EXCESSIVE TRADING. To maintain competitive expense ratios and to avoid
disrupting the management of each Fund's portfolio, we reserve the right to
suspend or terminate the exchange privilege for any shareholder (including a
shareholder whose account is managed by an adviser) when the total exchanges out
of any one of the Funds exceed four in any 12-month period. We will provide
written notification to any investor whose exchange privilege is being revoked
and will provide an effective date of revocation, which will not be less than 15
calendar days after the notification date.
EFFECTIVE DATE OF TRANSACTIONS. Transaction requests received in good order
prior to the close of the New York Stock Exchange on a given date will be
effective that date. We consider investments to be received in good order when
all required documents and your check or wired funds are received by us or by
certain other agents of the Funds or their distributor. Under certain
circumstances, payment of redemption proceeds may be delayed for up to seven
calendar days to allow for the orderly liquidation of securities. Also, when the
New York Stock Exchange is closed (or when trading is restricted) for any reason
other than its customary weekend or holiday closings, or under any emergency
circumstances, as determined by the Securities and Exchange Commission, we may
suspend redemptions or postpone payments. If you are unable to reach us by
phone, consider sending your order by overnight delivery service.
FAX TRANSMISSIONS. Exchange instructions may be faxed, but we cannot process
redemption requests received by fax.
CERTIFICATES. The Funds do not issue share certificates. If you are selling
shares previously issued in certificate form, you need to include the
certificates along with your redemption/exchange request. If you have lost your
certificates, please call us.
U.S. DOLLARS. Purchases need to be made in U.S. dollars, and checks need to
be drawn on U.S. banks. We cannot accept cash.
RETURNED CHECKS. If your check is returned due to insufficient funds, we will
cancel your purchase, and you will be liable for any losses or fees incurred by
the Fund or its agents. If you are a current shareholder, shares will be
redeemed from other accounts, if needed, to reimburse the Fund.
<PAGE>
CONFIRMATION STATEMENTS. We will send you a confirmation after each transaction,
except in certain retirement accounts and where the only transaction is a
dividend or capital gain reinvestment or an Automatic Investment Plan purchase.
In those cases, your quarterly account statement serves as your confirmation.
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.
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, 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.
FOR MORE INFORMATION ON YOUR ACCOUNT
INVESTOR SERVICES
1-800-525-2440
Our Investor Services Representatives are available to assist you. For your
protection, we record calls to Investor Services.
<PAGE>
24-HOUR ACCOUNT INFORMATION
o BY PHONE: 1-800-947-FAST (3278) FASTLINE, our automated telephone service,
enables you to access account information, conduct exchanges and purchases
and request duplicate statements and tax forms 24 hours a day with a
Touch-tone phone.
o BY ONLINE COMPUTER SERVICES: By visiting Founders InvestorSITE(R) 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 Electronically."
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.
o TELEPHONE/ONLINE EXCHANGES. Allows you to exchange money between identically
registered accounts.
<PAGE>
o CHECKWRITING
o Available on Government Securities and Money Market Funds.
o May be established with a minimum account balance of $1,000.
o There is no fee for this service.
o Minimum amount per check: $500
o Maximum amount per check: $250,000
o DIVIDEND AND LONG-TERM CAPITAL GAIN DISTRIBUTION OPTIONS. Either or both may
be paid in cash or reinvested. The payment method for short-term capital gain
distributions is the same as for dividends.
o SYSTEMATIC WITHDRAWAL PLAN. Permits you to receive a fixed sum on a monthly,
quarterly or annual basis from accounts with a value of $5,000 or more.
Payments may be sent electronically to your bank or to you in check form.
o FUND-TO-FUND INVESTMENT PLAN. Allows you to automatically exchange a fixed
dollar amount each month from one Fund to purchase shares in another Fund.
o DISTRIBUTION PURCHASE PROGRAM. Permits you to have capital gain distributions
and/or dividends from one Fund automatically reinvested in another Fund
account having a balance of at least $1,000 ($500 for IRAs or UGMA/UTMAs).
o PAYROLL DEDUCTION. Allows you to make automatic purchases of at least
$50 per pay period through payroll deduction.
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
<PAGE>
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.
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.
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
<PAGE>
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
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
participant 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 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 5 years (or, for the period of a Fund's
operations, if less than 5 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
Years Ended December 31
---------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 14.0% 16.9% 18.8% 29.4% (1.9%)
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%
# Distributions in excess of net investment income for the year ended December
31, 1998 aggregated less than $0.01 on a per share basis.
<PAGE>
FOUNDERS DISCOVERY FUND
Years Ended December 31
---------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 14.2% 12.0% 21.2% 31.3% (7.8%)
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%
<PAGE>
FOUNDERS FRONTIER FUND
Years Ended December 31
---------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 $25.20 $27.99 $32.34 $31.08 $26.50
===================================================
TOTAL RETURN 5.4% 6.2% 14.3% 37.0% (2.8%)
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%
<PAGE>
FOUNDERS GOVERNMENT SECURITIES FUND
Years Ended December 31
---------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 9.8% 7.9% 2.3% 11.1% (7.5%)
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%
* In the absence of voluntary expense reimbursements and waivers from Founders,
the Ratios of Net Expenses to Average Net Assets would have been 1.46% (1998),
1.44% (1997), 1.46% (1996), 1.45% (1995), and 1.51% (1994). the Ratios of Gross
Expenses to Average Net Assets would have been 1.49% (1998), 1.49% (1997), 1.49%
(1996), and the Ratios of Net Investment Income to Average Net Assets would have
been 4.25% (1998), 4.81% (1997), 4.86% (1996), 4.77% (1995), and 5.35% (1994).
<PAGE>
FOUNDERS GROWTH FUND
Years Ended December 31
-----------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 25.0% 26.6% 16.6% 45.6% (3.4%)
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%
# Distributions in excess of net investment income for the year ended December
31, 1998 aggregated less than $0.01 on a per share basis.
<PAGE>
FOUNDERS GROWTH AND INCOME FUND
Years Ended December 31
---------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 17.8% 19.4% 24.4% 29.1% 0.5%
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%
# Distributions in excess of net investment income for the year ended December
31, 1998 aggregated less than $0.01 on a per share basis.
<PAGE>
FOUNDERS INTERNATIONAL EQUITY FUND
Years Ended December 31 Period of
------------------------------- --------
12/29/95
(inception)-
1998 1997 1996 12/31/95
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 17.0% 16.1% 18.6% 0.0%
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 * In the absence of voluntary
expense reimbursements and waivers 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).
<PAGE>
FOUNDERS MID-CAP GROWTH FUND
Years Ended December 31
---------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 (1.7%) 16.4% 15.3% 25.7% (4.9%)
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%
<PAGE>
FOUNDERS MONEY MARKET FUND
Years Ended December 31
---------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 4.7% 4.7% 4.5% 5.1% 3.4%
RATIOS/SUPPLRMENTAL 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%
<PAGE>
FOUNDERS PASSPORT FUND
Years Ended December 31
---------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 12.5% 1.7% 20.1% 24.4% (10.4%)
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%
<PAGE>
FOUNDERS WORLDWIDE GROWTH FUND
Years Ended December 31
---------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE DATA
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 9.6% 10.6% 14.0% 20.6% (2.2%)
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%
# Distributions in excess of net investment income for the year ended December
31, 1998 aggregated less than $0.01 on a per share basis.
<PAGE>
UNDERSTANDING FINANCIAL HIGHLIGHTS
The Financial Highlights tables above 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.
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 Semi Annual 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 Semi-Annual Reports and the SAI:
-----------------------------------------------------------------------------
By Telephone Call 1-800-525-2440
-----------------------------------------------------------------------------
In Person Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
-----------------------------------------------------------------------------
By Mail P.O. Box 173655
Denver, Colorado 80217-3655
-----------------------------------------------------------------------------
By E-Mail Send your request to comments
@founders.com
-----------------------------------------------------------------------------
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.
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 Discovery Fund
Founders Passport 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 and in more detail than in the Prospectus. It is intended to
<PAGE>
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.........................................................69
INVESTMENT RESTRICTIONS.....................................................69
FUNDAMENTAL INVESTMENT RESTRICTIONS.......................................69
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS...................................70
INVESTMENT STRATEGIES AND RISKS.............................................72
TEMPORARY DEFENSIVE INVESTMENTS...........................................72
PORTFOLIO TURNOVER........................................................72
HEDGING TECHNIQUES........................................................73
OPTIONS ON STOCK INDICES AND STOCKS.....................................73
FUTURES CONTRACTS.......................................................76
OPTIONS ON FUTURES CONTRACTS............................................79
OPTIONS ON FOREIGN CURRENCIES...........................................80
RISK FACTORS OF INVESTING IN FUTURES AND OPTIONS........................81
FOREIGN SECURITIES AND ADRS...............................................81
FORWARD CONTRACTS FOR PURCHASE OR SALE OF FOREIGN CURRENCIES..............83
ILLIQUID SECURITIES.......................................................86
RULE 144A SECURITIES......................................................86
FIXED-INCOME SECURITIES...................................................87
FOREIGN BANK OBLIGATIONS..................................................89
REPURCHASE AGREEMENTS.....................................................89
CONVERTIBLE SECURITIES....................................................90
GOVERNMENT SECURITIES.....................................................90
MORTGAGE-RELATED SECURITIES...............................................91
MORTGAGE PASS-THROUGH SECURITIES........................................91
COLLATERALIZED MORTGAGE OBLIGATIONS.....................................92
FHLMC CMOS..............................................................93
RISKS OF MORTGAGE-RELATED SECURITIES....................................94
COMMERCIAL PAPER AND OTHER CASH SECURITIES................................95
WHEN-ISSUED SECURITIES....................................................95
BORROWING.................................................................95
SECURITIES OF OTHER INVESTMENT COMPANIES..................................96
DIRECTORS AND OFFICERS......................................................96
DIRECTORS.................................................................96
COMMITTEES................................................................98
DIRECTOR COMPENSATION.....................................................99
OFFICERS.................................................................100
INVESTMENT ADVISER, DISTRIBUTOR AND OTHER SERVICE PROVIDERS................103
INVESTMENT ADVISER.......................................................103
DISTRIBUTOR..............................................................107
DISTRIBUTION PLANS.......................................................107
<PAGE>
SHAREHOLDER SERVICING....................................................109
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT..................109
SHAREHOLDER SERVICES AGREEMENT.........................................110
TRANSFER AGENCY AGREEMENT..............................................111
CUSTODIAN..............................................................111
BROKERAGE ALLOCATION.......................................................111
CAPITAL STOCK..............................................................116
PRICING OF SHARES..........................................................119
PURCHASES AND REDEMPTIONS..................................................121
TRANSACTIONS THROUGH THIRD PARTIES.......................................121
REDEMPTIONS..............................................................121
DIVIDENDS, DISTRIBUTION AND TAXES..........................................122
YIELD AND PERFORMANCE INFORMATION..........................................127
ADDITIONAL INFORMATION.....................................................130
CODE OF ETHICS...........................................................130
INDEPENDENT ACCOUNTANTS..................................................131
REGISTRATION STATEMENT...................................................131
APPENDIX...................................................................132
RATINGS OF CORPORATE BONDS...............................................132
RATINGS OF COMMERCIAL PAPER..............................................134
RATINGS OF PREFERRED STOCK...............................................135
<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.
<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.
<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.
<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
within Founders' control. Balanced Fund does not anticipate any significant
differences between the portfolio turnover rates of the common stock portion of
<PAGE>
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 time depending upon Founders'
evaluation of market, economic and monetary conditions.
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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 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
<PAGE>
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 reais.
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.
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
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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.
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,
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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
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.
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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 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,
<PAGE>
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 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.
RULE 144A SECURITIES
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend on an efficient institutional market in which such
unregistered securities can readily be resold or on an issuer's ability to honor
a demand for repayment. Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain institutions is not
dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. 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
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begin to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates that are secured by the pledge of a pool
of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs, payments of
principal and interest on the CMOs are made semiannually, as opposed to monthly.
The amount of principal payable on each semiannual payment date is determined in
accordance with FHLMC's mandatory sinking fund schedule, that, in turn, is equal
to approximately 100% of FHA prepayment experience applied to the mortgage
collateral pool. All sinking fund payments in the CMOs are allocated to the
retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
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.
<PAGE>
Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, which may adversely affect the investment's average life
and yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Accordingly, amounts available for reinvestment by a Fund are likely
to be greater during a period of declining interest rates and, as a result,
likely to be reinvested at lower interest rates than during a period of rising
interest rates. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and a fund invested in such securities wishing to sell them may find
it difficult to find a buyer, which may in turn decrease the price at which they
may be sold. In addition, as a result of the uncertainty of cash flows of lower
tranche CMOs, the market prices of and yield on those tranches generally are
more volatile.
Credit risk reflects the risk that a Fund may not receive all or part of
its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. With respect to GNMA
certificates, although GNMA guarantees timely payment even if homeowners delay
or default, tracking the "pass-through" payments may, at times, be difficult.
The average life of CMOs is determined using mathematical models that
incorporate prepayment assumptions and other factors that involve estimates of
future economic and market conditions. These estimates may vary from actual
future results, particularly during periods of extreme market volatility. In
addition, under certain market conditions, such of those that developed in 1994,
the average weighted life of mortgage derivative securities may not accurately
reflect the price volatility of such securities. For example, in periods of
supply and demand imbalances in the market for such securities and/or in periods
of sharp interest rate movements, the prices of mortgage derivative 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
<PAGE>
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.
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.
<PAGE>
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.
- --------------------------------------------------------------------------------
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 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.
<PAGE>
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
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
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 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,
<PAGE>
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.
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.
<PAGE>
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 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 directors1
------------------------------------------------- --------------------------
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.
<PAGE>
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, 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.
<PAGE>
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.
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
<PAGE>
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
(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.
<PAGE>
- --------------------------------------------------------------------------------
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 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 $334 billion in assets as of September 30, 1998. As of that date
various subsidiaries of MBC provided non-investment services, such as custodial
or administration services, for approximately $1.642 trillion in assets.
Under the investment advisory agreement between the Company, on behalf of
each Fund, and Founders, Founders furnishes investment management and
administrative services to the Funds, subject to the overall supervision of the
Board of Directors of the Company. In addition, Founders provides office space
and facilities for the Funds and pays the salaries, fees and expenses of all
Founders officers and other employees connected with the operation of the
Company. In addition, Founders pays the fees charged by the Company's
distributor, Premier Mutual Fund Services, Inc. The Funds compensate Founders
for its services by the payment of fees computed daily and paid monthly as
follows:
<PAGE>
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%
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%
<PAGE>
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 -
$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:
<PAGE>
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
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 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
<PAGE>
W. Gerding, Senior Vice President; Brian F. Kelly, Vice President; Paul A.
LaRocco, Vice President; Douglas A. Loeffler, Vice President; John B. Mezger,
Vice President and Director of Private Advisory Services; 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 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.
<PAGE>
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:
% 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
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.
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.*
* These amounts include amounts paid by Old Founders which acted as the Funds'
distributor during the first quarter of 1998.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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.
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.
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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.
<PAGE>
The determination of what may constitute best execution in a securities
transaction involves a number of judgmental considerations, including, without
limitation, the overall direct net economic result to a Fund (involving both
price paid or received and any commissions and other costs), the efficiency with
which the transaction is effected, the ability to effect the transaction at all
where a large block is involved, the availability of the broker to stand ready
to execute possibly difficult transactions for the Fund in the future, and the
financial strength and stability of the broker.
Because selection of executing brokers is not based solely on net
commissions, a Fund may pay an executing broker a commission higher than that
which might have been charged by another broker for that transaction. Founders
will not knowingly pay higher mark-ups on principal transactions to brokerage
firms as consideration for receipt of research services or products. While it is
not practicable for the Company to solicit competitive bids for commissions on
each portfolio transaction, consideration is regularly given to available
information concerning the level of commissions charged in comparable
transactions by various brokers. Transactions in over the counter securities are
normally placed with principal market makers, except in circumstances where, in
the opinion of Founders, better prices and execution are available elsewhere.
Subject to the policy of seeking best execution of orders at the most
favorable prices, a Fund may execute transactions with brokerage firms that
provide research services and products to Founders. The phrase "research
services and products" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, the availability
of securities or purchasers or sellers of securities, the furnishing of analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts, and obtaining
products such as third-party publications, computer and electronic access
equipment, software programs, and other information and accessories that may
assist Founders in furtherance of its investment advisory responsibilities to
the Company. Such services and products permit Founders to supplement its own
research and analysis activities, and provide it with information from
individuals and research staffs of many securities firms. Generally, it is not
possible to place a dollar value on the benefits derived from specific research
services and products. Founders may receive a benefit from these research
services and products that is not passed on to a Fund in the form of a direct
monetary benefit. If Founders determines that any research product or service
has a mixed use, such that it also serves functions that do not assist in the
investment decision-making process, Founders will allocate in good faith the
cost of such service or product accordingly. The portion of the product or
service that Founders determines will assist it in the investment
decision-making process may be paid for in brokerage commission dollars. The
non-research part must be paid for in 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
<PAGE>
selected broker-dealer for research provided. However, Founders maintains an
internal allocation procedure to identify those broker-dealers that have
provided it with research and endeavors to direct sufficient commissions to them
to ensure continued receipt of research Founders believes is useful.
Research services and products may be useful to Founders in providing
investment advice to any of the Funds or clients it advises. Likewise,
information made available to Founders from brokers effecting securities
transactions for such other Funds and clients may be utilized on behalf of
another Fund. Thus, there may be no correlation between the amount of brokerage
commissions generated by a particular Fund or client and the indirect benefits
received by that Fund or client.
As described in greater detail below, a significant proportion of the
total commissions paid by the Funds for portfolio transactions during the year
ended December 31, 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 Founders effected for certain of its
private account clients during the period 1992 through mid-1995. The Commission
has not yet made any determination as to whether any violations have occurred
and, if so, whether any action is appropriate. Founders currently is engaged in
discussions with the staff concerning the staff's possible recommendation 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
<PAGE>
brokers and to other entities a fee for distribution, recordkeeping, accounting,
and shareholder-related services provided to investors purchasing shares of a
12b-1 Fund through various sales and/or shareholder servicing programs. These
fees are computed based on the average daily account balances of investments in
each 12b-1 Fund made by the entity on behalf of its customers. The directors of
the 12b-1 Funds have further authorized Founders to place a portion of the
Funds' brokerage transactions with certain of these entities which are
broker-dealers if Founders reasonably believes that the entity is able to
provide the best execution of orders at the most favorable prices. Commissions
earned by the entity from executing portfolio transactions on behalf of a
specific 12b-1 Fund may be credited against the fee charged to that Fund, on a
basis that has resulted from negotiations between Founders and the entity. Any
12b-1 fees that are not expended as a result of the application of any such
credit will not be used either to pay or to reimburse Premier for other
distribution expenses. These directed brokerage arrangements have no adverse
effect either on the level of brokerage commissions paid by the Funds or on any
Fund's expenses.
In addition, registered broker-dealers, third-party administrators of
tax-qualified retirement plans, and other entities that establish omnibus
investor accounts with the Funds may provide sub-transfer agency, recordkeeping,
or similar services to participants in the omnibus accounts. These services
reduce or eliminate the need for identical services to be provided on behalf of
the participants by Founders, the Funds' shareholder servicing agent, and/or by
IFTC, the Funds' transfer agent. In such instances, Founders is authorized to
pay the entity a sub-transfer agency or recordkeeping fee based on the number of
participants in the entity's omnibus account, from the shareholder servicing
fees applicable to each participant's account that are paid to Founders by the
Funds. If commissions are earned by a registered broker-dealer from executing
portfolio transactions on behalf of a specific Fund, the commissions may be
credited by the broker-dealer against the sub-transfer agency or recordkeeping
fee payable with respect to that Fund, on a basis that will have been negotiated
between the broker-dealer and Founders. In such instances, Founders will apply
any such credits to the shareholder servicing fee that it receives from the
applicable Fund. Thus, the Fund will pay a shareholder servicing fee to
Founders, and Founders will pay a sub-transfer agency or recordkeeping fee to
the broker-dealer only to the extent that the fee is not off-set by brokerage
credits. In the event that the shareholder servicing fee paid by a Fund to
Founders with respect to participants in omnibus accounts in that Fund exceeds
the sub-transfer agent or recordkeeping fee applicable to that Fund, Founders
may carry forward the excess and apply it to future sub-transfer agent or
recordkeeping fees applicable to that Fund that are charged by the
broker-dealer. Such a carry-forward may not go beyond a calendar year.
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.
<PAGE>
For the fiscal years ended 1998, 1997 and 1996, respectively, total
brokerage commissions paid by the Funds amounted to the following:
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.
<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 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%
<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)
----------------------------------------------------------------------------
<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.
<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 Funds' securities.
<PAGE>
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
<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.
<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
share received equal to the net asset value of a share of that Fund on the
reinvestment date.
<PAGE>
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.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
<PAGE>
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.
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
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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.
The Company currently does not advertise the yield of the Money Market Fund, and
provides the total return of such Fund only in the Prospectus.
Quotations of yield for will be based on all investment income per share
earned during a particular 30-day period (including dividends and interest),
less expenses accrued during the period ("net investment income"), and are
computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
YIELD = 2[(1 + a-b)^6 - 1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
The yields of the Balanced and Government Securities Funds for the 30 days
ended December 31, 1998 were 2.27% and 4.55%, respectively.
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
<PAGE>
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.
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
<PAGE>
Capital International, Wilshire Associates, Financial Times Stock Exchange, New
York Stock Exchange, the Nikkei Stock Average, and the Deutscher Aktienindex.
Performance information for any Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objectives and policies, characteristics and
quality of the portfolios and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.
In conjunction with performance reports, comparative data between the
Funds' performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
Rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service made by independent sources
may be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Funds. Sources of Fund performance information and articles about the Funds
include, but are not limited to, the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
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
<PAGE>
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
United Mutual Fund Selector
USA Today
Wall Street Journal
Weisenberger Investment Companies Service
Working Woman
Worth
- --------------------------------------------------------------------------------
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
<PAGE>
Directors. The Company's Board of Directors determines whether a violation of
the code of ethics has occurred and, if so, the sanctions, if any, deemed
appropriate.
Violations or apparent violations of the code of ethics by an officer,
director or employee of Founders who is not also an officer, director or
employee of the Company are reported to the president of Founders, Founders'
Legal Department or to Founders' legal counsel. Founders' president, in
conjunction with the Legal Department, shall determine whether a violation has
occurred and, if so, will impose such sanctions, if any, as he or she may deem
appropriate. These determinations are reviewed by the Company's Board of
Directors.
Sanctions may include verbal or written warnings, a letter of censure,
suspension, termination of employment, disgorgement of profits from improper
transactions, or other sanctions. The code of ethics requires maintenance of the
highest standards of integrity and conduct. In engaging in personal business
activities, personnel of the Company and of Founders must act in the best
interests of the Company and its shareholders. The Company's shareholders may
obtain a copy of the code of ethics without charge by calling Founders at
1-800-525-2440.
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.
<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.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
<PAGE>
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 adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
<PAGE>
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.
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.
<PAGE>
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:
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.
<PAGE>
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B -- Preferred stocks rated BB and B are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. BB indicates the lowest degree of speculation and B a higher
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
PLUS (+) OR MINUS (-): To provide more detailed indications of preferred
stock quality, the ratings from AA to B may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
<PAGE>
PART C: OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles of Incorporation of Founders Funds, Inc.,
dated June 19, 1987.1
(2) Articles Supplementary to the Articles of Incorporation,
filed November 25, 1987.1
(3) Articles Supplementary to the Articles of Incorporation, filed
February 25, 1988.1
(4) Articles Supplementary to the Articles of Incorporation, filed
December 12, 1989.1
(5) Articles Supplementary to the Articles of Incorporation, filed
May 3, 1990.1
(6) Articles Supplementary to the Articles of Incorporation, filed
September 22, 1993.1
(7) Articles Supplementary to the Articles of Incorporation, filed
December 27, 1995.1
(8) Articles Supplementary to the Articles of Incorporation,
filed May 20,1996.2
(9) Articles Supplementary to the Articles of Incorporation, filed
October 21, 1996.2
(10) Articles Supplementary to the Articles of Incorporation, filed
April 9, 1997.3
(b) By-Laws of Founders Funds, Inc., as amended November 18, 1997.
(c) Not applicable.
(d) Investment Advisory Agreement between Founders
Funds, Inc. and Founders Asset Management LLC,
dated April 1, 1998.
(e) (1) Underwriting Agreement between Founders Funds, Inc. and
Premier Mutual Fund Services, Inc., dated April 1, 1998.
<PAGE>
(2) Form of Distribution and Shareholder Support Agreement
for Founders Funds, Inc.
(3) Form of Distribution and Shareholder Support Agreement
for Founders Funds, Inc. (For use with Recordkeeping and
Other Services Agreements).
(f) Not applicable.
(g) (1) Custody Agreement between Investors Fiduciary Trust
Company and Founders Funds, Inc., dated January 3, 1994.2
(2) Proposed Fee Schedule effective August 1996.2
(h) (1) Shareholder Services Agreement between Founders
Funds, Inc. and Founders Asset Management LLC,
dated April 1, 1998.
(2) Fund Accounting and Administrative Services Agreement
between Founders Funds, Inc. and Founders Asset
Management LLC, dated April 1, 1998.
(i) Opinion and consent of Moye, Giles, O'Keefe,
Vermeire & Gorrell3
(j) Consent of Independent Accountants.
(k) Not applicable.
(l) Not applicable.
(m) Founders Funds, Inc. Rule 12b-1 Distribution Plan, dated May
29, 1998.
(n) (1) Financial Data Schedule for the year ended December 31,
1998 for Founders Balanced Fund.
(2) Financial Data Schedule for the year ended December 31, 1998
for Founders Blue Chip Fund.
(3) Financial Data Schedule for the year ended December 31, 1998
for Founders Discovery Fund.
(4) Financial Data Schedule for the year ended December 31, 1998
for Founders Frontier Fund.
<PAGE>
(5) Financial Data Schedule for the year ended December 31, 1998
for Founders Government Securities Fund.
(6) Financial Data Schedule for the year ended December 31, 1998
for Founders Growth Fund.
(7) Financial Data Schedule for the year ended December 31, 1998
for Founders International Equity Fund.
(8) Financial Data Schedule for the year ended December 31, 1998
for Founders Money Market Fund.
(9) Financial Data Schedule for the year ended December 31, 1998
for Founders Passport Fund.
(10) Financial Data Schedule for the year ended December 31, 1998
for Founders Special Fund.
(11) Financial Data Schedule for the year ended December 31, 1998
for Founders Worldwide Growth Fund.
(o) Not applicable.
(p) Code of Ethics for Founders Funds, Inc. and Founders
Asset Management LLC, as amended August 14, 1998.
- --------------
1 Filed previously on EDGAR with Post-Effective Amendment No. 60 to the
Registration Statement on April 29, 1996 and incorporated herein by reference.
2 Filed previously on EDGAR with Post-Effective Amendment No. 62 to the
Registration Statement on February 24, 1997 and incorporated herein by
reference.
3 Filed previously on EDGAR with Post-Effective Amendment No. 63 to the
Registration Statement on February 27, 1998 and incorporated herein by
reference.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
Registrant knows of no person or group of persons directly or indirectly
controlled by or under common control with the Registrant within the
meaning of this item.
Item 25. Indemnification
Indemnification provisions for officers, directors, employees, and agents
of the Registrant are set forth in Article XII of the Bylaws of the
Registrant, which Bylaws were filed on EDGAR as Exhibit 2 to the
Registrant's Post-Effective Amendment No. 63. Section 12.01 of Article XII
of the Bylaws provides that the Registrant shall indemnify each person who
is or was a director, officer, employee or agent of the Registrant against
expenses, judgments, fines and amounts paid in settlement to the full
extent permitted by Section 2-418 of the General Corporation Law of
Maryland or any other applicable law. However, notwithstanding any
provisions in Article XII to the contrary, no officer, director, employee,
and/or agent of the Registrant shall be indemnified by the Registrant in
violation of sections 17(h) and (i) of the Investment Company Act of 1940,
as amended.
Pursuant to the Underwriting Agreement between the Registrant and Premier
Mutual Fund Services, Inc. ("Premier"), with certain exceptions, the
Registrant has agreed to indemnify Premier against any liabilities and
expenses arising out of any omissions of material facts or untrue
statements made by the Registrant in its prospectus or registration
statement.
Item 26. Business and Other Connections of the Investment Adviser
The management board of Founders Asset Management LLC ("Founders"),
investment adviser to the Registrant, consists of:
<TABLE>
<CAPTION>
Name Other Businesses Position Held Dates
- ---- ---------------- ------------- -----
<S> <C> <C> <C>
CHRISTOPHER M. CONDRON TBCAM Holdings, Inc.(1) President 10/97 - 06/98
Chairman Chairman 10/97 - 06/98
The Boston Company Asset President 01/98 - 06/98
Management, LLC(1) Chairman 01/98 - 06/98
The Boston Company Asset President 09/95 - 01/98
Management, Inc.(1) Chairman 04/95 - 01/98
Chief Executive 04/95 - 04/97
Officer
Pareto Partners Partner 11/95 - 05/97
271 Regent Street Representative
London, England W1R 8PP
Franklin Portfolio Director 01/97 - Present
Holdings, Inc.(1)
<PAGE>
Franklin Portfolio Trustee 09/95 - 01/97
Associates Trust1
Certus Asset Advisors Director 06/95 - Present
Corp.(2)
Mellon Capital Management Director 05/95 - Present
Corporation(3)
Mellon Bond Associates, Executive 01/98 - Present
LLP(4) Committee Member
Mellon Bond Associates4 Trustee 05/95 - 01/98
Mellon Equity Associates, Executive 01/98 - Present
LLP(4) Committee Member
Mellon Equity Associates(4)Trustee 05/95 - 01/98
Boston Safe Advisors, President 05/95 - Present
Inc.(1) Director 05/95 - Present
Access Capital Strategies Director 05/95 - 01/97
Corp.
124 Mount Auburn Street
Suite 200 North
Cambridge, MA 02138
Mellon Bank, N.A.(4) Chief Operating 03/98 - Present
Officer
President 03/98 - Present
Vice Chairman 11/94 - Present
Mellon Bank Corporation(4) Chief Operating 01/99 - Present
Officer
President 01/99 - Present
Director 01/98 - Present
Vice Chairman 11/94 - 01/99
The Boston Company, Inc.(1)Vice Chairman 01/94 - Present
Director 05/93 - Present
Laurel Capital Advisors, Executive 01/98 - Present
LLP(4) Committee Member
Laurel Capital Advisors(4) Trustee 10/93 - 01/98
Boston Safe Deposit and President 09/89 - 06/96
Trust Company(1) Director 05/93 - Present
The Boston Company President 06/89 - Present
Financial Strategies, Director 06/89 - Present
Inc.(1)
The Boston Company President 06/89 - 01/97
Financial Strategies Director 06/89 - 01/97
Group, Inc.(1)
The Dreyfus Corporation(5) Chairman 01/99 - Present
Chief Executive
Officer 08/96 - Present
Chief Operating
Officer 11/95 - Present
President 11/95 - Present
Director 11/95 - Present
STEPHEN E. CANTER Dreyfus Investment Chairman of the 01/97 - Present
Advisors, Inc.(5) Board
Director 05/95 - Present
President 05/95 - Present
The Dreyfus Trust Company Director 06/95 - Present
<PAGE>
Founders Asset Management Acting Chief 07/98 - 12/98
LLC(8) Executive Officer
The Dreyfus Corporation(5) President 01/99 - Present
Chief Operating
Officer 01/99 - Present
Chief Investment
Officer 05/95 - Present
Vice Chairman 05/95 - Present
Director 05/95 - Present
SCOTT A. CHAPMAN Founders Asset Management Vice President - 12/98 - Present
LLC(8) Investments
Research Director 02/99 - Present
HighMark Capital Vice President and 12/93 - 11/98
Management, Inc. Director of Growth
San Francisco, CA Strategy
GREGORY P. CONTILLO Founders Asset Management Senior Vice 04/98 - Present
LLC(8) President and
Chief Marketing
Officer
Acting Head of 07/98 - Present
Brokerage
Operations
Senior Vice 12/97 - 04/98
President -
Institutional
Marketing
Founders Asset Senior Vice 05/96 - 04/98
Management, Inc.(8) President -
Institutional
Marketing
THOMAS F. EGGERS Dreyfus Service Executive Vice 04/96 - Present
Corporation(5) President
Director 09/96 - Present
The Dreyfus Corporation(5) Vice Chairman - 01/99 - Present
Institutional
Director 01/99 - Present
LAWRENCE S. KASH Dreyfus Investment Director 04/97 - Present
Advisors, Inc.(5)
Dreyfus Brokerage Chairman 11/97 - Present
Services, Inc. Chief Executive 11/97 - Present
401 North Maple Ave. Officer
Beverly Hills, CA
Dreyfus Service Director 01/95 - Present
Corporation(5) President 09/96 - Present
Dreyfus Precious Metals, Director 03/96 - 12/98
Inc.(6) President 10/96 - 12/98
Dreyfus Service Director 12/94 - Present
Organization, Inc.(5) President 01/97 - Present
Executive Vice
President 12/94 - 01/97
Seven Six Seven Agency, Director 01/97 - Present
Inc.(5)
Dreyfus Insurance Agency Chairman 05/97 - Present
of Massachusetts, Inc.(7) President 05/97 - Present
Director 05/97 - Present
The Dreyfus Trust Chairman 01/97 - Present
Company(6) President 02/97 - Present
Chief Executive 02/97 - Present
Officer
Director 12/94 - Present
<PAGE>
The Dreyfus Consumer Chairman 05/97 - Present
Credit Corporation(5) President 05/97 - Present
Director 12/94 - Present
The Boston Company Chairman 12/95 - Present
Advisors, Inc. Chief Executive 12/95 - Present
Wilmington, DE Officer
President 12/95 - Present
The Boston Company, Inc.(1)Director 05/93 - Present
President 05/93 - Present
Mellon Bank, N.A.(4) Executive Vice 02/92 - Present
President
Laurel Capital Advisors, President 12/91 - Present
LLP(4) Executive
Committee Member 12/91 - Present
Boston Group Holdings, Director 05/93 - Present
Inc.(1) President 05/93 - Present
The Dreyfus Corporation(5) Vice Chairman 09/94 - Present
Director 01/95 - Present
RICHARD W. SABO Founders Asset Management President and 12/98 - Present
LLC(8) Chief Executive
Officer
The Dreyfus Corporation(5) Director 12/98 - Present
Prudential Securities Senior Vice 07/91 - 11/98
New York, NY President 07/91 - 11/98
Regional Director
<FN>
---------------------------
The address of the businesses so indicated are:
1 One Boston Place, Boston, Massachusetts 02108
2 One Bush Street, Suite 450, San Francisco, California 94104
3 595 Market Street, Suite 3000, San Francisco, California 94105
4 One Mellon Bank Center, Pittsburgh, Pennsylvania 15258
5 200 Park Avenue, New York, New York 10166
6 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144
7 53 State Street, Boston, Massachusetts 02109
8 2930 East Third Avenue, Denver, Colorado 80206
</FN>
</TABLE>
Information concerning Founders and its officers can be found under "How
the Funds are Managed" in the Prospectus and "Investment Adviser,
Distributor and Other Service Providers" in the Statement of Additional
Information. Prior to joining Founders Asset Management LLC, Mr. Mezger
was Vice President - Institutional Services with Janus Capital
Corporation.
<PAGE>
Item 27. Principal Underwriters
(a) Premier Mutual Fund Services, Inc., the Registrant's principal
underwriter, also serves as principal underwriter for the following
investment companies:
1) Comstock Partners Funds, Inc.
2) Dreyfus A Bonds Plus, Inc.
3) Dreyfus Appreciation Fund, Inc.
4) Dreyfus Asset Allocation Fund, Inc.
5) Dreyfus Balanced Fund, Inc.
6) Dreyfus BASIC GNMA Fund
7) Dreyfus BASIC Money Market Fund, Inc.
8) Dreyfus BASIC Municipal Fund, Inc.
9) Dreyfus BASIC U.S. Government Money Market Fund
10) Dreyfus California Intermediate Municipal Bond Fund
11) Dreyfus California Tax Exempt Bond Fund, Inc.
12) Dreyfus California Tax Exempt Money Market Fund
13) Dreyfus Cash Management
14) Dreyfus Cash Management Plus, Inc.
15) Dreyfus Connecticut Intermediate Municipal Bond Fund
16) Dreyfus Connecticut Municipal Money Market Fund, Inc.
17) Dreyfus Florida Intermediate Municipal Bond Fund
18) Dreyfus Florida Municipal Money Market Fund
19) The Dreyfus Fund Incorporated
20) Dreyfus Global Bond Fund, Inc.
21) Dreyfus Global Growth Fund
22) Dreyfus GNMA Fund, Inc.
23) Dreyfus Government Cash Management
24) Dreyfus Growth and Income Fund, Inc.
25) Dreyfus Growth and Value Funds, Inc.
26) Dreyfus Growth Opportunity Fund, Inc.
27) Dreyfus Income Funds
28) Dreyfus Institutional Money Market Fund
29) Dreyfus Institutional Short Term Treasury Fund
30) Dreyfus Insured Municipal Bond Fund, Inc.
31) Dreyfus Intermediate Municipal Bond Fund, Inc.
32) Dreyfus International Funds, Inc.
33) Dreyfus Investment Grade Bond Funds, Inc.
34) The Dreyfus/Laurel Funds, Inc.
35) The Dreyfus/Laurel Funds Trust
36) The Dreyfus/Laurel Tax-Free Municipal Funds
37) Dreyfus LifeTime Portfolios, Inc.
38) Dreyfus Liquid Assets, Inc.
39) Dreyfus Massachusetts Intermediate Municipal Bond Fund
<PAGE>
40) Dreyfus Massachusetts Municipal Money Market Fund
41) Dreyfus Massachusetts Tax Exempt Bond Fund
42) Dreyfus MidCap Index Fund
43) Dreyfus Money Market Instruments, Inc.
44) Dreyfus Municipal Bond Fund, Inc.
45) Dreyfus Municipal Cash Management Plus
46) Dreyfus Municipal Money Market Fund, Inc.
47) Dreyfus New Jersey Intermediate Municipal Bond Fund
48) Dreyfus New Jersey Municipal Bond Fund, Inc.
49) Dreyfus New Jersey Municipal Money Market Fund, Inc.
50) Dreyfus New Leaders Fund, Inc.
51) Dreyfus New York Insured Tax Exempt Bond Fund
52) Dreyfus New York Municipal Cash Management
53) Dreyfus New York Tax Exempt Bond Fund, Inc.
54) Dreyfus New York Tax Exempt Intermediate Bond Fund
55) Dreyfus New York Tax Exempt Money Market Fund
56) Dreyfus 100% U.S. Treasury Intermediate Term Fund
57) Dreyfus 100% U.S. Treasury Long Term Fund
58) Dreyfus 100% U.S. Treasury Money Market Fund
59) Dreyfus 100% U.S. Treasury Short Term Fund
60) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
61) Dreyfus Pennsylvania Municipal Money Market Fund
62) Dreyfus Premier California Municipal Bond Fund
63) Dreyfus Premier Equity Funds, Inc.
64) Dreyfus Premier International Growth Fund, Inc.
65) Dreyfus Premier GNMA Fund
66) Dreyfus Premier Worldwide Growth Fund, Inc.
67) Dreyfus Premier Insured Municipal Bond Fund
68) Dreyfus Premier Municipal Bond Fund
69) Dreyfus Premier New York Municipal Bond Fund
70) Dreyfus Premier State Municipal Bond Fund
71) Dreyfus Premier Value Fund
72) Dreyfus Index Funds, Inc.
73) Dreyfus Short-Intermediate Government Fund
74) Dreyfus Short-Intermediate Municipal Bond Fund
75) The Dreyfus Socially Responsible Growth Fund, Inc.
76) Dreyfus Stock Index Fund, Inc.
77) Dreyfus Tax Exempt Cash Management
78) The Dreyfus Third Century Fund, Inc.
79) Dreyfus Treasury Cash Management
80) Dreyfus Treasury Prime Cash Management
81) Dreyfus Variable Investment Fund
82) Dreyfus Worldwide Dollar Money Market Fund, Inc.
83) General California Municipal Bond Fund, Inc.
84) General California Municipal Money Market Fund
<PAGE>
85) General Government Securities Money Market Fund, Inc.
86) General Money Market Fund, Inc.
87) General Municipal Bond Fund, Inc.
88) General Municipal Money Market Fund, Inc.
89) General New York Municipal Bond Fund, Inc.
90) General New York Municipal Money Market Fund
(b) The directors and officers of Premier Mutual Fund Services, Inc.,
located at 60 State Street, Suite 1300, Boston, Massachusetts,
02109, are as follows:
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
- -------------------- ---------------------- ------------------------
Marie E. Connolly President, Chief President and
Executive Officer, Treasurer
Chief Operating
Officer and Director
Margaret W. Chambers Senior Vice President, Vice President and
General Counsel, Chief Secretary
Compliance Officer and
Secretary
Douglas C. Conroy None Vice President and
Assistant Secretary
Christopher J. Kelley None Vice President and
Assistant Secretary
Kathleen K. Morrisey None Vice President and
Assistant Secretary
Mary A. Nelson Vice President and Vice President and
Manager of Treasury Assistant Treasurer
Services and
Administration
Stephanie D. Pierce None Vice President,
Assistant Treasurer
and Assistant
Secretary
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
- -------------------- ---------------------- ------------------------
Michael S. Petrucelli Senior Vice President Vice President,
Assistant Treasurer
and Assistant
Secretary
Joseph F. Tower, III Senior Vice President, Vice President and
Treasurer, Chief Assistant Treasurer
Financial Officer and
Director
George A. Rio Executive Vice Vice President and
President and Client Assistant Treasurer
Service Director
Elba Vasquez None Vice President and
Assistant Secretary
Jean M. O'Leary Assistant Vice None
President, Assistant
Secretary and
Assistant Clerk
William J. Nutt Chairman of the Board None
and Director
Patrick W. McKeon Vice President None
Joseph A. Vignone Vice President None
(c) Not applicable.
Item 28. Location of Accounts and Records
Principal executive office of the Registrant, Founders Financial Center,
2930 East Third Avenue, Denver, Colorado 80206 (David L. Ray), except
records described in Rule 31a-1(b)(2)(iv) under the Investment Company Act
of 1940, which are in the possession of Investors Fiduciary Trust Company,
801 Pennsylvania, Kansas City, Missouri 64105.
Item 29. Management Services
Not applicable.
<PAGE>
Item 30. Undertakings
The Registrant hereby undertakes that the board of directors will call
such meetings of shareholders for action by shareholder vote, including
acting on the question of removal of a director or directors and to assist
in communications with other shareholders as required by Section 16(c) of
the Investment Company Act of 1940, as may be requested in writing by the
holders of at least 10% of the outstanding shares of the Registrant or any
of its portfolios, or as may be required by applicable law or the Fund's
Articles of Incorporation.
The Registrant shall furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to its Registration Statement (File No. 2-17531) to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Suffolk,
State of Massachusetts, on the 22nd day of February, 1999.
FOUNDERS FUNDS, INC.
ATTEST:
By: /s/ Marie E. Connolly
----------------------------
/s/ Margaret W. Chambers Marie E. Connolly, President
- -------------------------------
Margaret W. Chambers, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Marie E. Connolly President and Treasurer February 22, 1999
- ------------------------- (Principal Executive,
Marie E. Connolly Financial and
Accounting Officer)
/s/ Jay A. Precourt * Chairman February 22, 1999
- -------------------------
Jay A. Precourt
/s/ Bjorn K. Borgen * Director February 22, 1999
- -------------------------
Bjorn K. Borgen
/s/ Alan S. Danson * Director February 22, 1999
- -------------------------
Alan S. Danson
/s/ Joan D. Manley * Director February 22, 1999
- -------------------------
Joan D. Manley
/s/ Robert P. Mastrovita* Director February 22, 1999
- -------------------------
Robert P. Mastrovita
/s/ Trygve E. Myhren * Director February 22, 1999
- -------------------------
Trygve E. Myhren
<PAGE>
/s/ George W. Phillips * Director February 22, 1999
- -------------------------
George W. Phillips
/s/ Eugene H. Vaughan * Director February 22, 1999
- -------------------------
Eugene H. Vaughan
/s/ Kenneth R. Christoffersen February 22, 1999
- -----------------------------
By Kenneth R. Christoffersen
Attorney-in-Fact
*Original Powers of Attorney authorizing Kenneth R. Christoffersen, David L.
Ray, Richard W. Sabo, and Edward F. O'Keefe and each of them, to execute this
Post-Effective Amendment to the Registration Statement of the Registrant on
behalf of the above-named directors and officers of the Registrant are being
filed with this Post-Effective Amendment No. 64.
<PAGE>
Exhibit Index
Exhibit Description
b By-Laws of Founders Funds, Inc., as amended November 18,
1997.
d Investment Advisory Agreement between Founders
Funds, Inc. and Founders Asset Management LLC,
dated April 1, 1998.
e(1) Underwriting Agreement between Founders Funds, Inc. and
Premier Mutual Fund Services, Inc., dated April 1, 1998.
e(2) Form of Distribution and Shareholder Support Agreement for
Founders Funds, Inc.
e(3) Form of Distribution and Shareholder Support Agreement for
Founders Funds, Inc. (For use with Recordkeeping and Other
Services Agreements).
h(1) Shareholder Services Agreement between Founders Funds, Inc.
and Founders Asset Management LLC, dated April 1, 1998.
h(2) Fund Accounting and Administrative Services Agreement
between Founders Funds, Inc. and Founders Asset Management
LLC, dated April 1, 1998.
j Consent of Independent Accountants
m Founders Funds, Inc. Rule 12b-1 Distribution Plan,
dated May 29, 1998
n(1) Financial Data Schedule - Founders Balanced Fund
n(2) Financial Data Schedule - Founders Blue Chip Fund
n(3) Financial Data Schedule - Founders Discovery Fund
n(4) Financial Data Schedule - Founders Frontier Fund
n(5) Financial Data Schedule - Founders Government Securities Fund
n(6) Financial Data Schedule - Founders Growth Fund
n(7) Financial Data Schedule - Founders International Equity Fund
n(8) Financial Data Schedule - Founders Money Market Fund
n(9) Financial Data Schedule - Founders Passport Fund
n(10) Financial Data Schedule - Founders Special Fund
n(11) Financial Data Schedule - Founders Worldwide Growth Fund
p Code of Ethics for Founders Funds, Inc. and Founders Asset
Management LLC, as amended August 14, 1998.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> FOUNDERS BALANCED FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1162432
<INVESTMENTS-AT-VALUE> 1265997
<RECEIVABLES> 20797
<ASSETS-OTHER> 6008
<OTHER-ITEMS-ASSETS> 10
<TOTAL-ASSETS> 1292812
<PAYABLE-FOR-SECURITIES> 34232
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14359
<TOTAL-LIABILITIES> 48591
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1112851
<SHARES-COMMON-STOCK> 102087
<SHARES-COMMON-PRIOR> 83084
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 149
<ACCUMULATED-NET-GAINS> 27805
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 103565
<NET-ASSETS> 1244221
<DIVIDEND-INCOME> 11921
<INTEREST-INCOME> 28225
<OTHER-INCOME> (262)
<EXPENSES-NET> 11265
<NET-INVESTMENT-INCOME> 28619
<REALIZED-GAINS-CURRENT> 65297
<APPREC-INCREASE-CURRENT> 53472
<NET-CHANGE-FROM-OPS> 147388
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 28641
<DISTRIBUTIONS-OF-GAINS> 42393
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44178
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<TABLE> <S> <C>
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<NAME> FOUNDERS BLUE CHIP FUND
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<S> <C>
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<TABLE> <S> <C>
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<NAME> FOUNDERS DISCOVERY FUND
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<S> <C>
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<NET-INVESTMENT-INCOME> (1975)
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<TABLE> <S> <C>
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<SERIES>
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<NAME> FOUNDERS FRONTIER FUND
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<S> <C>
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<TABLE> <S> <C>
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<SERIES>
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<NAME> FOUNDERS GOVERNMENT SECURITIES FUND
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<S> <C>
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<TABLE> <S> <C>
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<SERIES>
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<NAME> FOUNDERS GROWTH FUND
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> FOUNDERS INTERNATIONAL EQUITY FUND
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 2
<NAME> FOUNDERS MONEY MARKET FUND
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<S> <C>
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<TABLE> <S> <C>
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<SERIES>
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<NAME> FOUNDERS PASSPORT FUND
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<S> <C>
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<TABLE> <S> <C>
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<NAME> FOUNDERS SPECIAL FUND
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<NAME> FOUNDERS WORLDWIDE GROWTH FUND
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FOUNDERS FUNDS, INC.
A Maryland Corporation
BY-LAWS
(AS AMENDED NOVEMBER 18, 1997)
<PAGE>
BY-LAWS
TABLE OF CONTENTS
ARTICLE I. FISCAL YEAR AND OFFICES.................................1
Section 1.01. FISCAL YEAR.......................................1
Section 1.02. REGISTERED OFFICE.................................1
Section 1.03. OTHER OFFICES.....................................1
ARTICLE II. STOCKHOLDERS............................................1
Section 2.01. PLACE OF MEETING..................................1
Section 2.02. ANNUAL MEETING....................................1
Section 2.03. SPECIAL MEETINGS..................................2
Section 2.04. NOTICE............................................2
Section 2.05. QUORUM............................................3
Section 2.06. VOTING............................................3
Section 2.07. VOTING - PROXIES..................................4
Section 2.08. INSPECTORS........................................4
Section 2.09. STOCK LEDGER AND LIST OF STOCKHOLDERS.............4
Section 2.10. ACTION WITHOUT MEETING............................5
ARTICLE III. DIRECTORS...............................................5
Section 3.01. GENERAL POWERS....................................5
Section 3.02. POWER TO ISSUE AND SELL...........................5
Section 3.03. POWER TO DECLARE DIVIDENDS........................6
Section 3.04. NUMBER AND TERM OF OFFICE.........................8
Section 3.05. ELECTION..........................................8
Section 3.06. REMOVAL OF DIRECTORS..............................8
Section 3.07. PLACE OF MEETING..................................8
Section 3.08. QUORUM............................................9
Section 3.09. REGULAR MEETINGS..................................9
Section 3.10. SPECIAL MEETINGS..................................9
Section 3.11. INFORMAL ACTIONS..................................9
Section 3.12. COMMITTEES.......................................10
Section 3.13. ACTION OF COMMITTEES.............................10
Section 3.14. COMPENSATION.....................................10
Section 3.15. CHAIRMAN OF THE BOARD............................11
ARTICLE IV. NOTICES................................................11
Section 4.01. FORM.............................................11
Section 4.02. WAIVER...........................................11
<PAGE>
ARTICLE V. OFFICERS...............................................11
Section 5.01. EXECUTIVE OFFICERS...............................11
Section 5.02. ELECTION.........................................12
Section 5.03. OTHER OFFICERS...................................12
Section 5.04. COMPENSATION.....................................12
Section 5.05. TENURE...........................................12
Section 5.06. PRESIDENT........................................12
Section 5.07. VICE PRESIDENT...................................13
Section 5.08. SECRETARY........................................13
Section 5.09. ASSISTANT SECRETARIES............................13
Section 5.10. TREASURER........................................13
Section 5.11. CONTROLLER.......................................14
Section 5.12. ASSISTANT TREASURER..............................14
Section 5.13. SURETY BONDS.....................................14
ARTICLE VI. FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS.......14
ARTICLE VII. STOCK..................................................15
Section 7.01. CERTIFICATES.....................................15
Section 7.02. SIGNATURE........................................15
Section 7.03. RECORDING AND TRANSFER WITHOUT CERTIFICATES......15
Section 7.04. LOST CERTIFICATES................................16
Section 7.05. TRANSFER OF CAPITAL STOCK........................16
Section 7.06. REGISTERED STOCKHOLDERS..........................16
Section 7.07. TRANSFER AGENTS AND REGISTRARS...................17
Section 7.08. STOCK LEDGER.....................................17
Section 7.09. TRANSFER REGULATIONS.............................17
Section 7.10. FIXING OF RECORD DATE............................17
ARTICLE VIII. GENERAL PROVISIONS.....................................18
Section 8.01. RIGHTS IN SECURITIES.............................18
Section 8.02. CUSTODIANSHIP....................................18
Section 8.03. REPORTS..........................................19
Section 8.04. SEAL.............................................20
Section 8.05. EXECUTION OF INSTRUMENTS.........................20
Section 8.06. CHECKS, NOTES, DRAFTS, ETC.......................20
ARTICLE IX. REDEMPTION AND REPURCHASE OF THE CORPORATION'S SHARES..21
Section 9.01. REDEMPTION OF SHARES.............................21
Section 9.02. PRICE............................................21
Section 9.03. PAYMENT..........................................21
<PAGE>
Section 9.04. EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET
VALUE.........................................22
Section 9.05. REPURCHASE BY AGREEMENT..........................22
Section 9.06. REDEMPTION OF STOCKHOLDERS'INTERESTS.............22
ARTICLE X. NET ASSET VALUE OF SHARES..............................22
Section 10.01. BY WHOM DETERMINED...............................22
Section 10.02. WHEN DETERMINED..................................23
Section 10.03. SUSPENSION OF DETERMINATION OF NET ASSET VALUE...23
Section 10.04. COMPUTATION OF PER SHARE NET ASSET VALUE.........24
Section 10.05. INTERIM DETERMINATIONS...........................26
Section 10.06. MISCELLANEOUS....................................26
ARTICLE XI. ACCOUNTANT.............................................27
Section 11.01. ACCOUNTANT.......................................27
ARTICLE XII. INDEMNIFICATION AND INSURANCE..........................28
Section 12.01. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES
AND AGENTS....................................28
Section 12.02. INSURANCE OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS........................................28
ARTICLE XIII. AMENDMENTS.............................................29
<PAGE>
BY-LAWS OF
FOUNDERS FUNDS, INC.
ARTICLE I
FISCAL YEAR AND OFFICES
Section 1.01. Fiscal Year. Unless otherwise provided by resolution of
the Board of Directors the fiscal year of the Corporation shall begin January
1 and end on the last day of December.
Section 1.02. Registered Office. The registered office of the Corporation
in Maryland shall be located in the City of Baltimore c/o The Corporation Trust,
Incorporated, 32 South Street, Baltimore, Maryland 21202 and the name and
address of its Resident Agent is The Corporation Trust, Incorporated, 32 South
Street, Baltimore, Maryland 21202.
Section 1.03. Other Offices. The Corporation shall have the power to open
additional offices for the conduct of its business, either within or outside the
State of Maryland, at such places as the Board of Directors may from time to
time designate.
ARTICLE II
STOCKHOLDERS
Section 2.01. Place of Meeting. Meetings of the stockholders for the
election of Directors shall be held in such place as the Board of Directors may
by resolution establish. In the absence of any specific resolution, annual
meetings of stockholders shall, if required, be held at the Corporation's
principal office at 810 Cherry Creek National Bank Building, 3033 East First
Avenue, Denver, Colorado 80206. Meetings of stockholders for any other purpose
may be held at such place and time as shall be fixed by resolution of the Board
of Directors and stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
Section 2.02. Annual Meeting. The annual meeting of stockholders, if
required, shall be held on a date and at a time to be set by the Board of
Directors. The Corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940. If the Corporation is required to hold
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<PAGE>
a meeting of stockholders to elect directors, the meeting shall be designated as
the annual meeting of stockholders for that year and shall be held within the
time prescribed by the Investment Company Act of 1940 and the Maryland General
Corporation Law. At the annual meeting, the stockholders shall transact any
other business which may properly be brought before the meeting.
Section 2.03. Special Meetings. Special meetings of the stockholders
(including meetings involving only one or more but less than all classes of
stock) may be called at any time by the Chairman of the Board of the President,
or by a majority of the Board of Directors, and shall be called by the Chairman
of the Board, President or Secretary upon written request of the holders of
shares entitled to cast not less than twenty-five percent of all the votes
entitled to be cast at such meeting provided that (a) such request will state
the purpose of such meeting and the matters proposed to be acted upon and (b)
the stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
Secretary shall determine and specify to such stockholders. Unless requested by
the holders of shares entitled to cast a majority of all the votes entitled to
be cast at such meeting, no special meeting need be called to consider any
matter which is substantially the same as a matter voted on at any meeting of
the stockholders held during the preceding twelve months.
Section 2.04. Notice. Not less than ten nor more than ninety days before
the date of every annual or special stockholders' meeting, the Secretary shall
cause to be mailed to each stockholder entitled to vote at such meeting at his,
her or its address (as it appears on the records of the Corporation at the time
of mailing) written notice stating the time and place of the meeting and, in the
case of a special meeting of stockholders, the purpose or purposes for which the
meeting is called. Notice of any stockholders' meeting need not be given to any
stockholder who shall sign a written waiver of such notice whether before or
after the time of such meeting, or to any stockholder who shall attend such
meeting in person or by proxy. Notice of adjournment of a stockholders' meeting
to another time or place need not be given, if such time and place are announced
at the meeting.
Section 2.05. Quorum. At any meeting of stockholders, the presence in
person or by proxy of the holders of a majority of the aggregate number of
shares of common stock at the time outstanding shall constitute a quorum for the
2
<PAGE>
transaction of business at the meeting, except that where any provision of law,
the Articles of Incorporation, or these By-laws require that the holders of any
class of shares shall vote as a class, then a majority of the aggregate number
of shares of that class at the time outstanding shall be necessary to constitute
a quorum for the transaction of such business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, any officer
entitled to preside at, or act as a Secretary of, such meeting, shall have the
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 2.06. Voting. Each stockholder shall have one vote for each full
share and a fractional vote for each fractional share of stock having voting
power held by such stockholder on the record date set pursuant to Section 7.10
on each matter submitted to a vote at a meeting of stockholders. Such vote may
be made in person or by proxy. If no record date has been fixed for the
determination of stockholders, the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be (a) at the close of business (i) on the day ten days before the date on which
notice of the meeting is mailed or (ii) on the day 90 days before the meeting
whichever is the closer date to the meeting; or (b) if notice is waived by all
stockholders entitled to notice of or to vote at the meeting, at the close of
business on the tenth day next preceding the day on which the meeting is held.
At all meetings of the stockholders, a quorum being present, all matters shall
be decided by majority vote of the shares of stock entitled to vote held by
stockholders present in person or by proxy, unless the question is one which by
express provision of the laws of Maryland, the Investment Company Act, or the
Articles of Incorporation, a different vote is required in which case such
express provision shall control the decision of such question. At all meetings
of stockholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of votes and the validity of proxies and the
acceptance or rejection of votes shall be decided by the Chairman of the
meeting.
Section 2.07. Voting - Proxies. The right to vote by proxy shall exist
only if the instrument authorizing such proxy to act shall have been executed in
3
<PAGE>
writing by the stockholder himself or by his attorney thereunto duly authorized.
No proxy shall be voted on after eleven months from its date unless it provides
for a longer period. Each proxy shall be in writing executed by the stockholder
or his duly authorized attorney and shall be dated, but need not be sealed,
witnessed or acknowledged. Proxies shall be delivered to the Secretary of the
Corporation or person acting as Secretary of the meeting before being voted. A
proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of such proxy
the Corporation receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed by or on behalf of a stockholder
shall be deemed valid unless challenged at or prior to its exercise.
Section 2.08. Inspectors. At any election of directors, the Board of
Directors prior thereto may, or, if they have not so acted, the Chairman of the
meeting may, appoint one or more inspectors of election who shall first
subscribe an oath of affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of director shall be appointed such
inspector.
Section 2.09. Stock Ledger and List of Stockholders. It shall be the duty
of the Secretary or Assistant Secretary of the Corporation to cause an original
or duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent. Such stock ledger may be in writing form or any other form
capable of being converted into written form within a reasonable time for visual
inspection. Any one or more persons, each of whom has been a stockholder of
record of the Corporation for more than six months next preceding such request,
who owns or own in the aggregate 5% or more of the outstanding capital stock of
the Corporation, may submit a written request to any officer of the Corporation
or its resident agent in Maryland for a list of the stockholders of the
Corporation. Within 20 days after such a request, there shall be prepared and
filed at the Corporation's principal office a list containing the names and
addresses of all stockholders of the Corporation and the number of shares of
each class held by each stockholders, certified as correct by an officer of the
Corporation, by its stock transfer agent, or by its registrar.
Section 2.10. Action Without Meeting. Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
4
<PAGE>
on the matter consent to the action in writing, and the written consents are
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
ARTICLE III
DIRECTORS
Section 3.01. General Powers. The business of the Corporation shall be
under the direction of its Board of Directors, which may exercise all powers of
the Corporation, except such as are by statute, or by the Articles of
Incorporation, or by these By-laws conferred upon or reserved to the
stockholders. All acts done by any meeting of the directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as a
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the corporation.
Section 3.02. Power to Issue and Sell Stock
(a) General. The Board of Directors may from time to time issue, reissue,
sell or cause to be issued and sold any of the Corporation's authorized shares
of any class of common stock, including any additional shares hereafter
authorized of any class and any shares redeemed or repurchased by the
Corporation, to such persons and for such consideration as the Board of
Directors shall deem advisable, except that only shares previously contracted to
be sold may be issued during any period when the determination of net asset
value is suspended pursuant to the provisions of Article X hereof. All shares of
any classes of such authorized common stock, when issued in accordance with the
terms of this Section 3.02 shall be fully paid and nonassessable.
(b) Price. No shares of common stock shall be issued or sold by the
Corporation, except as a stock dividend distributed to shareholders, for less
than an amount which would result in proceeds to the Corporation, before taxes
payable by the Corporation in connection with such transaction, of at least the
net asset value per share determined as set forth in Article X hereof as of such
time as the Board of Directors shall have by resolution prescribed. In the
5
<PAGE>
absence of a resolution of the Board of Directors applicable to the transaction,
such net asset value shall be that next determined after an unconditional order
for shares has been received by the Corporation (either directly or through one
of its agents) and the sales price in currency has been determined.
(c) On Merger or Consolidation. In connection with the acquisition of all
or substantially all the assets or stock of another investment company or
investment trust, the Board of Directors may issue or cause to be issued shares
of common stock of the Corporation and accept in payment thereof, in lieu of
cash, such assets at their market value, or such stock at the market value of
the assets held by such investment company or investment trust, either with or
without adjustment for contingent costs or liabilities, provided such assets are
of the character in which the Board of Directors is permitted to invest the
funds of the Corporation.
(d) Fractional Shares. The Corporation may issue and sell or cause to be
issued and sold fractions of shares having pro rata all the rights of full
shares, including, without limitation, the right to vote and to receive
dividends.
Section 3.03 Power to Declare Dividends
(a) The Board of Directors may from time to time declare and pay dividends
or distributions, in stock or in cash at the election of the stockholders, on
all issued and outstanding shares of any or all classes of common stock, the
amount of such dividends and distributions and the payment of them being wholly
in the discretion of the Board of Directors and payable only out of earnings,
surplus, or other lawfully available assets belonging to the Corporation;
provided, however, that the sum of the cash dividend actually paid to any
stockholder and the asset value of the shares received (determined as of such
time as the Board of Directors shall have prescribed pursuant to Section 3.02
hereof with respect to shares sold on the date of such stockholder election)
shall not exceed the full amount of cash to which the stockholder would be
entitled if he elected to receive only cash.
The Board of Directors is expressly authorized to determine in accordance
with generally accepted accounting principles and practices what constitutes net
profits, earnings, surplus or net assets in excess of capital, and to determine
what accounting periods shall be used by the Corporation for any purpose,
6
<PAGE>
whether annual or any other period, including daily; to set apart out of any
funds of the Corporation such reserves for such purposes as it shall determine
and to abolish the same; to declare and pay dividends and distributions in cash,
securities or other property from surplus or any funds legally available
therefor, at such intervals (which may be as frequently as daily) or on such
other periodic basis, as it shall determine; to declare such dividends or
distributions, including daily dividends, by means of a formula or other method
of determination at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for dividends or
any other distributions on any basis including dates occurring less frequently
than the effectiveness of the declarations thereof; and to provide for the
payment of declared dividends on a date other than the specified payment date in
the case of the stockholders of the Corporation redeeming their entire ownership
of the Corporation.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
......(i) the Corporation's accumulated undistributed net income
(determined in accordance with good accounting practice and the rules and
regulations of the Securities and Exchange Commission then in effect and not
including profits or losses realized upon the sale of securities or other
properties); or
......(ii) the Corporation's net income so determined for the current
or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such
payment and the basis of calculation, and shall be in such form as the
Securities and Exchange Commission may prescribe.
Section 3.04. Number and Term of Office. The number of directors which
shall constitute the whole Board shall be determined from time to time by the
Board of Directors, but shall not be fewer than three, nor more than fifteen.
Each director elected shall hold office until his or her successor is elected
and qualified or until his or her earlier death, resignation, or removal.
Directors need not be stockholders.
7
<PAGE>
Section 3.05. Election. Initially the directors shall be those persons
named as such in the Articles of Incorporation. Except as provided in the next
sentence, the directors shall be elected by the vote of a majority of the shares
present in person or by proxy at the annual meeting of the stockholders. If any
vacancies shall occur in the Board of Directors for any reason, the directors
then in office shall continue to act, and such vacancies (if not previously
filled by the stockholders) may be filled by a majority vote of the remaining
directors, although less than a quorum, and except that a newly created
Directorship may be filled only by a majority vote of the entire Board of
Directors, provided that in either case immediately after filling any such
vacancy at least two-thirds of the directors then holding office shall have been
elected to such office by the stockholders; and provided further that if at any
time less than a majority of the directors then holding office were elected by
stockholders, a stockholders' meeting shall be called as soon as possible, and
in any event within sixty days, for the purpose of electing an entire new Board
of Directors.
Section 3.06. Removal of Directors. At any stockholders meeting, provided
a quorum is present, any director may be removed (either with or without cause)
by the vote of the holders of a majority of the shares present or represented at
the meeting, and at the same meeting a duly qualified person may be elected in
his or her stead by a majority of the votes validly cast.
Section 3.07. Place of Meeting. Meetings of the Board of Directors,
regular or special, may be held at any place in or out of the State of
Maryland as the Board may from time to time determine.
Section 3.08. Quorum. At all meetings of the Board of Directors a majority
of the entire Board of Directors shall constitute a quorum for the transaction
of business and the action of a majority of the directors present at any meeting
at which a quorum is present shall be the action of the Board of Directors
unless the concurrence of a greater proportion is required for such action by
the laws of Maryland, the Investment Company Act, the Articles of Incorporation,
or these By-laws. If a quorum shall not be present at any meeting of directors,
the directors present there at may by a majority vote adjourn the meeting from
time to time without notice other than announcement at the meeting, until a
quorum shall be present.
8
<PAGE>
Section 3.09. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board of Directors provided that notice of any change in the
time or place of such meetings shall be sent promptly to each director not
present at the meeting at which such change was made in the manner provided for
notice of special meetings. Members of the Board of Directors or any committee
designated thereby may participate in a meeting of such Board or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
Section 3.10. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on one day's notice
to each director; special meetings shall be called by the Chairman of the Board,
President or Secretary in like manner and on like notice on the written request
of two directors.
Section 3.11. Informal Actions. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if a written consent to such action is signed in one
or more counterparts by all members of the Board or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board or committee.
Section 3.12. Committees. The Board of Directors may by resolution passed
by a majority of the entire Board appoint from among its members an Executive
Committee and other committees composed of two or more directors, and may
delegate to such committees, in the intervals between meetings of the Board of
Directors, any or all of the powers of the Board of Directors in the management
of the business and affairs of the Corporation, except the powers (a) to declare
dividends or distributions on stock, (b) to issue stock (although a committee
may participate in fixing the terms and conditions of stock issued, in
accordance with the laws of Maryland), (c) to recommend to stockholders any
action requiring stockholder approval, (d) to amend the By-laws, or (e) to
approve any merger or share exchange which does not require stockholder
approval.
Section 3.13. Action of Committees. In the absence of an appropriate
resolution of the Board of Directors each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
9
<PAGE>
deem proper and desirable, provided that the quorum shall not be less than two
directors. The committees shall keep minutes of their proceedings and shall
report the same to the Board of Directors at the meeting next succeeding, and
any action by the committee shall be subject to revision and alteration by the
Board of Directors, provided that no rights of third persons shall be affected
by any such revision or alteration. In the absence of any member of such
committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 3.14. Compensation. Any director, whether or not he is a salaried
officer or employee of the Corporation, may be compensated for his services as a
director or as a member of a committee of directors, or as Chairman of the Board
or chairman of a committee by fixed periodic payments, by fees for attendance at
meetings, or otherwise or by a combination thereof, and in addition may be
reimbursed for transportation and other expenses, all in such manner and amounts
as the Board of Directors may from time to time determine.
Section 3.15. Chairman of the Board. The Chairman of the Board, if one
shall be chosen from and by the directors, shall preside at all meetings of the
Board of Directors and stockholders, and shall perform and execute such
executive duties and administrative powers as the Board of Directors shall from
time to time prescribe.
ARTICLE IV
NOTICES
Section 4.01. Form. Notice to stockholders shall be in writing and
delivered personally or mailed to the stockholders at their addresses appearing
on the books of the Corporation. Notices to directors shall be oral or by
telephone or telegram or in writing delivered personally or mailed to the
directors at their addresses appearing on the books of the Corporation. Notice
by mail shall be deemed to be given at the time when the same shall be mailed.
Notice to directors need not state the purpose of a regular or special meeting.
Section 4.02. Waiver. Whenever any notice of the time, place or purpose of
any meeting of stockholders, directors or a committee is required to be given
under the provisions of the laws of Maryland, the Articles of Incorporation or
these By-laws, a waiver thereof in writing, signed by the person or persons
10
<PAGE>
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
stockholders in person or by proxy, or at the meeting of directors or committee
in person, shall be deemed equivalent to the giving of such notice to such
persons.
ARTICLE V
OFFICERS
Section 5.01. Executive Officers. The officers of the Corporation shall be
chosen by the Board of Directors and shall include a President, a Secretary and
a Treasurer. The Board of Directors may, from time to time, elect or appoint a
Controller, one or more Vice Presidents, Assistant Secretaries, and Assistant
Treasurers. The same person may hold two or more offices, except that no person
shall be both President and Vice President and no officer shall execute,
acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law, the Articles of Incorporation or these By-laws to
be executed, acknowledged or verified by two or more officers.
Section 5.02. Election. The Board of Directors shall choose a President, a
Secretary and a Treasurer at its first meeting and thereafter at the next
meeting following a stockholders' meeting at which directors were elected.
Section 5.03. Other Officers. The Board of Directors from time to time may
appoint such officers and agents as it shall deem advisable, who shall hold
their offices for such terms and shall exercise powers and perform such duties
as shall be determined from time to time by the Board. The Board of Directors
from time to time may delegate to one or more officers or agents the power to
appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 5.04. Compensation. The salaries or other compensation of all
officers and agents of the Corporation shall be fixed by the Board of Directors,
except that the Board of Directors may delegate to any person or group of
persons the power to fix the salary or other compensation of any subordinate
officers or agents appointed pursuant to Section 5.03.
Section 5.05. Tenure. The officers of the Corporation shall serve until
their successors are chosen and qualify. Any officer or agent may be removed by
the affirmative vote of a majority of the Board of Directors whenever, in its
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judgment, the best interest of the Corporation will be served thereby. In
addition, any officer or agent appointed pursuant to Section 5.03 may be
removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Board of Directors. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise shall be filled by the Board of Directors, unless pursuant to Section
5.03 the power of appointment has been conferred by the Board of Directors on
any other officer.
Section 5.06. President. The President, unless the Chairman has been so
designated, shall be the Chief Executive Officer of the Corporation; if
designated by the Chairman, he or she shall preside at all meetings of the
stockholders, and shall see that all orders and resolutions of the Board are
carried into effect. The President, unless the Chairman has been so designated,
shall also be the chief administrative officer of the Corporation and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 5.07. Vice-President. The Vice-Presidents, in the order of their
seniority, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President and shall perform such other
duties as the Board of Directors or the Chief Executive Officer may from time to
time prescribe.
Section 5.08. Secretary. Unless a secretary of the meeting has been
appointed, the Secretary shall attend all meetings of the Board of Directors and
all meetings of the stockholders and record all the proceedings thereof and
shall perform like duties for any Committee when required. He or she shall give,
or cause to be given, notice of meetings of the stockholders and of the Board of
Directors, shall have charge of, or shall cause an agent to have charge of, the
records of the Corporation, including the stock books, and shall perform such
other duties as may be prescribed by the Board of Directors or Chief Executive
Officer, under whose supervision the Secretary shall be. The Secretary shall
keep in safe custody the seal of the Corporation and, when authorized by the
Board of Directors, shall affix and attest the same to any instrument requiring
it. The Board of Directors may give general authority to any other officer to
affix the seal of the Corporation and to attest the affixing by his or her
signature.
Section 5.09. Assistant Secretaries. The Assistant Secretaries in order of
their seniority, shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties as the Board of Directors shall prescribe.
Section 5.10. Treasurer. The Treasurer, unless another officer has been so
designated, shall be the Chief Financial Officer of the Corporation. He or she
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shall have general charge of the finances and books of account of the
Corporation. Except as otherwise provided by the Board of Directors the
Treasurer shall have general supervision of the funds and property of the
Corporation and of the performance by the custodian of its duties with respect
thereto. The Treasurer shall render to the Board of Directors, whenever directed
by the Board, an account of the financial condition of the Corporation and of
all his or her transactions as Treasurer. The Treasurer shall cause to be
prepared annually a full and correct statement of the affairs of the Corporation
including a balance sheet and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
stockholders, if such a meeting be held, and filed within twenty days
thereafter, or after the date set herein for such meeting, at the principal
office of the Corporation in the State of Maryland. The Treasurer shall perform
all the acts incidental to the office of Treasurer, subject to the control of
the Board of Directors.
Section 5.11. Controller. The Controller shall be under the direct
supervision of the Chief Financial Officer of the Corporation. The Controller
shall have such further powers and duties as may be conferred upon him or her
from time to time by the President or the Board of Directors.
Section 5.12. Assistant Treasurer. The Assistant Treasurers, in the order
of their seniority, shall, in the absence or disability of the Treasurer,
perform such other duties as the Board of Directors may from time to time
prescribe.
Section 5.13. Surety Bonds. The Board of Directors may require any officer
or agent of the Corporation to execute a bond (including, without limitation,
any bond required by the Investment Company Act) to the Corporation in such sum
and with such surety or sureties as the Board of Directors may determine,
conditioned upon the faithful performance of his or her duties to the
Corporation, including responsibility for negligence and for the accounting of
any Corporation's property, funds or securities that may come into his or her
hands.
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ARTICLE VI
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
Each class of the Corporation's common stock shall be subject to two
different types of limitations on the investments which may be made with the
assets of that class. The first type of limitation, referred to hereinafter as
"Fundamental Policies," may not be changed without approval of the lesser of (a)
67% or more of the shares of that class present at a meeting if the holders of
more than 50% of the outstanding shares of that class are present or represented
by proxy, or (b) more than 50% of the outstanding shares of that class of stock.
The second type of limitation, referred to hereinafter as "Investment
Restrictions, "may be changed by the Board of Directors without shareholder
approval or prior notification. The Fundamental Policies and Investment
Restrictions which apply to each class of the Corporation's common stock shall
be set forth in the Prospectus or the Statement of Additional Information for
such class of common stock.
ARTICLE VII
STOCK
Section 7.01. Certificates. The Corporation may, but is not required to,
issue certificates representing shares of the Corporation. If certificates are
issued, they shall be in a form approved by the Board of Directors which shall
certify the class and the number of shares owned by such stockholder in the
Corporation. Any such certificate shall be signed by the President or a Vice
President and countersigned by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer.
Section 7.02. Signature. Where a certificate is signed (1) by a transfer
agent or an assistant transfer agent, or (2) by a transfer clerk acting on
behalf of the Corporation and a registrar, the signature of any such President,
Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary
may be a facsimile. In case any officer who has signed any certificate ceases to
be an officer of the Corporation before the certificate is issued, the
certificate may nevertheless be issued by the Corporation with the same effect
as if the officer had not ceased to be such officer as of the date of its issue.
Section 7.03. Recording and Transfer Without Certificates. Notwithstanding
the foregoing provisions of this Article VII, the Corporation shall have full
power to participate in any program approved by the Board of Directors providing
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for the recording and transfer of ownership of shares of the Corporation's stock
by electronic or other means without the issuance of certificates.
Section 7.04. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been stolen,
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to have been stolen, lost or destroyed, or
upon other satisfactory evidence of such theft, loss or destruction. When
authorizing such issuance of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such stolen, lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and to give the Corporation a bond with sufficient surety to
the Corporation to indemnify it against any loss or claim that may be made by
reason of the issuance of a new certificate.
Section 7.05. Transfer of Capital Stock. Transfers of shares of the stock
of the Corporation shall be made on the books of the Corporation by the holder
of record thereof (in person or by his attorney thereunto duly authorized by a
power of attorney duly executed in writing and filed with the Secretary of the
Corporation) (a) if a certificate or certificates have been issued, upon the
surrender of the certificate or certificates, properly endorsed or accompanied
by proper instruments of transfer, representing such shares, or (b) as otherwise
prescribed by the Board of Directors. Every certificate exchanged, surrendered
for redemption or otherwise returned to the Corporation shall be marked
"cancelled" with the date of cancellation.
Section 7.06. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by the
laws of Maryland.
Section 7.07. Transfer Agents and Registrars. The Board of Directors may,
from time to time, appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
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person as both transfer agent and registrar. Upon any such appointment being
made, all certificates representing shares of stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one countersignature by
such person shall be required.
Section 7.08. Stock Ledger. The Corporation shall maintain an original
stock ledger containing the names and addresses of all stockholders and the
number and class of shares held by each stockholder. Such stock ledger may be in
written form or any other form capable of being converted into written form
within a reasonable time for visual inspection.
Section 7.09. Transfer Regulations. The shares of stock of the Corporation
may be freely transferred, and the Board of Directors may, from time to time,
adopt rules and regulations with reference to the method of transfer of the
shares of stock of the Corporation.
Section 7.10. Fixing of Record Date. The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, provided that
such record date shall not be a date more than ninety nor less than ten days
prior to the date on which the particular action requiring such determination of
stockholders of record on the record date so fixed shall be entitled to such
notice of, and to vote at, such meeting or adjournment, or to give such consent,
or to receive payment of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights or to take such other action, as
the case may be, notwithstanding any transfer of any shares on the books of the
Corporation after any such record date. A meeting of shareholders convened on
the date for which it was called may be adjourned from time to time without
further notice to a date not more than 120 days after the original record date.
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ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Rights in Securities. The Board of Directors, on behalf of
the Corporation, shall have the authority to exercise all of the rights of the
Corporation as owner of any securities which might be exercised by any
individual owning such securities in his own right; including, but not limited
to, the rights to vote by proxy for any and all purposes, to consent to the
reorganization, merger or consolidation of any issuer or to consent to the sale,
lease or mortgage of all or substantially all of the property and assets of any
issuer; and to exchange any of the shares of stock of the issuer for the shares
of stock issued therefor upon any such reorganization, merger, consolidation,
sale, lease or mortgage. The Board of Directors shall have the right to
authorize any officer of the investment adviser to execute proxies and the right
to delegate the authority granted by this Section 8.01 to any officer of the
Corporation.
Section 8.02. Custodianship.
(a) The Corporation shall place and at all times maintain in the custody
of a custodian (including any sub-custodian) all funds, securities and similar
investments owned by the Corporation. Subject to the approval of the Board of
Directors, the custodian may enter into arrangements with securities
depositories, as long as such arrangements comply with the provisions of the
Investment Company Act. The custodian (and any sub-custodian) shall be a bank
having not less than $2,000,000 aggregate capital, surplus and undivided profits
and shall be appointed from time to time by the Board of Directors, which shall
fix its remuneration.
(b) Upon termination of a custodian agreement or inability of the
custodian to continue to serve, the Board of Directors shall promptly appoint a
successor custodian. But in the event that no successor custodian can be found
who has the required qualifications and is willing to serve, the Board of
Directors shall call as promptly as possible a special meeting of the
stockholders to determine whether the Corporation shall function without a
custodian or shall be liquidated. If so directed by vote of the holders of a
majority of the outstanding shares of stock of the Corporation, the custodian
shall deliver and pay over all property of the Corporation held by it as
specified in such vote.
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(c) The following provisions shall apply to the employment of a custodian
and to any contract entered into with the custodian so employed:
The Board of Directors shall cause to be delivered to the custodian
all securities owned by the Corporation or to which it may become
entitled, and shall order the same to be delivered by the custodian only
in completion of a sale, exchange, transfer, pledge or other disposition
thereof, all as the Board of Directors may generally or from time to time
require or approve or to a successor custodian; and the Board of Directors
shall cause all funds owned by the Corporation or to which it may become
entitled to be paid to the custodian, and shall order the same disbursed
only for investment against delivery of the securities acquired, or in
payment of expenses, including management compensation, and liabilities of
the Corporation, including distributions to shareholders or proper
payments to borrowers of securities representing partial return of
collateral, or to a successor custodian.
Section 8.03. Reports. Not less often than semi-annually, the Corporation
shall transmit to the stockholders a report of the operations of the
Corporation, based at least annually upon an audit by independent public
accountants, which report shall clearly set forth, in addition to the
information customarily furnished in a balance sheet and profit and loss
statement, a statement of all amounts paid to security dealers, legal counsel,
transfer agent, disbursing agent, registrar or custodian or trustee, where such
payments are made to a firm, Corporation, bank or trust company, having a
partner, officer or director who is also an officer or director of the
Corporation. A copy, or copies, of all reports submitted to the stockholders or
the Corporation shall also be sent, as required, to the regulatory agencies of
the United States and of the states in which the securities of the Corporation
are registered and sold.
Section 8.04. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Maryland." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. Any officer or director of the
Corporation shall have authority to affix the corporate seal of the Corporation
to any document requiring the same.
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Section 8.05. Execution of Instruments. All deeds, documents, transfers,
contracts, agreements and other instruments requiring execution by the
Corporation shall be signed by the Chairman or the President or a Vice President
and by the Treasurer or Secretary or an Assistant Treasurer or an Assistant
Secretary, or as the Board of Directors may otherwise, from time to time,
authorize. Any such authorization may be general or confined to specific
instances. Except as otherwise authorized by the Board of Directors, all
requisitions or orders for the assignment of securities standing in the name of
the custodian or its nominee, or for the execution of powers to transfer the
same, shall be signed in the name of the Corporation by the Chairman or the
President or a Vice President and by the Secretary, Treasurer or an Assistant
Secretary.
Section 8.06. Checks, Notes, Drafts, Etc. So long as the Corporation shall
employ a custodian to keep custody of the cash and securities of the
corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the Board of Directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Corporation by the President or a Vice President and by the
Treasurer or an Assistant Treasurer. Promissory notes, checks or drafts payable
to the Corporation may be endorsed only to the order of the custodian or its
nominee and only by the Treasurer or President or a Vice President or by such
other person or persons as shall be authorized by the Board of Directors.
ARTICLE IX
REDEMPTION AND REPURCHASE OF THE CORPORATION'S SHARES
Section 9.01. Redemption of Shares. All shares of all classes of the
common stock of the Corporation now or hereafter authorized shall be "subject to
redemption" and "redeemable" in the sense used in the laws of Maryland
authorizing the formation of Corporations, at the redemption or purchase price
for any such shares, determined in the manner provided in the Articles of
Incorporation or in any amendment thereto; provided, however, that the
Corporation shall have the right, at its option, to refuse to redeem the shares
of stock at less than the par value thereof. Redeemed shares may be resold by
the Corporation.
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The Corporation shall redeem shares of any class of its common stock,
subject to the conditions, and at the price determined as hereinafter set forth,
upon the appropriately verified written application of the record holder thereof
(or upon such other form of request as the Board of Directors may determine) at
such office or agency as may be designated from time to time for that purpose by
the Board of Directors. Any such application must be accompanied by any
certificate or certificates which may have been issued for such shares, duly
endorsed or accompanied by a proper instrument of transfer.
Section 9.02. Price. Such shares shall be redeemed at their net asset
value determined as provided in Article X hereof as of such time as the Board of
Directors shall have prescribed by resolution. In the absence of such
resolution, the redemption price of shares shall be the net asset value of such
shares next determined as provided in Article X hereof after receipt of such
application (including any certificate or certificates which may have been
issued therefor, if any, duly endorsed or accompanied by a proper instrument of
transfer).
Section 9.03. Payment. Payment for such shares shall be made in cash to
the stockholder of record within seven (7) days after the date upon which the
application (including any certificate or certificates which may have been
issued therefor, duly endorsed or accompanied by a proper instrument of
transfer) is received, subject to the provisions of Section 9.04 hereof and the
provisions of Articles of Incorporation.
Section 9.04. Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 10.03 hereof, the Board of directors shall declare a
suspension of the determination of net asset value, the rights of stockholders
(including those who shall have applied for redemption pursuant to Section 9.01
hereof but who shall not yet have received payment) to have shares redeemed and
paid for by the Corporation shall be suspended until the termination of such
suspension is declared. Any stockholder who shall have his redemption right so
suspended may during the period of such suspension, by appropriate written
notice of revocation at the office or agency where application was made, revoke
any application for redemption not honored and withdraw any certificates on
deposit. The redemption price of shares for which redemption applications have
not been revoked shall be the net asset value of such shares next determined as
provided in Article X after the termination of such suspension, and payment
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shall be made within seven (7) days after the date upon which the application
was made plus the period after such application during which the determination
of net asset value was suspended.
Section 9.05. Repurchase by Agreement. The Corporation may repurchase
shares of any class of common stock of the Corporation directly, or through its
distributor or another agent designated for the purpose, by agreement with the
owner thereof at a price not exceeding the net asset value per share determined
pursuant to Article X hereof.
Section 9.06. Redemption of Stockholders' Interests. The Corporation shall
have the right to redeem shares of any stockholder for their then current net
asset value per share as provided in the Articles of Incorporation.
ARTICLE X
NET ASSET VALUE OF SHARES
Section 10.01. By Whom Determined. The Board of Directors shall have the
power and duty to determine from time to time the net asset value per share of
the outstanding shares of each class of common stock of the Corporation It may
delegate such power and duty to any one or more of the directors and officers of
the Corporation, to the investment adviser, custodian or depository of the
Corporation's assets, or to another agent of the Corporation appointed for such
purpose. Any determination made pursuant to this Section by the Board of
Directors or its delegate shall be binding on all parties concerned.
Section 10.02. When Determined. The net asset value shall be determined at
such time as the Board of Directors shall prescribe by resolution, provided that
such net asset value shall be determined at least once each week. In the absence
of a resolution of the Board of Directors, the net asset value shall be
determined at the close of the New York Stock Exchange on each business day that
the Exchange is open for trading.
Section 10.03. Suspension of Determination of Net Asset Value. The Board
of Directors may declare a suspension of the determination of net asset value
for the whole or any part of any period (a) during which the New York Stock
Exchange is closed other than customary week-end and holiday closings, (b)
during which trading on the New York Stock Exchange is restricted, (c) during
which an emergency exists as a result of which disposal by the Corporation of
securities owned by it is not reasonably practicable or it is not reasonably
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practicable for the Corporation fairly to determine the value of its net assets
or (d) during which a governmental body having jurisdiction over the Corporation
may by order permit for the protection of the stockholders of Corporation. Such
suspension shall take effect at such time as the Board of Directors shall
specify and thereafter there shall be no determination of net asset value until
the Board of Directors shall declare the suspension at an end, except that the
suspension shall terminate in any event on the first day on which (a) the
condition giving rise to the suspension shall have ceased to exist, and (b) no
other conditions exists under which suspension is authorized under this Section
10.03. Each declaration by the Board of Directors pursuant to this Section 10.03
shall be consistent with such official rules and regulations, if any, relating
to the subject matter thereof as shall have been promulgated by the Securities
and Exchange Commission or any other governmental body having jurisdiction over
the Corporation and as shall be in effect at the time. To the extent not
inconsistent with such official rules and regulations, the determination of the
Board of Directors shall be conclusive.
Section 10.04. Computation of Per Share Net Asset Value.
(a) Net Asset Value Per Share. The net asset value of each share of a
class of common stock as of any particular time shall be the quotient obtained
by dividing the value of the net assets of such class by the total number of
shares of such class outstanding.
(b) Value of the Net Assets of a Class. The value of the net assets of a
class of common stock as of any particular time shall be the value of the assets
belonging to such class less the liabilities belonging to such class, determined
and computed as follows:
(i) Assets Belonging to a Class. The assets belonging to a class of
common stock shall be deemed to include the following items to the extent
they belong to or are attributed to, in whole or in part, such class: (A)
all cash on hand or on deposit, including any interest accrued thereon,
(B) all bills and demand notes and accounts receivable, (C) all securities
owned or contracted for by the Corporation, (D) all stock and cash
dividends and cash distributions payable to but not yet received by that
class (or by the Corporation on behalf of that class) (when the valuation
of the underlying security is being determined ex-dividend), (E) all
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interest accrued on any interest- bearing securities owned by that class
(or by the Corporation on behalf of that class) (except accrued interest
included in the valuation of the underlying security), (F) all repurchase
agreements and (G) all other property of every kind and nature, including
prepaid expenses.
(ii) Valuation of Assets. The value of such assets is to be
determined as follows:
(A) Cash and Prepaid Expenses. The value of any cash on hand and of
any prepaid expenses shall be deemed to be their face amount.
(B) Other Current Assets. The value of any cash on deposit, bills,
demand notes, accounts receivable, and cash dividends and interest
declared or accrued as aforesaid and not yet received shall be
deemed to be the face amount thereof, unless the Board of Directors
or its delegate shall determine that any such item is not worth its
face amount. In such case, the value of the item shall be deemed to
be its reasonable value, as determined by the Board of Directors or
its delegate.
(C) Securities Listed or Dealt in on New York Stock Exchange. The
value of any security listed or dealt in upon the New York Stock
Exchange and not subject to restrictions against sale by the
Corporation on such Exchange shall be determined by taking the
latest sale price at the time as of which net asset value is being
determined, all as reported by means in common use. Lacking any
sales, the value shall be deemed to be such value, not higher than
the closing asked price and not lower than the closing bid price
therefor at such time, as the Board of Directors or its delegate may
from time to time determine. When an appraisal is made as part of a
determination other than as of the close of trading, the latest
available quotations (i.e., last sale on that date or latest bid
price if no sale on that day) shall be used. The Board of Directors
may be resolution permit quotations on an exchange other than the
New York Stock Exchange or over-the-counter rather than stock
exchange quotations to be used when they appear to the Board of
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Directors or its delegate to reflect more closely the fair value of
any particular security in the portfolio.
(D) Securities Listed on Other Exchanges. The value of any security
listed or dealt in on one or more securities exchanges, but not on
the New York Stock Exchange and not subject to restrictions against
the sale by the Corporation on such exchanges, shall be determined
as nearly as possible in the manner described in the preceding
subparagraph, with reference to the quotations on the exchange that,
in the opinion of the Board of Directors or its delegate, best
reflects the fair value of the security.
(E) Unlisted Securities and Other Property. All other securities for
which over-the-counter market quotations are readily available shall
be valued at the last current bid price. The value of any other
property, the valuation of which is not provided for above, shall be
its fair market value as determined in such manner as the Board of
Directors shall from time to time prescribe by resolution.
(iii) Liabilities Belonging to a Class. The liabilities belonging to
a class of common stock shall not be deemed to include outstanding shares
and surplus. They shall be deemed to include the following items to the
extent they belong to or are attributed to, in whole or in part, that
class: (A) all bills and accounts payable, (B) all expenses accrued, (C)
all contractual obligations for the payment of money or property,
including the amount of any unpaid dividends upon the shares of that class
declared to shareholders of record at or before the time as of which the
net asset value is being determined, (D) all reserves authorized or
approved by the Board of Directors for taxes or contingencies and (E) all
other liabilities of whatsoever kind and nature.
(c) Other Methods of Valuation. The Board of Directors is empowered to
establish other methods for determining such asset value whenever, because of
extraordinary or emergency conditions, such other methods are deemed by it to be
necessary, or at any time in order to enable the Corporation to comply with any
provision of the Investment Company Act, including Section 22 thereof.
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Section 10.05. Interim Determinations. Any determination of net asset
value other than as of the close of trading on the New York Stock Exchange may
be made either by appraisal or by calculation or estimate. Any such calculation
or estimate shall be based on changes in the market value of representative or
selected securities or on recognized market averages since the last closing
appraisal and made in a manner which, in the opinion of the Board of Directors
or its delegate, will fairly reflect the changes in the net asset value.
Section 10.06. Miscellaneous. For the purposes of this Article X:
(a) Shares of any class of common stock of the Corporation sold shall be
deemed to be outstanding as of the time at or after an unconditional order
therefor has been received by the Corporation (directly or through one of its
agents) and the sale price in currency has been determined. The net sale price
of shares of a class of stock sold by the Corporation (less commission, if any,
and less any stamp or other tax payable by the Corporation in connection with
the issue and sale thereof) shall be thereupon deemed to be an asset of that
class of stock of the Corporation.
(b) Shares of any class of stock of the Corporation for which an
application for redemption has been made or which are subject to repurchase by
the Corporation shall be deemed to be outstanding up to and including the time
as of which the redemption or repurchase price is determined. After such time,
they shall be deemed to be no longer outstanding and the price until paid shall
be deemed to be a liability of that class of stock.
(c) Funds on deposit and contractual obligations payable to the
Corporation or a class of stock of the Corporation in foreign currency ad
liabilities and contractual obligations payable by the Corporation or a class of
stock of the Corporation in foreign currency shall be taken at the current cable
rate of exchange as nearly as practicable at the time of which the net asset
value is computed.
ARTICLE XI
ACCOUNTANT
Section 11.01. Accountant.
(a) The Corporation shall employ an independent public accountant or firm
of independent public accountants as its accountant to examine the accounts of
25
<PAGE>
the Corporation and to sign and certify financial statements filed by the
Corporation. The accountant's certificates and reports shall be addressed both
to the Board of Directors and to the stockholders.
(b) A majority of the members of the Board of Directors who are not
interested persons (as such term is defined in the Investment Company Act) of
the Corporation shall select the accountant at any meeting held within 30 days
before or 90 days after the beginning of the fiscal year of the Corporation or
before the annual stockholders' meeting in that year. Such selection shall be
submitted for ratification or rejection at the next succeeding annual
stockholder's meeting if such meeting be held. If such meeting shall reject such
selection, the accountant shall be selected by majority vote of the
Corporation's outstanding voting securities, either at the meeting at which the
rejection occurred or at a subsequent meeting of stockholders called for the
purpose.
(c) Any vacancy occurring between annual meetings, due to the death or
resignation of the accountant, may be filled by a majority of the members of the
Board of Directors who are not such interested persons.
ARTICLE XII
INDEMNIFICATION AND INSURANCE
Section 12.01. Indemnification of Officers, Directors, Employees and
Agents. The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or has been a director, officer, employee or agent
of the Corporation, or is or has been a director, officer, employee or agent of
another Corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, to the full extent provided and allowed by Section
2-418 of the General Corporation Law of Maryland, as amended from time to time,
or any other applicable provisions of law. Notwithstanding any provision herein
to the contrary, no such person shall be indemnified in violation of Section
17(h) and (I) of the Investment Company Act.
26
<PAGE>
Section 12.02. Insurance of Officers, Directors, Employees and Agents. The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another Corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability.
ARTICLE XIII
AMENDMENTS
The By-laws of the Corporation may be altered, amended or repealed either
by the affirmative vote of a majority of the stock issued and outstanding and
entitled to vote in respect thereof and represented in person or by proxy at any
annual or special meeting of the stockholders, or by the Board of Directors at
any regular or special meeting of the Board of Directors; provided, that the
Board of Directors may not alter, amend or repeal this Article XIII and may
amend Article VI only in accordance with the terms contained therein, and that
the vote of stockholders required for alteration, amendment or repeal of any of
such provisions shall be subject to all applicable requirements of federal or
state laws or of the Articles of Incorporation.
27
INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement is executed as of this 1st day of
April, 1998, between FOUNDERS FUNDS, INC., a Maryland corporation (the
"Company") on behalf of each of its series Funds listed on Appendix 1 to this
Agreement, which Appendix 1 is incorporated into this Agreement by this
reference (as to each series, the "Fund"), and FOUNDERS ASSET MANAGEMENT LLC, a
Delaware limited liability company (the "Adviser").
WHEREAS, the Company has been organized and operates as an investment
company registered under the Investment Company Act of 1940 for the purpose of
investing and reinvesting its assets in securities, as set forth in its Articles
of Incorporation, its By-Laws and its Registration Statements under the
Investment Company Act of 1940 and the Securities Act of 1933, all as heretofore
amended and from time to time further amended and supplemented; and the Company
on behalf of each Fund desires to avail itself of the services, information,
advice, assistance and facilities of an investment adviser and to have an
investment adviser perform for it various management, statistical, research,
investment advisory and other services; and,
WHEREAS, the Adviser is engaged in the business of rendering management,
investment advisory, counseling and supervisory services to investment companies
and desires to provide these services to the Company.
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Adviser. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of each Fund and to
administer its affairs, consistent with the Fund's objectives, policies and
restrictions, and subject to the overall supervision of the Board of Directors
of the Company, for the period and on the terms hereinafter set forth. The
Adviser hereby accepts such employment and agrees during such period to render
the services and to assume the obligations herein set forth for the compensation
herein provided. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Company or any Fund in any way or otherwise be deemed an agent of the Company or
any Fund.
2. Obligations of and Services to be Provided by the Adviser. In return
for the compensation described in paragraph 4 hereof, the Adviser undertakes to
provide the following services and to assume the following obligations:
A. Office Space, Furnishings, Facilities, Equipment and Personnel.
The Adviser shall furnish to the Company adequate office space, which may be
<PAGE>
space within the office of the Adviser or in such other place as may be agreed
upon from time to time. The Adviser also shall furnish to the Company office
furnishings, facilities and equipment, including computer equipment and
programs, as may be reasonably required for managing the corporate affairs and
conducting the business of the Company, including ordinary clerical, bookkeeping
and administrative services, and maintenance of each Fund's books and records.
The Adviser shall employ or provide and compensate the executive, secretarial
and clerical personnel necessary to provide such services. The Adviser shall
also compensate all officers and employees of the Company and, in addition to
the services described in subparagraph D of this paragraph, shall permit
officers and employees of the Adviser to serve as directors or officers of the
Company, without compensation from the Company, if elected to such positions.
B. Investment Advisory Services and Brokerage Allocation.
(1) The Adviser shall recommend from time to time to the
officers and directors of the Company a course of investment for each Fund's
assets and portfolio, subject to and in accordance with the investment
objectives and policies of the Fund and any directions which the Company's Board
of Directors may issue from time to time. The Adviser's recommendations also
shall include the manner in which the voting rights, rights to consent to
corporate action and any other rights pertaining to the Fund's portfolio
securities shall be exercised. Subject to such objectives, policies and
directions and subject to the overall supervision of the Board of Directors of
the Company, the Adviser shall manage the investment and reinvestment of the
assets of each Fund. The Adviser shall render such reports to the Company
concerning the investment of each Fund's assets and portfolio as may be required
by the Board of Directors of the Company.
(2) Decisions with respect to placement of each Fund's
portfolio transactions shall be made by the Adviser. The primary consideration
in making these decisions shall be to seek the best execution of orders at the
most favorable net prices for the Fund, taking into account such factors as the
size of the order, difficulty of execution, and the reliability, financial
condition and capabilities of the broker or dealer. Subject to these objectives,
business may be placed with brokers and dealers who furnish investment research
services to the Adviser or to affiliates of the Adviser. Such research services
include advice, both directly and in writing, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities, or purchasers or sellers of securities, as well as
the furnishing of analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts. Such services allow the Adviser and its affiliates to supplement
their own investment research activities and provide them with information from
individuals and research staffs of many securities firms. The Company
<PAGE>
acknowledges on behalf of each Fund that to the extent portfolio transactions
are effected with brokers or dealers who furnish research services to the
Adviser or its affiliates, they receive a benefit, which generally is not
capable of evaluation in dollar amounts, which is not passed on to the Fund in
the form of a direct monetary benefit.
(3) The Adviser shall render such reports regarding allocation
of brokerage business as may be required by the Board of Directors of the
Company.
C. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials. The Adviser shall make
available and provide accounting and statistical information required by the
Company and its principal underwriter in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and such information as the principal underwriter of the Company may
reasonably request, for use in the preparation of such documents or of other
materials necessary or helpful for the underwriting and distribution of each
Fund's shares.
D. Other Obligations and Services. The Adviser shall keep its
qualifications, facilities and staff fully adequate for performance of its
duties hereunder, and will perform such duties in good faith and in the best
interests of the Fund. The Adviser shall comply in all respects with applicable
statutory and regulatory provisions, including the Investment Company Act of
1940 and the Investment Advisers Act of 1940. The Adviser shall make available
its officers and employees to the Board of Directors and officers of the Company
for consultation and discussions regarding the administrative management of each
Fund and its investment activities.
3. Expenses of Each Fund. It is understood that each Fund will pay all of
its expenses other than those expressly assumed by the Adviser herein, which
expenses payable by the Fund shall include:
A. Fees to the Adviser as provided herein;
B. Expenses of all audits by independent public accountants;
C. The allocated portion of fees and expenses of legal counsel in
connection with legal services rendered to the Company, including the Board of
Directors of the Company, committees of the Board of Directors and those
directors who are not "interested persons" of the Company or the Adviser, as
defined in the Investment Company Act of 1940, and litigation;
<PAGE>
D. Brokerage fees and commissions and other transaction costs in
connection with the purchase and sale of portfolio securities for the Fund;
E. Costs, including the interest expense, of borrowing money;
F. All federal, state and local taxes levied against the Fund;
G. The allocated portion of fees of directors of the Company not
affiliated with the Adviser;
H. The allocated portion of costs and expenses of meetings of the
Board of Directors, committees of the Board of Directors and shareholders of the
Company;
I. Fees and expenses of the Company's transfer agent, registrar,
custodian, dividend disbursing agent, shareholder accounting agent, and other
agents approved by the Board of Directors of the Company;
J. Cost of printing stock certificates representing shares of
the Fund;
K. Fees and expenses of registering and qualifying and maintaining
registration and qualification of the Company, the Fund and its shares under
federal, state and foreign securities laws;
L. The allocated portion of fees and expenses incident to filing of
reports with regulatory bodies and maintenance of the Company's existence;
M. The allocated portion of premiums for insurance carried by
the Company pursuant to the requirements of Section 17(g) of the Investment
Company Act of 1940;
N. The allocated portion of fees and expenses incurred in
connection with any investment company organization or trade association of
which the Company may be a member;
O. The allocated portion of expenses of preparation, printing
(including typesetting) and distribution of reports, notices and prospectuses
to existing shareholders of the Company;
P. Expenses of computing the Fund's daily per share net asset
value; and
Q. The allocated portion of expenses incurred by the Company in
connection with litigation proceedings or claims, including any obligation the
Company may have to indemnify its officers and directors with respect thereto.
<PAGE>
4. Compensation of the Adviser. As compensation for its services to each
Fund, the Adviser will be paid a monthly management fee by the Fund at an annual
rate equal to the percentages of the average daily value of the Fund's net
assets described as to each Fund on Appendix 1 to this Agreement, with each
Fund's net assets determined in accordance with provisions of the then current
prospectus of the Fund. All fees and expenses are accrued daily and deducted
before payment of dividends to shareholders. The fee is payable monthly and
shall be prorated for any portion of a month beginning on the date of this
Agreement or ending on termination of this Agreement.
5. Expense Limitation. In the event the total expenses of a Fund for any
fiscal year, including the advisory fee but excluding interest, taxes, brokerage
commissions and extraordinary expenses, should exceed the lowest applicable
annual expense limitation established pursuant to the statutes or regulations of
any jurisdiction in which shares of the Fund are then qualified for offer or
sale, the Adviser shall reimburse the Fund for the full amount of such excess.
Such reimbursement shall be made by the Adviser monthly, subject to annual
reconciliation.
6. Activities of the Adviser. Nothing in this Agreement shall limit or
restrict the right of any director, officer or employee of the Adviser who may
also be a director, officer or employee of the Company to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any business, whether of a similar or a dissimilar nature, nor to
limit or restrict the right of the Adviser to engage in any other business or to
render services of any kind to any other corporation, firm, individual or
association. Subject to and in accordance with the Articles of Incorporation and
By-Laws of the Company and to Section 10(a) of the Investment Company Act of
1940, it is understood that directors, officers, agents and shareholders of the
Company are or may be interested in the Adviser or its affiliates as directors,
officers, agents or shareholders of the Adviser or its affiliates and that
directors, officers, agents or shareholders of the Adviser or its affiliates are
or may be interested in the Company as directors, officers, shareholders or
otherwise, and that the effect of any such interests shall be governed by said
Articles of Incorporation, said By-Laws and the Act.
7. Liabilities. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Company or
to any Fund hereunder for any act or omission in the course of, or connected
with, rendering services hereunder. No liability to the Adviser hereunder shall
attach individually to the shareholders, directors or officers of the Company.
8. Renewal, Termination and Amendment. This Agreement shall become
effective upon the date first above written and shall continue in effect for an
<PAGE>
initial term ending May 31, 1999, unless earlier amended or terminated. This
Agreement is renewable thereafter as to each Fund for successive periods not to
exceed one year if such continuance is approved at least annually by votes of
the Company's Board of Directors, cast in person at a meeting called for the
purpose of voting on such approval, or by a majority of the outstanding voting
securities of the Fund and in either event by the vote of a majority of the
directors who are not parties to the Agreement or interested persons of any such
party other than as directors of the Company. In addition, (i) this Agreement
may at any time be terminated as to any Fund without the payment of any penalty
either by vote of the Board of Directors of the Company or by vote of a majority
of the outstanding voting securities of the Fund, on sixty days' written notice
to the Adviser; (ii) this Agreement shall immediately terminate in the event of
its assignment (within the meaning of the Investment Company Act of 1940); and
(iii) this Agreement may be terminated by the Adviser on sixty days' written
notice to the Company. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed postpaid, to the other party at any office of
such party. This Agreement may be amended as to any Fund at any time by mutual
consent of the parties, provided that such consent on the part of the Company
shall have been approved by vote of a majority of the outstanding voting
securities of the Fund. As used in this paragraph, the term "vote of a majority
of the outstanding voting securities" shall have the meaning set forth for such
term in Section 2(a)(42) of the Investment Company Act of 1940.
9. Name. The Company and each Fund may use the word "Founders" in their
names and businesses only so long as the Adviser acts as investment adviser to
the Fund.
10. Severability. If any provision of this Agreement is held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
11. Miscellaneous. This Agreement shall be subject to the laws of the
State of Colorado, and shall be interpreted and construed to further and promote
the operation of the Company as an open-end investment company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
FOUNDERS FUNDS, INC.
on behalf of each of the series Funds listed
on Appendix 1 to this Agreement
ATTEST: By: /s/ Marie E. Connolly
----------------------------
Marie E. Connolly, President
/s/ Christopher J. Kelley
- -------------------------
Christopher J. Kelley,
Assistant Secretary
FOUNDERS ASSET MANAGEMENT LLC
ATTEST: By: /s/ Jonathan F. Zeschin
------------------------------
Jonathan F. Zeschin, President
/s/ Kenneth R. Christoffersen
- -----------------------------
Kenneth R. Christoffersen,
Secretary
<PAGE>
APPENDIX 1
TO
FOUNDERS FUNDS, INC. INVESTMENT ADVISORY AGREEMENT
This Appendix l to the Investment Advisory Agreement ("Agreement") executed as
of the 1st day of April, 1998, between Founders Funds, Inc. and Founders Asset
Management LLC is effective as of the 1st day of April, 1998.
The following series Funds of Founders Funds, Inc. are parties to the Agreement
and, pursuant to paragraph 4 of the Agreement, shall pay to Founders Asset
Management LLC, as compensation for its services to each series Fund, the
management fees disclosed in the following table:
Fund Advisory Fee Schedule
Discovery Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Passport Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Frontier Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Special Fund 1.000% to $30 million
0.750% next $270 million
0.700% next $200 million
0.650% thereafter
International Equity Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Worldwide Growth Fund 1.000% to $250 million
0.800% next $250 million
0.700% thereafter
Growth Fund 1.000% to $30 million
0.750% next $270 million
0.700% next $200 million
0.650% thereafter
<PAGE>
Blue Chip Fund 0.650% to $250 million
0.600% next $250 million
0.550% next $250 million
0.500% thereafter
Balanced Fund 0.650% to $250 million
0.600% next $250 million
0.550% next $250 million
0.500% thereafter
Government Securities Fund 0.650% to $250 million
0.500% thereafter
Money Market Fund 0.500% to $250 million
0.450% next $250 million
0.400% next $250 million
0.350% thereafter
FOUNDERS FUNDS, INC.
on behalf of each of the series Funds listed
on this Appendix 1
ATTEST: By: /s/ Marie E. Connolly
----------------------------
Marie E. Connolly, President
/s/ Christopher J. Kelley
- -------------------------
Christopher J. Kelley,
Assistant Secretary
FOUNDERS ASSET MANAGEMENT LLC
ATTEST: By: /s/ Jonathan F. Zeschin
------------------------------
Jonathan F. Zeschin, President
/s/ Kenneth R. Christoffersen
- -----------------------------
Kenneth R. Christoffersen,
Secretary
FOUNDERS FUNDS, INC.
UNDERWRITING AGREEMENT
This Agreement made as of the 1st day of April, 1998, by and between
Premier Mutual Fund Services, Inc., a Delaware corporation (the "Underwriter"),
and Founders Funds, Inc., a Maryland corporation (the "Company"), on behalf of
any series of its shares which may now exist or hereafter be created (the
"Funds").
WITNESSETH:
That in consideration of the mutual covenants herein contained and for
other good and valuable consideration the parties hereto, intending to be
legally bound hereby, agree as follows:
1. Appointment of Underwriter. Except as otherwise provided herein, the
Company hereby appoints the Underwriter its exclusive agent to sell and
distribute shares of the Funds without compensation at the public offering price
thereof, which shall be equivalent to their net asset value, calculated as
described in the current prospectus of the Company. The Company agrees that it
will deliver such shares as the Underwriter may sell. The Underwriter agrees to
use its best efforts to promote the sale of shares of the Funds, but is not
obligated to sell any specific number of shares.
2. Independent Contractor. The Underwriter will undertake and discharge
its obligations hereunder as an independent contractor and shall have no
authority of power to obligate or bind the Company by its actions, conduct or
contracts except that it may be authorized to accept orders for the sale or
repurchase of shares of the Funds as the Company's agent. The Underwriter may
appoint subagents or distribute shares of the Funds through dealers or otherwise
as it may determine from time to time including, without limitation, appointing
subagents for the purpose of accepting orders for the sale or repurchase of Fund
shares, provided that no such appointment shall relieve the Underwriter of its
responsibility for the proper performance of this Agreement by the Underwriter
or, where applicable, its subagents.
<PAGE>
3. Payment for Shares and Share Registration. The Underwriter shall notify
the Company or cause the Company to be notified by the Company's Transfer Agent,
at the end of each business day, or as soon thereafter as orders placed during
such day have been compiled, of the number of shares and the prices thereof
which the Underwriter shall have sold on behalf of each Fund. The Underwriter
shall use its best efforts to cause the sums due for shares ordered from a Fund
to be collected or to be advanced to that Fund by the Company's Transfer Agent
on behalf of purchasers on or before the third business day after the shares
have been so ordered. The Underwriter shall issue and deliver on behalf of the
Company or cause to be issued and delivered by the Company's Transfer Agent all
confirmations of transactions effected hereunder for the account of a Fund. The
Company will provide for the recording of share purchases in "book accounts;"
provided, however, that upon receipt of a written request from a purchaser, the
Company's Transfer Agent may, but is not required to, deliver a certificate of
shares in such names and amount as the purchaser shall specify in writing, such
delivery to be made as soon as practicable after payment therefor and their
registration on the books of the Company.
4. Suspension of Sales. The sale of shares of the Funds may be suspended
with or without prior notice whenever in the judgment of the Company it is in
its best interests to do so.
5. Repurchase of Shares. As the Company's agent, the Underwriter may buy
shares of a Fund offered for repurchase at the next effective net asset value
per share calculated and effective as set forth in Paragraphs 1 and 3 above.
Whenever the officers of the Company deem it advisable, for the protection of
the shareholders of a Fund, they may suspend or cancel such authority. The
Underwriter will pay all expenses in connection with the repurchase of shares.
<PAGE>
6. Conduct of Business. Neither the Underwriter nor any other person is
authorized by the Company or any Fund to give any information or make any
representation relative to the Company or any Fund's shares other than those
contained in the registration statement or prospectus filed with the Securities
and Exchange Commission as the same may be amended from time to time or in any
supplemental information to said prospectus approved by the Company. The
Underwriter agrees that any information or representation other than that
specified above which it or any dealer or other person who purchases shares
through the Underwriter may make in connection with the offer or sale of shares
shall be made entirely without liability on the part of the Company or any Fund.
The Underwriter agrees that in offering or selling shares as agent of the
Company, it will in all respects duly conform to all applicable state and
federal laws. The Underwriter will submit to the Company copies of all sales
literature before using the same and will not use such literature if disapproved
by the Company.
7. Allocation of Expenses. In connection with the sale and distribution of
shares pursuant to this Agreement, the Underwriter shall pay all of its own
expenses and such other expenses as are not specifically assumed by the Company
as hereinafter provided.
The Company specifically assumes and shall pay all fees and
expenses, including legal fees, incurred in (a) the preparation of audited
financial statements to the Company; (b) the preparation and initial printing of
all post-effective amendments, supplements and revisions of its registration
statements; (c) printing and distributing copies of any prospectus to its
shareholders; (d) the preparation and initial printing of shareholder reports
and communications and distributing copies thereof to its shareholders; (e) the
registration of the Company and its shares with the Securities and Exchange
Commission; and (f) the qualification of the Company and its shares in each
state in which its shares will be qualified for sale. Nothing contained herein
shall be deemed to require the Company to pay any of the costs of advertising
the sale of Company shares.
<PAGE>
8. Provision of Information. The Company shall furnish the Underwriter
from time to time, for use in connection with the sale of shares of the Funds,
such information with respect to the Company or any relevant Fund and the shares
as the Underwriter may reasonably request, all of which shall be signed by one
or more of the Company's duly authorized officers; and the Company warrants that
the statements contained in any such information, when so signed by the
Company's officers, shall be true and correct. The Company also shall furnish
the Underwriter upon request with: (a) semi-annual reports and annual audited
reports of the Company's books and accounts made by independent public
accountants regularly retained by the Company, (b) a monthly itemized list of
the securities in the Company's or, if applicable, each Fund's portfolio, and
(c) from time to time such additional information regarding the Company's
financial condition as the Underwriter may reasonably request.
9. Registrations and Qualifications; Representations and Warranties.
(a) The Company agrees to execute any and all documents and to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Company's officers in connection with the
qualification of shares of the Funds for sale in such states as the Underwriter
may designate to the Company and the Company may approve. The Underwriter shall
pay all expenses connected with its own qualification as a dealer under state or
Federal laws and, except as otherwise specifically provided in this Agreement,
all other expenses incurred by it in connection with the sale of Shares as
contemplated in this Agreement.
(b) The Company represents to the Underwriter that all registration
statements and prospectuses filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and under the
Investment Company Act of 1940, as amended, with respect to the shares have been
<PAGE>
carefully prepared in conformity with the requirements of said Acts and rules
and regulations of the Securities and Exchange Commission thereunder. As used in
this agreement the terms "registration statement" and "prospectus" shall mean
any registration statement and prospectus, including the statement of additional
information incorporated by reference therein, filed with the Securities and
Exchange Commission and any amendments and supplements thereto which at any time
shall have been filed with said Commission. The Company represents and warrants
to the Underwriter that any registration statement and prospectus, when such
registration statement becomes effective, will contain all statements required
to be stated therein in conformity with said Acts and the rules and regulations
of said Commission; that all statements of fact contained in any such
registration statement and prospectus will be true and correct when such
registration statement becomes effective; and that neither any registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Company may, but shall not be obligated to, propose from
time to time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Company's counsel, be necessary or
advisable. If the Company shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Company of a
written request from the Underwriter to do so, the Underwriter may, at its
option, terminate this agreement or decline to make offers of the Company's
securities until such amendments are made if, in the Underwriter's reasonable
opinion, the failure to make such amendments could have a material adverse
effect upon the Underwriter. The Company shall not file any amendment to any
registration statement or supplement to any prospectus without giving the
Underwriter reasonable notice thereof in advance, if possible; provided,
however, that nothing contained in this agreement shall in any way limit the
Company's right to file at any time such amendments to any registration
statement and/or supplements to any prospectus, of whatever character, as the
Company may deem advisable, such right being in all respects absolute and
unconditional.
<PAGE>
(c) The Underwriter shall comply with all applicable federal and state
laws, rules and regulations, the rules and regulations of any self-regulatory
organization with jurisdiction over the Underwriter and/or the Company, and the
provisions of the Company's prospectus and statement of additional information
(the foregoing laws, rules, regulations and provisions are collectively referred
to herein as "Applicable Law") relating to the services the Underwriter provides
pursuant to this Agreement. The Underwriter hereby represents and warrants to
the Company that:
(i) It has the corporate power and the authority to enter into
and perform all of its duties and obligations under this Agreement;
(ii) This Agreement constitutes its legal, valid and binding
obligation and is enforceable against it in accordance with its terms;
(iii) No consent or authorization of, filing with, or other
act by or in respect of any governmental authority is required in
connection with the execution, delivery, performance, validity or
enforceability of this Agreement;
(iv) The execution, performance and delivery of this Agreement
by the Underwriter will not result in its violating any Applicable Law or
breaching or otherwise impairing any of its contractual obligations; and
(v) The Underwriter has obtained, and will maintain in effect,
all registrations under Applicable Law that are necessary to enable it to
perform its obligations under this Agreement.
10. Indemnification. (a) The Company authorizes the Underwriter to
use any current prospectus in the form furnished by the Company to the
Underwriter from time to time, in connection with the sale of shares of the
Funds. The Company agrees to indemnify, defend and hold the Underwriter, its
<PAGE>
several officers and directors, and any person who controls the Underwriter
within the meaning of Section 15 of the Securities Act of 1933, as amended, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Underwriter, its officers and directors, or any such controlling persons, may
incur under the Securities Act of 1933, as amended, or under common law or
otherwise, arising out of or based upon any omission, or alleged omission, to
state a material fact required to be stated in either any registration statement
or any prospectus or necessary to make the statements in either thereof not
misleading; provided, however, that the Company's agreement to indemnify the
Underwriter, its officers or directors, and any such controlling person shall
not be deemed to cover any claims, demands, liabilities or expenses arising out
of any untrue statement or alleged untrue statement or omission or alleged
omission made in any registration statement or prospectus in reliance upon and
in conformity with written information furnished to the Company by the
Underwriter specifically for use in the preparation thereof. The Company's
agreement to indemnify the Underwriter, its officers and directors, and any such
controlling person, as aforesaid, is expressly conditioned upon the Company's
being notified of any action brought against the Underwriter, its officers or
directors, or any such controlling person, such notification to be given by
letter or by telegram addressed to the Company at its address set forth above
within ten days after the summons or other first legal process shall have been
served. The failure so to notify the Company of any such action shall not
relieve the Company from any liability which the Company may have to the person
against whom such action is brought by reason of any such untrue, or alleged
untrue, statement or omission, or alleged omission, otherwise than on account of
the Company's indemnity agreement contained in this paragraph 10(a). The Company
will be entitled to assume the defense of any suit brought to enforce any such
claim, demand or liability, but, in such case, such defense shall be conducted
by counsel of good standing chosen by the Company and approved by the
<PAGE>
Underwriter, acting in good faith. In the event the Company elects to assume the
defense of any such suit and retain counsel of good standing approved by the
Underwriter, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case the
Company does not elect to assume the defense of any such suit, or in case the
Underwriter does not approve of counsel chosen by the Company, the Company will
reimburse the Underwriter, its officers and directors, or the controlling person
or persons named as defendant or defendants in such suit, for the reasonable
fees and expenses of any counsel retained by the Underwriter or them. The
Company's indemnification agreement contained in this paragraph 10(a) and the
Company's representations and warranties in this agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Underwriter, its officers and directors, or any controlling
person, and shall survive the delivery of any shares of the Funds. This
agreement of indemnity will inure exclusively to the Underwriter's benefit, to
the benefit of its several officers and directors, and their respective estates,
and to the benefit of any controlling persons and their successors. The Company
agrees promptly to notify the Underwriter of the commencement of any litigation
or proceedings against the Company or any of its officers or Board members in
connection with the issue and sale of shares of the Funds.
(b) The Underwriter agrees to indemnify, defend and hold the Company, its
several officers and Board members, and any person who controls the Company
within the meaning of Section 15 of the Securities Act of 1933, as amended, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Company, its officers or Board members, or any such controlling person, may
incur under the Securities Act of 1933, as amended, or under common law or
otherwise, arising out of or based upon: (i) the Underwriter's negligence or
<PAGE>
willful misconduct in the performance of its duties and obligations under this
Agreement; (ii) the Underwriter's violation of Applicable Law in connection with
the performance of its duties and obligations under this Agreement; (iii) any
breach by the Underwriter of any provision of this Agreement, including any
representation, warranty or covenant made in the Agreement; and (iv) any untrue,
or alleged untrue, statement of a material fact contained in information
furnished in writing by the Underwriter to the Company specifically for use in
the Company's registration statement and used in the answers to any of the items
of the registration statement or in the corresponding statements made in the
prospectus, or any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by the Underwriter to the
Company and required to be stated in such answers or necessary to make such
information not misleading. The Underwriter's agreement to indemnify the
Company, its officers and Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon its being notified of any action
brought against the Company, its officers or Board members, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Underwriter at its address set forth above within ten days
after the summons or other first legal process shall have been served. The
failure so to notify the Underwriter of any such action shall not relieve the
Underwriter from any liability which the Underwriter may have to the Company,
its officers or Board members, or to such controlling person by reason of any
such untrue, or alleged untrue, statement or omission, or alleged omission,
otherwise than on account of its indemnity agreement contained in this paragraph
10(b). The Underwriter will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but, in such case, such
defense shall be conducted by counsel of good standing chosen by the Underwriter
and approved by the Company, acting in good faith. In the event the Underwriter
elects to assume the defense of any such suit and retain counsel of good
standing approved by the Company, the defendant or defendants in such suit shall
<PAGE>
bear the fees and expenses of any additional counsel retained by any of them;
but in case the Underwriter does not elect to assume the defense of any such
suit, or in case the Company does not approve of counsel chosen by the
Underwriter, the Underwriter will reimburse the Company, its officers and Board
members, or the controlling person or persons named as defendant or defendants
in such suit, for the reasonable fees and expenses of any counsel retained by
the Company or them. The Underwriter's indemnification agreement contained in
this paragraph 10(b) and the Underwriter's representations and warranties in
this Agreement shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Company, its officers and Board
members, or any controlling person, and shall survive the delivery of any shares
of the Funds. This agreement of indemnity will inure exclusively to the
Company's benefit, to the benefit of the Company's officers and Board members,
and their respective estates, and to the benefit of any controlling persons and
their successors. The Underwriter agrees promptly to notify the Company of the
commencement of any litigation or proceedings against the Underwriter or any of
its officers or directors in connection with the issue and sale of shares of the
Funds.
11. Suspension of Registration. No shares of the Funds shall be offered by
either the Underwriter or the Company under any of the provisions of this
Agreement, and no orders for the purchase or sale of such shares hereunder shall
be accepted by the Company, if and so long as the effectiveness of the
registration statement then in effect or any necessary amendments thereto shall
be suspended under any of the provisions of the Securities Act of 1933, as
amended, or if and so long as a current prospectus as required by Section 10 of
said Act, as amended, is not on file with the Securities and Exchange
Commission; provided, however, that nothing contained in this paragraph 11 shall
in any way restrict or have any application to or bearing upon the Company's
obligation to repurchase any shares of the Funds from any shareholder in
accordance with the provisions of the Company's prospectus or charter documents.
<PAGE>
12. Required Notifications. The Company agrees to advise the Underwriter
promptly in writing:
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect or for
additional information;
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the registration
statement or prospectus then in effect or the initiation of any proceeding for
that purpose;
(c) of the happening of any event which makes untrue any statement
of a material fact made in the registration statement or prospectus then in
effect or which requires the making of a change in such registration statement
or prospectus in order to make the statements therein not misleading; and
(d) of all actions of the Securities and Exchange Commission with
respect to any amendments to any registration statement or prospectus which may
from time to time be filed with the Securities and Exchange Commission.
13. Other Activities. So long as the Underwriter acts as the distributor
of Company shares, the Underwriter shall not perform any services for any entity
other than a "Mellon Entity," such term being defined as any entity that is
advised or administered by a direct or indirect subsidiary of the Mellon Bank
Corporation. The Company acknowledges that the persons employed by the
Underwriter to assist in the performance of its duties under this Agreement may
not devote their full time to such service and, subject to the preceding
sentence, nothing contained in this Agreement shall be deemed to limit or
restrict the Underwriter's right or any of its affiliates' right to engage in
and devote time and attention to other businesses or to render services of
whatever kind or nature.
<PAGE>
14. Term of Agreement. This Agreement shall become effective upon the date
first above written. This Agreement shall continue in effect through May 31,
1999, and thereafter for successive annual periods, provided that its
continuance is specifically approved at least annually by the Company's
directors or, with respect to any Fund, by vote of a majority of that Fund's
outstanding voting securities and, in any event, by a majority of those
directors who are not parties to this Agreement or interested persons of any
party to this Agreement (other than as directors of the Company) at a meeting
called for the purpose of voting on such approval.
This Agreement shall automatically terminate in the event of its
assignment (within the meaning of the Investment Company Act of 1940, as
amended): provided, however, that the Underwriter may employ such other person,
persons, corporation or corporations, as it shall determine, in order to assist
it in carrying out the provisions of this Agreement.
This Agreement may be terminated at any time by either party hereto
by giving six months' written notice to the other party, or at any time by
mutual consent of the parties hereto. Such notice shall be sent by certified
mail. Until further notice, the mailing address of Company shall be:
Founders Financial Center
2930 East Third Avenue
Denver, Colorado 80206
Until further notice, the mailing address of Underwriter shall be:
200 Park Avenue
45th Floor
New York, NY 10166
15. Miscellaneous. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Colorado and shall be
interpreted and construed to further and promote the operation of the Company as
an open-end investment company. As used herein, the terms "Net Asset Value,"
<PAGE>
"Offering Price," "Investment Company," and "Interested Persons" shall have the
meanings set forth in the Investment Company Act of 1940, as amended, and the
Rules, Regulations, Orders, and Forms thereunder.
IN WITNESS WHEREOF, this Agreement has been executed by the Underwriter
and the Company as of the day and year first above written.
FOUNDERS FUNDS, INC.
ATTEST: By: /s/ Marie E. Connolly
----------------------------
Marie E. Connolly, President
/s/ Christopher J. Kelley
- -------------------------
Christopher J. Kelley,
Assistant Secretary
PREMIER MUTUAL FUND SERVICES, INC.
ATTEST: By: /s/ Richard W. Ingram
------------------------
Richard W. Ingram,
Executive Vice President
/s/ Jean M. O'Leary
- -------------------
Jean M. O'Leary,
Secretary
Premier Mutual Fund Services, Inc.
60 State Street, Suite 1300
Boston, MA 02109
RE: Distribution and Shareholder Support Agreement for Founders
Funds, Inc.
Ladies and Gentlemen:
We understand that the separate series mutual funds of Founders Funds, Inc.
listed on Attachment A to this Agreement have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which includes provision for payments to selected
brokers for their distribution efforts and their shareholder support and
assistance to the funds. Such funds, together with any other mutual funds
managed by Founders Asset Management LLC which hereafter may enter into a
similar Plan, are hereinafter referred to collectively as the "Funds".
We desire to enter into an agreement with you as the Funds' Distributor for the
sale and distribution of the shares of the Funds (the "Shares"). Upon acceptance
of this Agreement by you, we understand that we may offer and sell Shares
subject, however, to all of the terms and conditions hereof and to your right,
without notice, to suspend or terminate the sale of such Shares.
1. We understand that the Shares will be offered and sold at the current
offering price in effect at the time the order for such securities is
confirmed and accepted. All purchase requests and applications submitted by
us are subject to acceptance or rejection in your sole discretion and, if
accepted, each purchase will be deemed to have been consummated at your
office. In the event of a difference between verbal and written price
confirmations, written confirmations shall be considered final.
2. We certify (a) that we are a member of the National Association of
Securities Dealers, Inc. ("NASD") and agree to maintain membership in the
NASD or (b) in the alternative that we are a foreign dealer not eligible
for membership in the NASD. In either case, we agree to abide by all
federal and state laws, rules and regulations applicable to our activities
under this Agreement including, but not limited to, the rules and
regulations of the Securities and Exchange Commission and the NASD which
are binding upon underwriters and dealers in the distribution of the
securities of open-end investment companies including, without limitation,
Section 2830 of the NASD Conduct Rules, all of which are incorporated
herein as if set forth in full. We agree that we will not sell Shares or
<PAGE>
offer Shares for sale in any state or jurisdiction where they are not then
registered or qualified for sale.
3. We will offer and sell Shares only in accordance with the terms and
conditions of the Funds' then current Prospectus and we will make no
representations not included either in said Prospectus or in any authorized
supplemental material supplied by you. We will exercise due care and
diligence, act in good faith and use our best efforts in the development
and promotion of sales of Shares, and agree to be responsible for the
proper instruction and training of all sales personnel employed by us, in
order that the Shares will be offered in accordance with the terms and
conditions of this Agreement and all applicable laws, rules and
regulations. We agree to hold you and the Funds harmless and indemnify each
of you in the event that we, or any of our sales representatives, should
violate any law, rule or regulation, or any provisions of this Agreement,
which violation may result in liability to you and/or the Funds. In the
event you determine to refund any amounts paid by any investor by reason of
any such violation on our part, we shall return to you any service fees
previously paid by you to us with respect to the assets for which the
refund is made. All expenses which we incur in connection with our
activities under this Agreement shall be borne by us.
4. In our offering and sale of Shares, we will disclose to investors our
entitlement to receive service fees from you in accordance with this
Agreement.
5. We will provide continuous support and assistance to investors in the Funds
whose Shares have been sold through us, for such period (a) as the
investors retain their Shares and (b) service fees with respect to such
Shares are paid to us. Such support and assistance may include, but will
not necessarily be limited to: (i) providing assistance to investors in
effecting transactions in their Shares, such as exchanges, transfers,
changes in dividend options and shareholder information alterations; (ii)
providing responses to written or telephonic inquiries made by investors
with respect to their Shares; (iii) assisting investors in the purchase of
additional Shares in existing accounts, in opening new accounts, or in
redeeming Shares; (iv) assisting investors in contacting your personnel in
instances in which direct assistance from you would be helpful in
expeditiously accomplishing the investor's request; (v) providing
retirement planning presentations to potential or current participants in
employee retirement programs and plans; (vi) if Shares are registered in
our name or in the name of our nominee, performing sub-accounting,
<PAGE>
establishing and maintaining shareholder accounts and records and providing
periodic statements showing a shareholder's account balance and activity;
and (vii) providing such other forms of support and assistance as we are
reasonably able to furnish or as you reasonably may request. In the event
that we perform the services described in clause (vi) above, and the
aggregate accounts we maintain for shareholders do not balance with the
accounts maintained by you, we shall be liable to the shareholders for any
shortfall.
6. We understand and agree that the service fee relative to any sales and
maintenance of Shares made by us will be in an amount as set forth in the
Service Fee Payment Schedule included on Attachment A, and that we shall
have no right to receive any continuing maintenance fees, other fees or
commissions on Shares sold by us other than as set forth in that Schedule.
Subject to the provisions of Attachment A, our right to receive service
fees will commence on the date of this Agreement, and will apply to all
Shares that were sold by us that are then outstanding.
7. We understand that service fees are subject to change or termination by you
from time to time, upon 30 days' written notice, and that any orders placed
after the effective date of change shall be subject to the rates in effect
at the time of receipt of the payment by you. Such 30-day period may be
waived at your sole option in the event such change increases the service
fee due us.
8. Payment for purchases of Shares made from us shall be made to the Funds or
their agent and received by the Funds or their agent within three business
days after the acceptance of our order or such shorter time as may be
required by law. If such payment is not so received, we understand that you
reserve the right, without notice, forthwith to cancel the sale or, at your
option, to sell the Shares ordered by us back to the Funds, in which latter
case we may be held responsible for any loss suffered by you or the Funds
resulting from our failure to make the aforesaid payment. We will forward
promptly to the Funds or their agent any purchase orders and/or payments
received by us from investors. If we effect a telephone redemption or
telephone exchange of any Shares on behalf of any of our customers, we
hereby indemnify you, the Funds and any agent appointed by you for this
purpose against any loss, injury, damage, expense or liability which
results from acting or relying on our telephone instructions or
information. In no event shall we withhold placing with the Funds or their
agent orders received from our customers so as to profit ourselves as a
result of such withholding.
<PAGE>
9. We agree to purchase Shares only from you or from our customers. If we
purchase Shares from you, we agree that all such purchases shall be made
only to cover orders received by us from our customers, or for our own
bona fide investment. If we purchase Shares from our customers, we agree
to pay such customers not less than the applicable repurchase price as
established by the then current Prospectus of the Funds.
10. We understand and agree that if any Shares sold by us under the terms of
this Agreement are redeemed by the Funds (including redemptions resulting
from an exchange for Shares of another mutual fund distributed by you, in
accordance with the then current Prospectus for the Funds), repurchased by
you for the Funds, or tendered to the Funds for redemption within seven (7)
business days after your confirmation to us of our original purchase order
for such Shares, we shall pay forthwith to you the full amount of the
service fee allowed to us on the original sale, provided you notify us of
such repurchase or redemption within ten (10) days of the date upon which
written redemption requests and, if applicable, Share certificates are
delivered to you or to the Funds.
11. (a) You hereby represent and warrant to us as follows:
(i) You have the corporate power and the authority to enter into and
perform all of your duties and obligations under this Agreement;
(ii) This Agreement constitutes your legal, valid and binding
obligation, enforceable against you in accordance with its terms;
(iii) No consent or authorization of, filing with, or other act by
or in respect of any governmental authority is required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement; and
(iv) The execution, performance and delivery of this Agreement by
you will not result in your violating any law, rule or regulation or
breaching or otherwise impairing any of your contractual obligations.
(b) We hereby represent and warrant to you as follows:
(i) We have the corporate power and the authority to enter into and
perform all of our duties and obligations under this Agreement;
<PAGE>
(ii) This Agreement constitutes our legal, valid and binding
obligation and is enforceable against us in accordance with its terms;
(iii) No consent or authorization of, filing with, or other act by
or in respect of any governmental authority is required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement;
(iv) The execution, performance and delivery of this Agreement by us
will not result in our violating any law, rule or regulation or breaching
or otherwise impairing any of our contractual obligations; and
(v) We have obtained, and will maintain in effect, all registrations
under federal and state laws, rules and regulations that are necessary to
enable us to perform our obligations under this Agreement.
12. Your obligations to us under this Agreement are subject to all the
provisions of any distributorship agreements entered into between you and
the Funds. We understand and agree that in performing our services covered
by this Agreement we are acting as principal, and you are in no way
responsible for the manner of our performance or for any of our acts or
omissions in connection therewith. Nothing in this Agreement shall be
construed to constitute us or any of our agents, employees or
representatives as your agent, partner or employee, or the agent or
employee of the Funds.
13. We may terminate this Agreement by notice in writing to you, which
termination shall become effective on the earlier of thirty (30) days after
the date of mailing such notice to you, or receipt of written notification
from you of termination prior to the thirtieth day. We agree that you have
and reserve the right, in your sole discretion and without notice (and
without the payment of any penalty), to suspend sales of Shares, or to
withdraw entirely the offering of Shares or, in your sole discretion, to
modify, amend, cancel or terminate this Agreement, with or without cause,
upon written notice to us of such modification, amendment, cancellation or
termination, which shall be effective on the date stated in such notice.
Without limiting the foregoing, any provision hereof to the contrary
notwithstanding, our expulsion from the NASD will automatically terminate
this Agreement without notice. Your failure to terminate for any cause
shall not constitute a waiver of your right to terminate at a later date
for any such cause or for no cause. All notices hereunder shall be in
writing and sent to the respective parties at the addresses listed herein,
<PAGE>
unless changed by notice given in accordance with this Agreement. Copies of
all notices sent to you also shall be sent to General Counsel, Founders
Asset Management LLC, 2930 East Third Avenue, Denver, Colorado 80206.
14. In the event that you, in your sole discretion, determine that any active
trading or market timing activities of our customers are potentially
harmful to you or the Funds, you may limit the size of purchase orders
placed by such customers or prohibit such customers from investing in some
or all of the Funds.
15. We will notify you promptly in writing in the event that any of our
customers who has invested in the Funds ceases to be our client.
16. This Agreement shall become effective as of the date when it is executed
and dated by you below, shall embody the entire agreement and understanding
between you and us, and shall supersede any prior agreements or
understandings between you and us regarding the Funds. This Agreement and
all the rights and obligations of the parties hereunder shall be governed
by and construed under the laws of the State of Colorado. This Agreement is
not assignable or transferable by either party without the prior written
consent of the other, except that you may assign or transfer this Agreement
to any successor firm or corporation which becomes the Distributor of the
Funds.
Dealer Firm _____________________ Accepted:
(Name)
_______________________________ Premier Mutual Fund Services, Inc.
(Address) 60 State Street, Suite 1300
_______________________________ Boston, MA 02109
By:_____________________________ By___________________________
(Signature) (Signature)
________________________________ ________________________________
(Name) (Title) (Name) (Title)
Date: ___ day of _______, 19___
<PAGE>
ATTACHMENT A
TO
DISTRIBUTION AND SHAREHOLDER SUPPORT AGREEMENT
FOR FOUNDERS FUNDS, INC.
Participating Funds
The following series mutual funds of Founders Funds, Inc. are
included in this Agreement:
Founders Discovery Fund
Founders Passport Fund
Founders Frontier Fund
Founders Special Fund
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund
Founders Blue Chip Fund
Founders Balanced Fund
Founders Government Securities Fund
Service Fee Payment Schedule
SERVICE FEE: Subject to minimum investment and payment requirements,
service fees will be paid at the annual rate of 0.25% of the
average of the aggregate net asset value of outstanding Shares
of Founders Funds, Inc. sold by the Dealer, measured on each
day during each calendar quarter, payable within 30 days
following the end of each calendar quarter.
All payments to us shall be remitted to the following address:
----------------------------------------
----------------------------------------
----------------------------------------
MINIMUM
INVESTMENT: Payment of quarterly service fees will commence at such time
as the Dealer shall have been credited with $1 million in
sales of Shares.
<PAGE>
MINIMUM
PAYMENTS: Quarterly payments of service fees of less than $1,000 may be
accrued and paid within 30 days following the end of each
calendar quarter in which such payments cumulatively equal or
exceed $1,000.
w:\legal\forms\premirbd.doc
May 24, 1998
Premier Mutual Fund Services, Inc.
60 State Street, Suite 1300
Boston, MA 02109
RE: Distribution and Shareholder Support Agreement for Founders
Funds, Inc.
(For use with Recordkeeping and Other Services Agreement)
Ladies and Gentlemen:
We understand that the separate series mutual funds of Founders Funds, Inc.
listed on Attachment A to this Agreement have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which includes provision for payments to selected
brokers for their distribution efforts and their shareholder support and
assistance to the funds. Such funds, together with any other mutual funds
managed by Founders Asset Management LLC ("Founders") which hereafter may enter
into a similar Plan, are hereinafter referred to collectively as the "Funds".
We desire to enter into an agreement with you as the Funds' Distributor for the
sale and distribution of the shares of the Funds (the "Shares"). Upon acceptance
of this Agreement by you, we understand that we may offer and sell Shares
subject, however, to all of the terms and conditions hereof and to your right,
without notice, to suspend or terminate the sale of such Shares.
1. We understand that the Shares will be offered and sold at the current
offering price in effect at the time the order for such securities is
confirmed and accepted. All purchase requests and applications submitted by
us are subject to acceptance or rejection in your sole discretion and, if
accepted, each purchase will be deemed to have been consummated at your
office. In the event of a difference between verbal and written price
confirmations, written confirmations shall be considered final.
2. We certify (a) that we are a member of the National Association of
Securities Dealers, Inc. ("NASD") and agree to maintain membership in the
NASD or (b) in the alternative that we are a foreign dealer not eligible
for membership in the NASD. In either case, we agree to abide by all
federal and state laws, rules and regulations applicable to our activities
under this Agreement including, but not limited to, the rules and
regulations of the Securities and Exchange Commission and the NASD which
are binding upon underwriters and dealers in the distribution of the
securities of open-end investment companies including, without limitation,
Section 2830 of the NASD Conduct Rules, all of which are incorporated
herein as if set forth in full. We agree that we will not sell Shares or
<PAGE>
offer Shares for sale in any state or jurisdiction where they are not then
registered or qualified for sale.
3. We will offer and sell Shares only in accordance with the terms and
conditions of the Funds' then current Prospectus and we will make no
representations not included either in said Prospectus or in any authorized
supplemental material supplied by you. We will exercise due care and
diligence, act in good faith and use our best efforts in the development
and promotion of sales of Shares, and agree to be responsible for the
proper instruction and training of all sales personnel employed by us, in
order that the Shares will be offered in accordance with the terms and
conditions of this Agreement and all applicable laws, rules and
regulations. We agree to hold you and the Funds harmless and indemnify each
of you in the event that we, or any of our sales representatives, should
violate any law, rule or regulation, or any provisions of this Agreement,
which violation may result in liability to you and/or the Funds. In the
event you determine to refund any amounts paid by any investor by reason of
any such violation on our part, we shall return to you any service fees
previously paid by you to us with respect to the assets for which the
refund is made. All expenses which we incur in connection with our
activities under this Agreement shall be borne by us.
4. In our offering and sale of Shares, we will disclose to investors our
entitlement to receive service fees from you in accordance with this
Agreement.
5. We will provide continuous support and assistance to investors in the Funds
whose Shares have been sold through us, for such period (a) as the
investors retain their Shares and (b) service fees with respect to such
Shares are paid to us. Such support and assistance may include, but will
not necessarily be limited to: (i) providing responses to written or
telephonic inquiries made by investors with respect to their Shares; (ii)
assisting investors in contacting your personnel in instances in which
direct assistance from you would be helpful in expeditiously accomplishing
the investor's request; (iii) providing retirement planning presentations
to potential or current participants in employee retirement programs and
plans; and (iv) providing such other forms of support and assistance as we
are reasonably able to furnish or as you reasonably may request.
6. We understand and agree that the service fee relative to any sales and
maintenance of Shares made by us will be in an amount as set forth in the
Service Fee Payment Schedule included on Attachment A, and that we shall
have no right to receive from you any continuing maintenance fees, other
fees or commissions on Shares sold by us other than as set forth in that
<PAGE>
Schedule. Subject to the provisions of Attachment A, our right to receive
service fees will commence on the date of this Agreement, and will apply to
all Shares that were sold by us that are then outstanding.
7. We understand that service fees are subject to change or termination by you
from time to time, upon 30 days' written notice, and that any orders placed
after the effective date of change shall be subject to the rates in effect
at the time of receipt of the payment by you. Such 30-day period may be
waived at your sole option in the event such change increases the service
fee due us.
8. Payment for purchases of Shares made from us shall be made to the Funds or
their agent and received by the Funds or their agent pursuant to that
certain Recordkeeping and Other Services Agreement between us and Founders.
If such payment is not so received, we understand that you reserve the
right, without notice, forthwith to cancel the sale or, at your option, to
sell the Shares ordered by us back to the Funds, in which latter case we
may be held responsible for any loss suffered by you or the Funds resulting
from our failure to make the aforesaid payment. We will forward promptly to
the Funds or their agent any purchase orders and/or payments received by us
from investors. If we effect a telephone redemption or telephone exchange
of any Shares on behalf of any of our customers, we hereby indemnify you,
the Funds and any agent appointed by you for this purpose against any loss,
injury, damage, expense or liability which results from acting or relying
on our telephone instructions or information. In no event shall we withhold
placing with the Funds or their agent orders received from our customers so
as to profit ourselves as a result of such withholding.
9. We agree to purchase Shares only from you or from our customers. If we
purchase Shares from you, we agree that all such purchases shall be made
only to cover orders received by us from our customers, or for our own bona
fide investment. If we purchase Shares from our customers, we agree to pay
such customers not less than the applicable repurchase price as established
by the then current Prospectus of the Funds.
10. We understand and agree that if any Shares sold by us under the terms of
this Agreement are redeemed by the Funds (including redemptions resulting
from an exchange for Shares of another mutual fund distributed by you, in
accordance with the then current Prospectus for the Funds), repurchased by
you for the Funds, or tendered to the Funds for redemption within seven (7)
business days after your confirmation to us of our original purchase order
for such Shares, we shall pay forthwith to you the full amount of the
service fee allowed to us on the original sale, provided you notify us of
<PAGE>
such repurchase or redemption within ten (10) days of the date upon which
written redemption requests and, if applicable, Share certificates are
delivered to you or to the Funds.
11. (a) You hereby represent and warrant to us as follows:
(i) You have the corporate power and the authority to enter into and
perform all of your duties and obligations under this Agreement;
(ii) This Agreement constitutes your legal, valid and binding
obligation, enforceable against you in accordance with its terms;
(iii) No consent or authorization of, filing with, or other act by
or in respect of any governmental authority is required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement; and
(iv) The execution, performance and delivery of this Agreement by
you will not result in your violating any law, rule or regulation or
breaching or otherwise impairing any of your contractual obligations.
(b) We hereby represent and warrant to you as follows:
(i) We have the corporate power and the authority to enter into and
perform all of our duties and obligations under this Agreement;
(ii) This Agreement constitutes our legal, valid and binding
obligation and is enforceable against us in accordance with its terms;
(iii) No consent or authorization of, filing with, or other act by
or in respect of any governmental authority is required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement;
(iv) The execution, performance and delivery of this Agreement by us
will not result in our violating any law, rule or regulation or breaching
or otherwise impairing any of our contractual obligations; and
(v) We have obtained, and will maintain in effect, all registrations
under federal and state laws, rules and regulations that are necessary to
enable us to perform our obligations under this Agreement.
12. Your obligations to us under this Agreement are subject to all the
provisions of any distributorship agreements entered into between you and
<PAGE>
the Funds. We understand and agree that in performing our services covered
by this Agreement we are acting as principal, and you are in no way
responsible for the manner of our performance or for any of our acts or
omissions in connection therewith. Nothing in this Agreement shall be
construed to constitute us or any of our agents, employees or
representatives as your agent, partner or employee, or the agent or
employee of the Funds.
13. We may terminate this Agreement by notice in writing to you, which
termination shall become effective on the earlier of thirty (30) days after
the date of mailing such notice to you, or receipt of written notification
from you of termination prior to the thirtieth day. We agree that you have
and reserve the right, in your sole discretion and without notice (and
without the payment of any penalty), to suspend sales of Shares, or to
withdraw entirely the offering of Shares or, in your sole discretion, to
modify, amend, cancel or terminate this Agreement, with or without cause,
upon written notice to us of such modification, amendment, cancellation or
termination, which shall be effective on the date stated in such notice.
Without limiting the foregoing, any provision hereof to the contrary
notwithstanding, our expulsion from the NASD will automatically terminate
this Agreement without notice. Your failure to terminate for any cause
shall not constitute a waiver of your right to terminate at a later date
for any such cause or for no cause. All notices hereunder shall be in
writing and sent to the respective parties at the addresses listed herein,
unless changed by notice given in accordance with this Agreement. Copies of
all notices sent to you also shall be sent to General Counsel, Founders
Asset Management LLC, 2930 East Third Avenue, Denver, Colorado 80206.
14. In the event that you, in your sole discretion, determine that any active
trading or market timing activities of our customers are potentially
harmful to you or the Funds, you may limit the size of purchase orders
placed by such customers or prohibit such customers from investing in some
or all of the Funds.
15. We will notify you promptly in writing in the event that any of our
customers who has invested in the Funds ceases to be our client.
16. This Agreement shall become effective as of the date when it is executed
and dated by you below, shall embody the entire agreement and understanding
between you and us, and shall supersede any prior agreements or
understandings between you and us regarding the Funds. This Agreement and
all the rights and obligations of the parties hereunder shall be governed
by and construed under the laws of the State of Colorado. This Agreement is
not assignable or transferable by either party without the prior written
<PAGE>
consent of the other, except that you may assign or transfer this Agreement
to any successor firm or corporation which becomes the Distributor of the
Funds.
Dealer Firm _____________________ Accepted:
(Name)
_______________________________ Premier Mutual Fund Services, Inc.
(Address) 60 State Street, Suite 1300
_______________________________ Boston, MA 02109
By:_____________________________ By___________________________
(Signature) (Signature)
________________________________ ________________________________
(Name) (Title) (Name) (Title)
Date: ___ day of _______, 19___
<PAGE>
ATTACHMENT A
TO
DISTRIBUTION AND SHAREHOLDER SUPPORT AGREEMENT
FOR FOUNDERS FUNDS, INC.
Participating Funds
The following series mutual funds of Founders Funds, Inc. are
included in this Agreement:
Founders Discovery Fund
Founders Passport Fund
Founders Frontier Fund
Founders Special Fund
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund
Founders Blue Chip Fund
Founders Balanced Fund
Founders Government Securities Fund
Service Fee Payment Schedule
SERVICE FEE: Subject to minimum investment and payment requirements,
service fees will be paid at the annual rate of 0.25% of the
average of the aggregate net asset value of outstanding Shares
of Founders Funds, Inc. sold by the Dealer, measured on each
day during each calendar quarter, payable within 30 days
following the end of each calendar quarter.
All payments to us shall be remitted to the following address:
----------------------------------------
----------------------------------------
----------------------------------------
MINIMUM
INVESTMENT: Payment of quarterly service fees will commence at
such time as the Dealer shall have been credited with
$1 million in sales of Shares.
<PAGE>
MINIMUM
PAYMENTS: Quarterly payments of service fees of less than $1,000 may be
accrued and paid within 30 days following the end of each
calendar quarter in which such payments cumulatively equal or
exceed $1,000.
May 24, 1998
SHAREHOLDER SERVICES AGREEMENT
BETWEEN
FOUNDERS FUNDS, INC. AND
FOUNDERS ASSET MANAGEMENT LLC
AGREEMENT made as of the 1st day of April, 1998, in Denver, Colorado, by
and between Founders Funds, Inc., a Maryland corporation (the "Fund"), and
Founders Asset Management LLC, a Delaware limited liability company (hereinafter
referred to as "Founders").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, Founders is registered as an investment adviser under the
Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser and providing certain other administrative, accounting, and
recordkeeping services to the Fund; and
WHEREAS, Founders is registered as a transfer agent under the
Securities Exchange Act of 1934; and
WHEREAS, pursuant to this Shareholder Services Agreement (the
"Agreement"), Founders will render certain transfer agent and related services
to the Fund and to the Fund's shareholders (the "Services") in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Fund has entered into a Transfer Agent Agreement with
Investors Fiduciary Trust Company ("IFTC") (the "TA Agreement"), pursuant to
which IFTC provides certain other transfer agent services to the Fund; and
WHEREAS, Founders has entered into a service agreement with IFTC (the
"Service Agreement"), pursuant to which a computerized data processing
recordkeeping system for securityholder accounting (the "TA2000(TM) System")
using IFTC owned or licensed software developed by DST Technologies, Inc., an
affiliate of IFTC ("DST") is available to Founders in providing transfer agent
services to the Fund; and
WHEREAS, the Fund has entered into a Software Remote Access and License
Agreement with DST (the "Remote Access Agreement"), pursuant to which image
based application software and related user documentation to be operated in
conjunction with the TA2000(TM) System (the "Auxiliary Software") is available
to Founders in providing other transfer agent services to the Fund; and
WHEREAS, Founders has entered into a Telephone and CRT Input Equipment
Recovery Services Agreement with DST (the "Back-Up Agreement"), pursuant to
<PAGE>
which certain computer and backup capabilities will be made available to
Founders for use in providing transfer agent services to the Fund in the event
of a disaster to Founders' telephone and cathode-ray tube input equipment; and
WHEREAS, the Fund has entered into an Agreement for Handling Drafts with
IFTC and DST (the "Drafts Agreement"), pursuant to which the Fund has
established a special account with IFTC to which all drafts drawn by the Fund's
shareholders which are payable through IFTC will be charged; and
WHEREAS, the TA Agreement, the Service Agreement, the Remote Access
Agreement, the Back-Up Agreement, and the Drafts Agreement are collectively
referred to herein as the "Collective Agreements"; and
WHEREAS, the Fund, Founders, IFTC, and DST anticipate that in the next few
years Founders will, on a service-by-service basis and over time, assume the
responsibility for performance of those transfer agent services currently being
provided to the Fund by IFTC; and
WHEREAS, the Fund desires to retain Founders to perform these additional
transfer agent services and Founders desires to perform such services on the
terms and conditions hereinafter set forth; and
WHEREAS, Founders has in the past and will in the future enter into
arrangements with third parties which provide sub-transfer agency,
recordkeeping, investor services, and/or other administrative services (the
"Third Party Services") to participants in 401(k) and other tax-qualified
retirement programs and to participants in other arrangements (the
"Participants"), pursuant to which the third party establishes one or more
omnibus accounts with the Fund, into which investments of the Participants are
pooled; and
WHEREAS, in establishing such omnibus accounts and providing the Third
Party Services, the third parties effectively reduce or eliminate the need for
Services to be provided on behalf of the Participants by Founders; and
WHEREAS, a third party may charge a basis point fee method or other fee
method to Founders or the Funds to compensate it for providing the Third Party
Services to Participants (the "Third Party Fee"); and
WHEREAS, certain of the third parties may be broker-dealers who, in
accordance with applicable federal rules and regulations, may be selected by
Founders to execute portfolio securities transactions on behalf of the Fund; and
WHEREAS, commissions earned by the broker-dealer third party from
executing portfolio transactions on behalf of a specific series fund of the Fund
("Series") may be credited by the broker-dealer against the Third Party Fee
<PAGE>
charged to that Series, on a basis which has resulted from negotiations between
Founders and the third party;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the Fund and Founders agree as follows:
1. Services. The Fund hereby retains Founders to provide the Services
outlined on Exhibit A hereto, which exhibit is incorporated herein by this
reference. Founders shall at all times use reasonable care, due diligence, and
act in good faith in performing its duties under this Agreement.
2. Collective Agreement Obligations. To the extent that the TA Agreement
and any other Collective Agreement (a) may impose obligations upon the Fund to
ensure that Founders provides services, conforms to a standard of conduct,
adheres to a stipulated process or procedure, or otherwise undertakes to perform
a defined duty or responsibility or (b) provides that Founders performs the
foregoing (collectively, the "Obligations"), Founders shall perform the
Obligations and shall at all times use reasonable care, due diligence, and act
in good faith in performing the Obligations.
3. Staff Maintenance. Founders shall, at its own expense, maintain such
staff and employ or retain such personnel as it shall from time to time
determine to be necessary or useful to the performance of its obligations under
this Agreement. Without limiting the generality of the foregoing, such staff and
personnel may include officers of Founders and persons employed or otherwise
retained by Founders to provide or assist in providing services to the Fund
other than those Services to be provided pursuant to this Agreement.
4. Facilities. Founders shall, at its own expense, provide such office
space, facilities, equipment, and other property or resources as shall be
necessary to provide the Services to the Fund.
5. Fund Information. The Fund will, from time to time, furnish or
otherwise make available to Founders such information relating to the business
and affairs of the Fund as Founders may reasonably require in order to discharge
its duties and obligations hereunder.
6. Fees. The Fund shall pay to Founders a prorated monthly fee equal on an
annual basis to $26.00 for each shareholder account of the Fund considered to be
an open account at any time during the month. This fee shall provide for the
payment of the following:
a. The services rendered and facilities furnished by Founders
under this Agreement; and
<PAGE>
b. The services rendered and facilities furnished by IFTC and DST to
the Fund pursuant to the Collective Agreements.
In addition to the $26.00 per account fee, Founders, IFTC, and DST will
also be entitled to reimbursement from the Fund for all reasonable out-of-pocket
expenses incurred by Founders, IFTC, and DST in connection with the performance
of Services under the Agreement and services under the Collective Agreements.
Out-of-pocket expenses with respect to the Agreement shall include, but
are not limited to, expenditures for postage, envelopes, banking fees, courier
fees, overnight mail fees, computer hardware and software licensing fees, voice
response unit fees, checks, continuous forms, reports and statements, telephone
line charges, telegraph, stationery, supplies, costs of outside mailing firms,
record storage costs and media for storage of records (e.g., microfilm and
computer tapes). Out-of-pocket expenses incurred by Founders, IFTC, and/or DST
in connection with the performance of services under the Collective Agreements
shall include those out-of-pocket expenses to which each Collective Agreement
makes reference.
Any other expenses incurred by Founders at the request or with the consent
of the Fund will be reimbursed promptly by the Fund.
As provided herein, Founders will use a portion of the $26.00 account fee
to pay IFTC and DST for services which are performed by each entity pursuant to
the Collective Agreements. Upon assumption by Founders in the future of certain
duties currently performed by IFTC and/or DST pursuant to the terms of the
Collective Agreements, Founders will retain an amount equal to the amount
previously paid to IFTC and/or DST for performing such duties.
In the event any termination fee is appropriately charged to Founders or
to the Fund pursuant to Section 2.02 of the Service Agreement, the fee shall be
paid by the Fund unless circumstances would dictate payment of the fee by
Founders.
In the event any late charges or interest charges are incurred pursuant to
Section 2.03 of the TA Agreement, such charges are the responsibility of
Founders and the Fund will reduce the amount of its next payment to Founders
pursuant to this Agreement by such amount.
The monthly fee described in this Section 6. and any out-of-pocket
reimbursements due to Founders pursuant to this Section shall be payable to
Founders on the first business day of the calendar month next succeeding the
month in which the services are rendered, or as soon thereafter as such
reimbursements can be determined.
<PAGE>
In instances in which third parties establish omnibus accounts with one or
more of the Series which represent pooled accounts of Participants whose
transfer agency, recordkeeping, or similar services are being provided by the
third party or its agent and not by Founders and/or IFTC and/or DST, the Series
will reimburse Founders for an amount which shall not be in excess of the $26.00
account fee for each Participant account, which amount Founders will have
previously paid to the third party.
In instances in which commissions are earned by a broker-dealer
third-party from executing portfolio transactions on behalf of a Series,
Founders is authorized to enter into arrangements pursuant to which the
commissions may be credited by the broker-dealer against the Third Party Fee
otherwise payable by that Series to the broker-dealer, on a basis which will
have been negotiated between the broker-dealer and Founders.
Any fees paid by the Fund to Founders as reimbursement for payment by
Founders to a third party in consideration of its providing Third Party Services
shall be paid monthly at the rate of 1/12th of an annual fee not to exceed
$26.00 per Participant account. Such payments shall be made for a Participant
account in the month that it opens or closes, as well as in each month in which
the Participant account remains open, regardless of its account balance.
In the event that the aggregate of the monthly fees per Participant may on
occasion exceed the aggregate monthly Third Party Fees due to the third party,
the applicable Series will accrue the excess through the applicable calendar
year-end, which excess will be available to reimburse Founders if, during any
remaining month in the calendar year, the aggregate monthly Third Party Fees
applicable to that Series paid by Founders exceed the aggregate monthly fees per
Participant. Any accrual remaining at year-end will be credited to the
respective Series' general ledger expense account.
7. Access to Founders' Records. Founders will permit representatives of
the Fund, including the Fund's independent auditors, to have reasonable access
to the personnel and records of Founders in order to enable such representatives
to monitor the quality of services being provided and the level of fees and
reimbursements due Founders pursuant to this Agreement. In addition, Founders
shall promptly deliver to the Board of Directors of the Fund such information as
may reasonably be requested from time to time to permit the Board of Directors
to make an informed determination regarding the rendering of the Services, the
continuation of this Agreement, and the payments contemplated to be made
hereunder.
8. Liability and Indemnification. So long as Founders shall use reasonable
care, due diligence, and act in good faith in performing its duties under this
Agreement, Founders shall not be responsible for, and the Fund shall indemnify
<PAGE>
and hold Founders harmless from and against, any and all losses, liabilities,
claims, demands, suits, costs, and expenses (including reasonable attorneys'
fees) which may be asserted against Founders or for which Founders may be held
to be liable, which arise out of, or are attributable to, Founders' discharge of
its responsibilities and obligations imposed by this Agreement.
The Fund shall not be responsible for, and Founders shall indemnify and
hold the Fund harmless from and against, any and all losses, liabilities,
claims, demands, suits, costs, and expenses (including reasonable attorneys'
fees) which may be asserted against the Fund or for which the Fund may be held
to be liable, which arise out of, or are attributable to, any negligence,
willful misconduct, or lack of due care of Founders in discharging the
responsibilities and obligations imposed upon Founders by this Agreement.
Founders and the Fund agree that each shall promptly notify the other in
writing of any situation which represents or appears to involve a claim which
may be the subject of indemnification hereunder, although the failure to provide
such notification shall not relieve the indemnifying party of its liability
pursuant to this Section 8. The indemnifying party shall have the option to
defend against any such claim. In the event the indemnifying party so elects, it
will notify the indemnified party and shall assume the defense of such claim,
and the indemnified party shall cooperate fully with the indemnifying party, at
the indemnifying party's expense, in the defense of such claim. Notwithstanding
the foregoing, the indemnified party shall be entitled to participate in the
defense of such claim at its own expense through counsel of its own choosing.
The indemnified party shall not enter into any settlement of such matter without
the written consent of the indemnifying party, which consent shall not
unreasonably be withheld. The indemnifying party shall not be obligated to
indemnify the indemnified party for any settlement entered into without the
written consent of the indemnifying party. If the consent of the indemnified
party is required to effectuate any settlement and the indemnified party refuses
to consent to any settlement negotiated by the indemnifying party, the liability
of the indemnifying party for losses arising out of or due to such matter shall
be limited to the amount of the rejected proposed settlement.
The obligations of Founders and the Fund pursuant to this Section 8 shall
survive the termination of this Agreement.
9. Effect of Agreement. Nothing herein contained shall be deemed to require the
Fund to take any action contrary to its Articles of Incorporation or its By-Laws
or any applicable law, regulation or order to which it is subject or by which it
is bound, or to relieve or deprive the directors of the Fund and the Fund of
their overall responsibility for and control of the conduct of the business and
affairs of the Fund.
<PAGE>
10. Term and Termination. This Agreement shall remain in effect until no later
than May 31, 1998, and shall remain in effect from year to year thereafter
provided such continuance is approved at least annually by the vote of a
majority of the directors of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, which vote must
be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without the
payment of any penalty, terminate this Agreement upon 90 days' written notice to
Founders; (b) the Agreement shall immediately terminate in the event of its
assignment (within the meaning of the Act and the Rule thereunder) unless the
Board of Directors of the Fund approves such assignment; and (c) Founders may
terminate this Agreement without payment of penalty on 180 days' written notice
to the Fund. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at the principal
office of such party.
11. Application of Law. This Agreement shall be construed in accordance
with the laws of the State of Colorado and the applicable provisions of the Act.
To the extent the applicable law of the State of Colorado or any of the
provisions herein conflict with the applicable provision of the Act and other
applicable laws, the latter shall control.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the day and year first above written.
FOUNDERS FUNDS, INC.
By: /s/ Marie E. Connolly
----------------------------
Marie E. Connolly, President
FOUNDERS ASSET MANAGEMENT LLC
By: /s/ Jonathan F. Zeschin
------------------------------
Jonathan F. Zeschin, President
<PAGE>
EXHIBIT A
TO
SHAREHOLDER SERVICES AGREEMENT
BETWEEN
FOUNDERS FUNDS, INC. AND
FOUNDERS ASSET MANAGEMENT LLC
The following Services will be provided by Founders to the Fund:
1. TELEPHONE SERVICES
Founders' personnel will receive and process all telephone requests
received by Founders to: purchase, redeem or exchange shares; open an
account, add or delete services for an account, explain Fund or market
conditions and/or performance, perform research into account problems and
correct such problems, and other matters related to account servicing;
change an account address or distribution option; correct a registration
or account error; or send an additional account statement. Founders will
also make available to shareholders a Voice Response Unit to provide
routine account and Fund information.
2. TRANSFER AGENCY SERVICES
Founders' personnel will discharge the following duties:
Pick up all incoming mail and scan documents into the DST image system
(the DST image system is that system used by IFTC in performing transfer
agent services on behalf of the Fund).
Open new accounts, purchase shares, and establish services requested by
new shareholders. Contact shareholders in writing or via the phone if
incomplete or inaccurate information is contained in the application.
Make subsequent purchases on behalf of shareholders and 401(k) plans.
Deliver checks to bank, monitor bank account(s), wire funds to appropriate
custodial account.
Receive returned (bounced) checks, cancel purchases, and contact
shareholders regarding any potential losses.
Research all mail returned to Founders by the Post Office and forward such
mail if possible.
Retrieve information from microfilm, microfiche, paper files, and/or the
DST image system needed to respond to inquiries and/or to resolve
research.
<PAGE>
Store previously scanned items as required by the SEC and NASD.
Other routine partial transfer agency functions needed to complete the
duties typically expected of a transfer agent performing the services
outlined in this item 2.
3. RETIREMENT SERVICES
a. Retirement Plan Transfers. Founders' personnel will ensure that
retirement plan transfers are accomplished on a timely basis. Applications
to request transfers will be reviewed to ensure that the application is in
proper order before it is sent to the shareholders' custodian. A Founders
representative will contact the shareholder with a personal note once the
transfer arrives at Founders. Founders will maintain an updated list of
the transfer requirements imposed by transfer agents. A Founders
representative will contact the appropriate custodian to ensure that the
custodian has received the transfer application and that the transfer
occurs on a timely basis.
b. Prototype Retirement Plans. Founders' personnel will provide the
following services on prototype non-TRAC2000 retirement plans (TRAC2000
retirement plans are serviced on behalf of the Fund by a third party,
pursuant to separate contract):
(1) Review previous Adoption Agreements (if applicable) and assist
investors in completing the Founders Adoption Agreement.
(2) Review the Founders Adoption Agreement to ensure compliance with
ERISA and IRS regulations.
(3) Complete the Summary Plan Description for the Founders
Adoption Agreement.
(4) Ensure that employers have all the necessary forms to administer
their plans.
(5) Review employee enrollment forms.
(6) Create documentation which consolidates the information from the
enrollment forms and forward such documentation to the employer.
(7) Create and maintain documentation reflecting contributions,
loans, terminations and other types of plan transactions.
<PAGE>
(8) Handle all money movements including purchases, exchanges,
redemptions (due to terminations or hardship withdrawals, or loans),
and similar functions.
c. Review of Retirement Accounts. Founders' personnel will periodically
review retirement account information and advise investors before reaching
age 70-1/2 that a distribution may be required.
4. QUALITY CONTROL
Founders' personnel will periodically conduct a quality control audit on
telephone purchase, redemption and exchange requests, account changes and
applications received by Founders. Founders will provide quality control
with respect to other aspects of the transfer agent's operations, such as
the transfer agent's resolution of shareholder inquiries. Founders will
perform quality control on retirement plans.
5. TRAINING
Founders will periodically train personnel of IFTC on Founders' products
and services using its own training materials and training workshops
conducted at the offices of IFTC by Founders' customer service
representatives. Founders will continually provide training to its
investor services representatives with regard to processing exchanges and
redemptions, maintaining accounts, liquidating accounts, transferring
accounts, providing "B" notices, and servicing mutual fund accounts.
6. CORRESPONDENCE
a. Shareholder Inquiries. Founders' personnel will respond to shareholder
inquiries received by Founders and to the extent feasible will resolve
such inquiries.
b. German Shareholders. Founders' personnel will provide
specialized service to German shareholders as may be necessary and
appropriate.
c. Due Diligence. Founders will arrange for the mailing of W-8 and W-9
forms to shareholders to ensure that the Fund is complying with IRS
regulations.
d. Requests for Information. Founders will respond to requests it receives
from shareholders for additional prospectuses and account statements.
<PAGE>
7. MONITORING CUSTOMER ACCOUNTS
a. Telephone Purchases. Founders' personnel will contact shareholders who
have purchased shares by phone but have not paid for such shares within
the allowable settlement period.
b. Cancelled Checks. Founders' personnel will contact shareholders who
have cancelled their checks.
c. Dormant Accounts. Founders' personnel will assist in locating
shareholders with dormant accounts.
d. Annual Review. Annually, Founders will review open and closed accounts
and arrange for the purging of certain of these accounts.
e. Short-Term Traders. Founders will monitor shareholder accounts
to uncover abuses of the telephone exchange privilege described in the
prospectus.
8. LARGE MONEY MANAGERS
Founders will assign a contact person to communicate with large money
managers and to ensure that their transactions are timely and properly
conducted and their accounts are set up correctly and continually updated.
9. USE OF IFTC'S SYSTEM AND FACILITIES
Founders hereby accepts responsibility for compliance with the
requirements of Section 6.06 of the TA Agreement.
10. OTHER SERVICES
Founders will provide all other customary and reasonable transfer agent
and prototype non-TRAC2000 retirement plan services which are not being
provided to the Fund pursuant to the provisions of this Agreement, the
Collective Agreements, or other agreements to which the Fund is a party.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT initially made as of April 1, 1998, in Denver, Colorado, by and
between Founders Funds, Inc., a Maryland corporation (the "Fund"), and Founders
Asset Management LLC, a Delaware limited liability company (hereinafter referred
to as "Founders").
WHEREAS, the Fund is engaged in business as an open-end management
investment company, is registered as such under the Investment Company Act of
1940, as amended (the "Act"), and is authorized to issue shares representing
interests in the separate portfolios of investments listed on Appendix 1 to this
Agreement, which Appendix 1 is incorporated into this Agreement by this
reference (the "Portfolios"); and
WHEREAS, Founders is registered as an investment adviser under the
Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser and providing certain other administrative, shareholder
servicing, accounting, and record keeping services to the Fund; and
WHEREAS, the Fund desires to retain Founders to render certain additional
administrative, accounting, and recordkeeping services (the "Services") in the
manner and on the terms and conditions hereinafter set forth; and
WHEREAS, Founders desires to be retained to perform such services on
said terms and conditions;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the Fund and Founders agree as follows:
1. Services. The Fund hereby retains Founders to provide the following
Services to the Portfolios:
A. Accounting Services.
(1) Prepare and maintain, according to generally accepted accounting
principles, general ledgers and financial statements of the Fund and the
Portfolios, including the following:
(a) Daily Preparation and Maintenance:
(i) Detailed transaction ledgers listing all transactions
affecting the Fund;
(ii) Trial balance listing by account the beginning balance,
all debits and credits, and the ending balance;
<PAGE>
(iii) Balance sheet, income statement and a portfolio listing
summarizing net assets, net income, capitalization, and realized and
unrealized gains and losses.
(b) Monthly Preparation and Maintenance:
Statements of assets and liabilities, operations and changes
in net assets, statements of gains and losses and statements of
sales and redemptions.
(c) Semi-Annual Preparation and Maintenance:
The same ledgers as are prepared monthly, plus per share
statements, appreciation/ depreciation statements, and fund share
activity statements.
(2) Obtain such data from the Fund's transfer agent, custodian, and
investment adviser as is necessary to calculate the net asset value of each
Portfolio in the manner, and at such times and frequencies, as is required by
the Act and by the Fund's prospectus and statement of additional information.
B. Control and Compliance.
(1) Audit certain data and transactions of the Fund's custodian,
transfer agent and investment adviser by engaging in the following:
(a) Daily Audit/Reconciliation Procedures:
(i) Reconciliation of the custodian's trust account activity
including cash movement, cash balances, settlement of security
purchases and sales, and settlement of Fund share purchases and
sales;
(ii) Reconciliation of the transfer agent's activity in regard
to Fund share movements and "as of" transactions;
(iii) Monitoring of the investment adviser's trading activity,
including compliance and brokerage allocations.
(b) Monthly Audit/Reconciliation Procedures:
(i) Audit of the custodian's holding of Fund assets and assets
in transit, audit of the custodian's fees charged to the Fund, and
audit of credits for the Fund's compensating balances;
<PAGE>
(ii) Audit of the transfer agent's activity concerning
dividend and redemption payouts and of the transfer agent's fees
charged to the Fund;
(iii) Audit of the investment adviser's fees charged to the
Funds, including servicing and accounting fees.
(c) Monitor Compliance with the Act:
(i) Daily monitoring of the investment adviser's trading activity,
including compliance and brokerage allocation and commissions;
(ii) Periodic monitoring of disclosures and record keeping.
C. Reporting and Analysis.
(1) Provide regulatory (Securities and Exchange Commission),
shareholder and other miscellaneous reporting and, in particular, prepare
and maintain the following required books, records, and other documents:
(a) journals containing daily itemized records of all
Portfolio securities purchases and sales, receipts and deliveries of
securities, receipts and disbursements of cash, and all other debits
and credits, in the form required by Rule 31a-1(b)(1) under the Act;
(b) general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, in the
form required by Rules 31a-1(b)(1)(i) - (iii) under the Act;
(c) a securities record or ledger reflecting separately for
each portfolio security as of trade date all "long" and "short"
positions, if any, carried by the Portfolios for the accounts of the
Portfolios, and showing the location of all securities long and the
off-setting positions of all securities short, in the form required
by Rule 31a-1(b)(3) under the Act;
(d) a record of all Portfolio purchases or sales, in the form
required by Rule 31a-1(b)(6) under the Act;
(e) a record of all puts, calls, spreads, straddles and other
options, if any, in which the Portfolios have any direct or indirect
interest or which the Portfolios have granted or guaranteed, in the
form required by Rule 31a-1(b)(7) under the Act;
(f) a record of the proof of money balances in all ledger
accounts maintained pursuant to this Agreement, in the form required
by Rule 31a-1(b)(8) under the Act;
<PAGE>
(g) price make-up sheets and such records as are necessary to
reflect the determination of the Portfolios' net asset values;
(h) Regulatory: semi-annual and annual Form N-SARs and
quarterly Form 13-Fs.
(i) Shareholder: semi-annual and annual statements of
assets and liabilities, operations, changes in net assets, per
share data, appreciation/depreciation, and share activity; and
(j) Media: weekly, monthly, quarterly, semi- annual and annual
statistical data of the Funds, to be provided to newsletters and
other investment industry publications such as ICI, Donahue, Lipper
and the NASD.
The foregoing books and records shall be maintained and preserved by
Founders in accordance with and for the time periods specified by applicable
rules and regulations, including Rule 31a-2 under the Act. All such books and
records shall be the property of the Fund and, upon request therefor, Founders
shall surrender to the Fund such of the books and records so requested.
2. Staff Maintenance. Founders shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of the
foregoing, such staff and personnel may include officers of Founders and persons
employed or otherwise retained by Founders to provide or assist in providing
services to the Fund other than those Services to be provided pursuant to this
Agreement.
3. Facilities. Founders shall, at its own expense, provide such office space,
facilities and equipment (including, but not limited to, computer equipment,
communication lines, and supplies) and such clerical help and other services as
shall be necessary to provide the Services to the Portfolios. In addition,
Founders may arrange on behalf of the Fund to obtain pricing information
regarding the Portfolios' investment securities from such company or companies
as are approved by a majority of the Fund's board of directors. The Fund shall
be financially responsible to such company or companies for the reasonable cost
of providing such pricing information.
4. Fund Information. The Fund will, from time to time, furnish or otherwise make
available to Founders such information relating to the business and affairs of
the Portfolios as Founders may reasonably require in order to discharge its
duties and obligations hereunder.
<PAGE>
5. Fees. For the services rendered and facilities furnished by Founders under
this Agreement, the Fund shall pay to Founders a fee computed on a daily basis
and paid on a monthly basis. The fee shall be computed at the annual rate of
0.06% of the daily net assets of the Fund from $0 to $500 million and at the
annual rate of 0.02% of the daily net assets of the Fund in excess of $500
million. Founders shall also be reimbursed for all out-of-pocket expenses
incurred by it in performing its services pursuant to the Agreement. For
purposes of each daily calculation of this fee, the most recently calculated net
asset value of the Fund, as determined by a valuation made in accordance with
the Fund's procedure for calculating Portfolio net asset value as described in
the Fund's prospectus and/or statement of additional information, shall be used.
During any period when the determination of the Fund's net asset value is
suspended by the directors of the Fund, the net asset value of the Fund as of
the last business day prior to such suspension shall, for the purpose of this
Paragraph 5, be deemed to be the net asset value at the close of each succeeding
business day until it is again determined.
6. Access to Founders' Records. Founders will permit representatives of the
Fund, including the Fund's independent auditors, to have reasonable access to
the personnel and records of Founders in order to enable such representatives to
monitor the quality of services being provided and the level of fees due
Founders pursuant to this Agreement. In addition, Founders shall promptly
deliver to the board of directors of the Fund such information as may reasonably
be requested from time to time to permit the board of directors to make an
informed determination regarding continuation of this Agreement and the payments
contemplated to be made hereunder.
7. Liability. Founders shall not be liable to the Fund for any action taken or
omitted to be taken by Founders or its employees, agents or contractors in
carrying out the provisions of this Agreement if such action was taken or
omitted in good faith and without gross negligence or willful misconduct on the
part of Founders or its employees, agents or contractors.
8. Indemnification by The Fund. The Fund shall indemnify Founders and hold it
harmless from and against any and all losses, damages, and expenses, including
reasonable attorneys' fees and expenses, incurred by Founders which result from:
(i) any claim, action, suit or proceeding in connection with Founders' entry
into or performance of this Agreement; (ii) any action taken or omission to act
committed by Founders in the performance of its obligations hereunder; or (iii)
any action of Founders upon instructions reasonably believed in good faith by it
to have been executed by a duly authorized officer or representative of the
Fund; PROVIDED, HOWEVER, that Founders shall not be entitled to such
indemnification in respect of actions or omissions constituting gross negligence
or willful misconduct on the part of Founders or its employees, agents or
contractors. Before confessing any claim against it which may be subject to
indemnification by the Fund hereunder, Founders shall give the Fund reasonable
opportunity to defend against such claim in its own name or in the name of
Founders.
<PAGE>
9. Indemnification by Founders. Founders shall indemnify the Fund and hold it
harmless from and against any and all losses, damages and expenses, including
reasonable attorneys' fees and expenses, incurred by the Fund which result from:
(i) Founders' lack of good faith in performing its obligations hereunder; or
(ii) the gross negligence or willful misconduct of Founders or its employees,
agents or contractors in connection herewith. The Fund shall not be entitled to
such indemnification in respect of actions or omissions constituting gross
negligence or willful misconduct on the part of the Fund or its employees,
agents or contractors other than Founders, unless such gross negligence or
willful misconduct results from or is accompanied by gross negligence or willful
misconduct on the part of Founders, any affiliated person of Founders, or any
affiliated person of an affiliated person of Founders. Before confessing any
claim against it which may be subject to indemnification hereunder, the Fund
shall give Founders reasonable opportunity to defend against such claim in its
own name or in the name of the Fund.
10. Effect of Agreement. Nothing herein contained shall be deemed to require the
Fund to take any action contrary to its Articles of Incorporation or its By-Laws
or any applicable law, regulation or order to which it is subject or by which it
is bound, or to relieve or deprive the directors of the Fund and the Fund of
their overall responsibility for and control of the conduct of the business and
affairs of the Fund.
11. Term and Termination. This Agreement shall remain in effect until May 31,
1998 and from year to year thereafter provided such continuance is approved at
least annually by the vote of a majority of the directors of the Fund who are
not parties to this Agreement or "interested persons" (as defined in the Act) of
any such party, which vote must be cast in person at a meeting called for the
purpose of voting on such approval; provided, however, that (a) the Fund may, at
any time and without the payment of any penalty, terminate this Agreement upon
ninety days written notice to Founders; (b) the Agreement shall immediately
terminate in the event of its assignment (within the meaning of the Act and the
Rules thereunder) unless the board of directors of the Fund approves such
assignment; and (c) Founders may terminate this Agreement without payment of
penalty on ninety days written notice to the Fund. Any notice under this
Agreement shall be given in writing, addressed and delivered, or mailed
post-paid, to the other party at the principal office of such party.
<PAGE>
12. Application of Law. This Agreement shall be construed in accordance with the
laws of the State of Colorado and the applicable provisions of the Act. To the
extent the applicable law of the State of Colorado or any of the provisions
herein conflict with the applicable provisions of the Act, the latter shall
control.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the day and year first above written.
FOUNDERS FUNDS, INC.
By: /s/ Marie E. Connolly
-----------------------------
Marie E. Connolly, President
FOUNDERS ASSET MANAGEMENT LLC
By: /s/ Jonathan F. Zeschin
------------------------------
Jonathan F. Zeschin, President
<PAGE>
APPENDIX 1
TO
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT
Founders Discovery Fund
Founders Frontier Fund
Founders Passport Fund
Founders International Equity Fund
Founders Special Fund
Founders Worldwide Growth Fund
Founders Growth Fund
Founders Blue Chip Fund
Founders Balanced Fund
Founders Government Securities Fund
Founders Money Market Fund
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 64 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 8, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report to Shareholders of Founders Funds, Inc., which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants" and "Financial Statements" in the Statement
of Additional Information.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
February 18, 1999
FOUNDERS FUNDS, INC.
RULE 12B-1 DISTRIBUTION PLAN
1. The Plan. Founders Funds, Inc. (the "Company") is registered as an
open-end management investment company under the Investment Company Act of 1940
(the "Act") and is authorized to issue shares of capital stock in separate
series, with each series representing interests in a separate portfolio of
securities and other assets. Pursuant to Section 12(b) of the Act and the rules
and regulations thereunder as the same may be issued or amended from time to
time, and specifically pursuant to Rule 12b-1 (the "Rule"), the Company, on
behalf of those of the Company's series of shares designated on Exhibit A
attached hereto and incorporated herein by this reference (each, a "Fund"), has
adopted this Distribution Plan (the "Plan"). The Plan is designed to comply with
the requirements of the Rule.
2. Authorized Payments. In addition to the expenses described in Section 8
below, while the Plan is in effect, each Fund is authorized to reimburse the
Company's distributor (the "Distributor") for out-of-pocket costs and expenses
actually incurred over a rolling twelve-month period for the distribution of the
shares of the Fund issued by the Company, but only to the extent such expenses
do not exceed an annual rate of 0.25 of 1 percent of the Fund's average daily
net assets or such lesser amount as a majority of the Board of Directors of the
Company (the "Board of Directors"), including a majority of the Independent
Directors (as defined herein), may determine. A majority of the Board of
Directors who are not interested persons of the Company and have no direct or
indirect financial interest in the operation of the Plan ("Independent
Directors") may from time to time reduce the amount of such expenses or may
suspend the operation of this Section 2 for such period or periods as they may
determine. Reimbursement contemplated under this Section shall be paid at any
time after the end of the month during which the expenses were incurred or, in
the case of the payments described in subsection (a) below, at any time after
the end of the month for which the payments are being made. Reimbursements shall
be paid upon receipt by the Fund of a written expense report detailing the
expenses qualifying for such reimbursement and the purposes thereof. Expenses
permitted to be paid by each Fund pursuant to this Section shall include and be
limited to the following:
(a) payments to any securities dealer, financial institution or other
person (other than the Distributor) for their assistance with
respect to the distribution of the Fund's shares, and payments to
any financial intermediary for providing administrative and
accounting services with respect to the Fund's shareholders,
provided each recipient of such payment has entered into a
written agreement with the Distributor, the form of which in the
opinion of legal counsel to the Distributor (and, if the Fund is
a party to such agreement, legal counsel to the Fund), complies
with, and is not in contravention of, the Plan; and
<PAGE>
(b) expenses of promoting the sale of shares of the Fund, including
preparation, printing and mailing of prospectuses, reports to
shareholders of the Funds, sales literature and other promotional
material to prospective investors; direct mail solicitation;
television, radio, newspaper, magazine and other advertising;
public relations; compensation of sales personnel and persons who
render shareholder support services; and such other expenses as
may be approved from time to time by the Board of Directors,
including a majority of the Independent Directors, and as may be
permitted by applicable statute, rule or regulation. Payments by
the Fund hereunder, for any month, may be made only with respect
to expenditures incurred by the Distributor during the rolling
twelve-month period in which that month falls. Any expenditures
incurred in excess of the limitation described above of 0.25 of 1
percent of the Fund's average daily net assets in any one fiscal
year are not reimbursable.
3. Approval and Continuance. The Plan shall not take effect with respect
to each Fund until it has been approved by a majority of the Board of Directors
and by a majority of the Independent Directors, by votes cast in person at a
meeting called for the purpose of voting on the Plan and by a vote of at least a
majority of the outstanding voting securities of the Fund. The Plan shall
continue in effect with respect to each Fund for so long as such continuance is
specifically approved at least annually by a majority of the Board of Directors
and a majority of the Independent Directors, by votes cast at a meeting called
for the purpose of voting on such continuance.
4. Reports. Any person authorized to direct the disposition of moneys paid
or payable pursuant to the Plan shall furnish at least quarterly to the Board of
Directors, and the Board of Directors shall review, a written report as to the
amounts expended during each quarter and the purposes for which such amounts
were expended, and such other information as the Board of Directors or the
Independent Directors may reasonably request from time to time.
5. Records. The Company shall preserve copies of the Plan and all reports
made pursuant to Section 4 above for a period of not less than six years from
the date of the Plan and reports and shall preserve the Plan and reports for the
first two years in an easily accessible place.
6. Selection and Nomination of Directors. While the Plan is in effect, the
selection and nomination of those Directors who are not interested persons of
the Company shall be committed to the discretion of the Independent Directors.
<PAGE>
7. Expense Limitation. Whether or not any expenditure under the Plan is
subject to a state expense limitation shall depend upon the nature of the
expenditure and the terms of the state law or regulation imposing the
limitation. Any expenditure subject to such limitation shall be included in the
applicable Fund's total expenses for purposes of determining compliance with
such limitation.
8. Other Expenses of the Funds and the Funds' Investment Adviser. To the
extent that any payments made by the Company on behalf of a Fund pursuant to its
investment advisory agreement with Founders Asset Management LLC ("Founders")
are considered to be "primarily intended to result in the sale of shares" of the
Fund within the meaning of the Rule, such payments when made by the Company
pursuant to the investment advisory agreement are authorized under the Plan. Any
distribution expenses relating to the sale of shares of the Fund incurred by
Founders are in addition to distribution expenses incurred by the Fund pursuant
to Section 2 above. To the extent that any management fee paid by the Fund
pursuant to its investment advisory agreement with Founders might be considered
to be indirectly financing any activity which is "primarily intended to result
in the sale of shares" of the Fund within the meaning of the Rule, the payment
of such management fee is authorized under the Plan. Adoption of the Plan shall
not be deemed to mean that any payments made by the Fund and authorized by the
Plan pursuant to this Section 8 constitute distribution expenses within the
meaning of the Rule, or that payment of distribution expenses by Founders
constitutes the indirect payment of distribution expenses by the Fund.
9. Amendment and Termination. The Plan may not be amended to increase
materially the amount of distribution expenses to be paid by a Fund as described
in Section 2 above without the approval of a majority of the outstanding voting
securities of the Fund. All material amendments to the Plan must be approved by
a majority of the Board of Directors and a majority of the Independent
Directors, by votes cast in person at a meeting called for the purpose of voting
on such amendment. Amendments required to conform the Plan to changes in the
Rule shall not be deemed to be material amendments.
The Plan may be terminated by a Fund at any time by the vote of a majority
of the Independent Directors or by the vote of a majority of the outstanding
voting securities of the Fund. Upon termination, the Fund will not reimburse the
Distributor for any expenses incurred by the Distributor subsequent to the date
of termination which otherwise would have been reimbursed under the Plan. The
Fund will, however, reimburse the Distributor for any such expenses incurred
prior to the date of termination, but only to the extent that such expenses do
<PAGE>
not exceed 0.25 of 1 percent of the Fund's average daily net assets in the
calendar year of termination (or such lesser amount as may have been determined
prior to termination by the Board of Directors, including the Independent
Directors, in accordance with Section 2 of the Plan).
10. Definitions. As used in the Plan, the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the respective meaning specified in the Act and the rules and regulations
thereunder.
Effective May 29, 1998.
<PAGE>
EXHIBIT A
TO
FOUNDERS FUNDS, INC.
RULE 12B-1 DISTRIBUTION PLAN
Founders Discovery Fund
Founders Frontier Fund
Founders Passport Fund
Founders Special Fund
Founders International Equity Fund
Founders Worldwide Growth Fund
Founders Growth Fund
Founders Blue Chip Fund
Founders Balanced Fund
Founders Government Securities Fund
CODE OF ETHICS
FOR
FOUNDERS FUNDS, INC. AND
FOUNDERS ASSET MANAGEMENT LLC
(AS AMENDED AUGUST 14, 1998)
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION...........................................................1
Entities Subject to This Code of Ethics..........................1
Statement of General Principles..................................1
SECTION 1: DEFINITIONS................................................2
Access Person....................................................2
Affiliate........................................................3
Approval Officer.................................................3
Beneficial ownership.............................................3
Client...........................................................3
Control..........................................................3
De minimis transaction...........................................4
Founders Employee................................................4
Independent Director.............................................4
Fund Affiliated Director.........................................4
Fund Affiliated Officer..........................................4
Purchase or sale of a security...................................5
Restricted securities............................................5
Security.........................................................5
A security is being considered for purchase or sale..............5
A security is being purchased or sold............................5
SECTION 2: GENERAL POLICY.............................................6
SECTION 3: PROHIBITED PURCHASES AND SALES.............................6
General Prohibition..............................................6
Initial Public Offering..........................................7
SECTION 4: PRE-TRANSACTION APPROVAL...................................7
SECTION 5: SHORT-TERM TRADING PROFITS.................................8
SECTION 6: POTENTIAL CONFLICTS OF INTEREST............................8
Gifts ...........................................................8
Trips ...........................................................9
Preferential Treatment...........................................9
<PAGE>
Investment Advice to Others......................................9
Outside Affiliations.............................................9
SECTION 7: INVESTMENT CLUBS...........................................9
SECTION 8: SERVICE AS A DIRECTOR OF PUBLICLY TRADED COMPANIES........10
SECTION 9: BROKER ACCOUNTS AND BROKER CONFIRMATIONS..................10
SECTION 10: REPORTING REQUIREMENTS...................................11
A. Initial Report by New Access Person..........................11
B. Periodic Reports by Access Persons and Founders Employees....11
C. Annual Reports by Access Persons.............................13
D. Monitoring of Periodic and Annual Reports by Legal Department13
E. Written Certification........................................13
F. Legal Department Report......................................14
SECTION 11: EXEMPTIONS...............................................14
A. Exempt Transactions..........................................14
B. Independent Director Exemptions..............................15
SECTION 12: DISSEMINATION, CORPORATE RECORD RETENTION, DISCLOSURE, AND
CONFIDENTIALITY.........................................15
SECTION 13: PERSONAL RECORD RETENTION................................17
SECTION 14: MATERIAL INSIDE (NON-PUBLIC) INFORMATION.................17
SECTION 15: VIOLATIONS...............................................17
SECTION 16: REVIEW...................................................19
APPENDIX 1: List of Access Persons and Approval Officers.............20
APPENDIX 2: Portion of Rule 16a-1 of Securities Exchange Act of 1934
and portions of Section 2.(a) of the Investment Company
Act of 1940.............................................21
APPENDIX 3: Policy Statement On Insider Trading......................26
ADDENDUM..............................................................31
<PAGE>
EXHIBIT A: Request for Approval of Security Transaction in Personal Account
EXHIBIT B: Notification of Intention to Engage in De Minimis Transaction
EXHIBIT C: Approval Form for Trips Where a Portion of the Cost is Paid by
a Third Party
EXHIBIT D: Approval Form for Outside Employment or Business Activity
EXHIBIT E: Notification of Possible Security Transaction by Investment
Club or Similar Entity
EXHIBIT F: Initial Report Form
EXHIBIT G: Report of Securities Transactions Occurring Within Last
Calendar Quarter
EXHIBIT H: Report of Securities Ownership
EXHIBIT I: Compliance Certificate
<PAGE>
INTRODUCTION
Entities Subject to This Code of Ethics.
Founders Funds, Inc. (which, collectively with each of its series
portfolios, is hereinafter referred to as the "Fund") is an open-end,
diversified, externally managed investment company registered under the
Investment Company Act of 1940 (the "Act").
Founders Asset Management LLC ("Founders") serves as the external
investment manager of the Fund pursuant to investment advisory agreements with
each series portfolio ("Portfolio" or collectively, "Portfolios") of the Fund,
and further serves as principal underwriter of the Fund pursuant to a
distribution contract with the Fund. Founders is an investment adviser
registered under the Investment Advisers Act of 1940 (the "Advisers Act").
Statement of General Principles.
The directors ("directors"), officers, employees, and other access persons
of the Fund ("Access Persons," as defined in Section 1 of this Code of Ethics)
and the directors, officers, and employees of Founders ("Founders Employees," as
hereinafter more specifically defined) are cognizant of and committed to the
performance of their fiduciary duties under general corporate law and as more
specifically articulated in the Act and the Advisers Act, including, without
limitation, proscriptions against overreaching, self-dealing, insider trading,
and conflicts of interests. Moreover, with respect to certain legal matters and
ethical questions arising in the course of their deliberations and actions,
directors, other Access Persons, and Founders Employees regularly seek the
advice of counsel.
This Code of Ethics is directed to the particular objective of compliance
with the provisions of Rule 17j-1 under the Act as such provisions are
applicable to Access Persons, of compliance with various provisions of the
Advisers Act as such provisions are applicable to Founders Employees, and to the
prevention of engagement in any personal securities transactions by Access
Persons and Founders Employees which might conflict with or adversely affect the
interests and welfare of the Fund and its shareholders and, with respect to
Founders Employees, of other clients of Founders ("Clients," as defined in
Section 1 of this Code of Ethics).
The general principles and procedures which guide the activities of all
Access Persons and Founders Employees are augmented by this Code of Ethics,
which is based upon the fundamental recognition that Access Persons have a
fiduciary relationship with the Fund and its shareholders and Founders Employees
may have such a relationship with other Clients, which requires the maintenance
by all such individuals of the highest standards of integrity and conduct.
<PAGE>
Access Persons must at all times recognize, respect, and act in the best
interests of the shareholders of the Fund, and Founders Employees must so act
with respect to the Fund and other Clients. In furtherance of their fiduciary
responsibilities, Access Persons and Founders Employees must ensure that they do
not take any inappropriate advantage of their positions as directors, officers,
employees, or agents of the Fund and of Founders. Access Persons and Founders
Employees must avoid any situations which might compromise their exercise of
fully independent judgment in the interests of or on behalf of the Fund and its
shareholders and other Clients, as applicable.
Professional and legal responsibilities to the Fund and its shareholders
and to other Clients dictate that not only conflicts of interests, but the
appearance of conflicts of interests, be avoided. Although compliance by Access
Persons and Founders Employees with the provisions of this Code of Ethics is
mandatory, codes of ethics cannot define all conflict and potential conflict
situations. Therefore, in addition to assuring that one's conduct comports with
this Code of Ethics, Access Persons and Founders Employees must avoid engaging
in any conduct that may create a conflict of interest or the potential for a
conflict of interest. Access Persons and Founders Employees must adhere not only
to the letter but also to the spirit of the Code of Ethics and the principles
articulated herein.
All activities of an Access Person and a Founders Employee must be
governed by the high fiduciary standard of scrupulous avoidance of serving one's
own personal interests ahead of the interests of the Fund and other Clients, as
applicable. In one's business activities, one must act in all respects in the
best interests of the Fund and its shareholders and of other Clients.
SECTION 1: DEFINITIONS
For the purpose of this Code of Ethics, the following general definitions
shall apply:
1. Access Person shall mean:
a. Any director or officer of the Fund or of Founders; and
b. Any employee of the Fund or of Founders who, in connection with
his or her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security by the Fund or a
Client, or whose functions relate to the making of any recommendations
with respect to such purchases or sales; and
<PAGE>
c. Any natural person in a control relationship to the Fund or to
Founders who obtains information concerning recommendations made to the
Fund or a Client with regard to the purchase or sale of a security.
Access Person shall not include an employee of the Fund or of Founders who
receives no information about current recommendations or trading or an employee
who obtains information in a single instance, infrequently or inadvertently.
2. Affiliate. One is an "Affiliate" of another person or company if
he or she:
(i) is a partner, director, officer, or employee of such other
person or company; or
(ii) directly or indirectly owns, controls or holds with power to
vote 5% or more of the outstanding voting securities of such company; or
(iii) directly or indirectly controls such company.
3. Approval Officer means the person(s) designated by the president of
Founders to provide certain written approvals required by this Code of Ethics.
The Approval Officer(s) is identified on Appendix 1.
4. Beneficial ownership shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an Access Person has or acquires.
A copy of the relevant portions of Rule 16a-1, which defines beneficial
ownership in accordance with Section 16, is included on Appendix 2.
5. Client means an investment advisory client of Founders Asset
Management LLC other than the Fund.
6. Control shall have the meaning set forth in Section 2(a)(9) of the
Act. A copy of Section 2(a)(9) of the Act is included on Appendix 2.
7. De minimis transaction means a securities transaction for which
pre-transaction approval is not required, as more fully described and defined in
Section 4.2 of this Code of Ethics.
<PAGE>
8. Founders Employee means an officer, director, and/or employee of
Founders Asset Management LLC
9. Independent Director means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19) of the
Act and who, in connection with his or her normal and regular responsibilities,
does not make or participate in decisions with respect to the purchase or sale
of a security by the Fund or make any recommendations with respect to such
purchases or sales. An independent director is further defined as one who does
not normally obtain information regarding the purchase or sale of a security by
the Fund within fifteen days before or after the purchase or sale. A copy of
Section 2(a)(19) of the Act is included on Appendix 2.
a. Fund Affiliated Director means a director of the Fund who is not
a director, officer, or employee of Founders or any affiliate thereof
(other than the director's being affiliated with Founders as an officer
and/or director of the Fund) and who, in connection with his or her normal
and regular responsibilities, does not make or participate in decisions
with respect to the purchase or sale of a security by the Fund or make any
recommendations with respect to such purchases or sales. A Fund Affiliated
Director is further defined as one who does not normally obtain
information regarding the purchase or sale of a security by the Fund
within fifteen days before or after the purchase or sale. A Fund
Affiliated Director may be an "interested person" of the Fund within the
meaning of Section 2(a)(19) of the Act.
b. Fund Affiliated Officer means an officer of the Fund who is not a
director, officer, or employee of Founders or any affiliate thereof (other
than the officer's being affiliated with Founders as an officer of the
Fund) and who, in connection with his or her normal and regular
responsibilities, does not make or participate in decisions with respect
to the purchase or sale of a security by the Fund or make any
recommendations with respect to such purchases or sales. A Fund Affiliated
Officer is further defined as one who does not normally obtain information
regarding the purchase or sale of a security by the Fund within fifteen
days before or after the purchase or sale. A Fund Affiliated Officer may
be an "interested person" of the Fund within the meaning of Section
2(a)(19) of the Act.
c. Except as may otherwise be indicated herein, the term Independent
Director when used in this Code shall be deemed to include a Fund
Affiliated Director and a Fund Affiliated Officer.
10. Purchase or sale of a security shall include the writing of an
option to purchase or sell the security.
<PAGE>
11. Restricted securities shall include securities which are not readily
marketable and securities which cannot be resold or distributed to the public or
to qualified institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended (the "1933 Act"), without an effective registration
statement under the 1933 Act. A security which is not readily marketable is one
which, for whatever reason, cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the security is
reasonably valued.
12. Security shall have the meaning set forth in Section 2(a)(36) of the
Act, and shall also include related securities, such as rights and convertible
instruments, and financial instruments such as futures, commodities, and
derivative instruments which are related to, but are not the same as, securities
that may be held or acquired by the Fund or a Client, and which may not be
defined as securities in Section 2(a)(36) of the Act. The term security shall
include restricted securities as defined herein. Security shall not include:
government securities as defined in Section 2(a)(16) of the Act; high quality
short-term debt instruments including, but not limited to, bankers' acceptances,
bank certificates of deposit, commercial paper, and repurchase agreements; and
shares of registered open-end investment companies. Copies of Sections 2(a)(36)
and 2(a)(16) of the Act are included on Appendix 2.
13. A security is being considered for purchase or sale when a
recommendation to purchase or sell a security has been made and communicated or,
with respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
14. A security is being purchased or sold when, within the most recent
seven-day period, a transaction in such security has been effected for the Fund
or a Client, or when a transaction in such security is pending or in progress
for the Fund or a Client.
SECTION 2: GENERAL POLICY
Directors and other Access Persons are specifically reminded that it is
unlawful for any of them, in connection with the purchase or sale, directly or
indirectly, of a security held or to be acquired by the Fund:
1. To employ any device, scheme or artifice to defraud the Fund;
2. To make any untrue statement of a material fact to the Fund or omit
to state to the Fund a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading;
<PAGE>
3. To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Fund; or
4. To engage in any manipulative practice with respect to the Fund.
For purposes of this Section 2, a security held or to be acquired by the
Fund means any security as defined herein which, within the most recent 15-day
period, is or has been held by the Fund or is being or has been considered by
the Fund or by Founders for purchase by the Fund.
These proscriptions apply to Founders Employees not only with respect to
the Fund but also with respect to Clients.
The provisions of this Code of Ethics have been instituted, in part, in an
effort to ensure that directors, other Access Persons, and Founders Employees do
not, inadvertently or otherwise, violate the proscriptions outlined above.
SECTION 3: PROHIBITED PURCHASES AND SALES
General Prohibition.
Except as provided in Section 11 of this Code of Ethics, no Access Person
or Founders Employee shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership and which to his or her actual knowledge
at the time of such purchase or sale:
1. Is being considered for purchase or sale by the Fund or, as to
Founders Employees, a Client; or
2. Is being purchased or sold by the Fund or, as to Founders
Employees, a Client.
Initial Public Offering.
Except as provided in Section 11 of this Code of Ethics, no Access Person
and no Founders Employee shall purchase, directly or indirectly, any securities
which are offered in an initial public offering.
<PAGE>
SECTION 4: PRE-TRANSACTION APPROVAL
1. Every Access Person and Founders Employee shall obtain written
approval of an Approval Officer prior to effecting any transactions in
securities for his or her direct or indirect personal gain or in which he or she
may have any beneficial interest. Such prior written approval shall also be
required of any such transactions effected by, for, or on behalf of any member
of the Access Person's and Founders Employee's household. Written approval shall
be obtained by use of the form attached hereto as Exhibit A. Such approval shall
be effective for three trading days. The legal department of Founders (the
"Legal Department") shall retain the original copies of all completed approval
forms.
2. The pre-transaction approval requirements of this Section 4 shall
not apply to "de minimis" transactions, defined as any purchase or sale of a
security by an Access Person or Founders Employee who is not also buying or
selling the same security for the Fund or a Client, and which:
a. Is issued by a company with a market capitalization of at least
$1 billion and has an average daily trading volume of at least 100,000
shares; and
b. Involves no more than 100 shares or units, regardless of the
dollar amount of the transaction, or any number of shares or units having
a value of no more than $5,000.
If, during any two consecutive calendar quarters, aggregate purchase or
sale transactions by the Access Person or Founders Employee in shares or units
of the same issuer exceed 300 shares or units or a cumulative value of $15,000,
whichever is the last to occur, subsequent transactions in the issuer's
securities shall no longer be regarded as "de minimis" transactions. Within
three business days of the transaction which causes a limit of 300 shares or
units or $15,000 to be exceeded, the Access Person or Founders Employee shall
notify the Legal Department of the occurrence of the transaction. Transactions
in the applicable issuer's securities during the next 12 months will be subject
to the pre-clearance provisions of this Section 4.
Any Access Person or Founders Employee who desires to engage in a de
minimis transaction (subject to the limits set forth in the preceding paragraph)
shall complete the form attached hereto as Exhibit B prior to each such
transaction, and return that form to the Legal Department.
3. Any Access Person or Founders Employee who has obtained written
approval to purchase a restricted security and who has purchased and continues
to maintain the security in reliance upon such approval must disclose the
investment to his or her Approval Officer in any instance in which the Access
<PAGE>
Person or Founders Employee is involved in consideration by the Fund or a Client
of an investment in the issuer of the restricted security. In any such
circumstance, the decision of a Fund or a Client to purchase an investment in
the issuer of the restricted security must be reviewed independently by one or
more investment personnel of Founders, selected by the Approval Officer, who
have no personal interest in the issuer, who must execute written approval of
the investment in the issuer prior to the investment's being made.
SECTION 5: SHORT-TERM TRADING PROFITS
Every Access Person or Founders Employee who obtains a profit from a
purchase and sale, or a sale and purchase, of the same or equivalent securities
in which the individual has a beneficial ownership interest within sixty (60)
calendar days shall disgorge such profit, with the profit to be allocated in
whole or in part among Portfolios of the Fund as determined equitably by the
Fund's board of directors (any portion of the profit not so allocated shall be
allocated among Clients as determined by Founders' board of directors);
provided, however, that such disgorgement of short-term trading profits shall
not apply to "de minimis" transactions as defined in Section 4 of this Code of
Ethics or to securities transactions of Access Persons or of Founders Employees
under circumstances, determined in the sole discretion of the board of directors
of the Fund, in which disgorgement of profits would be inequitable.
SECTION 6: POTENTIAL CONFLICTS OF INTEREST
Gifts.
No Access Person or Founders Employee shall give, seek or accept any gift,
favor, or other item of value in excess of $100 to or from any person or entity
having a direct or indirect business and/or professional relationship with the
Fund or Founders or any affiliated entities of the Fund or Founders. No Access
Person or Founders Employee shall participate individually or on behalf of
Founders, a Client or the Fund, directly or indirectly, in any transaction
involving the payment or receipt of any bribe or kickback, or the payment or
receipt of any other amount with an understanding that part or all of such
amount will be refunded or delivered to a third party in violation of any law
applicable to the transaction.
Trips.
Any trip to be taken by an Access Person or a Founders Employee must be
approved in advance, by use of the form attached hereto as Exhibit C, if any
portion of trip related expenses is to be paid by a broker, by a company whose
securities are publicly traded, or by any other person or entity with which
Founders may have a current or anticipated business relationship.
<PAGE>
Preferential Treatment.
No Access Person or Founders Employee shall give, seek or accept any
preferential treatment in dealings with any broker, dealer, portfolio company,
financial institution, supplier or any other organization with which Founders
transacts business or anticipates transacting business.
Investment Advice to Others.
Access Persons and Founders Employees are strictly prohibited from acting
jointly or individually in an investment advisory capacity for an account other
than a Fund or Client.
Outside Affiliations.
Access Persons and Founders Employees are prohibited from receiving direct
or indirect compensation of more than minimal value as a result of services
provided to any outside entity or from otherwise engaging in any outside
for-profit business activities without first receiving the written approval of
the Approval Officer on the form attached hereto as Exhibit D. The Legal
Department shall retain copies of all such approvals.
SECTION 7: INVESTMENT CLUBS
Notwithstanding any other provisions of this Code of Ethics to the
contrary, family members, such as husband, wife, and other dependent relatives
of an Access Person or a Founders Employee may participate in investment clubs
or similar investment groups if, and only if, all of the following conditions
are present and are adhered to:
a. The Access Person or Founders Employee does not provide
investment advice to the family member or to other club participants with
respect to any security which is being considered for purchase or sale by
the Fund or a Client or is being purchased or sold by the Fund or a
Client.
b. The family member immediately notifies the Access Person or
Founders Employee when he or she is aware that the investment club has
purchased or sold or is considering the purchase or sale of a security.
c. Upon being notified by the family member in accordance with item
(b), the Access Person or Founders Employee completes and signs Exhibit E
and submits Exhibit E to the Approval Officer for acknowledgment. The
Legal Department shall retain copies of all such forms.
<PAGE>
SECTION 8: SERVICE AS A DIRECTOR OF PUBLICLY TRADED COMPANIES
No Access Person or Founders Employee shall be permitted to serve on the
board of directors of a publicly traded company unless prior written
authorization has first been obtained from the president of Founders. Approval
of such service by the president shall be based upon a determination that the
service is consistent with the interests of the Fund and its shareholders and
the Clients. In instances in which authorization to serve is granted, the Access
Person or Founders Employee serving as a director shall refrain from any direct
or indirect involvement in the consideration for purchase or sale and in the
purchase or sale by the Fund or a Client (i) of any securities of the company on
the board of directors of which the Access Person or the Founders Employee
serves as a director, or (ii) of any securities of an affiliate of such company.
SECTION 9: BROKER ACCOUNTS AND BROKER CONFIRMATIONS
1. Each Access Person and Founders Employee is required to provide the
Legal Department with the name, address, and telephone number of any brokerage
firm with which the Access Person or Founders Employee establishes or maintains
a brokerage account or in which such Access Person or Founders Employee or any
member of such Access Person's or Founders Employee's household has any direct
or indirect beneficial ownership, and the account number and registered owner
designation of any such account. Such information as to existing brokerage
accounts shall be provided upon filing of the initial written certification
required of an Access Person and Founders Employee by use of the form attached
hereto as Exhibit F. Such information with respect to the establishment of a new
brokerage account not previously reported to the Legal Department shall be
provided by the Access Person or Founders Employee to the Legal Department
within ten days of establishment of the account.
2. All Access Persons and Founders Employees are required to direct any
broker effecting a transaction in any security in which such Access Person or
Founders Employee or any member of such Access Person's or Founders Employee's
household has any direct or indirect beneficial ownership to provide the Legal
Department with duplicate copies of the applicable trade confirmations and
periodic account statements.
<PAGE>
SECTION 10: REPORTING REQUIREMENTS
A. Initial Report by New Access Person.
Within ten (10) days of the date upon which an individual becomes an
Access Person, the new Access Person shall provide the Legal Department with an
initial report containing a list of all securities in which such Access Person
or any member of such Access Person's household has any direct or indirect
beneficial ownership. The list shall include the title and number of shares or
interests of each security owned, each security's ticker symbol, if any, the
date(s) of purchase of the security, and the price(s) paid for the security. The
initial report shall be made by use of a form similar to that attached hereto as
Exhibit F.
B. Periodic Reports by Access Persons and Founders Employees.
1. Except as is otherwise provided in Section 10.B.2., every Access
Person, Founders Employee, and Fund Affiliated Officer shall report to the Legal
Department, and every Fund Affiliated Director shall report to the Fund's
counsel, the information described in paragraph 3 of this Section 10B with
respect to transactions in any security in which such Access Person, Founders
Employee, Fund Affiliated Officer, or Fund Affiliated Director, or any member of
such Access Person's, Founders Employee's, Fund Affiliated Officer's, or Fund
Affiliated Director's household has, or by reason of such transaction acquires,
any direct or indirect beneficial ownership in the security. Such report shall
be made by use of a form similar to that attached hereto as Exhibit G not later
than ten days after the end of the calendar quarter in which the transaction
occurred.
2. An Independent Director shall be exempt from the reporting
requirements imposed by Section 10.B.1. and need only report a transaction in a
security if such Director, at the time of that transaction knew or, in the
ordinary course of fulfilling his official duties as a director of the Fund
should have known, that during the 15-day period immediately preceding or after
the date of the transaction by the Director, such security was purchased or sold
by the Fund or was being considered by the Fund or Founders for purchase or sale
by the Fund. Any such transaction should be reported to the Fund's counsel not
later than ten days after the end of the calendar quarter in which the
transaction occurred.
3. At the end of each calendar quarter, the Legal Department will
provide each Access Person and Founders Employee who effected securities
transactions during the quarter with a form similar to that attached as Exhibit
G containing a list of all securities transactions for which the individual has
submitted reports on Exhibits A and B during the quarter and/or for which broker
trade confirmations of the individual's securities transactions have been
<PAGE>
received by the Legal Department during the quarter. The Access Person or
Founders Employee is responsible for verifying the accuracy and completeness of
the information on the report provided by the Legal Department and for adding
any transaction which was effected during the preceding quarter which is not
included on the report. All reports shall contain the following information:
a. The title of each security involved in the transaction, each
security's ticker symbol, if any, the amount of each security purchased or
sold, the date of the transaction, and the price at which the transaction
was executed;
b. The nature of the transaction (i.e., purchase, sale, or any other
type of acquisition or disposition);
c. If the transaction was effected through a brokerage firm, a
broker's confirmation of such transaction (unless the Legal Department
already has received a copy of the confirmation); and
d. If no brokerage firm was involved in the transaction, an
explanation of the circumstances surrounding the transaction and the
manner in which the transaction was executed.
4. Such reports and, if applicable, accompanying confirmations shall be
retained by the Fund's counsel or the Legal Department for a period of at least
six years.
5. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or she has
any direct or indirect beneficial ownership in the security to which the report
relates.
C. Annual Reports by Access Persons.
On or before February 1 of each calendar year, each Access Person shall
provide to the Legal Department a list of all securities in which, as of the
preceding December 31, the Access Person had any direct or indirect beneficial
ownership interest. The list shall include the title and number of shares or
interests of each security owned, the date(s) of purchase of the security, and
the price(s) paid for the security, and shall be provided by use of a form
similar to that attached hereto as Exhibit H.
D. Monitoring of Periodic and Annual Reports by Legal Department.
1. Upon receipt of each periodic report provided pursuant to Section
10B.1 and 10B.2, the Legal Department will review the report to determine
<PAGE>
whether the Access Person or Founders Employee may have engaged in possible
violations of this Code of Ethics, paying particular attention to trading
patterns and activities of the Access Person or Founders Employee which may
identify potential infractions of this Code of Ethics.
2. Upon receipt by the Legal Department of each annual report from
Access Persons required by this Code of Ethics to provide such reports, the
Legal Department shall prepare a list of all securities shown on the reports and
shall compare the list with records of securities purchased or sold by the Fund
and by Clients during the prior twelve months. The Legal Department shall
determine, based upon such comparison and upon any further review of any Access
Person's securities transactions deemed necessary, whether any violations of
this Code of Ethics may have occurred.
E. Written Certification.
On a basis no less frequently than annually, each Independent Director of
the Fund shall report to the Fund's counsel, and each other Access Person or
Founders Employee shall be required to provide to the Legal Department, a
written certification that the Access Person or Founders Employee has read and
understands this Code of Ethics and recognizes that he or she is subject to
certain terms and provisions thereof. Each Access Person and Founders Employee
shall further be required annually to certify in writing that he or she has
complied with the requirements of this Code of Ethics and has disclosed or
reported all personal securities transactions required to be disclosed or
reported pursuant to the requirements of this Code of Ethics. Attached hereto as
Exhibit I is the form to be used by Access Persons, other than Independent
Directors, and by Founders Employees to comply with this certification.
F. Legal Department Report.
1. On a basis no less frequently than semi-annually, the Legal
Department shall prepare a written report to the board of directors of the Fund
or to a standing committee of the board designated by the Independent Directors
to receive such reports, which shall provide the following information:
a. A summary of existing procedures concerning investments in
securities by all Access Persons and Founders Employees who are required
to report their securities transactions to the Legal Department and any
changes in such procedures which were implemented in the past six (6)
months;
b. Any recommended changes in existing restrictions or procedures
based upon (i) the experience of the Fund and Founders under this Code of
Ethics, (ii) the experience of any affiliate of the Fund which may have a
separate code of ethics, (iii) evolving industry practices, or (iv)
developments in applicable laws or regulations; and
<PAGE>
c. Certification that the Fund and Founders have adopted such
procedures as are reasonably necessary to prevent violations of this Code
of Ethics by Access Persons and Founders Employees.
SECTION 11: EXEMPTIONS
A. Exempt Transactions.
The prohibitions of Section 3 of this Code of Ethics and the
pre-transaction, short-term trading, and reporting requirements of Sections 4,
5, and 10B of this Code of Ethics shall not apply to:
1. Purchases or sales of securities effected in any account over which
an Access Person or Founders Employee has no direct or indirect influence or
control;
2. Purchases or sales which are non-volitional on the part of an Access
Person or a Founders Employee, including transactions in accounts in which
complete investment discretion has been delegated to a person or entity not an
Access Person or a Founders Employee or a member of such Access Person's or
Founders Employee's household;
3. Purchases which are part of an automatic dividend reinvestment
plan;
4. Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired;
5. Purchases or sales of securities other than restricted securities
which receive the prior approval of the president of Founders or such other
senior officer as any such president may designate to grant such approval in his
absence, because they are only remotely potentially harmful to the Fund or a
Client since they would be very unlikely to affect a highly institutional
market, or because they clearly are not related economically to the securities
to be purchased, sold, or held by the Fund or a Client.
B. Independent Director Exemptions.
Notwithstanding any language in this Code of Ethics to the contrary, the
initial public offering prohibition of Section 3, the provisions of Section 4.1,
<PAGE>
the provisions of Section 5, the provisions of Section 6, the provisions of
Section 7, the provisions of Section 8, the provisions of Section 9, the
provisions of Section 10A, and the provisions of Section 10C of this Code of
Ethics shall not apply to Independent Directors.
SECTION 12: DISSEMINATION, CORPORATE RECORD RETENTION, DISCLOSURE, AND
CONFIDENTIALITY
1. Founders shall provide a copy of this Code of Ethics to all Access
Persons and to all Founders Employees and shall inform such individuals of their
duties and responsibilities imposed by this Code of Ethics, including their
reporting responsibilities. Founders shall obtain a written certification from
each Founders Employee stating that he/she has read, understands, and will
comply with this Code of Ethics by use of the form attached hereto as Exhibit F.
2. The Fund and Founders shall maintain for a six-year period in an
easily accessible place the following records:
a. A copy of this Code of Ethics;
b. A record of any violation of this Code of Ethics and of any
action taken as a result of such violation;
c. A copy of each report made by an Access Person or Founders
Employee pursuant to this Code of Ethics;
d. A list of all persons who are, or within the past six years have
been, required to make reports pursuant to this Code of Ethics. Founders
shall arrange for a list of all current Access Persons to be attached to
this Code of Ethics as Appendix 1 and to be amended when necessary to add
or delete Access Persons; and
e. A list of Approval Officers. Founders shall arrange for a list of
all current Approval Officers to be included on Appendix 1 and to be
amended when necessary to add or delete Approval Officers.
3. The prospectuses and/or the statements of additional information of
the Fund shall provide disclosure with respect to the general policies and
procedures applicable to Access Persons by this Code of Ethics, including
specific disclosure with regard to the extent to which Access Persons are
permitted to engage in personal securities transactions. Such disclosure shall
further include a brief description of the procedures initiated by the Fund to
address conflicts of interests occurring as a result of violations of this Code
of Ethics, and shall include the manner in which a Fund investor may obtain a
copy of the Code of Ethics. Legal counsel for Founders and for the Fund are to
review the disclosure for adequacy and are further directed to attach a copy of
the Code of Ethics as an exhibit to the Fund's registration statement.
<PAGE>
4. The Legal Department, Approval Officers, and other individuals who
may receive (i) reports of securities transactions and/or securities holdings of
Access Persons and (ii) other information with respect to Access Persons' and
other Founders Employees' compliance with or violation of any provisions of this
Code of Ethics shall receive and maintain the information in confidence. Such
information shall only be disclosed to those persons or entities who have either
a need or a legal obligation to receive such information or have the legal
authority to be provided with the information. Persons and entities to whom such
information may appropriately be disclosed include, but are not necessarily
limited to, the directors of the Fund, the president of Founders, compliance,
accounting, and legal personnel of the Fund and of Founders, Approval Officers,
state and federal regulatory agencies, and appropriate representatives of the
National Association of Securities Dealers, Inc.
SECTION 13: PERSONAL RECORD RETENTION
Each Access Person and Founders Employee is encouraged to retain in his or
her personal files for a period of at least six years broker's confirmations,
monthly statements, or other appropriate information covering all personal
securities transactions, and all transactions in securities effected by, for, or
on behalf of any member of the Access Person's and Founders Employee's
household, showing the amount of each security purchased or sold, the date of
the transaction, the price at which it was executed, and the name and address of
the executing broker or dealer, if any.
SECTION 14: MATERIAL INSIDE (NON-PUBLIC) INFORMATION
It is unlawful under the Securities Exchange Act of 1934 and SEC Rule
10b-5 thereunder for any person to trade or recommend trading in securities on
the basis of material, inside (non-public) information. Founders has adopted a
Policy Statement On Insider Trading, a copy of which is included as Appendix 3
and is incorporated herein by this reference. By acknowledging that they have
read, understand and will comply with this Code of Ethics, Access Persons and
Founders Employees are also acknowledging that they have read, understand and
will comply with the attached Policy Statement on Insider Trading.
<PAGE>
SECTION 15: VIOLATIONS
1. Any Access Person or Founders Employee who becomes aware of a
violation or apparent violation of this Code of Ethics by an officer, director,
or employee of the Fund shall advise the president of Founders or the Fund's
legal counsel of the matter. The person to whom the violation or apparent
violation is made known shall thereupon report the matter to the Fund's board of
directors. The board shall determine whether a violation has occurred and, if
so, will impose or, where applicable, recommend such sanctions, if any, as it
deems appropriate, including verbal or written warnings, a letter of censure,
suspension, termination of employment, or other sanctions. Prior to the final
determination by the board of directors, Founders shall provide such
investigation of a reported violation and shall make such recommendations to the
board with respect thereto as Founders and/or the board shall deem advisable.
2. Any Access Person or Founders Employee who becomes aware of a
violation or apparent violation of this Code of Ethics by an officer, director,
employee, or other access person of Founders who is not also an officer,
director, or employee of the Fund shall advise the president, the Legal
Department or Founders' legal counsel of the matter. The person to whom the
violation or apparent violation is made known shall thereupon report the matter
to Founders' president or, if the violation or apparent violation involves
Founders' president, Founders' chairman of the board of directors. Founders'
president or chairman of the board, as appropriate, in consultation with the
Legal Department (if not involved with the violation or apparent violation),
shall determine whether a violation has occurred and, if so, will impose such
sanctions, if any, as he or she may deem appropriate, including verbal or
written warnings, a letter of censure, suspension, termination of employment, or
other sanctions.
3. In addition to any other sanctions which may be imposed upon an
Access Person or a Founders Employee who has violated this Code of Ethics, and
particularly in circumstances in which the violation involves the sale or
purchase of a security, the Access Person or Founders Employee having engaged in
the violation may be required either to unwind the purchase or sale transaction
or, if that is impractical, disgorge all profits from the transaction. Any such
profits are to be allocated in whole or in part among Portfolios of the Fund and
Clients as determined equitably by the Fund's board of directors, if the
sanction is imposed by the Fund's board, and by Founders' president or chairman
of its board of directors, as appropriate, if the sanction is imposed by
Founders.
4. The Legal Department shall notify the Fund's board of directors, or
a standing committee of the board designated by the Independent Directors, of
violations of this Code of Ethics committed by an officer, director, employee,
or other access person of Founders who is not also an officer or director of the
<PAGE>
Fund and of the sanctions, if any, which have been imposed by Founders upon the
person having committed the violation. Such a report will be provided at the
next regularly scheduled meeting of the Fund's board of directors following the
determination of the occurrence of the violation.
The Fund's board of directors will review the report and other
presentations concerning the violation and the sanctions imposed with respect
thereto, and may either:
a. Take no further action; or
b. Recommend reconsideration of the determination that a violation
has occurred, the sanctions imposed with respect thereto, and/or of the
allocation of any disgorgement, accompanied by specific suggestions for
change in the actions taken by the chairman of the board or the president
of Founders as the board of directors may deem appropriate.
5. Upon receipt of a recommendation for reconsideration from the Fund's
board of directors in accordance with item 4.b. above, the chairman of the board
or the president of Founders, as applicable, will consider the directors'
recommendations and will take such final action as he or she deems appropriate
under the circumstances. A report of the action taken will be provided at the
next regularly scheduled meeting of the Fund's board of directors.
SECTION 16: REVIEW
This Code of Ethics shall be reviewed by the board of directors of the
Fund and of Founders no less frequently than annually. At the conclusion of any
such review, a majority of the directors of the Fund, including a majority of
the Fund's Independent Directors, shall determine whether the Code of Ethics
contains such provisions as are reasonably necessary to prevent Access Persons
and Founders Employees from engaging in any act, practice, or course of business
which is prohibited by Section 2 of this Code of Ethics.
APPROVED AND AMENDED to be effective as of August 14, 1998, by vote of a
majority of the directors of the Fund, including a majority of the Independent
Directors, and by vote of the board of managers of Founders.
<PAGE>
APPENDIX 1
TO
CODE OF ETHICS
List of Access Persons and Approval Officers
[Please contact the Legal Department to obtain the current list of
Access Persons and Approval Officers. This list can also be found on the
Legal Department section of FNet, Founders' intranet site.]
<PAGE>
APPENDIX 2
TO
CODE OF ETHICS
Reg. ss. 240.16a-1.
(a). The term "beneficial owner" shall have the following applications:
(2) ... the term "beneficial owner" shall mean any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares a direct or indirect pecuniary
interest in the equity securities, subject to the following:
(i) The term "pecuniary interest" in any class of equity securities
shall mean the opportunity, directly or indirectly, to profit or share in
any profit derived from a transaction in the subject securities.
(ii) The term "indirect pecuniary interest" in any class of equity
securities shall include, but not be limited to:
(A) securities held by members of a person's immediate family
sharing the same household; PROVIDED, HOWEVER, that the presumption of
such beneficial ownership may be rebutted; SEE also ss. 240.16a-1(a)(4);
[Amended in Release No. 34-29131 (P. 26,086A), effective May 1, 1991, 56
F.R. 19925.]
(B) a general partner's proportionate interest in the
portfolio securities held by a general or limited partnership. The general
partner's proportionate interest, as evidenced by the partnership
agreement in effect at the time of the transaction and the partnership's
most recent financial statements, shall be the greater of:
(1) the general partner's share of the partnership's profits,
including profits attributed to any limited partnership interests
held by the general partner and any other interests in profits that
arise from the purchase and sale of the partnership's portfolio
securities; or
(2) the general partner's share of the partnership capital
account, including the share attributable to any limited partnership
interest held by the general partner.
(C) a performance-related fee, other than an asset-based fee,
received by any broker, dealer, bank, insurance company, investment
company, investment adviser, investment manager, trustee or person or
<PAGE>
entity performing a similar function; PROVIDED, HOWEVER, that no pecuniary
interest shall be present where:
(1) the performance-related fee, regardless of when payable,
is calculated based upon net capital gains and/or net capital
appreciation generated from the portfolio or from the fiduciary's
overall performance over a period of one year or more; and
(2) equity securities of the issuer do not account for more
than ten percent of the market value of the portfolio. A right to a
nonperformance-related fee alone shall not represent a pecuniary
interest in the securities;
(D) A person's right to dividends that is separated or
separable from the underlying securities. Otherwise, a right to dividends
alone shall not represent a pecuniary interest in the securities;
(E) A person's interest in securities held by a trust, as
specified in ss. 240.16a-8(b); and
(F) A person's right to acquire equity securities through the
exercise or conversion of any derivative security, whether or not
presently exercisable.
(iii) A shareholder shall not be deemed to have a pecuniary interest
in the portfolio securities held by a corporation or similar entity in
which the person owns securities if the shareholder is not a controlling
shareholder of the entity and does not have or share investment control
over the entity's portfolio.
(e) The term "immediate family" shall mean any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and shall include adoptive relationships.
<PAGE>
GENERAL DEFINITIONS
Sec. 2.(a) When used in this title, unless the context other requires --
[Control]
(9) "Control" means the power to exercise a controlling influence over
the management or policies of a company, unless such power is solely the result
of an official position with such company.
[Government Security]
(16) "Government security" means any security issued or guaranteed as to
principal or interest by the United States, or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States; or
any certificate of deposit for any of the foregoing.
[Interested Person]
(19) "Interested person" of another person means --
(A) when used with respect to an investment company --
(i) any affiliated person of such company,
(ii) any member of the immediate family of any natural person who is
an affiliated person of such company,
(iii) any interested person of any investment adviser of or
principal underwriter for such company,
(iv) any person or partner or employee of any person who at any time
since the beginning of the last two completed fiscal years of such company
has acted as legal counsel for such company,
(v) any broker or dealer registered under the Securities Exchange
Act of 1934 or any affiliated person of such a broker or dealer, and
(vi) any natural person whom the Commission by order shall have
determined to be an interested person by reason of having had, at any time
since the beginning of the last two completed fiscal years of such
company, a material business or professional relationship with such
company or with the principal executive officer of such company or with
<PAGE>
any other investment company having the same investment adviser or
principal underwriter or with the principal executive officer of such
other investment company:
PROVIDED, That no person shall be deemed to be an interested person of an
investment company solely by reason of (aa) his being a member of its board of
directors or advisory board or an owner of its securities, or (bb) his
membership in the immediate family of any person specified in clause (aa) of
this proviso; and
(B) when used with respect to an investment adviser of or principal
underwriter for any investment company --
(i) any affiliated person of such investment adviser or
principal underwriter,
(ii) any member of the immediate family of any natural person who is
an affiliated person of such investment adviser or principal underwriter,
(iii) any person who knowingly has any direct or indirect beneficial
interest in, or who is designated as trustee, executor, or guardian of any
legal interest in, any security issued either by such investment adviser
or principal underwriter or by a controlling person of such investment
adviser or principal underwriter,
(iv) any person or partner or employee of any person who at any time
since the beginning of the last two completed fiscal years of such
investment company has acted as legal counsel for such investment adviser
or principal underwriter,
(v) any broker or dealer registered under the Securities Exchange
Act of 1934 or any affiliated person of such a broker or dealer, and
(vi) any natural person whom the Commission by order shall have
determined to be an interested person by reason of having had at any time
since the beginning of the last two completed fiscal years of such
investment company a material business or professional relationship with
such investment adviser or principal underwriter or with the principal
executive officer or any controlling person of such investment adviser or
principal underwriter.
For the purposes of this paragraph (19), "member of the immediate family" means
any parent, spouse of a parent, child, spouse of a child, spouse, brother or
sister, and includes step and adoptive relationships. The Commission may modify
<PAGE>
or revoke any order issued under clause (vi) of subparagraph (A) or (B) of this
paragraph whenever it finds that such order is no longer consistent with the
facts. No order issued pursuant to clause (vi) of subparagraph (A) or (B) of
this paragraph shall become effective until at least sixty days after the entry
thereof, and no such order shall affect the status of any person for the
purposes of this title or for any purpose for any period prior to the effective
date of such order.
[Security]
(36) "Security" means any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call,
straddle, option, or privilege on any security (including a certificate of
deposit) or on any group or index of securities (including any interest therein
or based on the value thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to foreign currency, or,
in general, any interest or instrument commonly known as a "security," or any
certificate of interest or participation in, temporary or interim certificate
for, receipt for, guarantee of, or warrant or right to subscribe to or purchase,
any of the foregoing.
<PAGE>
APPENDIX 3
TO
CODE OF ETHICS
FOUNDERS ASSET MANAGEMENT LLC
POLICY STATEMENT ON INSIDER TRADING
INTRODUCTION
Founders Asset Management LLC ("Founders") forbids any officer, director
or employee from trading, either personally or on behalf of others (such as
mutual funds or private accounts managed by Founders), on material nonpublic
information or communicating material nonpublic information to others in
violation of the law. This conduct is frequently referred to as "insider
trading." Any questions regarding this policy should be referred to Founders'
General Counsel (the "Reviewing Officer").
A. WHAT IS "INSIDER TRADING"?
"Insider trading" refers generally to buying or selling a security, in
breach of a fiduciary duty or other relationship of trust and confidence, while
in possession of material, nonpublic information about the security. Insider
trading violations may also include "tipping" such information, securities
trading by the person "tipped" and securities trading by those who
misappropriate such information. Examples of insider trading cases that have
been brought by the SEC are cases against: corporate officers, directors, and
employees who traded the corporation's securities after learning of significant,
confidential corporate developments; friends, business associates, family
members, and other "tippees" of such officers, directors, and employees, who
traded the securities after receiving such information; employees of law,
banking, brokerage and printing firms who were given such information in order
to provide services to the corporation whose securities they traded; government
employees who learned of such information because of their employment by the
government; and other persons who misappropriated, and took advantage of,
confidential information from their employers.
Because insider trading undermines investor confidence in the fairness and
integrity of the securities markets, it is imperative that all employees and
officers understand and comply with this legal requirement. The penalties for
insider trading are severe and the SEC considers insider trading violations as
one of its enforcement priorities.
<PAGE>
B. WHAT IS "MATERIAL INFORMATION"?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities. Information that officers, directors and
employees should consider material includes, but is not limited to: dividend
changes, earnings estimates, changes in previously released earnings estimates,
significant expansion or curtailment of operations, significant merger or
acquisition proposals or agreements, significant new products or discoveries,
major litigation, liquidation problems, and extraordinary management
development. Individuals should exercise caution when questioning the
materiality of the information provided and should contact the Reviewing Officer
for clarification of its materiality.
C. WHAT IS NONPUBLIC INFORMATION?
Nonpublic information, often referred to as "insider information," is
information that has not been communicated to the marketplace. One must be able
to point to some fact to show that the information is generally public. For
example, information found in a report filed with the SEC, or appearing in Dow
Jones, Reuters Economic Service, The Wall Street Journal, or other publications
of general circulation would be considered public.
D. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic information
are severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
o civil injunction
o treble (i.e., triple) damages
o disgorgement of profits
o jail sentence
o fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefited, and
o fines for the employer or other controlling person of up to the greater
of $1,000,000 or three times the amount of the profit gained or loss
avoided.
Any violation of this policy statement can be expected to result in
serious sanctions by Founders, including termination of employment.
<PAGE>
E. RELEVANT TOPICS
CONTACT WITH PUBLIC COMPANIES
For Founders, contact with public companies represents an important part
of its research efforts. Investment decisions may be made by Founders on the
basis of conclusions formed through such contact and analysis of publicly
available information. Difficult legal issues arise, however, when directors,
officers or employees of Founders become aware of material nonpublic
information. This could happen, for example, if a company's chief financial
officer prematurely discloses quarterly results to an analyst or an investor
relations representative makes a selective disclosure of adverse news to a
handful of investors. In order to protect Founders and yourself, you must
contact the Reviewing Officer if you believe you have received material,
nonpublic information.
TENDER OFFERS
Tender offers represent a particular concern in the law of insider
trading. Tender offer activity often produces extraordinary gyrations in the
price of the target company's securities. Trading during this time period is
also more likely to attract regulatory attention (and produces a
disproportionate percentage of insider trading cases). Officers, directors, and
employees of Founders should exercise extreme caution any time they become aware
of nonpublic information relating to a tender offer.
F. PROCEDURES TO PREVENT INSIDER TRADING
The following procedures have been established to aid the officers,
directors, and employees of Founders to avoid insider trading, and to aid
Founders in preventing, detecting, and imposing sanctions against insider
trading. Every officer, director, and employee of Founders must follow these
procedures or risk serious sanctions including dismissal, substantial personal
liability, and criminal penalties. If you have any questions about these
procedures you should consult the Reviewing Officer.
IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including mutual funds and
privately managed accounts managed by Founders, in the securities of a company
about which you have potential inside information, ask yourself the following
questions:
i. Is the information material? Is this information that an investor would
consider important in making his or her investment decision? Is this
information that would substantially affect the market price of the
security if generally disclosed?
<PAGE>
ii. Is the information nonpublic? To whom has this information been
provided? Has the information been effectively communicated to the
marketplace by being published in Reuters, The Wall Street Journal, or
other publications of general circulation?
If, after consideration of the above, you believe that the information may
be material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you must take the following steps:
i. Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by Founders.
ii. Report the matter immediately to the Reviewing Officer. If the
Reviewing Officer is not available and an immediate determination is
necessary, such judgment may be made by the President of Founders or its
outside legal counsel.
iii. Do not communicate the information inside or outside Founders, other
than to the designated Reviewing Officer, the President of Founders, or
Founders' outside legal counsel.
iv. After the Reviewing Officer has reviewed the issue, you will be
instructed to continue the prohibitions against trading or communicating
the information received, or you will be allowed to trade and communicate
the information.
G. RESTRICTING ACCESS TO MATERIAL NONPUBLIC INFORMATION
Information in your possession that you identify as material and nonpublic
may not be communicated to anyone, including persons within Founders, with the
exception of Founders' Reviewing Officer, the President of Founders, or
Founders' outside legal counsel. In addition, care should be taken so that such
information is handled in a manner which Founders employees and others cannot
access. For example, physical documents containing such information should be
placed in a locked file cabinet and computer files should be password protected
and restricted from access.
H. PERSONAL SECURITIES TRANSACTIONS
All Founders employees are required to obtain pre-clearance for securities
transactions in which they have a beneficial interest. Please refer to the Code
of Ethics or contact Founders' Legal Department for details regarding how to
obtain prior approval. By requesting approval to engage in a personal securities
transaction, an individual is also certifying that they are not acting on inside
information.
<PAGE>
[LOGO]
MEMORANDUM
TO: All Employees
FROM: Ken Christoffersen
DATE: June 2, 1998
RE: Addendum to the Code of Ethics
At its May 28 meeting, the Board of Managers of Founders Asset Management LLC
adopted the attached "Restrictions on Transactions in Mellon Securities" as an
addendum to the Founders Code of Ethics. Please read this addendum and keep it
with your copy of the Code of Ethics.
The addendum contains a number of provisions relating to trading in the
securities of Mellon Bank Corporation that are required because Mellon is a
public company. These restrictions apply to all employees of Mellon and its
subsidiaries (referred to as "associates" in the document), other than outside
consultants or temporary employees. These restrictions apply to all Founders
employees effective immediately.
If you have any questions concerning the attached addendum, please feel free to
contact Allen French or me.
<PAGE>
ADDENDUM TO THE CODE OF ETHICS
MAY 28, 1998
RESTRICTIONS ON TRANSACTIONS IN MELLON SECURITIES
Associates who engage in transactions involving Mellon securities should be
aware of their unique responsibilities with respect to such transactions arising
from the employment relationship and should be sensitive to even the appearance
of impropriety.
The following restrictions apply to all transactions in Mellon's publicly traded
securities occurring in the associate's own account and in all other accounts
over which the associate could be expected to exercise influence or control (see
provisions under "Beneficial Ownership" below for a more complete discussion of
the accounts to which these restrictions apply). These restrictions are to be
followed in addition to any restrictions that apply to particular officers or
directors (such as restrictions under Section 16 of the Securities Exchange Act
of 1934).
o SHORT SALES--Short sales of Mellon securities by associates are prohibited.
o SALES WITHIN 60 DAYS OF PURCHASE--Sales of Mellon securities within 60 days
of acquisition are prohibited. For purposes of the 60-day holding period,
securities will be deemed to be equivalent if one is convertible into the
other, if one entails a right to purchase or sell the other, or if the value
of one is expressly dependent on the value of the other (e.g., derivative
securities).
In cases of extreme hardship, associates (other than senior management) may
obtain permission to dispose of Mellon securities acquired within 60 days of the
proposed transaction, provided the transaction is precleared with the Manager of
Corporate Compliance and any profits earned are disgorged in accordance with
procedures established by senior management. The Manager of Corporate Compliance
reserves the right to suspend the 60-day holding period restriction in the event
of severe market disruption.
o MARGIN TRANSACTIONS--Purchases on margin of Mellon's publicly traded
securities by associates is prohibited. Margining Mellon securities in
connection with a cashless exercise of an employee stock option through the
Human Resources Department is exempt from this restriction. Further, Mellon
securities may be used to collateralize loans or the acquisition of
securities other than those issued by Mellon.
o OPTION TRANSACTIONS--Option transactions involving Mellon's publicly traded
securities are prohibited. Transactions under Mellon's Long-Term Incentive
Plan or other associate option plans are exempt from this restriction.
<PAGE>
o MAJOR MELLON EVENTS--Associates who have knowledge of major Mellon events
that have not yet been announced are prohibited from buying and selling
Mellon's publicly traded securities before such public announcements, even if
the associate believes the event does not constitute material nonpublic
information.
o MELLON BLACKOUT PERIOD--Associates are prohibited from buying or selling
Mellon's publicly traded securities during a blackout period, which begins
the 16th day of the last month of each calendar quarter and ends three
business days after Mellon publicly announces the financial results for that
quarter. In cases of extreme hardship, associates (other than senior
management) may request permission from the Manager of Corporate Compliance
to dispose of Mellon securities during the blackout period.
BENEFICIAL OWNERSHIP--The provisions discussed above apply to transactions in
the associate's own name and to all other accounts over which the associate
could be expected to exercise influence or control, including:
o accounts of a spouse, minor children or relatives to whom substantial
support is contributed;
o accounts of any other member of the associate's household (e.g., a
relative living in the same home);
o trust accounts for which the associate acts as trustee or otherwise
exercises any type of guidance or influence;
o Corporate accounts controlled, directly or indirectly, by the associate;
o arrangements similar to trust accounts that are established for bona
fide financial purposes and benefit the associate; and
o any other account for which the associate is the beneficial owner.
<PAGE>
EXHIBIT A
REQUEST FOR APPROVAL OF SECURITY TRANSACTION
IN PERSONAL ACCOUNT
NAME:____________________________________________________________________
DATE:________________________________
BUY:__________ SELL:__________
AMOUNT OR SHARES:___________________________ PRICE:______________________
NAME OF SECURITY:________________________________________________________
BROKER:__________________________________________________________________
*Address:_______________________________________
_______________________________________
*Telephone:_____________________________________
*Account No.:_______________________*Registered Owner:___________________
THIS IS A NEW ISSUE: _______ YES ________ NO
THIS IS A SECONDARY: _______ YES ________ NO
I have not acted on inside information.
I have verified that the security described above is not being considered for
purchase or sale by a Client or Fund and is not being purchased or sold by a
Client or Fund. I have further verified that the security has not been purchased
or sold by a Client or Fund at any time during the seven days prior to the date
set forth above.
EMPLOYEE SIGNATURE:______________________________________________________
CONFIRMATION THAT SECURITY HAS NOT BEEN PURCHASED OR SOLD WITHIN PRIOR SEVEN
DAYS:
____________________________________
____________________________________ Date:__________________________
Trading Department
APPROVED BY:________________________** Date:__________________________
Approval Officer
* Complete if not previously provided.
** The Approval Officer Line must be signed by Michael Haines. If Mr. Haines is
not present in Founders Financial Center and an immediate decision is necessary,
the Form may be executed by Mike Gerding, Brian Kelly, Paul LaRocco, Rob Ammann
or Doug Loeffler. Transactions must be approved by an Approval Officer other
than the employee effecting the transaction. No other Founders personnel are
authorized to approve this transaction.
<PAGE>
EXHIBIT B
NOTIFICATION OF INTENTION TO ENGAGE IN
DE MINIMIS TRANSACTION
NAME:____________________________________________________________________
DATE:____________________________________________________________________
BUY:__________ SELL:__________
AMOUNT OR SHARES:__________________________ (cannot exceed the greater of
100 shares or $5,000 per transaction)
NAME OF SECURITY:________________________________________________________
BROKER:__________________________________________________________________
*Address:_______________________________________
_______________________________________
*Telephone:_____________________________________
*Account No.:_______________________*Registered Owner:___________________
I have not acted on inside information.
I am not involved in buying or selling this security for any Founders mutual
fund or private account client.
I have attached information confirming that this security is issued by a company
with a market capitalization of at least $1 billion and has an average daily
trading volume of at least 100,000 shares.
EMPLOYEE SIGNATURE:______________________________________________________
ACKNOWLEDGED:
_______________________________ Date:_______________________________
Legal Department
*Complete if not previously provided.
<PAGE>
EXHIBIT C
APPROVAL FORM FOR TRIPS
WHERE A PORTION OF THE COST IS PAID BY A THIRD PARTY
Name of Founders Employee:_______________________________________________
Name of Person or Entity paying for any portion of the trip:_____________
_________________________________________________________________________
Type of Entity:
[ ] broker
[ ] publicly traded company
[ ] person or entity with which Founders may have a current or
anticipated business relationship
[ ] other ________________________________________
Purpose for trip:________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
The foregoing trip is hereby:
[ ] Approved [ ] Disapproved
FOUNDERS ASSET MANAGEMENT LLC
By:_______________________________* By:______________________________*
Dated:____________________________ Dated:____________________________
* Must be signed by Department Manager and Founders Chief Executive Officer.
<PAGE>
EXHIBIT D
APPROVAL FORM FOR OUTSIDE EMPLOYMENT OR
BUSINESS ACTIVITY
Name of Founders Employee:_______________________________________________
Name of Outside Employer:________________________________________________
(If self-employed, please so indicate.)
Type of Business:________________________________________________________
Brief Job Description:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Typical Weekly Work Schedule:____________________________________________
_________________________________________________________________________
The foregoing employment/business activity is hereby:
[ ] Approved [ ] Disapproved
FOUNDERS ASSET MANAGEMENT LLC
By:_______________________________*
Dated:_____________________________
CC: Department Manager of Employee
Human Resources
* Must be signed by Founders Chief Executive Officer or Ken Christoffersen
following consultation with Department Manager.
<PAGE>
EXHIBIT E
NOTIFICATION OF POSSIBLE SECURITY TRANSACTION
BY
INVESTMENT CLUB OR SIMILAR ENTITY
Name of Investment Club:_________________________________________________
Name of Employee:________________________________________________________
Name of Family Member:___________________________________________________
Name of Security:________________________________________________________
[ ] Buy
[ ] Sell
Employee Signature:______________________________________________________
Date:____________________________________________________________________
This form must be acknowledged by Michael K. Haines, or, in his absence, Mike
Gerding, Brian Kelly, Paul LaRocco, Rob Ammann or Doug Loeffler, and returned to
the Legal Department.
ACKNOWLEDGED:
_________________________________
Approval Officer
<PAGE>
EXHIBIT F
FOUNDERS ASSET MANAGEMENT LLC
CODE OF ETHICS
INITIAL REPORT
By my signature below, I certify that I have received and read a copy of the
Code of Ethics for Founders Asset Management LLC (the "Code"), including,
without limitation, the Policy Statement on Insider Trading, and that I
understand the provisions and requirements of the Code as they apply to me. In
addition, I certify that the information provided herein with respect to
brokerage accounts and securities holdings is accurate and complete. I agree to
comply with all of the terms and provisions of the Code which are applicable to
me, and to disclose or report all personal securities transactions and other
information required to be disclosed or reported pursuant to the requirements of
the Code.
BROKERAGE ACCOUNTS. [Applicable to all employees.] The information provided
below is for all brokerage accounts in which I or any member of my household has
any direct or indirect beneficial ownership. I agree to notify the Legal
Department within ten days of the establishment of a new brokerage account not
previously reported to the Legal Department.
[ ] I have no brokerage accounts to report at this time.
[ ] The following brokerage accounts are maintained by me or a member of my
household (use additional copies of this form if necessary):
Name of brokerage firm:__________________________________________________
Address:___________________________________ Telephone:__________________
Registered Owner Designation:______________ Account No.:________________
SECURITIES. [Applicable to Access Persons only.] The information provided
below is for all securities in which I or any member of my household has any
direct or indirect beneficial ownership.
[ ] I have no securities to report at this time.
[ ] The following securities are ones in which I or a member of my household
have direct or indirect beneficial ownership (use additional copies of
this form if necessary):
Name of Security Ticker Symbol Number of Shares Date Purchased Price
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Employee Signature__________________________ Date:_______________________
<PAGE>
<TABLE>
<CAPTION>
REPORT OF SECURITIES TRANSACTIONS EXHIBIT G
OCCURRING WITHIN LAST CALENDAR QUARTER
<S> <C> <C> <C> <C> <C>
|------------------------------------------------------------------------------------------------------|
| AMOUNT | | | | | |
| OR | | TICKER | DATE | | NAME OF |
| SHARES | SECURITY NAME | SYMBOL | BOUGHT SOLD | PRICE | DEALER OR BANK |
|---------------|--------------------|----------|------------------|---------|-------------------------|
| | | | | | |
| | | | | | |
|---------------|--------------------|----------|------------------|---------|-------------------------|
| | | | | | |
| | | | | | |
|---------------|--------------------|----------|------------------|---------|-------------------------|
| | | | | | |
| | | | | | |
|---------------|--------------------|----------|------------------|---------|-------------------------|
| | | | | | |
| | | | | | |
|---------------|--------------------|----------|------------------|---------|-------------------------|
</TABLE>
The above is a record of one or more purchase or sale transactions in securities
in which I have acquired or disposed of a direct or indirect beneficial
ownership in the last calendar quarter, as more fully defined in the Fund's and
Founders' Codes of Ethics.
DATE:___________________________ SIGNATURE:______________________________
Print Name:_____________________________
Note 1. If the transaction is other than a sale or purchase, please explain
the transaction on a separate page.
Note 2. If no broker or bank was involved in the transaction, describe on a
separate page the circumstances surrounding the transaction and the
manner in which the transaction was executed.
Note 3. If a broker was involved in the transaction, a copy of the broker's
confirmation of the transaction is attached or has previously been
received by Founders' Legal Department.
Note 4. This report shall not be construed as an admission by me that I have
acquired any direct or indirect beneficial ownership in the securities
involved in the transactions reported, which have been marked by me with
an asterisk(*). Such transactions are reported solely to meet the
standards imposed by Rule 17j-1 under the Investment Company Act of
1940.
<PAGE>
<TABLE>
<CAPTION>
REPORT OF SECURITIES OWNERSHIP EXHIBIT H
FOR CALENDAR YEAR ENDING DECEMBER 31, 199__
<S> <C> <C> <C> <C> <C> <C>
|------------|--------------------|----------|----------|------------|------------|------------|
| | | | | CHECK TYPE OF ACCOUNT |
| AMOUNT | | | | FIDUCIARY OR|
| OR | | DATE | | OTHER |
| SHARES | SECURITY NAME | BOUGHT | PRICE | HOUSEHOLD BENEFICIAL |
| | | | | PERSONAL MEMBER OWNERSHIP |
|------------|--------------------|----------|----------|------------|------------|------------|
| | | | | | | |
| | | | | | | |
|------------|--------------------|----------|----------|------------|------------|------------|
| | | | | | | |
| | | | | | | |
|------------|--------------------|----------|----------|------------|------------|------------|
| | | | | | | |
| | | | | | | |
|------------|--------------------|----------|----------|------------|------------|------------|
| | | | | | | |
| | | | | | | |
|------------|--------------------|----------|----------|------------|------------|------------|
</TABLE>
The above is a listing of every security in which I have any direct or indirect
beneficial ownership as of the end of the above-described calendar year, as more
fully defined in the Fund's and Founders' Codes of Ethics.
DATE:___________________________ SIGNATURE:______________________________
Print Name:_____________________________
Note 1. This report shall not be construed as an admission by me that I have
acquired any direct or indirect beneficial ownership in the securities
listed above which have been marked by me with an asterisk(*). Such
transactions are reported solely to meet the standards imposed by Rule
17j-1 under the Investment Company Act of 1940.
<PAGE>
EXHIBIT I
FOUNDERS ASSET MANAGEMENT LLC
CODE OF ETHICS COMPLIANCE CERTIFICATION
By my signature below, I certify that I have received and read a copy of the
Code of Ethics for Founders Asset Management LLC (the "Code"), including,
without limitation, the Policy Statement on Insider Trading, that I understand
the requirements of the Code, and that I recognize that I am subject to the
provisions of the Code. I also certify that as of the date below, I have
complied with the requirements of the Code and have disclosed or reported all
personal securities transactions and other information required to be disclosed
or reported pursuant to the requirements of the Code.
Employee Signature__________________________ Date____________________
Print Name__________________________________
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Kenneth R.
Christoffersen, David L. Ray, Richard W. Sabo, and Edward F. O'Keefe, or any one
of them, as his attorney-in-fact to execute and to file such post-effective
amendments to the Registration Statement of the hereinafter described entity as
such attorney-in-fact, or any one of them, may deem appropriate:
Registrant Registration Number (1)
Founders Funds, Inc. 1933 Act: 2-17531
1940 Act: 811-1018
(1) References are to the Securities Act of 1933, as amended ("1933 Act") and
to the Investment Company Act of 1940, as amended ("1940 Act")
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 4th day of January, 1999.
/s/ Bjorn K. Borgen
--------------------------
Bjorn K. Borgen
STATE OF COLORADO )
)ss.
COUNTY OF DENVER )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Bjorn K. Borgen,
director of the above-referenced Registrant, this 4th day of January, 1999.
[SEAL] /s/ Andrea Whitaker
--------------------------
Notary Public
My commission expires: 7/28/2002
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Kenneth R.
Christoffersen, David L. Ray, Richard W. Sabo, and Edward F. O'Keefe, or any one
of them, as his attorney-in-fact to execute and to file such post-effective
amendments to the Registration Statement of the hereinafter described entity as
such attorney-in-fact, or any one of them, may deem appropriate:
Registrant Registration Number (1)
Founders Funds, Inc. 1933 Act: 2-17531
1940 Act: 811-1018
(1) References are to the Securities Act of 1933, as amended ("1933 Act") and
to the Investment Company Act of 1940, as amended ("1940 Act")
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 31st day of December, 1998.
/s/ Alan S. Danson
--------------------------
Alan S. Danson
STATE OF COLORADO )
)ss.
COUNTY OF EAGLE )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Alan S. Danson,
director of the above-referenced Registrant, this 31st day of December, 1998.
[SEAL] /s/ Kirsten Dolan
--------------------------
Notary Public
My commission expires: 12/23/2000
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Kenneth R.
Christoffersen, David L. Ray, Richard W. Sabo, and Edward F. O'Keefe, or any one
of them, as his attorney-in-fact to execute and to file such post-effective
amendments to the Registration Statement of the hereinafter described entity as
such attorney-in-fact, or any one of them, may deem appropriate:
Registrant Registration Number (1)
Founders Funds, Inc. 1933 Act: 2-17531
1940 Act: 811-1018
(1) References are to the Securities Act of 1933, as amended ("1933 Act") and
to the Investment Company Act of 1940, as amended ("1940 Act")
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 22nd day of January, 1999.
/s/ Joan D. Manley
--------------------------
Joan D. Manley
STATE OF COLORADO )
)ss.
COUNTY OF SUMMIT )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Joan D. Manley,
director of the above-referenced Registrant, this 22nd day of January, 1999.
[SEAL] /s/ Nancy E. Hammonds
--------------------------
Notary Public
My commission expires: 7/21/1999
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Kenneth R.
Christoffersen, David L. Ray, Richard W. Sabo, and Edward F. O'Keefe, or any one
of them, as his attorney-in-fact to execute and to file such post-effective
amendments to the Registration Statement of the hereinafter described entity as
such attorney-in-fact, or any one of them, may deem appropriate:
Registrant Registration Number (1)
Founders Funds, Inc. 1933 Act: 2-17531
1940 Act: 811-1018
(1) References are to the Securities Act of 1933, as amended ("1933 Act") and
to the Investment Company Act of 1940, as amended ("1940 Act")
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 29th day of January, 1999.
/s/ Robert P. Mastrovita
--------------------------
Robert P. Mastrovita
STATE OF MASSACHUSETTS )
)ss.
COUNTY OF PLYMOUTH )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Robert P. Mastrovita,
director of the above-referenced Registrant, this 29th day of January, 1999.
[SEAL] /s/ Kathleen J. Gangell
--------------------------
Notary Public
My commission expires: 12/2/2005
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Kenneth R.
Christoffersen, David L. Ray, Richard W. Sabo, and Edward F. O'Keefe, or any one
of them, as his attorney-in-fact to execute and to file such post-effective
amendments to the Registration Statement of the hereinafter described entity as
such attorney-in-fact, or any one of them, may deem appropriate:
Registrant Registration Number (1)
Founders Funds, Inc. 1933 Act: 2-17531
1940 Act: 811-1018
(1) References are to the Securities Act of 1933, as amended ("1933 Act") and
to the Investment Company Act of 1940, as amended ("1940 Act")
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 4th day of January, 1999.
/s/ Trygve E. Myhren
--------------------------
Trygve E. Myhren
STATE OF COLORADO )
)ss.
COUNTY OF DENVER )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Trygve E. Myhren,
director of the above-referenced Registrant, this 4th day of January, 1999.
[SEAL] /s/ Janet Coopler
--------------------------
Notary Public
My commission expires: 11/4/2001
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Kenneth R.
Christoffersen, David L. Ray, Richard W. Sabo, and Edward F. O'Keefe, or any one
of them, as his attorney-in-fact to execute and to file such post-effective
amendments to the Registration Statement of the hereinafter described entity as
such attorney-in-fact, or any one of them, may deem appropriate:
Registrant Registration Number (1)
Founders Funds, Inc. 1933 Act: 2-17531
1940 Act: 811-1018
(1) References are to the Securities Act of 1933, as amended ("1933 Act") and
to the Investment Company Act of 1940, as amended ("1940 Act")
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 30th day of December, 1998.
/s/ George W. Phillips
--------------------------
George W. Phillips
STATE OF MASSACHUSETTS )
)ss.
COUNTY OF ESSEX )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by George W. Phillips,
director of the above-referenced Registrant, this 30th day of December, 1998.
[SEAL] /s/ Diane E. Gramberardino
--------------------------
Notary Public
My commission expires: 1/21/2005
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Kenneth R.
Christoffersen, David L. Ray, Richard W. Sabo, and Edward F. O'Keefe, or any one
of them, as his attorney-in-fact to execute and to file such post-effective
amendments to the Registration Statement of the hereinafter described entity as
such attorney-in-fact, or any one of them, may deem appropriate:
Registrant Registration Number (1)
Founders Funds, Inc. 1933 Act: 2-17531
1940 Act: 811-1018
(1) References are to the Securities Act of 1933, as amended ("1933 Act") and
to the Investment Company Act of 1940, as amended ("1940 Act")
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 5th day of January, 1999.
/s/ Jay A. Precourt
--------------------------
Jay A. Precourt
STATE OF COLORADO )
)ss.
COUNTY OF EAGLE )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Jay A. Precourt,
director of the above-referenced Registrant, this 5th day of January, 1999
[SEAL] /s/ Pamela A. Peros
--------------------------
Notary Public
My commission expires: 5/6/2001
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Kenneth R.
Christoffersen, David L. Ray, Richard W. Sabo, and Edward F. O'Keefe, or any one
of them, as his attorney-in-fact to execute and to file such post-effective
amendments to the Registration Statement of the hereinafter described entity as
such attorney-in-fact, or any one of them, may deem appropriate:
Registrant Registration Number (1)
Founders Funds, Inc. 1933 Act: 2-17531
1940 Act: 811-1018
(1) References are to the Securities Act of 1933, as amended ("1933 Act") and
to the Investment Company Act of 1940, as amended ("1940 Act")
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 12th day of January, 1999.
/s/ Eugene H. Vaughan, Jr.
--------------------------
Eugene H. Vaughan, Jr.
STATE OF TEXAS )
)ss.
COUNTY OF HARRIS )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Eugene H. Vaughan, Jr.,
director of the above-referenced Registrant, this 12th day of January, 1999.
[SEAL] /s/ Carolyn J. Ross
--------------------------
Notary Public
My commission expires: 2/27/2001
