UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-1018
Dreyfus Founders Funds, Inc.
--------------------------------------------------
(Exact name of registrant as specified in charter)
2930 East Third Avenue, Denver, Colorado 80206
---------------------------------------------------
(Address of principal executive offices) (Zip code)
Kenneth R. Christoffersen, Esq.
2930 East Third Avenue, Denver, Colorado 80206
----------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 303-394-4404
Date of fiscal year end: December 31, 2003
Date of reporting period: June 30, 2003
ITEM 1. REPORTS TO SHAREHOLDERS
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
BALANCED FUND
INVESTMENT UPDATE
JUNE 30, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
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To take advantage of this service, simply inform us online of your decision
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enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2003. The amounts of these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN JARES]
[PHOTO OF JOHN JOHNSON]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER JOHN JOHNSON, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30?
Although the first few months of the period showed that renewed confidence in
the equity market was slow to materialize, a mid-March rally was sparked by
increasing confidence in a more robust economic recovery.
While we were pleased with the Fund's performance, in this rising market
the Fund's fixed-income component caused performance to lag the all-equity
index, the Standard & Poor's 500 Index, which returned 11.76% for the period.
WHAT SPECIFIC MARKET DYNAMICS AFFECTED THE FUNDS PERFORMANCE DURING THE PERIOD?
It has been an interesting six months for the market and for the Fund.
At the beginning of the year, initial tepid interest in the market due to a
protracted economic recovery, the looming war with Iraq and additional
allegations of corporate malfeasance idled the interest of investors. Corporate
spending and hiring remained static. Continuing increases in unemployment--which
reached a nine-year high of 6.4% in
[SIDENOTE]
"CONSUMER CONFIDENCE CONTINUED TO DRIVE THE CONSUMER DISCRETIONARY SECTOR AS
SPENDING IMPROVED."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - The mid-March market rally spurred renewed, albeit cautious, confidence in the
equities market.
- - The Fund's holdings in the consumer discretionary sector fared well due to
continued consumer spending.
- - Cardiovascular innovations and gains in the generic drug marketplace propelled
the Fund's holdings in the healthcare sector.
- - Underperforming technology holdings hampered the Fund's performance.
- - Through in-depth research, we continue to seek investment opportunities in the
stock and bond markets.
June, up from 5.7% in January--also tempered equity investing. The reaction in
the marketplace was to move to more defensive securities.
However, as the reporting period passed its mid-point, the broad market saw
a powerful rally in equity prices. The Iraqi conflict seemed to be winding down.
Optimism for improved earnings strengthened. The low interest rate environment
kept consumer confidence at a relatively high level, helping maintain economic
growth. Investors began to move back into equities due to an improved
fundamental outlook and low-yielding alternative investments. The Fund was
poised to benefit from this measured shift.
WHAT DECISIONS POSITIVELY IMPACTED THE PERFORMANCE OF THE FUND DURING THE
PERIOD?
Through the first half of 2003, the Fund began to take advantage of the
improving fundamentals and valuations in the technology, financials and energy
sectors. Oil services companies gained, spurred by spending from the oil
companies due to tight supplies of North American natural gas, as well as the
continued decline in current production from existing wells.
4
<Page>
Consumer confidence continued to drive the consumer discretionary sector
as spending improved. The Fund's relative overweight position and strong
performing stock selections in this sector boosted the Fund's performance
during the period. Holdings such as BEST BUY COMPANY, INC., a leading
retailer of home electronics, and cruise-ship operator ROYAL CARIBBEAN
CRUISES LIMITED, took advantage of consumers' continued capital spending on
electronics and leisure travel, and because of this, both companies posted
solid gains. In addition, cosmetic and fragrance manufacturer ESTEE LAUDER
COMPANIES, INC., and the home improvement chain HOME DEPOT, INC. performed
well during the period, contributing positively to the Funds overall
performance.
Healthcare also provided positive opportunities during the period, as the
Fund capitalized on holdings focused on the improvement of cardiovascular health
as well as the production of affordable drugs. BOSTON SCIENTIFIC CORPORATION
contributed to the Fund's performance as it benefited from the success of its
pioneering approach to interventional cardiology. This approach improves upon
existing technology by applying a drug to cardiovascular stents to help control
coronary artery disease.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Estee Lauder Companies, Inc. (EL) 4.15%
2. Royal Caribbean Cruises Limited (RCL) 3.50%
3. General Electric Company (GE) 3.50%
4. Microsoft Corporation (MSFT) 2.76%
5. Pfizer, Inc. (PFE) 2.75%
6. Coca-Cola Company (KO) 2.60%
7. International Business Machines Corporation (IBM) 2.53%
8. Colgate-Palmolive Company (CL) 2.51%
9. Verizon Communications, Inc. (VZ) 2.36%
10. MBNA Corporation (KRB) 2.34%
</Table>
Holdings listed are a percentage of equity assets. Portfolio holdings are
subject to change, and should not be construed as a recommendation of any
security.
5
<Page>
Also during the period, Congress continued debate, passing separate
bills, on The Medicare Prescription Drug and Modernization Act of 2003. This
drew interest to many aspects of domestic healthcare, specifically the
generic drug industry. TEVA PHARMACEUTICAL INDUSTRIES LIMITED, a generic drug
manufacturer, proved to be a positive stock selection in light of this
attention.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares
a $10,000 investment made in Class F shares of Dreyfus Founders Balanced Fund
on 6/30/93 to a $10,000 investment made in unmanaged securities indexes on
that date. The Fund's performance assumes the reinvestment of dividends and
capital gain distributions, but does not reflect the deduction of taxes that
a shareholder would pay on Fund distributions or redemption of Fund shares.
The Fund offers multiple classes of shares. Performance shown is for Class F,
which is open only to grandfathered investors. The Fund's performance in the
graph takes into account all applicable Class F fees and expenses. These
figures do not reflect the maximum sales charges applicable to Class A, B, C,
or T shares of the Fund. For these share classes, applying these charges will
result in lower returns for investors.
The Standard & Poor's (S&P) 500 Index is a market-value-weighted,
unmanaged index of common stocks considered representative of the broad
market. The total return figures cited for this index assume change in
security prices and reinvestment of dividends, but do not reflect the costs
of managing a mutual fund. The S&P 500 Index does not include a fixed-income
component, while the Fund does. The Lipper Balanced Fund Index is an average
of the performance of the 30 largest balanced funds tracked by Lipper Inc.,
adjusted for the reinvestment of dividends and capital gain distributions and
reflective of the management expenses associated with the actual funds
included in the Index. Further information related to Fund performance is
contained elsewhere in this report.
6
<Page>
WHAT HINDERED THE FUNDS OVERALL PERFORMANCE DURING THE HALF?
Underperforming technology holdings also proved deficient to the Fund's
performance. BMC SOFTWARE, INC., a manufacturer of computer hardware and
software systems, was one such holding that performed poorly during the period
and hampered Fund performance. Already saddled with a difficult environment in
which to sell, BMC Software underperformed due to missed revenue growth
estimates.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 3.68% (3.96%) -- -- (10.25%)
Without sales charge 10.04% 1.88% -- -- (8.71%)
CLASS B SHARES (12/31/99)
With redemption* 5.46% (2.90%) -- -- (10.18%)
Without redemption 9.46% 1.10% -- -- (9.41%)
CLASS C SHARES (12/31/99)
With redemption** 8.34% (0.43%) -- -- (9.86%)
Without redemption 9.34% 0.57% -- -- (9.86%)
CLASS F SHARES (2/19/63) 10.01% 2.01% (5.68%) 4.79% N/A
CLASS R SHARES (12/31/99) 9.63% 8.66% -- -- (8.85%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 4.48% 2.77% -- -- (9.55%)
Without sales charge 9.34% 7.62% -- -- (8.36%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions, expense limits for
certain share classes, and adjustments for financial statement purposes.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
HOW DID THE FIXED-INCOME PORTION OF THE PORTFOLIO IMPACT THE FUND IN THE FIRST
HALF?
The fixed-income portion of the Fund fared well from the slowed recovery of the
economy and the market. Economic fundamentals remained not only stagnant during
the period, but in some cases showed signs of contracting. Manufacturing
activity and retail sales also became anemic. Unemployment reached a nine-year
high in June. All of these economic factors contributed to the positive
contribution the Fund's fixed-income holdings made to its overall performance.
Appropriate to the Fund's investment philosophy, corporate credits and
sectors were carefully selected for appreciation potential. At period's end, the
fixed-income portion of the Funds allocation to corporate
[CHART]
COMPOSITION OF EQUITY ASSETS
<Table>
18.36% Information Technology
17.80% Consumer Discretionary
15.05% Consumer Staples
13.52% Financials
13.37% Healthcare
8.78% Industrials
7.64% Energy
3.24% Telecommunications Services
1.56% Materials
0.68% Utilities
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
managers and are subject to change at any time, based on market and other
conditions, and should not be construed as a recommendation of any specific
security.
8
<Page>
bonds--34.2% with all bonds rated as investment-grade, the majority of exposure
concentrated in the AA and A rating categories--benefited performance.
Additionally, Treasury and Agency securities represented 42.2% of the
fixed-income portion of the Fund and provided much of the Fund's liquidity.
The Fund sold its position in Freddie Mac securities in June due to a
Securities and Exchange Commission-led investigation into the mortgage
financier's accounting issues. We are closely monitoring the Freddie Mac
situation, as well as Government Sponsored Enterprises in general, and view
any efforts to increase regulatory oversight, disclosure and capital
requirements positively for debt holders.
Overall, the Fund's fixed-income holdings provided a strong foundation
and a defensive position for investors as the market slowly moved toward
recovery.
As we move into the final half of 2003, our investment strategy remains
constant. We will continue to apply our fundamental bottom-up approach and
intensive research process for the Fund by seeking stocks that are poised to
exhibit growth characteristics at attractive valuations.
/s/ John B. Jares /s/ John Johnson
John B. Jares, CFA John Johnson, CFA
Portfolio Manager Assistant Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-53.0%
ADVERTISING-0.6%
24,300 Lamar Advertising Company*........................ $ 855,603
----------------
AIRLINES-1.2%
65,300 Northwest Airlines Corporation Class A*........... 737,237
48,600 Southwest Airlines Company........................ 835,920
----------------
1,573,157
----------------
APPLICATION SOFTWARE-0.2%
14,650 PeopleSoft, Inc.*................................. 257,694
----------------
ASSET MANAGEMENT & CUSTODY BANKS-1.3%
102,725 Janus Capital Group, Inc.......................... 1,684,690
----------------
BIOTECHNOLOGY-0.6%
11,400 Amgen, Inc.*...................................... 757,416
----------------
BROADCASTING & CABLE TV-1.3%
17,500 Clear Channel Communications, Inc.*............... 741,825
34,600 Comcast Corporation Special Class A*.............. 997,518
----------------
1,739,343
----------------
CASINOS & GAMING-0.4%
14,400 MGM Mirage, Inc.*................................. 492,192
----------------
COMMUNICATIONS EQUIPMENT-0.6%
51,100 Cisco Systems, Inc.*.............................. 852,859
----------------
COMPUTER & ELECTRONICS RETAIL-1.2%
35,450 Best Buy Company, Inc.*........................... 1,556,964
----------------
COMPUTER HARDWARE-1.4%
23,200 International Business Machines Corporation....... 1,914,000
----------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
CONSUMER FINANCE-1.3%
84,850 MBNA Corporation.................................. $ 1,768,274
----------------
DATA PROCESSING & OUTSOURCED SERVICES-1.0%
37,400 Fiserv, Inc.*..................................... 1,331,814
----------------
DEPARTMENT STORES-0.3%
18,500 Nordstrom, Inc.................................... 361,120
----------------
DIVERSIFIED BANKS-2.0%
13,200 Bank of America Corporation....................... 1,043,196
31,100 Wells Fargo & Company............................. 1,567,440
----------------
2,610,636
----------------
DIVERSIFIED COMMERCIAL SERVICES-0.3%
24,700 Cendant Corporation*.............................. 452,504
----------------
FOOD RETAIL-1.0%
68,000 Safeway, Inc.*.................................... 1,391,280
----------------
GAS UTILITIES-0.4%
9,475 Kinder Morgan, Inc................................ 517,809
----------------
HEALTHCARE EQUIPMENT-1.0%
20,600 Boston Scientific Corporation*.................... 1,258,660
----------------
HEALTHCARE SERVICES-0.8%
41,900 Caremark Rx, Inc.*................................ 1,075,992
----------------
HOME IMPROVEMENT RETAIL-1.0%
40,800 Home Depot, Inc................................... 1,351,296
----------------
HOTELS, RESORTS & CRUISE LINES-0.2%
9,700 Carnival Corporation Class A...................... 315,347
----------------
HOUSEHOLD PRODUCTS-2.1%
32,800 Colgate-Palmolive Company......................... 1,900,760
9,800 Procter & Gamble Company.......................... 873,964
----------------
2,774,724
----------------
HYPERMARKETS & SUPER CENTERS-1.2%
28,300 Wal-Mart Stores, Inc.............................. 1,518,861
----------------
INDUSTRIAL CONGLOMERATES-2.5%
5,100 3M Company........................................ 657,798
92,400 General Electric Company.......................... 2,650,032
----------------
3,307,830
----------------
INDUSTRIAL GASES-0.9%
19,600 Praxair, Inc...................................... 1,177,960
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-1.9%
26,200 SBC Communications, Inc........................... $ 669,410
45,300 Verizon Communications, Inc....................... 1,787,085
----------------
2,456,495
----------------
INVESTMENT BANKING & BROKERAGE-1.5%
14,200 Goldman Sachs Group, Inc.......................... 1,189,250
17,400 Morgan Stanley.................................... 743,850
----------------
1,933,100
----------------
LEISURE FACILITIES-2.0%
114,461 Royal Caribbean Cruises Limited................... 2,650,917
----------------
MOVIES & ENTERTAINMENT-2.3%
40,000 AOL Time Warner, Inc.*............................ 643,600
34,400 Viacom, Inc. Class B*............................. 1,501,904
43,700 Walt Disney Company............................... 863,075
----------------
3,008,579
----------------
MULTI-LINE INSURANCE-0.8%
18,000 American International Group, Inc................. 993,240
----------------
OIL & GAS DRILLING-0.6%
32,700 GlobalSantaFe Corporation......................... 763,218
----------------
OIL & GAS EQUIPMENT & SERVICES-1.4%
10,200 BJ Services Company*.............................. 381,072
39,100 Smith International, Inc.*........................ 1,436,534
----------------
1,817,606
----------------
OIL & GAS EXPLORATION & PRODUCTION-0.7%
13,335 Apache Corporation................................ 867,575
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.9%
29,066 Citigroup, Inc.................................... 1,244,025
----------------
PERSONAL PRODUCTS-2.4%
93,800 Estee Lauder Companies, Inc. Class A.............. 3,145,114
----------------
PHARMACEUTICALS-4.1%
10,000 Abbott Laboratories............................... 437,600
8,000 Forest Laboratories, Inc.*........................ 438,000
11,600 Johnson & Johnson................................. 599,720
19,600 Merck & Company, Inc.............................. 1,186,780
60,950 Pfizer, Inc....................................... 2,081,443
15,000 Wyeth............................................. 683,250
----------------
5,426,793
----------------
RAILROADS-0.5%
11,400 Union Pacific Corporation......................... 661,428
----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-0.7%
7,150 KLA-Tencor Corporation*........................... $ 332,404
34,300 Lam Research Corporation*......................... 624,603
----------------
957,007
----------------
SEMICONDUCTORS-1.2%
19,500 Broadcom Corporation*............................. 485,745
18,900 Maxim Integrated Products, Inc.*.................. 646,191
15,300 Xilinx, Inc.*..................................... 387,243
----------------
1,519,179
----------------
SOFT DRINKS-1.9%
42,400 Coca-Cola Company................................. 1,967,784
33,000 Coca-Cola Enterprises, Inc........................ 598,950
----------------
2,566,734
----------------
SPECIALTY STORES-0.9%
35,100 Tiffany & Company................................. 1,147,068
----------------
SYSTEMS SOFTWARE-4.4%
39,200 Adobe Systems, Inc................................ 1,257,144
102,000 BMC Software, Inc.*............................... 1,665,660
81,600 Microsoft Corporation............................. 2,089,776
25,100 Oracle Corporation*............................... 301,702
19,000 VERITAS Software Corporation*..................... 544,730
----------------
5,859,012
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$62,463,567).................................................. 69,915,115
----------------
COMMON STOCKS (FOREIGN)-4.4%
INTEGRATED OIL & GAS-0.8%
23,600 BP PLC Sponsored ADR (UK)......................... 991,672
----------------
IT CONSULTING & OTHER SERVICES-0.6%
45,725 Accenture Limited Class A ADR (BD)*............... 827,165
----------------
OIL & GAS DRILLING-1.0%
34,000 Nabors Industries Limited (BA)*................... 1,344,700
----------------
PHARMACEUTICALS-1.2%
28,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS).......................................... 1,594,040
----------------
RAILROADS-0.5%
13,500 Canadian National Railway Company (CA)............ 651,510
----------------
SEMICONDUCTORS-0.3%
11,025 Marvell Technology Group Limited (BD)*............ 378,929
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$4,782,137)................................................... 5,788,016
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -------------------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)-14.6%
AUTOMOBILE MANUFACTURERS-2.5%
$ 3,000,000 Toyota Motor Credit Corporation Series MTN
5.65% 1/15/07..................................... $ 3,321,270
----------------
DIVERSIFIED BANKS-3.4%
3,540,000 Washington Mutual, Inc.
8.25% 4/1/10...................................... 4,458,630
----------------
GENERAL MERCHANDISE STORES-1.9%
2,500,000 Target Corporation
4.00% 6/15/13..................................... 2,449,650
----------------
HOUSEHOLD PRODUCTS-2.6%
3,000,000 Colgate-Palmolive Company
5.98% 4/25/12..................................... 3,458,910
----------------
MOVIES & ENTERTAINMENT-1.7%
2,000,000 Viacom, Inc.
7.75% 6/1/05...................................... 2,227,480
----------------
PHARMACEUTICALS-2.5%
3,000,000 Abbott Laboratories
5.625% 7/1/06..................................... 3,321,690
----------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST-$17,358,713).................................................. 19,237,630
----------------
U.S. GOVERNMENT SECURITIES-18.0%
AGENCY PASS THROUGH-3.5%
4,200,777 U.S. Small Business Administration Series 10-A
6.64% 2/1/11...................................... 4,598,716
----------------
U.S. AGENCIES-7.0%
Federal Home Loan Bank:
3,500,000 6.50% 11/15/05.................................... 3,905,895
3,000,000 6.70% 4/4/17 Callable 4/4/05...................... 3,237,450
2,000,000 Private Export Funding Corporation
3.40% 2/15/08..................................... 2,075,600
----------------
9,218,945
----------------
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------------
U.S. TREASURY NOTES-7.5%
$ 2,044,640 U.S. Treasury Inflation Index Note
3.00% 7/15/12..................................... $ 2,253,100
U.S. Treasury Note:
2,500,000 4.00% 11/15/12.................................... 2,601,475
3,000,000 5.00% 2/15/11..................................... 3,367,380
1,500,000 6.875% 5/15/06.................................... 1,718,970
------------------
9,940,925
------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST-$22,330,570).................................................. 23,758,586
------------------
GOVERNMENT BONDS (FOREIGN)-2.1%
GOVERNMENT SECURITIES-2.1%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA)................................ 2,794,232
------------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST-$2,384,524)................................................... 2,794,232
------------------
<Caption>
AMORTIZED
COST
- ---------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-7.6%
OTHER DIVERSIFIED FINANCIAL SERVICES-3.6%
$ 4,800,000 Merrill Lynch & Company
1.12% 7/2/03...................................... $ 4,799,851
------------------
SPECIAL PURPOSE ENTITY-4.0%
5,300,000 Corporate Asset Funding Corporation
1.10% 7/1/03...................................... 5,300,000
------------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$10,099,851)........................................ 10,099,851
------------------
TOTAL INVESTMENTS-99.7%
(TOTAL COST-$119,419,362)........................................... 131,593,430
------------------
OTHER ASSETS AND LIABILITIES-0.3%................................... 400,037
------------------
NET ASSETS-100.0%................................................... $ 131,993,467
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $119,419,362
------------
Investment securities, at market.................. 131,593,430
Cash.............................................. 438,207
Receivables:
Investment securities sold...................... 291,255
Capital shares sold............................. 124,199
Dividends and interest.......................... 609,969
Other assets...................................... 43,280
------------
Total Assets.................................. 133,100,340
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 249,075
Capital shares redeemed......................... 571,505
Advisory fees................................... 71,726
Shareholder servicing fees...................... 6,852
Accounting fees................................. 6,621
Distribution fees............................... 48,476
Custodian fees.................................. 544
Other........................................... 152,074
------------
Total Liabilities............................. 1,106,873
------------
Net Assets........................................ $131,993,467
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $330,144,048
Undistributed net investment income............... (8,111)
Accumulated net realized loss from security
transactions.................................... (210,316,504)
Net unrealized appreciation on investments and
foreign currency translation.................... 12,174,034
------------
Total......................................... $131,993,467
============
</Table>
16
<Page>
<Table>
Net Assets--Class A............................... $ 1,384,281
Shares Outstanding--Class A....................... 189,206
Net Asset Value, Redemption Price Per Share....... $ 7.32
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 7.77
Net Assets--Class B............................... $ 1,343,430
Shares Outstanding--Class B....................... 185,239
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 7.25
Net Assets--Class C............................... $ 216,228
Shares Outstanding--Class C....................... 30,236
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 7.15
Net Assets--Class F............................... $128,990,444
Shares Outstanding--Class F....................... 17,615,028
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 7.32
Net Assets--Class R............................... $ 42,309
Shares Outstanding--Class R....................... 5,795
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 7.30
Net Assets--Class T............................... $ 16,775
Shares Outstanding--Class T....................... 2,230
Net Asset Value, Redemption Price Per Share....... $ 7.52
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 7.87
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 404,786
Interest........................................ 1,332,672
Foreign taxes withheld.......................... (5,288)
------------
Total Investment Income....................... 1,732,170
------------
EXPENSES:
Advisory fees--Note 2........................... 423,091
Shareholder servicing fees--Note 2.............. 43,476
Accounting fees--Note 2......................... 39,055
Distribution fees--Note 2....................... 164,718
Transfer agency fees--Note 2.................... 216,567
Registration fees............................... 28,567
Postage and mailing expenses.................... 35,111
Custodian fees and expenses--Note 2............. 3,263
Printing expenses............................... 28,265
Legal and audit fees............................ 14,271
Directors' fees and expenses--Note 2............ 16,792
Other expenses.................................. 35,555
------------
Total Expenses................................ 1,048,731
Earnings Credits.............................. (1,328)
Reimbursed/Waived Expenses.................... (684)
Expense Offset to Broker Commissions.......... (5,005)
------------
Net Expenses.................................. 1,041,714
------------
Net Investment Income........................... 690,456
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions (including premiums on
options exercised).............................. (72,022)
Closing and expiration of options contracts
written......................................... (81,414)
Foreign currency transactions................... 10,642
------------
Net Realized Loss............................. (142,794)
Net Change in Unrealized Appreciation of
Investments and Foreign Currency Translation...... 11,878,484
------------
Net Realized and Unrealized Gain.................. 11,735,690
------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 12,426,146
============
Purchases of long-term securities................. $ 50,163,904
Proceeds from sales of long-term securities....... $ 71,981,868
Purchases of long-term U.S. Government
Obligations....................................... $ 7,583,053
Proceeds from sales of long-term U.S. Government
Obligations....................................... $ 5,228,260
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ -------------
OPERATIONS
Net Investment Income................... $ 690,456 $ 2,058,852
Net Realized Loss....................... (142,794) (35,873,999)
Net Change in Unrealized
Appreciation/Depreciation............. 11,878,484 (8,107,493)
------------ -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 12,426,146 (41,922,640)
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
From Net Investment Income
Class A............................... (5,606) (7,719)
Class B............................... (1,223) (558)
Class C............................... (17) 0
Class F............................... (691,602) (2,156,959)
Class R............................... (114) 0
Class T............................... (5) 0
------------ -------------
Net Decrease from Dividends and
Distributions......................... (698,567) (2,165,236)
------------ -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... 22,581 304,988
Class B............................... 51,775 (28,551)
Class C............................... (65,450) (151,251)
Class F............................... (12,784,706) (123,330,214)
Class R............................... 30,077 294
Class T............................... 2,392 (219,113)
------------ -------------
Net Decrease from Capital Share
Transactions.......................... (12,743,331) (123,423,847)
------------ -------------
Net Decrease in Net Assets.............. (1,015,752) (167,511,723)
NET ASSETS
Beginning of period................... $133,009,219 $ 300,520,942
------------ -------------
End of period......................... $131,993,467 $ 133,009,219
============ =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 6.68 $ 8.18 $ 9.24 $ 10.47
Income from investment
operations:
Net investment income..... 0.03 0.05 0.06 0.13
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.64 (1.51) (1.03) (1.18)
------ ------- ------- -------
Total from investment
operations.......... 0.67 (1.46) (0.97) (1.05)
Less distributions:
From net investment
income.................. (0.03) (0.04) (0.09) (0.16)
From net realized gains... 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions... (0.03) (0.04) (0.09) (0.18)
Net Asset Value, end of
period...................... $ 7.32 $ 6.68 $ 8.18 $ 9.24
====== ======= ======= =======
Total Return/Ratios
Total return*............. 10.04% (17.85%) (10.46%) (10.21%)
Net assets, end of period
(000s).................. $1,384 $ 1,243 $ 1,227 $ 699
Net expenses to average
net assets#............. 1.85%** 1.89% 1.87% 1.20%
Gross expenses to average
net assets#............. 1.86%** 1.89% 1.87% 1.23%
Net investment income to
average net assets...... 0.81%** 0.56% 0.51% 1.48%
Portfolio turnover
rate@................... 113% 122% 111% 126%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of period....... $ 6.63 $ 8.11 $ 9.18 $ 10.47
Income from investment operations:
Net investment income (loss)........... 0.01 (0.01) 0.01 0.10
Net gains (losses) on securities (both
realized and unrealized)............. 0.62 (1.47) (1.03) (1.24)
------ ------- ------- -------
Total from investment operations... 0.63 (1.48) (1.02) (1.14)
Less distributions:
From net investment income............. (0.01) 0.00^ (0.05) (0.13)
From net realized gains................ 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions................ (0.01) 0.00 (0.05) (0.15)
Net Asset Value, end of period............. $ 7.25 $ 6.63 $ 8.11 $ 9.18
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 9.46% (18.21%) (11.13%) (11.06%)
Net assets, end of period (000s)....... $1,343 $ 1,181 $ 1,484 $ 1,008
Net expenses to average net assets#.... 2.55%** 2.54% 2.49% 1.93%
Gross expenses to average net
assets#.............................. 2.56%** 2.54% 2.50% 1.96%
Net investment income (loss) to average
net assets........................... 0.11%** (0.10%) (0.13%) 0.71%
Portfolio turnover rate@............... 113% 122% 111% 126%
</Table>
^ Distributions from net investment income for the year ended December 31,
2002 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of period....... $ 6.54 $ 8.04 $ 9.17 $ 10.47
Income from investment operations:
Net investment income (loss)........... (0.07) (0.17) (0.05) 0.10
Net gains (losses) on securities (both
realized and unrealized)............. 0.68 (1.33) (1.03) (1.28)
------ ------- ------- -------
Total from investment operations... 0.61 (1.50) (1.08) (1.18)
Less distributions:
From net investment income............. 0.00^ 0.00 (0.05) (0.10)
From net realized gains................ 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions................ 0.00 0.00 (0.05) (0.12)
Net Asset Value, end of period............. $ 7.15 $ 6.54 $ 8.04 $ 9.17
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 9.34% (18.66%) (11.80%) (11.36%)
Net assets, end of period (000s)....... $ 216 $ 248 $ 496 $ 174
Net expenses to average net
assets#,+............................ 2.72%** 3.48% 3.96% 1.86%
Gross expenses to average net
assets#,+............................ 2.72%** 3.48% 3.96% 1.88%
Net investment income (loss) to average
net assets+.......................... 0.07%** (1.05%) (1.64%) 0.76%
Portfolio turnover rate@............... 113% 122% 111% 126%
</Table>
^ Distributions from net investment income for the six months ended June 30,
2003 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the year ended
December 31, 2001. Had these fees not been reimbursed, the net expense
ratio would have been 4.24%. The gross expense ratio would have been 4.24%.
The net investment income (loss) ratio would have been (1.92%).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 6.69 $ 8.20 $ 9.22 $ 10.47 $ 12.19 $ 11.35
Income from investment operations:
Net investment income.................. 0.04 0.07 0.10 0.15 0.32 0.30
Net gains (losses) on securities (both
realized and unrealized)............. 0.63 (1.50) (1.02) (1.23) (0.61) 1.27
-------- -------- -------- -------- ---------- ----------
Total from investment operations... 0.67 (1.43) (0.92) (1.08) (0.29) 1.57
Less distributions:
From net investment income............. (0.04) (0.08) (0.10) (0.15) (0.32) (0.30)
From net realized gains................ 0.00 0.00 0.00 (0.02) (1.11) (0.43)
-------- -------- -------- -------- ---------- ----------
Total distributions................ (0.04) (0.08) (0.10) (0.17) (1.43) (0.73)
Net Asset Value, end of period............. $ 7.32 $ 6.69 $ 8.20 $ 9.22 $ 10.47 $ 12.19
======== ======== ======== ======== ========== ==========
Total Return/Ratios
Total return........................... 10.01% (17.46%) (9.94%) (10.44%) (2.22%) 13.96%
Net assets, end of period (000s)....... $128,990 $130,314 $297,068 $552,675 $1,055,825 $1,244,221
Net expenses to average net assets#.... 1.59%** 1.42% 1.22% 1.07% 0.97% 0.99%
Gross expenses to average net
assets#.............................. 1.59%** 1.43% 1.23% 1.08% 0.98% 1.00%
Net investment income to average net
assets............................... 1.07%** 0.99% 1.20% 1.41% 2.64% 2.51%
Portfolio turnover rate@............... 113% 122% 111% 126% 218% 211%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of period....... $ 6.68 $ 8.18 $ 9.22 $ 10.47
Income from investment operations:
Net investment income (loss)........... 0.13 (0.16) 0.09 0.18
Net gains (losses) on securities (both
realized and unrealized)............. 0.51 (1.34) (1.02) (1.23)
------ ------- ------- -------
Total from investment operations... 0.64 (1.50) (0.93) (1.05)
Less distributions:
From net investment income............. (0.02) 0.00 (0.11) (0.18)
From net realized gains................ 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions................ (0.02) 0.00 (0.11) (0.20)
Net Asset Value, end of period............. $ 7.30 $ 6.68 $ 8.18 $ 9.22
====== ======= ======= =======
Total Return/Ratios
Total return........................... 9.63% (18.34%) (10.09%) (10.18%)
Net assets, end of period (000s)....... $ 42 $ 11 $ 14 $ 1
Net expenses to average net
assets#,+............................ 2.42%** 4.24% 3.07% 0.80%
Gross expenses to average net
assets#,+............................ 2.42%** 4.24% 3.07% 0.81%
Net investment income (loss) to average
net assets+.......................... 0.19%** (1.77%) (0.75%) 1.71%
Portfolio turnover rate@............... 113% 122% 111% 126%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company or its affiliates
for the six months ended June 30, 2003 and the years ended December 31,
2002 and 2001. Had these fees not been reimbursed, the net expense ratios
would have been 3.02% (2003), 19.52% (2002) and 272.77% (2001). The gross
expense ratios would have been 3.02% (2003), 19.52% (2002) and 272.77%
(2001). The net investment income (loss) ratios would have been (0.41%)
(2003), (17.05%) (2002) and (270.45%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of period....... $ 6.88 $ 8.17 $ 9.21 $ 10.47
Income from investment operations:
Net investment income (loss)........... 0.05 (0.37) 0.08 0.12
Net gains (losses) on securities (both
realized and unrealized)............. 0.59 (0.92) (1.04) (1.22)
------ ------- ------- -------
Total from investment operations... 0.64 (1.29) (0.96) (1.10)
Less distributions:
From net investment income............. 0.00^ 0.00 (0.08) (0.14)
From net realized gains................ 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions................ 0.00 0.00 (0.08) (0.16)
Net Asset Value, end of period............. $ 7.52 $ 6.88 $ 8.17 $ 9.21
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 9.34% (15.79%) (10.44%) (10.67%)
Net assets, end of period (000s)....... $ 17 $ 13 $ 232 $ 9
Net expenses to average net
assets#,+............................ 2.82%** 2.59% 3.36% 1.30%
Gross expenses to average net
assets#,+............................ 2.82%** 2.60% 3.36% 1.32%
Net investment income (loss) to average
net assets+.......................... (0.16%)** (0.31%) (1.12%) 1.22%
Portfolio turnover rate@............... 113% 122% 111% 126%
</Table>
^ Distributions from net investment income for the six months ended June 30,
2003 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company or its affiliates
for the six months ended June 30, 2003 and the years ended December 31,
2002 and 2001. Had these fees not been reimbursed, the net expense ratios
would have been 3.46% (2003), 14.62% (2002) and 18.37% (2001). The gross
expense ratios would have been 3.46% (2003), 14.63% (2002) and 18.37%
(2001). The net investment income (loss) ratios would have been (0.80%)
(2003), (12.34%) (2002) and (16.13%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Balanced Fund (the "Fund"). The Fund offers Class A,
Class B, Class C, Class F, Class R, and Class T shares. Class A and Class T
shares are subject to a sales charge imposed at the time of purchase, Class B
shares are subject to a contingent deferred sales charge ("CDSC") imposed on
Class B share redemptions made within six years of purchase, Class C shares are
subject to a CDSC imposed on Class C shares redeemed within one year of
purchase, and Class F and Class R shares are sold at net asset value per share
(with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or, in the case of written call options, at the
mean between the highest bid and lowest asked quotations, or based on quotes
from dealers making a market for the security if the closing bid price is not
available. In the event that the closing price of a foreign security is not
available in time to calculate the 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. London closing quotes for exchange rates are used to convert foreign
security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific
26
<Page>
country or region. The Fund amortizes premiums and discounts on all fixed-income
securities.
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
OPTION WRITING--When the Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
adjusted to the current market value of the option written. Premiums received
from writing options that expire unexercised are treated by the Fund on the
expiration date as realized gains from investments. The difference between the
premium and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or, if the
premium is less than the amount paid for the closing purchase transaction, as a
realized loss. If a call option is exercised, the premium is added to the
proceeds from the sale of the underlying security or currency in determining
whether the Fund has realized a gain or loss. If a put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The Fund
as writer of an option bears the market risk of an unfavorable change in the
price of the security underlying the written option.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make distributions of income and capital gains sufficient to relieve it from
all income taxes. The Fund is treated as a separate tax entity for federal
income tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) quarterly and capital gains (if any) annually. Dividends and distributions,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date
28
<Page>
of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
0.65% of the first $250 million of net assets, 0.60% of the next $250 million of
net assets, 0.55% of the next $250 million of net assets, and 0.50% of net
assets in excess of $750 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$12,452 and $27,599, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003,
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Class F shares paid DTI and ITC $12,445 and $17,162, respectively, for
out-of-pocket transfer agent charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.73 to $13.13, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $ 2,469
Class B..................................................... $ 2,035
Class C..................................................... $ 487
Class R..................................................... $ 132
Class T..................................................... $ 120
</Table>
Founders has agreed to reimburse (or to cause its affiliates to reimburse) the
Class R and Class T share classes of the Fund for certain transfer agency and
printing expenses pursuant to a contractual commitment. This commitment will
extend through at least August 31, 2004, and will not be terminated without
prior notification to the Company's board of directors. For the six months ended
June 30, 2003, Class R and Class T were each reimbursed $44, which reduced the
amounts paid to DTI to $88 and $76, respectively.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC is also the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $159,284 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
30
<Page>
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $1,602
Class B................................. $4,557 $1,519
Class C................................. $ 860 $ 287
Class T................................. $ 17 $ 17
</Table>
During the six months ended June 30, 2003, DSC retained $8,718 and $320 of
contingent deferred sales charges relating to redemptions of Class B and
Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has agreed to waive any fees
received for these services to the extent they exceed Founders' costs in
providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Fund's portion of the fee waiver was $596. The amount paid to Mellon was reduced
by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2008
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $199,486,923
Post-October Capital Loss Deferral.......................... $ 5,744,775
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $123,405,797
Gross Tax Appreciation of Investments....................... $ 10,748,081
Gross Tax Depreciation of Investments....................... $ (2,560,448)
Net Tax Appreciation........................................ $ 8,187,633
</Table>
32
<Page>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 850 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- ------------------
CLASS A
Sold.................... 10,418 $ 72,880 78,405 $ 605,345
Dividends or
Distributions
Reinvested............ 768 $ 5,411 1,046 $ 7,280
Redeemed................ (7,954) $ (55,710) (43,543) $ (307,637)
NET INCREASE............ 3,232 $ 22,581 35,908 $ 304,988
CLASS B
Sold.................... 30,448 $ 210,267 38,811 $ 277,704
Dividends or
Distributions
Reinvested............ 138 $ 971 69 $ 461
Redeemed................ (23,551) $ (159,463) (43,542) $ (306,716)
NET INCREASE
(DECREASE)............ 7,035 $ 51,775 (4,662) $ (28,551)
CLASS C
Sold.................... 3,223 $ 22,294 24,035 $ 171,946
Dividends or
Distributions
Reinvested............ 1 $ 10 0 $ 0
Redeemed................ (10,853) $ (87,754) (47,882) $ (323,197)
NET DECREASE............ (7,629) $ (65,450) (23,847) $ (151,251)
CLASS F
Sold.................... 1,909,527 $ 13,118,759 3,379,558 $ 25,710,382
Dividends or
Distributions
Reinvested............ 95,161 $ 669,120 288,655 $ 2,097,722
Redeemed................ (3,877,305) $ (26,572,585) (20,429,796) $ (151,138,318)
NET DECREASE............ (1,872,617) $ (12,784,706) (16,761,583) $ (123,330,214)
CLASS R
Sold.................... 4,075 $ 30,000 5,874 $ 40,000
Dividends or
Distributions
Reinvested............ 11 $ 77 0 $ 0
Redeemed................ (0) $ (0) (5,874) $ (39,706)
NET INCREASE............ 4,086 $ 30,077 0 $ 294
CLASS T
Sold.................... 314 $ 2,387 365 $ 2,456
Dividends or
Distributions
Reinvested............ 1 $ 5 0 $ 0
Redeemed................ (0) $ (0) (26,771) $ (221,569)
NET INCREASE
(DECREASE)............ 315 $ 2,392 (26,406) $ (219,113)
</Table>
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
5. CALL OPTIONS WRITTEN
Transactions in options written during the six months ended June 30, 2003, were
as follows:
<Table>
<Caption>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
Options outstanding at December 31,
2002.................................. 0 $ 0
Options written......................... 690 151,125
Options terminated in closing purchase
transactions.......................... (350) (95,197)
Options expired......................... (170) (30,939)
Options exercised....................... (170) (24,989)
------- --------
Options outstanding at June 30, 2003.... 0 $ 0
======= ========
</Table>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
34
<Page>
DREYFUS FOUNDERS BALANCED FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
2930 East Third Avenue
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
This report is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus, which contains more complete
information including charges, expenses, and share classes. Please read the
prospectus carefully before you invest or send money. Date of first use: August
28, 2003
Dreyfus Service Corporation, Distributor. (C) 2003 Founders Asset
Management LLC.
A-636-BAL-03
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
DISCOVERY FUND
INVESTMENT UPDATE
JUNE 30, 2003
DISCOVERY FUND IS CLOSED TO NEW INVESTORS.
PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION.
[DREYFUS FOUNDERS FUNDS LOGO]
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website.
To take advantage of this service, simply inform us online of your decision
to receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2003. The amounts of the these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF ROBERT AMMANN]
A DISCUSSION WITH PORTFOLIO
MANAGER ROBERT AMMANN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30?
During the period, the Dreyfus Founders Discovery Fund underperformed its
benchmark, returning less than the 19.33% return posted by the Russell 2000
Growth Index.
WHAT ECONOMIC OR MARKET DYNAMICS MOST IMPACTED THE PERIOD?
The opening of the period saw depressed investor optimism and dampened spending,
precipitated mostly by the geopolitical uncertainty that blanketed the market
for months. Weakened consumer spending that was experienced during the previous
period's holiday season carried into the first two months of 2003, as increased
uncertainty over the potential war in Iraq caused both consumers and
corporations to take a cautious approach to spending. Moreover, economic and
geopolitical concerns were not the only issues the market had to digest. The
impact of severe weather in the first quarter added to the market's difficulty
by dampening spending.
However, the market began an impressive rally in March as investor optimism
increased with the move toward a resolution in the Iraqi conflict. The strength
of this rally proved sustainable throughout the period, buoyed
[SIDENOTE]
"THE STRENGTH OF THE MID-MARCH MARKET RALLY PROVED SUSTAINABLE THROUGHOUT THE
PERIOD, BUOYED PRIMARILY BY A FAIRLY STRONG FIRST QUARTER EARNINGS-REPORTING
SEASON WHERE MANY COMPANIES MET OR EXCEEDED WALL STREET EXPECTATIONS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - A strong first quarter earnings-reporting season buoyed the market rally that
began in March of 2003.
- - Micro-cap companies showed the greatest strength during the market rally. The
Fund was limited in its ability to participate in this trend.
- - Strong stock selection in the industrials sector was a significant contributor
to the Fund's performance.
- - A higher-than-average cash position was a significant hindrance to
performance.
primarily by a fairly strong first quarter earnings-reporting season where many
companies met or exceeded Wall Street expectations. Low interest rates,
shareholder-friendly tax legislation and continued evidence that the U.S.
economy is showing modest improvements added fuel to the market rally.
This recent rally has been characterized by many of the smallest market
capitalization companies, or micro-cap stocks, showing the greatest strength.
This micro-cap bias can be seen when comparing the returns of the stocks in the
Russell 2000 Growth Index broken into quintiles by market cap. During this
period, the largest capitalization companies within the Index posted a return of
14.90%, while the smallest quintile stocks produced a whopping 32.66% return.(1)
However, the Fund, with its large asset base, finds it difficult to take
positions in many of these extremely small companies as liquidity often prevents
us from building a meaningful position.
WHAT MANAGEMENT DECISIONS POSITIVELY AFFECTED THE FUND DURING THE PERIOD?
The Fund saw strong outperformance relative to the Russell 2000
Growth Index from several holdings within the industrials sector, including less
economically sensitive holdings such as education-related stocks CORINTHIAN
COLLEGES, INC., EDUCATION MANAGEMENT CORPORATION, STRAYER EDUCATION, INC., and
Career Education Corporation. Each of these companies translated strong
enrollment trends into strong earnings growth and were significant contributors
to the Funds performance. Additionally,
- ----------
(1) Source: FactSet Research Systems; Frank Russell Co.; Prudential Securities.
4
<Page>
STERICYCLE, INC., a medical waste management company, which we also view as less
economically sensitive, proved to be a strong performer as it continued to
benefit from steady customer demand and increased opportunities for value-added
service offerings.
Among the more economically sensitive areas within the industrials sector,
the Fund saw strong performance in holdings such as airfreight and logistics
companies PACER INTERNATIONAL, INC. and UTI WORLDWIDE, INC. Both companies
posted strong returns and are beginning to see benefits from increased shipping
activity associated with stronger global economic activity. Other more
economically sensitive holdings that also did well during the period include
J.B. HUNT TRANSPORT SERVICES, INC. and JACOBS ENGINEERING GROUP, INC.
Another contributor to overall relative performance was the Fund's
underweight position in the weaker-performing financials sector. While our stock
selection in this sector proved to be relatively poor with holdings such as La
Quinta Corporation and Arthur J. Gallagher & Co., these selection missteps were
more than overcome by our overall underweight position in this weaker-performing
sector.
Strong stock selection proved fruitful in the Fund's consumer discretionary
sector. Some of the significant contributors to performance were MOVIE GALLERY,
INC., the video rental chain, which rebounded sharply following last years
mislaid concern over possible weaknesses. Similarly, auto parts retailer ADVANCE
AUTO PARTS, INC. performed well during the period, bolstered by strong sales and
earnings results and increased interest in the company's
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Stericycle, Inc. (SRCL) 2.09%
2. Medicis Pharmaceutical Corporation (MRX) 2.03%
3. Fisher Scientific International, Inc. (FSH) 2.00%
4. Advance Auto Parts, Inc. (AAP) 1.93%
5. Harman International Industries, Inc. (HAR) 1.92%
6. Jacobs Engineering Group, Inc. (JEC) 1.85%
7. Education Management Corporation (EDMC) 1.82%
8. Ruby Tuesday, Inc. (RI) 1.81%
9. National-Oilwell, Inc. (NOI) 1.76%
10. Leapfrog Enterprises, Inc. (LF) 1.68%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
potential to expand margins over time. HARMAN INTERNATIONAL INDUSTRIES, INC., a
provider of audio and other electronics to consumer and automobile Original
Equipment Manufacturer (OEM) markets, rose sharply, driven by strong earnings
results led by the automotive OEMs' adoption of Harmans newer infotainment
solutions. RUBY TUESDAY, INC. also performed well following resolution of
uncertainty about accounting changes as well as strong early results from a new
menu. Finally, LEAPFROG ENTERPRISES, INC., an educational toy company, excelled
as strong product adoption by consumers led to increased retail shelf space and
strong earnings growth.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Discovery Fund on
6/30/93 to a $10,000 investment made in an unmanaged securities index on that
date. The Fund's performance assumes the reinvestment of dividends and capital
gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Russell 2000 Index is a widely recognized, unmanaged small-cap index
comprising common stocks of the 2,000 U.S. public companies next in size after
the largest 1,000 publicly traded U.S. companies. The Russell 2000 Growth Index
measures the performance of those Russell 2000 companies with higher
price-to-book ratios and higher forecasted growth values. The total return
figures cited for this index assume change in security prices and reinvestment
of dividends, but do not reflect the costs of managing a mutual fund. Further
information related to Fund performance is contained elsewhere in this report.
6
<Page>
Although a few select stocks in the healthcare sector provided
disappointments for the Fund, the Fund benefited from several strong performers
in this sector. SELECT MEDICAL CORPORATION, a long-term acute care hospital and
outpatient rehabilitation services company, performed well as it began to
realize strong growth and a more favorable reimbursement environment. TARO
PHARMACEUTICALS INDUSTRIES LIMITED, a generic drug company, INTEGRA LIFESCIENCES
HOLDINGS, a life and neurosciences company, and ODYSSEY HEALTHCARE, INC., a
hospice care provider, were all meaningful contributors to the Funds performance
during the period.
WHAT FACTORS HINDERED THE FUNDS PERFORMANCE DURING THE PERIOD?
Chief among the negative impacts on the Fund's performance during the period
was a higher-than-normal cash position that dampened returns the
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 5.33% (14.61%) -- -- (16.47%)
Without sales charge 11.73% (9.39%) -- -- (15.05%)
CLASS B SHARES (12/31/99)
With redemption* 7.24% (13.83%) -- -- (16.44%)
Without redemption 11.24% (10.24%) -- -- (15.77%)
CLASS C SHARES (12/31/99)
With redemption** 10.29% (11.13%) -- -- (15.76%)
Without redemption 11.29% (10.23%) -- -- (15.76%)
CLASS F SHARES (12/31/89) 11.82% (9.40%) 2.99% 8.57% 12.38%
CLASS R SHARES (12/31/99) 11.96% (9.12%) -- -- (14.83%)
CLASS T SHARES (12/31/99)
With sales charge(4.50%) 6.55% (13.88%) -- -- (16.56%)
Without sales charge 11.60% (9.81%) -- -- (15.46%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investors shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions and adjustments for
financial statement purposes. Part of the Funds historical performance is due to
the purchase of securities sold in initial public offerings (IPOs). There is no
guarantee that the Funds investments in IPOs, if any, will continue to have a
similar impact on performance. There are risks associated with small-cap
investing such as limited product lines, less liquidity, and small market share.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
Fund might have otherwise seen in the strong market environment. Cash
averaged around 11% during the period, which is somewhat higher than the
preferred 5-10% range.
As mentioned earlier, the Fund suffered some selected disappointments in
the healthcare sector. The largest negative contribution came from Accredo
Health, Inc., a contract pharmacy services company, which fell sharply within
the period as it lowered expectations due to both product competition and
acquisition integration challenges. Nurse staffing organization AMN Health
Services, Inc. also fell during the period, as customer demand for temporary
staffing slowed. Charles River Laboratories International, Inc., a research
models company, lagged after slightly lowering earnings guidance early in the
year. Additionally, the markets rotation into more economically sensitive
holdings within the healthcare sector, paired with lagging performance due to
slowing admission trends, caused the hospital sub-sector to fare poorly overall.
Despite seeing some of the strongest absolute returns posted within the
Funds information technology holdings, an underweight position in this
strong-performing sector negatively impacted relative performance during the
period. Additionally, as a whole, the Fund suffered from some disappointing
stock selection on a relative basis. Technology distributor Tech Data
Corporation fell early in the period after revising downward their 2003 fiscal
year earnings guidance and announcing a large acquisition.
[CHART]
PORTFOLIO COMPOSITION
<Table>
24.85% Consumer Discretionary
22.05% Healthcare
17.72% Information Technology
16.51% Industrials
5.12% Energy
3.38% Consumer Staples
1.93% Financials
0.71% Telecommunications Services
0.48% Materials
7.25% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
8
<Page>
CREE, INC., a LED (light emitting diode) company, also performed poorly due to a
pending lawsuit by a former founder who is the brother of the company's current
chairman. Other weak contributors within the technology sector included
FAIRCHILD SEMICONDUCTOR CORPORATION, EMULEX CORPORATION, and BROOKS AUTOMATION,
INC.
An underweight position in the strong-performing telecommunications
services sector also impaired the Funds overall performance. Within this sector,
the returns realized from recent holding BOSTON COMMUNICATIONS GROUP, INC.
suffered due to concerns over the renewal of a large customer contract.
To a lesser extent, the relative returns among the Fund's energy holdings
did not keep pace with the Index during the period, caused by lagging returns
from NATIONAL-OILWELL, INC., and from exploration and production holdings such
as PIONEER NATURAL RESOURCES COMPANY and QUICKSILVER RESOURCES, INC.
Additional hindrances to performance included poor stock selection within
the consumer staples sector, with holdings such as Manhattan-based drug retailer
Duane Reade, Inc., which performed poorly as it was negatively impacted by a
weakened New York economy.
Alloy, Inc., a teen direct marketing and media company, also fell sharply
after announcing an earnings shortfall due to unexpected higher fulfillment
costs and more promotional activity. Other holdings that significantly reduced
the Funds overall returns include Atlantic Coast Airlines Holdings, Inc.,
Scholastic Corporation, RPM International, Inc., and Genesco, Inc.
As we move into the second half of 2003, our strategy remains consistent. We
strongly believe a strict focus on valuation is of great importance. We will
continue to employ our bottom-up research process to seek companies we believe
are capable of posting strong future earnings growth at attractive valuations.
/s/ Robert Ammann
Robert Ammann, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
-------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-87.4%
AEROSPACE & DEFENSE-0.8%
269,470 ManTech International Corporation*...... $ 5,168,435
------------
AIR FREIGHT & LOGISTICS-1.5%
529,095 Pacer International, Inc.*.............. 9,978,732
------------
APPAREL, ACCESSORIES & LUXURY GOODS-1.3%
168,920 Columbia Sportswear Company*............ 8,684,177
------------
APPLICATION SOFTWARE-2.6%
80,000 Ansys, Inc.*............................ 2,488,000
200,440 Cadence Design Systems, Inc.*........... 2,417,306
139,055 Documentum, Inc.*....................... 2,735,212
209,900 Filenet Corporation*.................... 3,786,596
121,725 Hyperion Solutions Corporation*......... 4,109,436
85,925 Reynolds and Reynolds Company........... 2,454,018
------------
17,990,568
------------
BROADCASTING & CABLE TV-1.5%
590,950 Radio One, Inc. Class D*................ 10,501,182
------------
CASINOS & GAMING-1.6%
613,650 Boyd Gaming Corporation*................ 10,591,599
------------
COMMUNICATIONS EQUIPMENT-6.6%
349,525 Avocent Corporation*.................... 10,461,283
68,850 Emulex Corporation*..................... 1,567,715
252,195 Harris Corporation...................... 7,578,460
354,155 NetScreen Technologies, Inc.*........... 7,986,195
294,975 Polycom, Inc.*.......................... 4,088,354
671,030 Powerwave Technologies, Inc.*........... 4,207,358
79,795 SafeNet, Inc.*.......................... 2,232,664
2,125,722 Stratex Networks, Inc.*................. 6,802,310
------------
44,924,339
------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
-------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-1.9%
302,405 Jacobs Engineering Group, Inc.*......... $ 12,746,371
------------
CONSUMER ELECTRONICS-1.9%
167,675 Harman International
Industries, Inc......................... 13,269,800
------------
DISTILLERS & VINTNERS-0.7%
160,840 Constellation Brands, Inc.*............. 5,050,376
------------
DIVERSIFIED COMMERCIAL SERVICES-4.8%
150,210 Corinthian Colleges, Inc.*.............. 7,295,700
235,955 Education Management Corporation*....... 12,548,087
135,410 FTI Consulting, Inc.*................... 3,381,188
280,420 Kroll, Inc.*............................ 7,588,165
28,810 Strayer Education, Inc.................. 2,288,955
------------
33,102,095
------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.9%
172,950 AMETEK, Inc............................. 6,338,618
------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.5%
563,635 Aeroflex, Inc.*......................... 4,362,535
101,705 Coherent, Inc.*......................... 2,433,800
125,385 FLIR Systems, Inc.*..................... 3,780,358
------------
10,576,693
------------
ENVIRONMENTAL SERVICES-2.4%
375,275 Stericycle, Inc.*....................... 14,440,582
56,225 Waste Connections, Inc.*................ 1,970,686
------------
16,411,268
------------
FOOD DISTRIBUTORS-0.4%
90,950 United Natural Foods, Inc.*............. 2,559,333
------------
FOOD RETAIL-0.2%
31,365 Whole Foods Market, Inc.*............... 1,490,778
------------
GENERAL MERCHANDISE STORES-0.8%
209,285 Tuesday Morning Corporation*............ 5,504,196
------------
HEALTHCARE DISTRIBUTORS-5.1%
394,750 Fisher Scientific
International, Inc.*.................... 13,776,775
153,411 Henry Schein, Inc.*..................... 8,029,532
287,900 Omnicare, Inc........................... 9,728,141
71,135 Patterson Dental Company*............... 3,228,106
------------
34,762,554
------------
HEALTHCARE EQUIPMENT-3.1%
562,970 Alaris Medical Systems, Inc.*........... 7,290,462
92,200 Bio-Rad Laboratories, Inc.*............. 5,103,270
333,355 Integra LifeSciences Holdings*.......... 8,793,905
------------
21,187,637
------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
-------------------------------------------------------------------
HEALTHCARE FACILITIES-1.7%
103,030 Community Health Systems, Inc.*......... $ 1,987,449
382,825 Select Medical Corporation*............. 9,505,545
------------
11,492,994
------------
HEALTHCARE SERVICES-1.2%
217,275 Odyssey Healthcare, Inc.*............... 8,039,175
------------
HEALTHCARE SUPPLIES-0.5%
104,725 Cooper Companies, Inc................... 3,641,288
------------
HOME ENTERTAINMENT SOFTWARE-0.6%
474,355 Sonic Solutions*........................ 4,088,940
------------
HOME FURNISHINGS-0.7%
191,400 Furniture Brands
International, Inc.*.................... 4,995,540
------------
HOTELS, RESORTS & CRUISE LINES-0.5%
127,125 Choice Hotels International, Inc.*...... 3,471,784
------------
HOUSEHOLD PRODUCTS-1.0%
339,700 Dial Corporation........................ 6,607,165
------------
INTERNET SOFTWARE & SERVICES-0.7%
185,830 United Online, Inc.*.................... 4,708,932
------------
LEISURE PRODUCTS-3.1%
364,825 Leapfrog Enterprises, Inc.*............. 11,605,083
159,350 Polaris Industries, Inc................. 9,784,090
------------
21,389,173
------------
MANAGED HEALTHCARE-2.1%
295,150 Amerigroup Corporation*................. 10,979,580
65,725 PacifiCare Health Systems, Inc.*........ 3,242,214
------------
14,221,794
------------
OIL & GAS DRILLING-0.5%
173,725 Pride International, Inc.*.............. 3,269,505
------------
OIL & GAS EQUIPMENT & SERVICES-3.7%
91,250 Carbo Ceramics, Inc..................... 3,399,063
552,670 National-Oilwell, Inc.*................. 12,158,740
588,050 Superior Energy Services, Inc.*......... 5,574,714
145,000 Tidewater, Inc.......................... 4,258,650
------------
25,391,167
------------
OIL & GAS EXPLORATION & PRODUCTION-0.9%
157,235 Pioneer Natural Resources Company*...... 4,103,834
91,925 Quicksilver Resources, Inc.*............ 2,201,604
------------
6,305,438
------------
PACKAGED FOODS & MEATS-1.1%
176,875 American Italian Pasta Company*......... 7,366,844
------------
</Table>
12
<Page>
<Table>
-------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
PHARMACEUTICALS-5.4%
403,275 Andrx Group*............................ $ 8,025,173
90,125 K-V Pharmaceuticals Company*............ 2,505,475
247,421 Medicis Pharmaceutical Corporation
Class A*................................ 14,028,771
88,950 MGI Pharma, Inc.*....................... 2,279,789
85,250 Pharmaceutical Resources, Inc.*......... 4,148,265
302,967 SICOR, Inc.*............................ 6,162,349
------------
37,149,822
------------
PUBLISHING-0.7%
116,050 Getty Images, Inc.*..................... 4,792,865
------------
REGIONAL BANKS-0.7%
148,940 Southwest Bancorporation of
Texas, Inc.*............................ 4,842,039
------------
RESTAURANTS-3.5%
138,590 Krispy Kreme Doughnuts, Inc.*........... 5,707,136
177,275 Rare Hospitality
International, Inc.*.................... 5,793,347
505,610 Ruby Tuesday, Inc....................... 12,503,735
------------
24,004,218
------------
SEMICONDUCTOR EQUIPMENT-2.3%
424,395 Brooks Automation, Inc.*................ 4,812,639
414,115 Entegris, Inc.*......................... 5,565,705
267,290 FEI Company*............................ 5,014,360
------------
15,392,704
------------
SEMICONDUCTORS-0.9%
109,850 Cree, Inc.*............................. 1,788,358
154,425 Fairchild Semiconductor Corporation
Class A*................................ 1,975,095
152,800 Semtech Corporation*.................... 2,175,872
------------
5,939,325
------------
SPECIALTY CHEMICALS-0.5%
77,575 Valspar Corporation..................... 3,275,217
------------
SPECIALTY STORES-8.5%
219,015 Advance Auto Parts, Inc.*............... 13,338,014
206,420 Cost Plus, Inc.*........................ 7,360,937
175,075 Finish Line, Inc.*...................... 3,888,416
557,050 Hollywood Entertainment Corporation*.... 9,581,260
449,948 Movie Gallery, Inc.*.................... 8,301,541
167,350 PETCO Animal Supplies, Inc.*............ 3,638,189
50,395 Rent-A-Center, Inc.*.................... 3,820,445
170,950 Tractor Supply Company*................. 8,162,863
------------
58,091,665
------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
-------------------------------------------------------------------
SYSTEMS SOFTWARE-2.1%
291,215 Macrovision Corporation*................ $ 5,801,003
356,275 NetIQ Corporation*...................... 5,508,012
320,135 Secure Computing Corporation*........... 2,794,779
------------
14,103,794
------------
TECHNOLOGY DISTRIBUTORS-0.5%
320,221 Insight Enterprises, Inc.*.............. 3,221,423
------------
TRADING COMPANIES & DISTRIBUTORS-0.8%
156,245 Fastenal Company........................ 5,302,955
------------
TRUCKING-2.9%
91,575 J.B. Hunt Transport Services, Inc.*..... 3,456,956
283,281 Werner Enterprises, Inc................. 6,005,557
442,680 Yellow Corporation*..................... 10,248,042
------------
19,710,555
------------
WIRELESS TELECOMMUNICATION SERVICES-0.7%
283,800 Boston Communications Group, Inc.*...... 4,861,494
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$549,880,186).................................. 596,516,566
------------
COMMON STOCKS (FOREIGN)-5.4%
AIR FREIGHT & LOGISTICS-0.6%
127,475 UTI Worldwide, Inc. (VI)................ 3,975,945
------------
HEALTHCARE EQUIPMENT-1.6%
110,650 Mettler-Toledo International, Inc.
(SZ)*................................... 4,055,323
169,650 ResMed, Inc. (AU)*...................... 6,650,280
------------
10,705,603
------------
HOTELS, RESORTS & CRUISE LINES-0.6%
183,580 Fairmont Hotels & Resorts, Inc. (CA).... 4,295,772
------------
INSURANCE BROKERS-1.2%
305,960 Platinum Underwriters Holdings Limited
(BD).................................... 8,303,754
------------
PHARMACEUTICALS-1.4%
170,500 Taro Pharmaceutical Industries Limited
(IS)*................................... 9,357,035
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$31,499,811)................................... 36,638,109
------------
RIGHTS AND WARRANTS (DOMESTIC)-0.0%
COMMERCIAL PRINTING-0.0%
4,736 American Banknote Corporation
Warrants*............................... 4
------------
TOTAL RIGHTS AND WARRANTS (DOMESTIC)
(COST-$0)............................................ 4
------------
</Table>
14
<Page>
<Table>
---------------------------------------------------------------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
CORPORATE SHORT-TERM NOTES-8.3%
CONSUMER FINANCE-3.1%
$21,300,000 Household Finance Company
1.03% 7/1/03............................ $ 21,300,000
------------
OTHER DIVERSIFIED FINANCIAL SERVICES-5.2%
17,100,000 Merrill Lynch & Company
1.08% 7/3/03............................ 17,098,974
18,600,000 Verizon Network Funding
1.05% 7/2/03............................ 18,599,458
------------
35,698,432
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$56,998,432)......................... 56,998,432
------------
TOTAL INVESTMENTS-101.1%
(TOTAL COST-$638,378,429)............................ 690,153,111
OTHER ASSETS AND LIABILITIES-(1.1%).................. (7,309,968)
------------
NET ASSETS-100.0%.................................... $682,843,143
============
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $ 638,378,429
---------------
Investment securities, at market.................. 690,153,111
Cash.............................................. 6,622,740
Receivables:
Investment securities sold...................... 9,231,780
Capital shares sold............................. 758,717
Dividends....................................... 40,041
Other assets...................................... 28,260
---------------
Total Assets.................................. 706,834,649
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 20,186,833
Capital shares redeemed......................... 3,008,477
Advisory fees................................... 475,416
Shareholder servicing fees...................... 49,849
Accounting fees................................. 30,689
Distribution fees............................... 85,559
Custodian fees.................................. 1,556
Other........................................... 153,127
---------------
Total Liabilities............................. 23,991,506
---------------
Net Assets........................................ $ 682,843,143
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $ 1,184,430,933
Accumulated net investment loss................... (4,015,896)
Accumulated net realized loss from security
transactions.................................... (549,346,576)
Net unrealized appreciation on investments........ 51,774,682
---------------
Total......................................... $ 682,843,143
===============
</Table>
16
<Page>
<Table>
Net Assets--Class A............................... $ 67,340,389
Shares Outstanding--Class A....................... 3,157,396
Net Asset Value, Redemption Price Per Share....... $ 21.33
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 22.63
Net Assets--Class B............................... $ 19,016,316
Shares Outstanding--Class B....................... 919,160
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 20.69
Net Assets--Class C............................... $ 7,785,587
Shares Outstanding--Class C....................... 376,171
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 20.70
Net Assets--Class F............................... $ 538,589,874
Shares Outstanding--Class F....................... 25,301,943
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 21.29
Net Assets--Class R............................... $ 48,781,363
Shares Outstanding--Class R....................... 2,265,520
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 21.53
Net Assets--Class T............................... $ 1,329,614
Shares Outstanding--Class T....................... 63,408
Net Asset Value, Redemption Price Per Share....... $ 20.97
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 21.96
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 454,350
Interest........................................ 424,333
Foreign taxes withheld.......................... (826)
---------------
Total Investment Income....................... 877,857
---------------
EXPENSES:
Advisory fees--Note 2........................... 2,662,602
Shareholder servicing fees--Note 2.............. 297,695
Accounting fees--Note 2......................... 173,401
Distribution fees--Note 2....................... 703,820
Transfer agency fees--Note 2.................... 597,975
Registration fees............................... 45,639
Postage and mailing expenses.................... 73,569
Custodian fees and expenses--Note 2............. 9,337
Printing expenses............................... 62,036
Legal and audit fees............................ 71,870
Directors' fees and expenses--Note 2............ 74,571
Other expenses.................................. 131,055
---------------
Total Expenses................................ 4,903,570
Earnings Credits.............................. (4,256)
Reimbursed/Waived Expenses.................... (1,561)
Expense Offset to Broker Commissions.......... (4,000)
---------------
Net Expenses.................................. 4,893,753
---------------
Net Investment Loss............................. (4,015,896)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Loss on Security Transactions........ (70,773,745)
Net Change in Unrealized Appreciation/Depreciation
on Investments.................................... 147,157,998
---------------
Net Realized and Unrealized Gain.............. 76,384,253
---------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 72,368,357
===============
Purchases of long-term securities................. $ 405,363,302
Proceeds from sales of long-term securities....... $ 434,878,930
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ --------------
OPERATIONS
Net Investment Loss..................... $ (4,015,896) $ (9,642,274)
Net Realized Loss on Security
Transactions.......................... (70,773,745) (254,766,071)
Net Change in Unrealized Appreciation /
Depreciation.......................... 147,157,998 (84,564,881)
------------ --------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 72,368,357 (348,973,226)
------------ --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... (7,142,760) (13,346,442)
Class B............................... (1,657,362) (5,807,035)
Class C............................... (791,629) (4,278,012)
Class F............................... (17,378,266) (73,946,291)
Class R............................... 625,526 2,113,647
Class T............................... (96,088) (329,325)
------------ --------------
Net Decrease from Capital Share
Transactions.......................... (26,440,579) (95,593,458)
------------ --------------
Net Increase (Decrease) in Net Assets... 45,927,778 (444,566,684)
NET ASSETS
Beginning of period................... $636,915,365 $1,081,482,049
------------ --------------
End of period......................... $682,843,143 $ 636,915,365
============ ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 19.09 $ 28.50 $ 34.79 $ 40.88
Income from investment
operations:
Net investment loss....... (0.18) (0.31) (0.17) (0.03)
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.42 (9.10) (6.02) (3.45)
------- ------- -------- --------
Total from investment
operations.......... 2.24 (9.41) (6.19) (3.48)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------- ------- -------- --------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $ 21.33 $ 19.09 $ 28.50 $ 34.79
======= ======= ======== ========
Total Return/Ratios
Total return*............. 11.73% (33.02%) (17.78%) (8.18%)
Net assets, end of period
(000s).................. $67,340 $67,184 $117,773 $131,298
Net expenses to average
net assets#............. 1.51%** 1.35% 1.18% 1.20%
Gross expenses to average
net assets#............. 1.51%** 1.35% 1.19% 1.24%
Net investment loss to
average net assets...... (1.23%)** (1.08%) (0.58%) (0.21%)
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of
period...................... $ 18.60 $ 28.03 $ 34.49 $ 40.88
Income from investment
operations:
Net investment loss....... (0.35) (0.69) (0.45) (0.21)
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.44 (8.74) (5.91) (3.57)
------- ------- ------- -------
Total from investment
operations.......... 2.09 (9.43) (6.36) (3.78)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------- ------- ------- -------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $ 20.69 $ 18.60 $ 28.03 $ 34.49
======= ======= ======= =======
Total Return/Ratios
Total return*............. 11.24% (33.64%) (18.43%) (8.92%)
Net assets, end of period
(000s).................. $19,016 $18,804 $35,845 $50,883
Net expenses to average
net assets#............. 2.55%** 2.26% 1.96% 1.94%
Gross expenses to average
net assets#............. 2.56%** 2.26% 1.97% 1.97%
Net investment loss to
average net assets...... (2.27%)** (1.98%) (1.35%) (1.02%)
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of
period...................... $18.60 $ 28.05 $ 34.51 $ 40.88
Income from investment
operations:
Net investment loss....... (0.39) (0.86) (0.48) (0.19)
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.49 (8.59) (5.88) (3.57)
------ ------- ------- -------
Total from investment
operations.......... 2.10 (9.45) (6.36) (3.76)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------ ------- ------- -------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $20.70 $ 18.60 $ 28.05 $ 34.51
====== ======= ======= =======
Total Return/Ratios
Total return*............. 11.29% (33.69%) (18.42%) (8.87%)
Net assets, end of period
(000s).................. $7,786 $ 7,794 $17,031 $25,275
Net expenses to average
net assets#............. 2.53%** 2.26% 1.96% 1.94%
Gross expenses to average
net assets#............. 2.53%** 2.27% 1.98% 1.97%
Net investment loss to
average net assets...... (2.24%)** (1.99%) (1.36%) (1.01%)
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- --------- --------- ---------- --------- ---------
CLASS F SHARES
Net Asset Value,
beginning of period.... $ 19.04 $ 28.45 $ 34.74 $ 40.86 $ 24.37 $ 23.45
Income from investment
operations:
Net investment
loss............... (0.16) (0.36) (0.20) (0.07) (0.08) (0.07)
Net gains (losses) on
securities (both
realized and
unrealized)........ 2.41 (9.05) (5.99) (3.44) 22.72 3.15
-------- -------- -------- ---------- -------- --------
Total from
investment
operations..... 2.25 (9.41) (6.19) (3.51) 22.64 3.08
Less distributions:
From net investment
income............. 0.00 0.00 0.00 0.00 0.00 0.00
From net realized
gains.............. 0.00 0.00 (0.10) (2.61) (6.15) (2.16)
-------- -------- -------- ---------- -------- --------
Total
distributions... 0.00 0.00 (0.10) (2.61) (6.15) (2.16)
Net Asset Value, end of
period................. $ 21.29 $ 19.04 $ 28.45 $ 34.74 $ 40.86 $ 24.37
======== ======== ======== ========== ======== ========
Total Return/Ratios
Total return......... 11.82% (33.08%) (17.81%) (8.26%) 94.59% 14.19%
Net assets, end of
period (000s)...... $538,590 $498,970 $847,330 $1,066,003 $806,152 $241,124
Net expenses to
average net
assets#............ 1.57%** 1.40% 1.24% 1.25% 1.45% 1.55%
Gross expenses to
average net
assets#............ 1.57%** 1.41% 1.25% 1.28% 1.46% 1.57%
Net investment loss
to average net
assets............. (1.29%)** (1.13%) (0.64%) (0.46%) (0.96%) (0.91%)
Portfolio turnover
rate@.............. 132% 128% 110% 108% 157% 121%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of
period...................... $ 19.23 $ 28.64 $ 34.87 $40.88
Income from investment
operations:
Net investment income
(loss).................. (0.09) (0.18) (0.08) 0.00+
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.39 (9.23) (6.05) (3.40)
------- ------- ------- ------
Total from investment
operations.......... 2.30 (9.41) (6.13) (3.40)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------- ------- ------- ------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $ 21.53 $ 19.23 $ 28.64 $34.87
======= ======= ======= ======
Total Return/Ratios
Total return.............. 11.96% (32.86%) (17.57%) (7.98%)
Net assets, end of period
(000s).................. $48,781 $42,872 $61,163 $4,693
Net expenses to average
net assets#............. 1.23%** 1.10% 0.94% 0.93%
Gross expenses to average
net assets#............. 1.23%** 1.10% 0.95% 0.96%
Net investment income
(loss) to average net
assets.................. (0.94%)** (0.82%) (0.38%) 0.01%
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
+ Net investment income (loss) for the year ended December 31, 2000
aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of
period...................... $18.79 $28.24 $34.69 $40.88
Income from investment
operations:
Net investment loss....... (0.24) (0.54) (0.33) (0.09)
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.42 (8.91) (6.02) (3.49)
------ ------ ------ ------
Total from investment
operations.......... 2.18 (9.45) (6.35) (3.58)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------ ------ ------ ------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $20.97 $18.79 $28.24 $34.69
====== ====== ====== ======
Total Return/Ratios
Total return*............. 11.60% (33.46%) (18.30%) (8.43%)
Net assets, end of period
(000s).................. $1,330 $1,291 $2,341 $1,908
Net expenses to average
net assets#............. 1.93%** 2.06% 1.82% 1.44%
Gross expenses to average
net assets#............. 1.93%** 2.06% 1.83% 1.48%
Net investment loss to
average net assets...... (1.64%)** (1.79%) (1.24%) (0.50%)
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Discovery Fund (the "Fund"). The Fund offers Class A,
Class B, Class C, Class F, Class R, and Class T shares. Class A and Class T
shares are subject to a sales charge imposed at the time of purchase, Class B
shares are subject to a contingent deferred sales charge ("CDSC") imposed on
Class B share redemptions made within six years of purchase, Class C shares are
subject to a CDSC imposed on Class C shares redeemed within one year of
purchase, and Class F and Class R shares are sold at net asset value per share
(with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
26
<Page>
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
28
<Page>
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$58,190 and $128,423, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-
pocket charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors
Trust Company ("ITC") was the transfer and dividend disbursing agent for the
Class F shares of the Fund. With the exception of out-of-pocket charges, the
fees charged by ITC were paid by Founders. The out-of-pocket charges from ITC
were paid by the Fund. During the six months ended June 30, 2003, Class F shares
paid DTI and ITC $49,780 and $62,925, respectively, for out-of-pocket transfer
agent charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $22,203
Class B..................................................... $31,975
Class C..................................................... $12,256
Class R..................................................... $ 7,336
Class T..................................................... $ 1,424
</Table>
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 applicable to its Class F shares. Under
the plan, the Fund is authorized to reimburse DSC for expenses paid for
distributing its Class F shares at an annual rate of up to 0.25% of the value of
the average daily net assets of the Fund's Class F shares. During the six months
ended June 30, 2003, Class F shares were charged $608,854 pursuant to this
Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A..................................................... N/A $78,422
Class B..................................................... $66,130 $22,044
Class C..................................................... $27,330 $ 9,110
Class T..................................................... $ 1,506 $ 1,506
</Table>
During the six months ended June 30, 2003, DSC retained $56,716 and $4 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $101,861 and $1,092 of contingent deferred sales charges
relating to redemptions of Class B and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the
30
<Page>
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $1,561. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2009
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $441,601,561
Post-October Capital Loss Deferral.......................... $16,478,920
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $644,226,833
Gross Tax Appreciation of Investments....................... $93,533,168
Gross Tax Depreciation of Investments....................... $(47,606,890)
Net Tax Appreciation........................................ $45,926,278
</Table>
32
<Page>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------------- --------------- -------------
CLASS A
Sold.................................................. 398,740 $ 7,691,612 914,819 $ 21,923,140
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (760,905) $ (14,834,372) (1,527,408) $ (35,269,582)
NET DECREASE.......................................... (362,165) $ (7,142,760) (612,589) $ (13,346,442)
CLASS B
Sold.................................................. 5,361 $ 100,783 26,778 $ 651,636
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (97,192) $ (1,758,145) (294,496) $ (6,458,671)
NET DECREASE.......................................... (91,831) $ (1,657,362) (267,718) $ (5,807,035)
CLASS C
Sold.................................................. 14,727 $ 272,061 27,424 $ 641,512
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (57,472) $ (1,063,690) (215,764) $ (4,919,524)
NET DECREASE.......................................... (42,745) $ (791,629) (188,340) $ (4,278,012)
CLASS F
Sold.................................................. 2,297,102 $ 43,699,099 5,520,185 $ 130,099,247
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (3,196,265) $ (61,077,365) (9,099,776) $(204,045,538)
NET DECREASE.......................................... (899,163) $ (17,378,266) (3,579,591) $ (73,946,291)
CLASS R
Sold.................................................. 191,473 $ 3,639,395 438,891 $ 10,145,622
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (155,373) $ (3,013,869) (344,725) $ (8,031,975)
NET INCREASE.......................................... 36,100 $ 625,526 94,166 $ 2,113,647
CLASS T
Sold.................................................. 5,156 $ 98,146 14,612 $ 336,876
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (10,464) $ (194,234) (28,799) $ (666,201)
NET DECREASE.......................................... (5,308) $ (96,088) (14,187) $ (329,325)
</Table>
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
34
<Page>
DREYFUS FOUNDERS DISCOVERY FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
2930 East Third Avenue
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
This report is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus, which contains more complete
information including charges, expenses, and share classes. Please read the
prospectus carefully before you invest or send money. Date of first use: August
28, 2003
Dreyfus Service Corporation, Distributor. (C) 2003 Founders Asset
Management LLC.
A-636-DIS-03
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
GOVERNMENT SECURITIES
FUND
DREYFUS FOUNDERS
MONEY MARKET FUND
INVESTMENT UPDATE
JUNE 30, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
<Page>
TABLE OF CONTENTS
<Table>
Government Securities Fund Management Overview 3
Government Securities Fund Statement of Investments 8
Money Market Fund Statement of Investments* 11
Statements of Assets and Liabilities 14
Statements of Operations 15
Statements of Changes in Net Assets 16
Government Securities Fund Financial Highlights 17
Money Market Fund Financial Highlights 18
Notes to Financial Statements 19
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website.
To take advantage of this service, simply inform us online of your decision
to receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Funds reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
*This report includes financial information for the Money Market Fund as of June
30, 2003, but does not include a discussion of Fund performance.
The views expressed herein are current to the date of this report. The
views and the composition of the Funds' portfolios are subject to change at any
time based on market and other conditions. The amounts of the Funds' holdings as
of June 30, 2003 are included in the Statements of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
GOVERNMENT SECURITIES FUND
MANAGEMENT OVERVIEW
[PHOTO OF MARGARET DANUSER]
A DISCUSSION WITH PORTFOLIO
MANAGER MARGARET DANUSER
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30?
The first half of 2003 witnessed a U.S. Treasury market rally with yields
hitting historic lows across many maturity points. The 10-year Treasury yield
fell to the lowest level on record while 10-year Treasuries returned 4.47% and
30-year Treasuries gained 5.81% during the first six months of the year.
During the period, the Dreyfus Founders Government Securities Fund
delivered a positive return of 3.58%, while the Lehman Brothers U.S. Treasury
Composite Index gained 3.61% and the Lehman Brothers U.S. Government Composite
Index returned 3.62%.
WHAT WERE THE DYNAMICS OF THE BOND MARKET DURING THE PERIOD?
In the first quarter, intermittent, muted signs of economic recovery,
geopolitical upheaval in the Middle East and speculation that the Federal
Reserve would lower interest rates yet again all contributed to the
outperformance of the bond market. Fixed-income vehicles continued to be the
investment of choice for investors favoring more defensive securities.
[SIDENOTE]
"THE FEDERAL RESERVE PROVIDED MUCH MARKET SPECULATION THROUGHOUT THE PERIOD AND
EVENTUALLY ENACTED A 0.25% FEDERAL FUND DECREASE, OFFERING A BALANCED ASSESSMENT
OF GROWTH AND DEFLATION."
3
<Page>
But the market began to shift near the period's mid-point. Although
economic fundamentals remained weak--even contracted--this fact was overshadowed
by a buoyed equity market and improved earnings outlooks. In the geopolitical
arena, the Iraqi conflict seemed to be winding down, encouraging increased
confidence in the economy. Corporate bond spreads reversed the widening they saw
in 2002 in the wake of several bankruptcy,
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Government
Securities Fund on 6/30/93 to a $10,000 investment made in unmanaged securities
indexes on that date. The Fund's performance assumes the reinvestment of
dividends and capital gain distributions, but does not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or redemption of Fund
shares. The Fund's performance in the graph takes into account all applicable
Class F fees and expenses, subject to applicable fee waivers.
The Lehman Brothers U.S. Government Composite Index reflects the
performance of publicly issued obligations of the U.S. Treasury, U.S. government
agencies, quasi-federal corporations, and debt guaranteed by the U.S.
government. The Lehman Brothers U.S. Treasury Composite Index is composed of all
public obligations of the U.S. Treasury, excluding certain securities, that have
at least one year to maturity and an outstanding par value of at least $150
million. The total return figures cited for these indexes do not reflect the
costs of managing a mutual fund. In future semiannual reports, the Fund's
performance will no longer be compared to the Lehman Brothers U.S. Treasury
Composite Index, as the Fund's portfolio composition corresponds more closely to
the Lehman Brothers U.S. Government Composite Index. Further information related
to Fund performance is contained elsewhere in this report.
4
<Page>
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
CLASS F SHARES YEAR-TO- 1 5 10 SINCE
(INCEPTION DATE) DATE+ YEAR YEARS YEARS INCEPTION
- ----------------------------------------------------------------------------
3/1/88 3.58% 10.49% 6.51% 5.21% 6.48%
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total return does not reflect the deduction of taxes that a shareholder would
pay on Fund distributions or redemption of Fund shares, but does reflect the
reinvestment of dividends and capital gain distributions, fee waivers, and
adjustments for financial statement purposes.
+Total return is not annualized.
fraud and credit downgrade situations. The average corporate bond spread--the
difference between the interest rate on corporate debt and that of a similar
maturity Treasury issue--stood at 120 basis points by the period's end compared
to an average 240 basis points at the spread's apex last October. Lower quality
corporate bonds continued to outdo higher quality issues as investor's appetite
for risk increased. Additionally, the Federal Reserve provided much market
speculation throughout the period and eventually enacted a 0.25% Federal Fund
decrease, offering a balanced assessment of growth and deflation. This rate cut
stimulated consumer confidence and increased activity in the housing and
mortgage lending industries. Although subdued, signs of optimism began to emerge
and the move from bonds back to equities began.
WHAT MANAGEMENT DECISIONS MOST IMPACTED THE FUND'S RETURNS? The Fund allocated
75.7% of its assets to Treasuries and Agencies, 8.0% of assets in
mortgage-backed securities and 5.1% in AAA-rated corporate bonds. The Fund
maintained a 3.2% weighting in Canadian bonds, which benefited from a
strengthening Canadian dollar. The average modified duration stood at 4.15 years
at the end of June, a slight increase since year-end. The Fund also added to its
Treasury Inflation Protected Securities (TIPS) exposure during the first
quarter, which saw a gain of 5.75% during the period.
5
<Page>
The Fund sold its position in Freddie Mac notes in June due to a Securities
and Exchange Commission-led investigation into the mortgage financier's
accounting issues. We are closely monitoring the Freddie Mac situation, as well
as Government Sponsored Enterprises in general, and view any efforts to increase
regulatory oversight, disclosure and capital requirements positively for debt
holders.
In conclusion, while many factors may have a substantial impact on the bond
market, we will continue in our search for high-quality bonds in areas of
opportunity along the yield curve.
/s/ Margaret R. Danuser
Margaret Danuser
Portfolio Manager
- --------------------------------------------------------------------------------
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
6
<Page>
This page intentionally left blank.
7
<Page>
GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -----------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES-83.7%
AGENCY PASS THROUGH-3.0%
$ 420,078 U.S. Small Business Administration Series 10-A
6.64% 2/1/11...................................... $ 459,872
-------------
MORTGAGE-BACKED SECURITIES-5.0%
69,851 Federal Home Loan Mortgage Corporation
7.50% 11/1/29 Pool #C32819........................ 74,272
Federal National Mortgage Association:
191,896 6.50% 10/1/31 Pool #596063........................ 200,115
115,617 7.00% 3/1/12 Pool #373543......................... 123,043
342,911 Government National Mortgage Association
6.50% 5/15/26 Pool #417388........................ 360,903
-------------
758,333
-------------
U.S. AGENCIES-43.0%
Federal Farm Credit Bank:
300,000 4.00% 6/17/13..................................... 299,664
500,000 4.55% 3/28/13..................................... 529,240
Federal Home Loan Bank:
150,000 5.40% 10/25/06.................................... 166,383
495,000 5.625% 2/15/08.................................... 561,469
400,000 6.70% 4/4/17 Callable 4/4/05...................... 431,660
355,000 7.125% 2/15/05.................................... 388,008
Federal National Mortgage Association:
300,000 4.25% 7/15/07..................................... 322,827
300,000 5.00% 1/15/07..................................... 330,195
300,000 5.25% 1/15/09..................................... 336,846
400,000 5.36% 11/29/11 Callable 11/29/04.................. 419,696
150,000 5.75% 2/15/08..................................... 171,146
300,000 6.00% 5/15/08..................................... 346,434
300,000 6.625% 10/15/07................................... 351,672
250,000 7.125% 6/15/10.................................... 309,030
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of
origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
8
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -----------------------------------------------------------------------------------
U.S. AGENCIES-43.0% (CONTINUED)
$ 500,000 Private Export Funding Corporation
3.40% 2/15/08..................................... $ 518,900
Tennessee Valley Authority:
500,000 5.375% 11/13/08................................... 563,000
350,000 7.125% 5/1/30..................................... 456,232
-------------
6,502,402
-------------
U.S. TREASURY BONDS-5.1%
U.S. Treasury Bond:
250,000 5.25% 11/15/28.................................... 272,140
250,000 6.00% 2/15/26..................................... 298,838
150,000 7.25% 5/15/16..................................... 199,488
-------------
770,466
-------------
U.S. TREASURY NOTES-27.6%
U.S. Treasury Inflation Index Note:
408,928 3.00% 7/15/12..................................... 450,620
232,918 3.375% 1/15/12.................................... 263,507
422,448 3.50% 1/15/11..................................... 479,776
U.S. Treasury Note:
500,000 2.625% 5/15/08.................................... 504,570
400,000 3.875% 2/15/13.................................... 411,608
200,000 5.00% 2/15/11..................................... 224,492
400,000 6.00% 8/15/09..................................... 471,828
500,000 6.25% 2/15/07..................................... 575,000
500,000 6.50% 8/15/05..................................... 554,025
200,000 7.00% 7/15/06..................................... 231,156
-------------
4,166,582
-------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST-$11,789,623).................................................. 12,657,655
-------------
SUPRANATIONAL OBLIGATIONS-1.4%
200,000 International Bank for Reconstruction &
Development
4.00% 1/10/05..................................... 208,242
-------------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST-$201,672)..................................................... 208,242
-------------
GOVERNMENT BONDS (FOREIGN)-3.2%
CAD 305,000 Province of Quebec
6.50% 12/1/05 (CA)................................ 241,086
CAD 305,000 Province of Saskatchewan
6.00% 6/1/06 (CA)................................. 240,869
-------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST-$409,914)..................................................... 481,955
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<Page>
GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -----------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)-3.7%
DIVERSIFIED COMMERCIAL SERVICES-3.7%
$ 500,000 Stanford University
6.16% 4/30/11..................................... $ 567,490
-------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST-$500,000)..................................................... 567,490
-------------
<Caption>
AMORTIZED COST
- ------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-6.6%
OTHER DIVERSIFIED FINANCIAL SERVICES-3.3%
$ 500,000 Merrill Lynch & Company
1.30% 7/1/03...................................... $ 500,000
-------------
SPECIAL PURPOSE ENTITY-3.3%
500,000 Corporate Asset Funding Corporation
1.10% 7/1/03...................................... 500,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$1,000,000)......................................... 1,000,000
-------------
TOTAL INVESTMENTS-98.6%
(TOTAL COST-$13,901,209)............................................ 14,915,342
OTHER ASSETS AND LIABILITIES-1.4%................................... 211,938
-------------
NET ASSETS-100.0%................................................... $ 15,127,280
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<Page>
MONEY MARKET FUND
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-10.2%
$ 1,700,000 Federal Home Loan Mortgage Corporation
1.27% 10/15/03.................................... $ 1,693,643
Federal National Mortgage Association:
700,000 0.94% 1/9/04...................................... 696,491
2,000,000 1.24% 2/6/04...................................... 1,984,845
1,000,000 1.49% 10/17/03.................................... 995,530
-------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(COST-$5,370,509)................................................... 5,370,509
-------------
CORPORATE SHORT-TERM NOTES-89.8%
AGRICULTURAL PRODUCTS-3.4%
1,800,000 Archer Daniels Midland Company
1.22% 7/8/03...................................... 1,799,573
-------------
AUTOMOBILE MANUFACTURERS-2.1%
1,100,000 Toyota Motor Credit Corporation
0.96% 7/1/03...................................... 1,100,000
-------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-2.1%
1,100,000 Paccar Financial Corporation
1.19% 7/11/03..................................... 1,099,636
-------------
CONSUMER ELECTRONICS-4.0%
2,100,000 Sharp Electronics Corporation
1.25% 7/17/03..................................... 2,098,833
-------------
CONSUMER FINANCE-3.0%
1,600,000 Household Finance Company
1.22% 7/3/03...................................... 1,599,892
-------------
DISTILLERS & VINTNERS-4.0%
1,100,000 Brown-Forman Corporation
0.95% 7/25/03..................................... 1,099,303
1,000,000 Diageo Capital PLC
1.02% 7/31/03..................................... 999,150
-------------
2,098,453
-------------
DIVERSIFIED CHEMICALS-4.6%
2,400,000 E.I. du Pont de Nemours and Company
1.21% 7/16/03..................................... 2,398,790
-------------
DIVERSIFIED COMMERCIAL SERVICES-4.9%
2,600,000 TransAmerica Finance
0.92% 9/24/03..................................... 2,594,352
-------------
ELECTRONIC EQUIPMENT MANUFACTURERS-4.4%
2,300,000 Hitachi America Limited
0.99% 8/20/03..................................... 2,296,838
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
MONEY MARKET FUND
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT-3.8%
$ 2,000,000 Becton Dickinson & Company
0.91% 10/20/03.................................... $ 1,994,388
-------------
INDUSTRIAL CONGLOMERATES-4.0%
2,100,000 General Electric Company
1.22% 7/22/03..................................... 2,098,506
-------------
INTEGRATED OIL & GAS-3.4%
1,800,000 Chevron UK Investment PLC
1.10% 8/14/03..................................... 1,797,580
-------------
MULTI-LINE INSURANCE-4.7%
American Family Financial Services:
1,300,000 1.02% 10/24/03.................................... 1,295,764
1,200,000 1.24% 8/28/03..................................... 1,197,602
-------------
2,493,366
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES-10.7%
2,200,000 American Express Credit Corporation
1.24% 7/17/03..................................... 2,198,788
1,800,000 National Rural Utilities
1.15% 7/18/03..................................... 1,799,023
1,600,000 Verizon Network Funding
1.03% 7/7/03...................................... 1,599,725
-------------
5,597,536
-------------
PHARMACEUTICALS-9.5%
1,000,000 Bristol Myers-Squibb Company
1.21% 9/2/03...................................... 997,882
1,100,000 Johnson & Johnson
1.00% 10/3/03..................................... 1,097,128
1,100,000 Merck & Company
0.94% 8/9/03...................................... 1,098,966
1,800,000 Novartis Finance Corporation
1.05% 7/10/03..................................... 1,799,528
-------------
4,993,504
-------------
PUBLISHING-7.6%
2,100,000 Gannett Company
1.02% 7/15/03..................................... 2,099,167
1,900,000 McGraw-Hill Company
0.90% 11/10/03.................................... 1,893,730
-------------
3,992,897
-------------
SPECIAL PURPOSE ENTITY-4.8%
2,500,000 Corporate Asset Funding Corporation
1.19% 7/2/03...................................... 2,499,917
-------------
</Table>
12
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------------------------------
SPECIALIZED FINANCE-8.8%
$ 2,600,000 Ciesco LP
1.22% 7/9/03...................................... $ 2,599,295
2,000,000 Nestle Capital Corporation
1.20% 8/5/03...................................... 1,997,667
-------------
4,596,962
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$47,151,023)........................................ 47,151,023
-------------
TOTAL INVESTMENTS-100.0%
(TOTAL COST-$52,521,532)............................................ 52,521,532
OTHER ASSETS AND LIABILITIES-0.0%................................... 11,355
-------------
NET ASSETS-100.0%................................................... $ 52,532,887
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES MARKET
FUND FUND
------------ ------------
ASSETS
Investment securities, at cost.................... $13,901,209 $52,521,532
----------- -----------
Investment securities, at market.................. 14,915,342 52,521,532
Cash.............................................. 65,959 82,148
Receivables:
Capital shares sold............................. 3,560 10,698
Interest........................................ 174,187 0
Other assets...................................... 59,500 42,099
----------- -----------
Total Assets.................................. 15,218,548 52,656,477
----------- -----------
LIABILITIES
Payables and other liabilities:
Capital shares redeemed......................... 1,493 31,769
Advisory fees................................... 4,429 19,959
Shareholder servicing fees...................... 2,050 7,098
Accounting fees................................. 383 1,341
Distribution fees............................... 2,675 0
Custodian fees.................................. 152 229
Other........................................... 78,377 63,020
Dividends....................................... 1,709 174
----------- -----------
Total Liabilities............................. 91,268 123,590
----------- -----------
Net Assets........................................ $15,127,280 $52,532,887
=========== ===========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $14,286,251 $52,533,802
Undistributed net investment income............... 2,114 18,518
Accumulated net realized loss from security
transactions.................................... (175,216) (19,433)
Net unrealized appreciation on investments and
foreign currency translation.................... 1,014,131 0
----------- -----------
Total......................................... $15,127,280 $52,532,887
=========== ===========
Net Assets--Class F............................... $15,127,280 $52,532,887
Shares Outstanding--Class F....................... 1,459,782 52,532,887
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 10.36 $ 1.00
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENTS OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES MARKET
FUND FUND
------------ ------------
INVESTMENT INCOME:
Interest........................................ $ 351,071 $360,619
---------- --------
Total Investment Income....................... 351,071 360,619
---------- --------
EXPENSES:
Advisory fees--Note 2........................... 50,533 143,059
Shareholder servicing fees--Note 2.............. 13,411 47,677
Accounting fees--Note 2......................... 4,665 17,168
Distribution fees--Note 2....................... 19,435 0
Transfer agency fees--Note 2.................... 4,566 9,554
Registration fees............................... 7,535 1,287
Postage and mailing expenses.................... 2,709 5,652
Custodian fees and expenses--Note 2............. 911 1,376
Printing expenses............................... 6,510 8,488
Legal and audit fees............................ 1,184 5,232
Directors' fees and expenses--Note 2............ 1,445 5,493
Other expenses.................................. 3,899 12,469
---------- --------
Total Expenses................................ 116,803 257,455
Earnings Credits.............................. (302) (254)
Reimbursed/Waived Expenses.................... (43,056) (22,939)
---------- --------
Net Expenses.................................. 73,445 234,262
---------- --------
Net Investment Income........................... 277,626 126,357
---------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security transactions........................... 250,304 0
Foreign currency transactions................... 1,454 0
---------- --------
Net Realized Gain............................. 251,758 0
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation... 36,596 0
---------- --------
Net Realized and Unrealized Gain.................. 288,354 0
---------- --------
Net Increase in Net Assets Resulting from
Operations........................................ $ 565,980 $126,357
========== ========
Purchases of long-term U.S. Government
Obligations....................................... $4,624,207 $ 0
Proceeds from sales of long-term U.S. Government
Obligations....................................... $3,166,671 $ 0
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
GOVERNMENT MONEY MARKET
SECURITIES FUND FUND
------------------------ ---------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
6/30/03 12/31/02 6/30/03 12/31/02
----------- ----------- ------------ -------------
OPERATIONS
Net Investment Income....................................... $ 277,626 $ 517,350 $ 126,357 $ 664,781
Net Realized Gain........................................... 251,758 66,187 0 0
Net Change in Unrealized
Appreciation/Depreciation................................. 36,596 773,401 0 0
----------- ----------- ----------- ------------
Net Increase in Net Assets Resulting from Operations...... 565,980 1,356,938 126,357 664,781
----------- ----------- ----------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class F................................................... (277,626) (517,350) (126,357) (664,781)
----------- ----------- ----------- ------------
Net Decrease from Dividends and Distributions............... (277,626) (517,350) (126,357) (664,781)
----------- ----------- ----------- ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease) from Capital Share
Transactions--Note 4
Class F................................................... (479,039) 2,511,244 (7,553,123) (15,842,144)
----------- ----------- ----------- ------------
Net Increase (Decrease) in Net Assets....................... (190,685) 3,350,832 (7,553,123) (15,842,144)
NET ASSETS
Beginning of period....................................... $15,317,965 $11,967,133 $60,086,010 $ 75,928,154
----------- ----------- ----------- ------------
End of period............................................. $15,127,280 $15,317,965 $52,532,887 $ 60,086,010
=========== =========== =========== ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 10.18 $ 9.55 $ 9.41 $ 8.96 $ 9.74 $ 9.28
Income from investment operations:
Net investment income.................. 0.18 0.38 0.45 0.47 0.42 0.43
Net gains (losses) on securities (both
realized and unrealized)............. 0.18 0.63 0.14 0.45 (0.78) 0.46
------- ------- ------- ------- ------- -------
Total from investment operations... 0.36 1.01 0.59 0.92 (0.36) 0.89
Less distributions:
From net investment income............. (0.18) (0.38) (0.45) (0.47) (0.42) (0.43)
From net realized gains................ 0.00 0.00 0.00 0.00^ 0.00 0.00
------- ------- ------- ------- ------- -------
Total distributions................ (0.18) (0.38) (0.45) (0.47) (0.42) (0.43)
Net Asset Value, end of period............. $ 10.36 $ 10.18 $ 9.55 $ 9.41 $ 8.96 $ 9.74
======= ======= ======= ======= ======= =======
Total Return/Ratios
Total return........................... 3.58% 10.86% 6.37% 10.57% (3.77%) 9.76%
Net assets, end of period (000s)....... $15,127 $15,318 $11,967 $10,384 $13,276 $15,220
Net expenses to average net
assets#,+............................ 0.94%** 0.92% 0.98% 1.29% 1.31% 1.25%
Gross expenses to average net
assets#,+............................ 0.95%** 0.93% 1.00% 1.35% 1.35% 1.28%
Net investment income to average net
assets+.............................. 3.57%** 3.90% 4.67% 5.13% 4.47% 4.46%
Portfolio turnover rate@............... 32% 28% 73% 88% 127% 90%
</Table>
^ Distributions from net realized gains for the year ended December 31, 2000
aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the management company or its affiliates. Had
these fees not been waived, the net expense ratios would have been 1.49%
(2003), 1.47% (2002), 1.48% (2001), 1.49% (2000), 1.49% (1999), and 1.46%
(1998). The gross expense ratios would have been 1.50% (2003), 1.48%
(2002), 1.50% (2001), 1.55% (2000), 1.53% (1999), and 1.49% (1998). The net
investment income ratios would have been 3.02% (2003), 3.35% (2002), 4.17%
(2001), 4.93% (2000), 4.29% (1999), and 4.25% (1998).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income.................. 0.00+ 0.01 0.03 0.05 0.04 0.05
Net gains (losses) on securities (both
realized and unrealized)............. 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- -------- ------- -------
Total from investment operations... 0.00 0.01 0.03 0.05 0.04 0.05
Less distributions:
From net investment income............. 0.00^ (0.01) (0.03) (0.05) (0.04) (0.05)
From net realized gains................ 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- -------- ------- -------
Total distributions................ 0.00 (0.01) (0.03) (0.05) (0.04) (0.05)
Net Asset Value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======== ======= =======
Total Return/Ratios
Total return........................... 0.22% 0.98% 3.40% 5.62% 4.35% 4.67%
Net assets, end of period (000s)....... $52,533 $60,086 $75,928 $103,953 $92,866 $91,415
Net expenses to average net
assets#,+............................ 0.82%** 0.80% 0.79% 0.84% 0.89% 0.85%
Gross expenses to average net
assets#,+............................ 0.82%** 0.80% 0.79% 0.87% 0.91% 0.87%
Net investment income to average net
assets+.............................. 0.44%** 0.98% 3.38% 5.54% 4.30% 4.67%
</Table>
+ Net investment income for the six months ended June 30, 2003 aggregated
less than $0.01 on a per share basis.
^ Distributions from net investment income for the six months ended June 30,
2003 aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the management company or its affiliates for
the six months ended June 30, 2003 and the years ended December 31, 2002
and 2001. Had these fees not been waived, the net expense ratios would have
been 0.90% (2003), 0.87% (2002) and 0.84% (2001). The gross expense ratios
would have been 0.90% (2003), 0.87% (2002) and 0.84% (2001). The net
investment income ratios would have been 0.36% (2003), 0.91% (2002) and
3.33% (2001).
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds. All of the Company's series
Funds are diversified portfolios. The following notes pertain to Dreyfus
Founders Government Securities Fund and Dreyfus Founders Money Market Fund
(individually, a "Fund" and collectively, the "Funds"). The Funds offers Class F
shares. The following significant accounting policies have been consistently
followed by the Funds in the preparation of their financial statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase, and all securities held by Money Market Fund, are
valued at amortized cost, which approximates market value. The ability of
issuers of debt securities held by a Fund to meet their obligations may be
affected by economic and political developments in a specific country or region.
The Funds amortize premiums and discounts on all fixed-income securities.
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
19
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Funds
may invest at least a portion of their assets in foreign securities. In the
event a Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Funds to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make distributions of income and capital gains sufficient to relieve them
from all income taxes. The Funds are treated as separate tax entities for
federal income tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
20
<Page>
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--Dividends are declared daily and paid monthly
from net investment income, and capital gains (if any) are distributed annually.
Dividends and distributions, which are determined in accordance with income tax
regulations, are recorded on the ex-dividend date.
EXPENSES--Each Fund bears expenses incurred specifically on its behalf and, in
addition, each Fund bears a portion of the Company's general expenses based on
the relative net assets or the number of shareholder accounts of each Fund. The
type of expense determines the allocation method.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Funds. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Funds compensate Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the respective Fund's net assets.
The fee is 0.65% of the first $250 million of net assets, and 0.50% of the net
assets in excess of $250 million for Government Securities Fund and 0.50% of the
first $250 million of net assets, 0.45% of the next $250 million of net assets,
0.40% of the next $250 million of net assets, and 0.35% of the net assets in
excess of $750 million for Money Market Fund.
Founders has agreed to waive the portion of its management fee for the
Government Securities Fund that exceeds 0.35% of the first $250 million of
average net assets and 0.20% of the average net assets in excess of $250
million. Founders has also agreed to waive the portion of its management fee for
the Money Market Fund that exceeds 0.45% of the first $250 million of average
net assets, 0.40% of the next $250 million of average net assets, 0.35% of the
next
21
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
$250 million of average net assets, and 0.30% of average net assets in excess of
$750 million. These waivers will extend through at least August 31, 2004, and
will not be terminated without prior notice to the Company's board of directors.
During the six months ended June 30, 2003, Founders waived $23,322 and $14,296
for Government Securities Fund and Money Market Fund, respectively.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES--The Company has a shareholder
services agreement with Dreyfus Service Corporation ("DSC"), a wholly-owned
subsidiary of The Dreyfus Corporation (an affiliate of Founders), whereby the
Funds have agreed to compensate DSC for providing certain shareholder servicing
functions to holders of Class F shares. During the period from May 1, 2003
through June 30, 2003, each Fund paid DSC a monthly fee equal, on an annual
basis, to $24.00 per Class F shareholder account of the Fund considered to be an
open account at any time during a given month. Prior to May 1, 2003, the Company
had a shareholder services agreement with Founders whereby each Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account of the Fund considered to be an open account at any time
during a given month. During the six months ended June 30, 2003, Government
Securities Fund was charged $5,181 and $8,230, respectively, and Money Market
Fund was charged $14,486 and $33,191, respectively, pursuant to these
shareholder service agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for the Funds. With
the exception of out-of-pocket charges, the fees charged by DTI are paid by DSC.
The out-of-pocket charges from DTI are paid by the Funds. Prior to May 1, 2003,
Investors Trust Company ("ITC") was the transfer and dividend disbursing agent
for the Funds. With the exception of out-of-pocket charges, the fees charged by
ITC were paid by Founders. The out-of-pocket charges from ITC were paid by the
Funds. During the six months ended June 30, 2003, Government Securities Fund
paid DTI and ITC $1,711 and $2,199, respectively, and Money Market Fund paid DTI
and ITC $5,674 and $3,880, respectively, for out-of-pocket transfer agent
charges.
DISTRIBUTION PLANS--DSC also is the distributor of the Funds' shares.
Government Securities Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, Government Securities Fund is authorized to reimburse
DSC (which in turn is authorized to reimburse Founders) for distribution
expenses paid for distributing its Class F shares at an annual rate of up to
0.25% of the value of the average daily net assets of the Fund's Class F shares.
During the six months ended June 30, 2003, Founders elected not to collect the
full 0.25% from Government Securities Fund and waived $17,204, which resulted in
the Fund paying 0.02% under this plan. Founders or DSC will continue to waive
all 12b-1 fees for Government Securities Fund in excess of those needed to
compensate
22
<Page>
third parties for distributing the Fund. This waiver will extend through at
least August 31, 2004, and will not be terminated without prior notice to the
Company's board of directors.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of each Fund on the first $500 million,
0.04% of the average daily net assets of each Fund on the next $500 million, and
0.02% of the average daily net assets of each Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has agreed to waive any fees
received for these services to the extent they exceed the fees payable under the
Funds' prior fee schedule and to the extent they exceed Founders' costs in
providing the services. The prior fee schedule was computed at the annual rate
of 0.06% of the average daily net assets of the Company's ten series, taken as a
whole, from $0 to $500 million and 0.02% of the net assets of the Company's ten
series, taken as a whole, in excess of $500 million, plus reasonable
out-of-pocket expenses. The prior fee was allocated to each of the series on a
pro rata basis based on relative average daily net assets. During the six months
ended June 30, 2003, Founders waived $2,243 and $8,253 for Government Securities
Fund and Money Market Fund, respectively.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Funds. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Funds held by the custodian. The custodian has also agreed to a
fee waiver for the Company during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among all series funds of the Company in
proportion to their respective shares of the total custodian fee. For the six
months ended June 30, 2003, the fee waivers for Government Securities Fund and
Money Market Fund were $287 and $390, respectively. The amounts paid to Mellon
were reduced by these fee waiver amounts.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Company's ten series. The amount
paid
23
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
to the director under the plan will be determined based upon the performance of
the selected series. The current value of these amounts is included in Other
Assets and Other Liabilities on the Statement of Assets and Liabilities.
Deferral of directors' fees under the plan does not affect the net assets of the
Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2002, represent capital loss carryovers that may be
available to offset future realized capital gains and thereby reduce future
taxable gains distributions. Post-October 31 foreign currency losses noted
below, if any, may be used to offset future net investment income and thereby
reduce future ordinary income distributions. The capital loss carryovers for
Government Securities Fund expire between December 31, 2003 and December 31,
2008. The capital loss carryovers for Money Market Fund expire between
December 31, 2007 and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
<Caption>
GOVERNMENT SECURITIES FUND MONEY MARKET FUND
-------------------------- -----------------
Undistributed Ordinary Income........... $ 2,114 $ 18,518
Accumulated Capital Losses.............. $ 426,974 $ 19,433
Post-October Capital Loss Deferral...... $ 0 $ 0
Post-October Currency Loss Deferral..... $ 0 $ 0
Federal Tax Cost........................ $13,901,209 $52,521,532
Gross Tax Appreciation of Investments... $ 1,051,243 $ 0
Gross Tax Depreciation of Investments... $ (37,110) $ 0
Net Tax Appreciation.................... $ 1,014,133 $ 0
</Table>
24
<Page>
4. FUND SHARE TRANSACTIONS
Government Securities Fund is authorized to issue 100 million shares of $0.01
par value capital stock. Money Market Fund is authorized to issue 2 billion
shares of $0.01 par value capital stock. Transactions in shares of the Funds for
the periods indicated were as follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
GOVERNMENT SECURITIES FUND--
CLASS F:
Sold.................... 192,504 $ 1,960,648 771,488 $ 7,564,081
Dividends or
Distributions
Reinvested............ 25,470 $ 261,197 49,466 $ 485,777
Redeemed................ (263,576) $ (2,700,884) (568,897) $ (5,538,614)
NET INCREASE
(DECREASE)............ (45,602) $ (479,039) 252,057 $ 2,511,244
MONEY MARKET FUND--CLASS F:
Sold.................... 7,897,520 $ 7,897,520 32,907,034 $ 32,908,230
Dividends or
Distributions
Reinvested............ 122,530 $ 122,530 640,894 $ 640,894
Redeemed................ (15,573,173) $(15,573,173) (49,391,268) $ (49,391,268)
NET DECREASE............ (7,553,123) $ (7,553,123) (15,843,340) $ (15,842,144)
</Table>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings is subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
25
<Page>
This page intentionally left blank.
26
<Page>
DREYFUS FOUNDERS FUNDS
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
2930 East Third Avenue
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
This report is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus, which contains more complete
information including charges, expenses, and share classes. Please read the
prospectus carefully before you invest or send money. Date of first use: August
28, 2003
Dreyfus Service Corporation, Distributor. (C) 2003 Founders Asset
Management LLC.
A-636-GMM-03
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 15
Statement of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Notes to Financial Statements 25
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website.
To take advantage of this service, simply inform us online of your decision
to receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-8
were owned by the Fund on June 30, 2003. The amounts of these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO
MANAGER JOHN B. JARES, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS GROWTH BENCHMARK IN THE SIX MONTHS
ENDED JUNE 30?
The first six months of 2003 presented mixed results on both the economic and
broad market levels. However, the Dreyfus Founders Growth Fund posted a
competitive return(1) versus its growth benchmark, the Russell 1000 Growth
Index, which posted a 13.09% return.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
The reporting period began in a market slump. Uncertainty over a war
in Iraq, high fear of more corporate misdeeds and dampened economic growth rates
led to investors searching for lower-risk, more defensive securities in which to
invest.
However, by the mid-point of the reporting period, the market experienced
an upswing, spurred by a stabilization of the geopolitical uncertainty that had
been blanketing the market for quite some time. Investors began the shift back
to equities as renewed confidence in
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"INVESTORS BEGAN THE SHIFT BACK TO EQUITIES AS RENEWED CONFIDENCE IN THE PACE OF
ECONOMIC GROWTH AND FALLING INTEREST RATES DREW ATTENTION TOWARD LESS-DEFENSIVE
INVESTMENTS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Amid mixed economic results, the period saw equity markets again becoming
attractive as investor confidence began to solidify.
- - A mid-March rally, spurred by investors' increased optimism that the Iraqi
conflict was moving toward some resolution, renewed interest in equity
markets.
- - The Fund's holdings in the consumer discretionary sector benefited greatly
from strong consumer spending.
- - Sluggish demand caused some technology and basic materials holdings to lose
ground for the Fund.
- - We continue to search one-by-one for investment opportunities in large-cap
companies that we believe have the potential to exhibit superior growth rates
and that we feel have sensible valuations.
the pace of economic growth and falling interest rates drew attention toward
less-defensive vehicles.
On a purely economic level, results were not as clear cut. Weekly jobless
claims hovered in the 430,000 range, indicating a soft job market. By the end of
June, the unemployment rate reached 6.4%, a nine-year high. Additionally, the
Institute for Supply Management (ISM) index posted readings in the high 40s,
signaling contraction. However, this reading was better than it appeared. The
index actually improved from the mid-40s level, indicating only a modest amount
of contraction. Additionally, low interest rates continued to have a positive
impact on the housing and mortgage industries and auto sales still remained at
relatively high levels.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED THE FUND'S PERFORMANCE?
During the period, many of the Fund's large-cap holdings in the healthcare and
consumer discretionary sectors posted solid performance. The healthcare sector
provided the most significant opportunities during the period, as the Fund
capitalized on holdings focused on the improvement
4
<Page>
of cardiovascular health and the production of affordable drugs. BOSTON
SCIENTIFIC CORPORATION was a strong performer due to the success of its
pioneering approach to interventional cardiology. This approach improves upon
existing technology by applying a drug to cardiovascular stents to help control
coronary artery disease. TEVA PHARMACEUTICAL INDUSTRIES LIMITED also contributed
to the Fund's overall performance as it continued to capitalize on market shifts
toward less expensive drugs in the generic drug marketplace.
The infusion of consumer capital into the marketplace helped boost
consumer-related stocks. A relative overweight position and strong stock
selection in the consumer discretionary sector helped drive the Fund's
performance during the period. Primary among these was ROYAL CARIBBEAN CRUISES
LIMITED, one of the Fund's largest holdings throughout the period, which
benefited from consumers' return to leisure travel. BEST BUY COMPANY, INC., the
leading retailer of consumer electronics, took advantage of consumers' continued
capital spending on electronics and was a top performer in the Fund during the
period.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 5.07%
2. Microsoft Corporation (MSFT) 4.36%
3. General Electric Company (GE) 3.76%
4. Estee Lauder Companies, Inc. (EL) 2.95%
5. Best Buy Company, Inc. (BBY) 2.28%
6. Pfizer, Inc. (PFE) 2.05%
7. Bank of America Corporation (BAC) 1.98%
8. Royal Caribbean Cruises Limited (RCL) 1.97%
9. MBNA Corporation (KRB) 1.92%
10. International Business Machines Corporation (IBM) 1.80%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
WHAT MANAGEMENT DECISIONS HINDERED PERFORMANCE DURING THE HALF?
Inadequate performance of holdings in the basic materials sector hampered the
Fund's returns. Lackluster results came from holdings such as AIR PRODUCTS AND
CHEMICALS, INC., a supplier of industrial gases, which experienced sluggish
demand from end-users.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Growth Fund on
6/30/93 to a $10,000 investment made in unmanaged securities indexes on that
date. The Fund's performance assumes the reinvestment of dividends and capital
gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Standard & Poor's (S&P) 500 Index is a market-value-weighted, unmanaged
index of common stocks considered representative of the broad market. The
Russell 1000 Growth Index is an unmanaged index that measures the performance of
those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values. The total return figures cited for these indexes
assume change in security prices and reinvestment of dividends, but do not
reflect the costs of managing a mutual fund. Further information related to Fund
performance is contained elsewhere in this report.
6
<Page>
Fund performance was also hindered by not only a relative underweight
position in the technology sector, but also by negative results from stock
selections such as holding BMC SOFTWARE, INC., a manufacturer of computer
hardware and software systems. Already saddled with a difficult environment in
which to sell, BMC Software underperformed due to missed revenue growth
estimates.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 8.96% (4.64%) -- -- (21.86%)
Without sales charge 15.68% 1.17% -- -- (20.53%)
CLASS B SHARES (12/31/99)
With redemption* 11.21% (3.64%) -- -- (21.63%)
Without redemption 15.21% 0.36% -- -- (21.08%)
CLASS C SHARES (12/31/99)
With redemption** 14.09% (0.76%) -- -- (21.13%)
Without redemption 15.09% 0.24% -- -- (21.13%)
CLASS F SHARES (1/5/62) 15.64% 1.29% (8.18%) 5.86% N/A
CLASS R SHARES (12/31/99) 16.00% 1.52% -- -- (20.35%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 10.12% (4.12%) -- -- (22.22%)
Without sales charge 15.27% 0.36% -- -- (21.18%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions and adjustments for
financial statement purposes. Part of the Fund's year-to-date performance is due
to amounts received from class action settlements regarding prior Fund holdings.
There is no guarantee that these settlement distributions will occur in the
future or have a similar impact on performance.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION
<Table>
22.78% Information Technology
15.00% Consumer Discretionary
11.54% Financials
11.31% Healthcare
10.27% Consumer Staples
9.46% Industrials
2.83% Energy
1.31% Materials
1.11% Utilities
0.50% Telecommunications Services
5.07% Other
8.82% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
Additionally, the Fund's cash position, which averaged 8% during the
period, hampered returns the Fund might have otherwise seen in the strong market
environment.
However, as we move forward, our strategy remains unchanged. We will continue to
rely upon on our bottom-up approach to seeking companies we believe are capable
of posting strong future revenue and earnings growth at valuations that make
sense.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-87.6%
AIRLINES-2.0%
154,517 Delta Air Lines, Inc.............................. $ 2,268,310
249,189 Northwest Airlines Corporation Class A*........... 2,813,344
309,825 Southwest Airlines Company........................ 5,328,990
-----------
10,410,644
-----------
APPLICATION SOFTWARE-0.4%
112,375 PeopleSoft, Inc.*................................. 1,976,676
-----------
ASSET MANAGEMENT & CUSTODY BANKS-2.4%
56,050 Bank of New York Company, Inc..................... 1,611,438
395,900 Janus Capital Group, Inc.......................... 6,492,760
133,700 SEI Investments Company........................... 4,278,400
-----------
12,382,598
-----------
BIOTECHNOLOGY-1.7%
75,135 Amgen, Inc.*...................................... 4,991,969
66,475 Gilead Sciences, Inc.*............................ 3,694,681
-----------
8,686,650
-----------
BROADCASTING & CABLE TV-2.4%
65,950 Clear Channel Communications, Inc.*............... 2,795,621
219,858 Comcast Corporation Special Class A*.............. 6,338,506
92,350 Cox Communications, Inc.*......................... 2,945,965
-----------
12,080,092
-----------
CASINOS & GAMING-0.4%
54,575 MGM Mirage, Inc.*................................. 1,865,374
-----------
COMMUNICATIONS EQUIPMENT-1.0%
292,380 Cisco Systems, Inc.*.............................. 4,879,822
-----------
COMPUTER & ELECTRONICS RETAIL-2.3%
263,850 Best Buy Company, Inc.*........................... 11,588,292
-----------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------
COMPUTER HARDWARE-1.8%
111,075 International Business Machines Corporation....... $ 9,163,688
-----------
CONSUMER FINANCE-1.9%
469,200 MBNA Corporation.................................. 9,778,128
-----------
DATA PROCESSING & OUTSOURCED SERVICES-2.7%
175,550 First Data Corporation............................ 7,274,792
183,225 Fiserv, Inc.*..................................... 6,524,643
-----------
13,799,435
-----------
DIVERSIFIED BANKS-3.6%
127,425 Bank of America Corporation....................... 10,070,398
163,150 Wells Fargo & Company............................. 8,222,760
-----------
18,293,158
-----------
DIVERSIFIED COMMERCIAL SERVICES-1.1%
310,175 Cendant Corporation*.............................. 5,682,406
-----------
DRUG RETAIL-0.2%
35,525 Walgreen Company.................................. 1,069,303
-----------
EXCHANGE TRADED FUNDS-5.1%
264,225 SPDR Trust Series 1............................... 25,796,288
-----------
FOOD RETAIL-1.0%
261,900 Safeway, Inc.*.................................... 5,358,474
-----------
GAS UTILITIES-1.1%
102,950 Kinder Morgan, Inc................................ 5,626,218
-----------
HEALTHCARE EQUIPMENT-1.3%
105,550 Boston Scientific Corporation*.................... 6,449,105
-----------
HEALTHCARE SERVICES-1.9%
161,325 Caremark Rx, Inc.*................................ 4,142,826
79,375 Express Scripts, Inc. Class A*.................... 5,422,900
-----------
9,565,726
-----------
HOME IMPROVEMENT RETAIL-1.3%
191,675 Home Depot, Inc................................... 6,348,276
-----------
HOTELS, RESORTS & CRUISE LINES-0.2%
36,425 Carnival Corporation Class A...................... 1,184,177
-----------
HOUSEHOLD PRODUCTS-2.6%
129,350 Colgate-Palmolive Company......................... 7,495,833
64,650 Procter & Gamble Company.......................... 5,765,487
-----------
13,261,320
-----------
HYPERMARKETS & SUPER CENTERS-1.6%
151,896 Wal-Mart Stores, Inc.............................. 8,152,258
-----------
</Table>
* NON-INCOME PRODUCING.
SPDR-STANDARD AND POOR'S DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-4.6%
19,125 3M Company........................................ $ 2,466,743
667,659 General Electric Company.......................... 19,148,460
32,725 Ingersoll-Rand Company Class A.................... 1,548,547
-----------
23,163,750
-----------
INDUSTRIAL GASES-1.3%
32,050 Air Products and Chemicals, Inc................... 1,333,280
88,650 Praxair, Inc...................................... 5,327,865
-----------
6,661,145
-----------
INDUSTRIAL MACHINERY-0.7%
57,525 Illinois Tool Works, Inc.......................... 3,788,021
-----------
INTEGRATED OIL & GAS-0.5%
66,375 Exxon Mobil Corporation........................... 2,383,526
-----------
INTEGRATED TELECOMMUNICATION SERVICES-0.5%
99,875 SBC Communications, Inc........................... 2,551,806
-----------
INVESTMENT BANKING & BROKERAGE-1.7%
52,150 Goldman Sachs Group, Inc.......................... 4,367,563
95,075 Morgan Stanley.................................... 4,064,456
-----------
8,432,019
-----------
LEISURE FACILITIES-2.0%
433,855 Royal Caribbean Cruises Limited................... 10,048,082
-----------
MOVIES & ENTERTAINMENT-3.9%
213,950 AOL Time Warner, Inc.*............................ 3,442,456
194,871 Viacom, Inc. Class B*............................. 8,508,068
391,360 Walt Disney Company............................... 7,729,360
-----------
19,679,884
-----------
MULTI-LINE INSURANCE-0.7%
68,074 American International Group, Inc................. 3,756,323
-----------
OIL & GAS DRILLING-0.2%
49,800 GlobalSantaFe Corporation......................... 1,162,332
-----------
OIL & GAS EQUIPMENT & SERVICES-1.9%
36,025 BJ Services Company*.............................. 1,345,894
225,825 Smith International, Inc.*........................ 8,296,811
-----------
9,642,705
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.2%
141,717 Citigroup, Inc.................................... 6,065,488
-----------
PERSONAL PRODUCTS-2.9%
447,603 Estee Lauder Companies, Inc. Class A.............. 15,008,129
-----------
</Table>
12
<Page>
<Table>
- ---------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
PHARMACEUTICALS-5.3%
31,337 Forest Laboratories, Inc.*........................ $ 1,715,701
109,875 Johnson & Johnson................................. 5,680,538
107,125 Merck & Company, Inc.............................. 6,486,419
305,363 Pfizer, Inc....................................... 10,428,146
55,175 Wyeth............................................. 2,513,221
-----------
26,824,025
-----------
PUBLISHING-1.2%
129,812 Tribune Company................................... 6,269,920
-----------
RAILROADS-0.5%
44,275 Union Pacific Corporation......................... 2,568,836
-----------
SEMICONDUCTOR EQUIPMENT-1.9%
79,650 KLA-Tencor Corporation*........................... 3,702,929
163,300 Novellus Systems, Inc.*........................... 5,980,209
-----------
9,683,138
-----------
SEMICONDUCTORS-3.9%
84,400 Altera Corporation*............................... 1,384,160
37,125 Broadcom Corporation*............................. 924,784
341,776 Intel Corporation................................. 7,103,472
192,050 Linear Technology Corporation..................... 6,185,931
73,000 Maxim Integrated Products, Inc.*.................. 2,495,870
59,275 Xilinx, Inc.*..................................... 1,500,250
-----------
19,594,467
-----------
SOFT DRINKS-1.9%
156,075 Coca-Cola Company................................. 7,243,441
118,975 Coca-Cola Enterprises, Inc........................ 2,159,396
-----------
9,402,837
-----------
SPECIALTY STORES-1.4%
222,838 Tiffany & Company................................. 7,282,346
-----------
SYSTEMS SOFTWARE-9.4%
202,275 Adobe Systems, Inc................................ 6,486,959
386,400 BMC Software, Inc.*............................... 6,309,912
865,901 Microsoft Corporation............................. 22,175,725
535,050 Oracle Corporation*............................... 6,431,301
231,635 VERITAS Software Corporation*..................... 6,640,975
-----------
48,044,872
-----------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$419,465,272)................................................. 445,411,759
-----------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-3.6%
IT CONSULTING & OTHER SERVICES-1.4%
402,150 Accenture Limited Class A ADR (BD)*............... $ 7,274,894
-----------
OIL & GAS DRILLING-0.2%
30,350 Nabors Industries Limited (BA)*................... 1,200,343
-----------
PHARMACEUTICALS-1.2%
105,900 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS).......................................... 6,028,887
-----------
RAILROADS-0.5%
52,225 Canadian National Railway Company (CA)............ 2,520,379
-----------
SEMICONDUCTORS-0.3%
42,375 Marvell Technology Group Limited (BD)*............ 1,456,419
-----------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$15,448,754).................................................. 18,480,922
-----------
<Caption>
PRINCIPAL
AMOUNT AMORTIZED COST
- -----------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-8.8%
OTHER DIVERSIFIED FINANCIAL SERVICES-4.9%
$ 25,100,000 Merrill Lynch & Company
1.12% 7/2/03...................................... $25,099,219
-----------
SPECIAL PURPOSE ENTITY-3.9%
19,800,000 Corporate Asset Funding Corporation
1.10% 7/1/03...................................... 19,800,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$44,899,219)........................................ 44,899,219
-----------
TOTAL INVESTMENTS-100.0%
(TOTAL COST-$479,813,245)........................................... 508,791,900
OTHER ASSETS AND LIABILITIES-(0.0%)................................. (23,005)
-----------
NET ASSETS-100.0%................................................... $508,768,895
===========
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $479,813,245
------------
Investment securities, at market.................. 508,791,900
Cash.............................................. 1,408,726
Receivables:
Investment securities sold...................... 4,815,839
Capital shares sold............................. 405,687
Dividends....................................... 410,306
Other assets...................................... 5,151
------------
Total Assets.................................. 515,837,609
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 2,397,189
Capital shares redeemed......................... 3,716,892
Advisory fees................................... 315,815
Shareholder servicing fees...................... 43,172
Accounting fees................................. 25,251
Distribution fees............................... 152,735
Custodian fees.................................. 1,204
Other........................................... 416,456
------------
Total Liabilities............................. 7,068,714
------------
Net Assets........................................ $508,768,895
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $1,293,787,499
Accumulated net investment loss................... (1,264,709)
Accumulated net realized loss from security
transactions.................................... (812,732,550)
Net unrealized appreciation on investments........ 28,978,655
------------
Total......................................... $508,768,895
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A............................... $ 5,895,236
Shares Outstanding--Class A....................... 683,413
Net Asset Value, Redemption Price Per Share....... $ 8.63
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 9.16
Net Assets--Class B............................... $ 12,652,585
Shares Outstanding--Class B....................... 1,505,139
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 8.41
Net Assets--Class C............................... $ 1,583,399
Shares Outstanding--Class C....................... 188,715
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 8.39
Net Assets--Class F............................... $482,232,108
Shares Outstanding--Class F....................... 55,756,781
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 8.65
Net Assets--Class R............................... $ 6,207,372
Shares Outstanding--Class R....................... 713,814
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 8.70
Net Assets--Class T............................... $ 198,195
Shares Outstanding--Class T....................... 23,644
Net Asset Value, Redemption Price Per Share....... $ 8.38
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 8.77
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 2,153,128
Interest........................................ 237,268
Foreign taxes withheld.......................... (6,207)
-----------
Total Investment Income....................... 2,384,189
-----------
EXPENSES:
Advisory fees--Note 2........................... 1,764,100
Shareholder servicing fees--Note 2.............. 270,507
Accounting fees--Note 2......................... 141,412
Distribution fees--Note 2....................... 610,658
Transfer agency fees--Note 2.................... 485,935
Registration fees............................... 31,456
Postage and mailing expenses.................... 69,764
Custodian fees and expenses--Note 2............. 7,221
Printing expenses............................... 60,758
Legal and audit fees............................ 48,807
Directors' fees and expenses--Note 2............ 53,318
Other expenses.................................. 109,500
-----------
Total Expenses................................ 3,653,436
Earnings Credits.............................. (3,272)
Reimbursed/Waived Expenses.................... (1,266)
-----------
Net Expenses.................................. 3,648,898
-----------
Net Investment Loss............................. (1,264,709)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Loss on Security Transactions........ (11,307,284)
Net Change in Unrealized Appreciation/Depreciation
of Investments.................................. 82,491,280
-----------
Net Realized and Unrealized Gain................ 71,183,996
-----------
Net Increase in Net Assets Resulting from
Operations...................................... $69,919,287
===========
Purchases of long-term securities................. $255,626,631
Proceeds from sales of long-term securities....... $282,082,623
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Loss..................... $ (1,264,709) $ (3,186,435)
Net Realized Loss on Security
Transactions.......................... (11,307,284) (161,500,402)
Net Realized Gain from Foreign Currency
Transactions.......................... 0 219
Net Change in Unrealized
Appreciation/Depreciation............. 82,491,280 (56,838,030)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 69,919,287 (221,524,648)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... (34,416) (439,145)
Class B............................... (620,206) (2,574,883)
Class C............................... (151,481) (656,249)
Class F............................... (27,548,447) (210,452,943)
Class R............................... 1,112,815 3,376,685
Class T............................... (37,183) (271,640)
------------ ------------
Net Decrease from Capital Share
Transactions.......................... (27,278,918) (211,018,175)
------------ ------------
Net Increase (Decrease) in Net Assets... 42,640,369 (432,542,823)
NET ASSETS
Beginning of period................... $466,128,526 $898,671,349
------------ ------------
End of period......................... $508,768,895 $466,128,526
============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -------------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ----------- ----------- -----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 7.46 $10.53 $14.02 $23.88
Income from investment
operations:
Net investment loss....... (0.03) (0.06) (0.05) (0.05)
Net gains (losses) on
securities
(both realized and
unrealized)............. 1.20 (3.01) (3.44) (6.39)
------ ------ ------ ------
Total from investment
operations.......... 1.17 (3.07) (3.49) (6.44)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------ ------ ------ ------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period...................... $ 8.63 $ 7.46 $10.53 $14.02
====== ====== ====== ======
Total Return/Ratios
Total return*............. 15.68% (29.15%) (24.89%) (27.30%)
Net assets, end of period
(000s).................. $5,895 $5,149 $7,795 $8,655
Net expenses to average
net assets#............. 1.68%** 1.48% 1.20% 1.05%
Gross expenses to average
net assets#............. 1.68%** 1.48% 1.21% 1.08%
Net investment loss to
average net assets...... (0.66%)** (0.56%) (0.47%) (0.54%)
Portfolio turnover
rate@................... 152% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS B SHARES
Net Asset Value, beginning of
period...................... $ 7.30 $ 10.38 $ 13.91 $ 23.88
Income from investment
operations:
Net investment loss....... (0.08) (0.18) (0.13) (0.11)
Net gains (losses) on
securities
(both realized and
unrealized)............. 1.19 (2.90) (3.40) (6.44)
------- ------- ------- -------
Total from investment
operations.......... 1.11 (3.08) (3.53) (6.55)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------- ------- ------- -------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period...................... $ 8.41 $ 7.30 $ 10.38 $ 13.91
======= ======= ======= =======
Total Return/Ratios
Total return*............. 15.21% (29.67%) (25.38%) (27.77%)
Net assets, end of period
(000s).................. $12,653 $11,603 $19,829 $25,359
Net expenses to average
net assets#............. 2.49%** 2.22% 1.92% 1.80%
Gross expenses to average
net assets#............. 2.49%** 2.22% 1.93% 1.82%
Net investment loss to
average net assets...... (1.48%)** (1.30%) (1.20%) (1.29%)
Portfolio turnover
rate@................... 152% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS C SHARES
Net Asset Value, beginning of
period...................... $ 7.29 $10.36 $13.92 $23.88
Income from investment
operations:
Net investment loss....... (0.12) (0.26) (0.18) (0.10)
Net gains (losses) on
securities
(both realized and
unrealized)............. 1.22 (2.81) (3.38) (6.44)
------ ------ ------ ------
Total from investment
operations.......... 1.10 (3.07) (3.56) (6.54)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------ ------ ------ ------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period...................... $ 8.39 $ 7.29 $10.36 $13.92
====== ====== ====== ======
Total Return/Ratios
Total return*............. 15.09% (29.63%) (25.58%) (27.72%)
Net assets, end of period
(000s).................. $1,584 $1,528 $2,979 $4,384
Net expenses to average
net assets#............. 2.49%** 2.37% 2.10% 1.80%
Gross expenses to average
net assets#............. 2.49%** 2.37% 2.11% 1.82%
Net investment loss to
average net assets...... (1.48%)** (1.46%) (1.38%) (1.28%)
Portfolio turnover
rate@................... 152% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value,
beginning of period.... $ 7.48 $ 10.53 $ 14.03 $ 23.87 $ 20.41 $ 17.28
Income from investment
operations:
Net investment income
(loss)............. (0.06) (0.22) (0.15) (0.21) (0.09) 0.01
Net gains (losses) on
securities (both
realized and
unrealized)........ 1.23 (2.83) (3.35) (6.21) 7.73 4.26
-------- -------- -------- ---------- ---------- ----------
Total from
investment
operations..... 1.17 (3.05) (3.50) (6.42) 7.64 4.27
Less distributions:
From net investment
income............. 0.00 0.00 0.00 0.00 0.00^ (0.01)
From net realized
gains.............. 0.00 0.00 0.00 (3.42) (4.18) (1.13)
-------- -------- -------- ---------- ---------- ----------
Total
distributions... 0.00 0.00 0.00 (3.42) (4.18) (1.14)
Net Asset Value, end of
period................. $ 8.65 $ 7.48 $ 10.53 $ 14.03 $ 23.87 $ 20.41
======== ======== ======== ========== ========== ==========
Total Return/Ratios
Total return......... 15.64% (28.96%) (24.95%) (27.23%) 39.06% 25.04%
Net assets, end of
period (000s)...... $482,232 $443,307 $865,425 $1,441,466 $3,323,606 $2,360,180
Net expenses to
average net
assets#............ 1.52%** 1.37% 1.30% 1.06% 1.08% 1.08%
Gross expenses to
average net
assets#............ 1.52%** 1.38% 1.31% 1.07% 1.09% 1.10%
Net investment income
(loss) to average
net assets......... (0.51%)** (0.46%) (0.58%) (0.58%) (0.47%) 0.05%
Portfolio turnover
rate@.............. 152% 139% 152% 182% 117% 143%
</Table>
^ Distributions from net investment income for the year ended December 31,
1999 aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS R SHARES
Net Asset Value, beginning of
period....................... $ 7.50 $10.57 $14.07 $23.88
Income from investment
operations:
Net investment income
(loss)................... 0.00+ 0.01 (0.02) (0.02)
Net gains (losses) on
securities
(both realized and
unrealized).............. 1.20 (3.08) (3.48) (6.37)
------ ------ ------ ------
Total from investment
operations........... 1.20 (3.07) (3.50) (6.39)
Less distributions:
From net investment
income................... 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------ ------ ------ ------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period....................... $ 8.70 $ 7.50 $10.57 $14.07
====== ====== ====== ======
Total Return/Ratios
Total return.............. 16.00% (29.04%) (24.88%) (27.08%)
Net assets, end of period
(000s)................... $6,207 $4,333 $2,023 $ 9
Net expenses to average
net assets#.............. 1.17%** 1.30% 1.46% 0.79%
Gross expenses to average
net assets#.............. 1.18%** 1.30% 1.46% 0.82%
Net investment loss to
average net assets....... (0.15%)** (0.34%) (0.72%) (0.29%)
Portfolio turnover
rate@.................... 152% 139% 152% 182%
</Table>
+ Net investment income (loss) for the six months ended June 30, 2003
aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS T SHARES
Net Asset Value, beginning of
period...................... $ 7.27 $10.38 $14.00 $23.88
Income from investment
operations:
Net investment loss....... (0.22) (0.56) (0.19) (0.09)
Net gains (losses) on
securities
(both realized and
unrealized)............. 1.33 (2.55) (3.43) (6.37)
------ ------ ------ ------
Total from investment
operations.......... 1.11 (3.11) (3.62) (6.46)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------ ------ ------ ------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period...................... $ 8.38 $ 7.27 $10.38 $14.00
====== ====== ====== ======
Total Return/Ratios
Total return*............. 15.27% (29.96%) (25.86%) (27.38%)
Net assets, end of period
(000s).................. $ 198 $ 208 $ 621 $ 802
Net expenses to average
net assets#............. 2.20%** 2.78% 2.55% 1.29%
Gross expenses to average
net assets#............. 2.20%** 2.78% 2.56% 1.32%
Net investment loss to
average net assets...... (1.20%)** (1.89%) (1.83%) (0.80%)
Portfolio turnover
rate@................... 152% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Growth Fund (the "Fund"). The Fund offers Class A, Class B,
Class C, Class F, Class R, and Class T shares. Class A and Class T shares are
subject to a sales charge imposed at the time of purchase, Class B shares are
subject to a contingent deferred sales charge ("CDSC") imposed on Class B share
redemptions made within six years of purchase, Class C shares are subject to a
CDSC imposed on Class C shares redeemed within one year of purchase, and Class F
and Class R shares are sold at net asset value per share (with Class R shares
sold only to eligible institutional investors). Other differences between the
classes include services offered to and the expenses borne by each Class. The
following significant accounting policies have been consistently followed by the
Fund in the preparation of its financial statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make
26
<Page>
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $30 million of net assets, 0.75% of the next $270 million of net
assets, 0.70% of the next $200 million of net assets, and 0.65% of net assets in
excess of $500 million.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$77,218 and $169,884, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-
pocket charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors
Trust Company ("ITC") was the transfer and dividend disbursing agent for the
Class F shares of the Fund. With the exception of out-of-pocket charges, the
fees charged by ITC were paid by Founders. The out-of-pocket charges from ITC
were paid by the Fund. During the six months ended June 30, 2003, Class F shares
paid DTI and ITC $50,897 and $67,909, respectively, for out-of-pocket transfer
agent charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A........................................... $ 8,842
Class B........................................... $23,108
Class C........................................... $ 2,934
Class R........................................... $ 1,867
Class T........................................... $ 568
</Table>
28
<Page>
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 applicable to its Class F shares. Under
the plan, the Fund is authorized to reimburse DSC for expenses paid for
distributing its Class F shares at an annual rate of up to 0.25% of the value of
the average daily net assets of the Fund's Class F shares. During the six months
ended June 30, 2003, Class F shares were charged $560,887 pursuant to this
Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $ 6,660
Class B................................. $43,984 $14,661
Class C................................. $ 5,555 $ 1,852
Class T................................. $ 232 $ 232
</Table>
During the six months ended June 30, 2003, DSC retained $1,253 in sales
commissions from the sales of Class A shares. DSC also retained $55,446 of
contingent deferred sales charges relating to redemptions of Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03................................. $100,000
9/1/03 to 8/31/04................................. $150,000
9/1/04 to 8/31/05................................. $200,000
9/1/05 to 8/31/06................................. $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $1,266. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
30
<Page>
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2007
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses........................ $785,319,022
Post-October Capital Loss Deferral................ $ 3,865,188
Post-October Currency Loss Deferral............... $ 0
Federal Tax Cost.................................. $496,660,337
Gross Tax Appreciation of Investments............. $35,393,523
Gross Tax Depreciation of Investments............. $(23,261,960)
Net Tax Appreciation.............................. $12,131,563
</Table>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- ------------------
CLASS A
Sold...................... 58,472 $ 464,060 176,909 $ 1,575,474
Issued in Connection with
Acquisition............. 0 $ 0 8,437 $ 83,443
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (65,054) $ (498,476) (235,763) $ (2,098,062)
NET DECREASE.............. (6,582) $ (34,416) (50,417) $ (439,145)
</Table>
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- ------------------
CLASS B
Sold...................... 46,764 $ 375,570 117,855 $ 1,071,298
Issued in Connection with
Acquisition............. 0 $ 0 30,576 $ 297,814
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (130,684) $ (995,776) (469,578) $ (3,943,995)
NET DECREASE.............. (83,920) $ (620,206) (321,147) $ (2,574,883)
CLASS C
Sold...................... 5,140 $ 40,059 19,428 $ 176,384
Issued in Connection with
Acquisition............. 0 $ 0 3,774 $ 36,681
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (26,113) $ (191,540) (100,964) $ (869,314)
NET DECREASE.............. (20,973) $ (151,481) (77,762) $ (656,249)
CLASS F
Sold...................... 3,337,083 $ 26,297,429 6,324,146 $ 57,283,483
Issued in Connection with
Acquisition............. 0 $ 0 162,005 $ 1,602,235
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (6,874,893) $ (53,845,876) (29,363,216) $ (269,338,661)
NET DECREASE.............. (3,537,810) $ (27,548,447) (22,877,065) $ (210,452,943)
CLASS R
Sold...................... 163,548 $ 1,322,843 440,296 $ 3,853,596
Issued in Connection with
Acquisition............. 0 $ 0 48 $ 475
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (27,152) $ (210,028) (54,408) $ (477,386)
NET INCREASE.............. 136,396 $ 1,112,815 385,936 $ 3,376,685
CLASS T
Sold...................... 363 $ 2,745 1,782 $ 16,192
Issued in Connection with
Acquisition............. 0 $ 0 791 $ 7,690
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (5,342) $ (39,928) (33,797) $ (295,522)
NET DECREASE.............. (4,979) $ (37,183) (31,224) $ (271,640)
</Table>
32
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
6. ACQUISITION OF DREYFUS FOUNDERS FOCUS FUND
On February 22, 2002, the Fund acquired all the net assets of Dreyfus Founders
Focus Fund ("Focus") pursuant to a plan of reorganization approved by Focus
shareholders on February 15, 2002. The acquisition was accomplished by a tax-
free exchange of Class A, Class B, Class C, Class F, Class R, and Class T shares
of the Fund in the amount of 8,437, 30,576, 3,774, 162,005, 48, and 791 shares,
respectively, (valued at $83,443, $297,814, $36,681, $1,602,235, $475, and
$7,690, respectively) for the 14,562, 52,804, 6,515, 279,701, 80, and 1,328
Focus Class A, Class B, Class C, Class F, Class R, and Class T shares
outstanding, respectively, on February 22, 2002. Focus' net assets on that date,
$2,028,338, including $145,042 of unrealized depreciation, were combined with
those of the Fund. The aggregate net assets of the Fund and Focus immediately
before the acquisition were $808,857,376 and $2,028,338, respectively.
33
<Page>
This page intentionally left blank.
34
<Page>
DREYFUS FOUNDERS GROWTH FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
2930 East Third Avenue
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
This report is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus, which contains more complete
information including charges, expenses, and share classes. Please read the
prospectus carefully before you invest or send money. Date of first use: August
28, 2003
Dreyfus Service Corporation, Distributor. (C) 2003 Founders Asset
Management LLC.
A-636-GRO-03
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
GROWTH AND INCOME FUND
INVESTMENT UPDATE
JUNE 30, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 15
Statement of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Notes to Financial Statements 25
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders
Funds regulatory material online? It's a simple, reliable process: when new
documents such as this Semiannual Report are available, we'll send you an
e-mail notification containing a convenient link that will take you directly
to that Fund information on our website.
To take advantage of this service, simply inform us online of your decision
to receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views
and the composition of the Fund's portfolio are subject to change at any time
based on market and other conditions. Companies appearing in bold print on
pages 3-8 were owned by the Fund on June 30, 2003. The amounts of these
holdings are included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO
MANAGER JOHN B. JARES, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30?
The first six months of 2003 presented mixed results on both the economic and
broad market levels. However, the Dreyfus Founders Growth and Income Fund
performed well and posted a return(1) that compared favorably to the 11.76%
return posted by its benchmark, the broad market Standard & Poor's 500 Index.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
Looking back, the broader market activity for first six months of 2003 can be
easily separated into two distinct periods. The first period is that which led
up to the war in Iraq and was characterized by falling equity prices. The second
period, which began with the onset of the war and extended through the end of
June, saw a powerful rally in equity prices. The defining point that separates
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"THE INFUSION OF CONSUMER CAPITAL INTO THE ECONOMY BOOSTED THE PERFORMANCE OF
THE FUND'S CONSUMER-RELATED STOCKS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Investors' mindset began to shift due to a stabilization of the Iraqi
conflict, the lowering of interest rates and renewed confidence in economic
growth.
- - Holdings in the healthcare sectors solidified the Fund's positive returns.
- - Technology companies continued to show sub-par performance, hampering the
Fund's returns in this sector.
- - We continue to use a bottom-up, fundamentals-based research strategy to seek
companies exhibiting signs of growth potential.
these two periods is easy to identify: an easing in the uncertainty surrounding
the war motivated the market upswing. This, coupled with confidence that the
economy could soon exhibit an improving pace of growth, provided a positive
foundation for the market's rebound.
On the purely economic front, the first half of 2003 exhibited mixed
results. Weekly jobless claims hovered at relatively high levels. By June, the
unemployment rate moved above 6%, a nine-year high. The Institute for Supply
Management (ISM) index posted readings below 50, the level considered to be the
demarcation line between expansion and contraction. However, this ISM reading
was better than it appeared, relatively speaking. The index actually improved
during the period, moving from the mid-40s to the upper-40s, indicating only a
modest amount of contraction. Lowered interest rates continued to have a
positive impact on the housing and mortgage industries. And, although slowing
over the six-month period, auto sales still remained at relatively high levels.
4
<Page>
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
The Fund's performance was primarily driven by strong performing stock
selections in the consumer discretionary and healthcare sectors. The infusion
of consumer capital into the economy boosted many of the Fund's
consumer-related stocks such as BEST BUY COMPANY, INC., the leading retailer
of consumer electronics, and ESTEE LAUDER COMPANIES, INC., the manufacturer
and distributor of cosmetics and fragrances.
The healthcare sector also provided positive opportunities during the
period as the Fund capitalized on holdings focused on the improvement of
cardiovascular health as well as the production of affordable drugs. BOSTON
SCIENTIFIC CORPORATION strongly contributed to the Fund's performance as it
benefited from the success of its pioneering approach to interventional
cardiology. This approach improves upon existing technology by applying
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 5.11%
2. General Electric Company (GE) 3.61%
3. Exxon Mobil Corporation (XOM) 3.55%
4. Microsoft Corporation (MSFT) 3.38%
5. Estee Lauder Companies, Inc. (EL) 2.94%
6. Best Buy Company, Inc. (BBY) 2.24%
7. Pfizer, Inc. (PFE) 2.03%
8. Royal Caribbean Cruises Limited (RCL) 1.97%
9. MBNA Corporation (KRB) 1.89%
10. Bank of America Corporation (BAC) 1.82%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
a drug to cardiovascular stents to help control coronary artery disease. We also
saw strong returns from TEVA PHARMACEUTICAL INDUSTRIES LIMITED, which continued
to capitalize on market shifts toward less expensive drugs in the generic drug
marketplace.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Growth and Income
Fund on 6/30/93 to a $10,000 investment made in an unmanaged securities index on
that date. The Fund's performance assumes the reinvestment of dividends and
capital gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Standard & Poor's (S&P) 500 Index is a market-value-weighted, unmanaged
index of common stocks considered representative of the broad market. The total
return figures cited for this index assume change in security prices and
reinvestment of dividends, but do not reflect the costs of managing a mutual
fund. Further information related to Fund performance is contained elsewhere in
this report.
6
<Page>
WHAT MANAGEMENT DECISIONS HINDERED PERFORMANCE DURING THE HALF?
Fund performance was hampered by negative results from stock selection
in the technology sector, such as BMC SOFTWARE, INC., a manufacturer of computer
hardware and software systems. Already saddled with a weakened environment in
which to sell, BMC Software underperformed due to missed revenue growth
estimates.
The Fund's lack of holdings in the strong-performing utilities sector
hampered the Fund's relative performance. Inadequate performance in the basic
materials sector also hindered the Fund's relative returns due
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 7.67% (5.76%) -- -- (16.87%)
Without sales charge 14.24% 0.00% -- -- (15.46%)
CLASS B SHARES (12/31/99)
With redemption* 9.82% (4.49%) -- -- (16.49%)
Without redemption 13.82% (0.51%) -- -- (15.81%)
CLASS C SHARES (12/31/99)
With redemption** 12.77% (1.52%) -- -- (16.25%)
Without redemption 13.77% (0.52%) -- -- (16.25%)
CLASS F SHARES (7/5/38) 14.29% 0.56% (7.60%) 4.88% N/A
CLASS R SHARES (12/31/99) 14.12% 0.00% -- -- (15.28%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 8.45% (4.94%) -- -- (17.04%)
Without sales charge 13.57% (0.52%) -- -- (15.94%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total return does not reflect the deduction of taxes that a shareholder would
pay on Fund distributions or redemption of Fund shares, but does reflect the
reinvestment of dividends and capital gain distributions, expense limits for
certain share classes, and adjustments for financial statement purposes.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION
<Table>
19.30% Information Technology
15.91% Consumer Discretionary
11.25% Healthcare
10.41% Financials
10.22% Consumer Staples
8.82% Industrials
7.29% Energy
2.01% Telecommunications Services
0.26% Materials
5.11% Other
9.42% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
to lackluster results from holdings such as AIR PRODUCTS AND CHEMICALS, INC., a
supplier of industrial gases, which experienced sluggish demand from end-users.
In addition, the Funds cash position, which averaged 8% during the period,
hampered returns the Fund might have otherwise seen in the strong market
environment.
As we move into the second half of 2003, our investment strategy remains
unchanged. We continue to use a bottom-up, fundamentals-based research approach
to seek companies that have the potential to exhibit revenue and earnings growth
that exceed Wall Street expectations.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-86.5%
AIRLINES-1.6%
102,925 Northwest Airlines Corporation Class A*........... $ 1,162,023
127,950 Southwest Airlines Company........................ 2,200,740
-------------
3,362,763
-------------
APPLICATION SOFTWARE-0.4%
46,582 PeopleSoft, Inc.*................................. 819,377
-------------
ASSET MANAGEMENT & CUSTODY BANKS-2.4%
22,975 Bank of New York Company, Inc..................... 660,531
162,100 Janus Capital Group, Inc.......................... 2,658,440
55,350 SEI Investments Company........................... 1,771,200
-------------
5,090,171
-------------
BIOTECHNOLOGY-1.7%
31,010 Amgen, Inc.*...................................... 2,060,305
27,750 Gilead Sciences, Inc.*............................ 1,542,345
-------------
3,602,650
-------------
BROADCASTING & CABLE TV-2.4%
27,300 Clear Channel Communications, Inc.*............... 1,157,247
91,050 Comcast Corporation Special Class A*.............. 2,624,972
37,750 Cox Communications, Inc.*......................... 1,204,225
-------------
4,986,444
-------------
CASINOS & GAMING-0.4%
22,575 MGM Mirage, Inc.*................................. 771,614
-------------
COMMUNICATIONS EQUIPMENT-0.9%
119,188 Cisco Systems, Inc.*.............................. 1,989,248
-------------
COMPUTER & ELECTRONICS RETAIL-2.2%
108,124 Best Buy Company, Inc.*........................... 4,748,806
-------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMPUTER HARDWARE-1.6%
40,800 International Business Machines Corporation....... $ 3,366,000
-------------
CONSUMER FINANCE-1.9%
192,562 MBNA Corporation.................................. 4,012,992
-------------
DATA PROCESSING & OUTSOURCED SERVICES-2.4%
59,150 First Data Corporation............................ 2,451,176
75,900 Fiserv, Inc.*..................................... 2,702,799
-------------
5,153,975
-------------
DEPARTMENT STORES-0.6%
62,691 Nordstrom, Inc.................................... 1,223,728
-------------
DIVERSIFIED BANKS-3.4%
48,875 Bank of America Corporation....................... 3,862,591
66,800 Wells Fargo & Company............................. 3,366,720
-------------
7,229,311
-------------
DIVERSIFIED COMMERCIAL SERVICES-1.1%
128,450 Cendant Corporation*.............................. 2,353,204
-------------
DRUG RETAIL-0.2%
14,275 Walgreen Company.................................. 429,678
-------------
EXCHANGE TRADED FUNDS-5.1%
110,950 SPDR Trust Series 1............................... 10,832,048
-------------
FOOD RETAIL-1.0%
108,150 Safeway, Inc.*.................................... 2,212,749
-------------
HEALTHCARE EQUIPMENT-1.3%
43,750 Boston Scientific Corporation*.................... 2,673,125
-------------
HEALTHCARE SERVICES-1.9%
66,225 Caremark Rx, Inc.*................................ 1,700,658
32,775 Express Scripts, Inc. Class A*.................... 2,239,188
-------------
3,939,846
-------------
HOME IMPROVEMENT RETAIL-1.2%
78,525 Home Depot, Inc................................... 2,600,748
-------------
HOTELS, RESORTS & CRUISE LINES-0.8%
15,150 Carnival Corporation Class A...................... 492,527
44,175 Starwood Hotels & Resorts Worldwide, Inc.......... 1,262,964
-------------
1,755,491
-------------
HOUSEHOLD PRODUCTS-2.6%
54,208 Colgate-Palmolive Company......................... 3,141,354
26,550 Procter & Gamble Company.......................... 2,367,729
-------------
5,509,083
-------------
</Table>
* NON-INCOME PRODUCING.
SPDR--STANDARD AND POOR'S DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-1.6%
COMMON STOCKS (DOMESTIC)-Continued
HYPERMARKETS & SUPER CENTERS-Continued
62,950 Wal-Mart Stores, Inc.............................. $ 3,378,527
-------------
INDUSTRIAL CONGLOMERATES-4.4%
7,950 3M Company........................................ 1,025,391
266,350 General Electric Company.......................... 7,638,918
13,275 Ingersoll-Rand Company Class A.................... 628,173
-------------
9,292,482
-------------
INDUSTRIAL GASES-0.3%
13,000 Air Products and Chemicals, Inc................... 540,800
-------------
INDUSTRIAL MACHINERY-0.7%
23,850 Illinois Tool Works, Inc.......................... 1,570,523
-------------
INTEGRATED OIL & GAS-3.6%
209,216 Exxon Mobil Corporation........................... 7,512,947
-------------
INTEGRATED TELECOMMUNICATION SERVICES-2.0%
41,250 SBC Communications, Inc........................... 1,053,938
81,350 Verizon Communications, Inc....................... 3,209,258
-------------
4,263,196
-------------
INVESTMENT BANKING & BROKERAGE-0.8%
39,025 Morgan Stanley.................................... 1,668,319
-------------
LEISURE FACILITIES-2.0%
180,158 Royal Caribbean Cruises Limited................... 4,172,459
-------------
MOVIES & ENTERTAINMENT-3.7%
88,850 AOL Time Warner, Inc.*............................ 1,429,597
79,800 Viacom, Inc. Class B*............................. 3,484,068
150,050 Walt Disney Company............................... 2,963,488
-------------
7,877,153
-------------
MULTI-LINE INSURANCE-0.8%
28,275 American International Group, Inc................. 1,560,215
-------------
OIL & GAS DRILLING-0.2%
20,625 GlobalSantaFe Corporation......................... 481,388
-------------
OIL & GAS EQUIPMENT & SERVICES-1.9%
14,875 BJ Services Company*.............................. 555,730
92,925 Smith International, Inc.*........................ 3,414,065
-------------
3,969,795
-------------
OIL & GAS EXPLORATION & PRODUCTION-0.9%
27,688 Apache Corporation................................ 1,801,381
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.2%
58,099 Citigroup, Inc.................................... 2,486,637
-------------
PERSONAL PRODUCTS-2.9%
185,900 Estee Lauder Companies, Inc. Class A.............. 6,233,227
-------------
</Table>
12
<Page>
<Table>
- -----------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
PHARMACEUTICALS-5.2%
13,100 Forest Laboratories, Inc.*........................ $ 717,225
45,625 Johnson & Johnson................................. 2,358,813
44,275 Merck & Company, Inc.............................. 2,680,851
126,234 Pfizer, Inc....................................... 4,310,891
22,875 Wyeth............................................. 1,041,956
-------------
11,109,736
-------------
PUBLISHING-1.2%
53,300 Tribune Company................................... 2,574,390
-------------
RAILROADS-0.5%
18,300 Union Pacific Corporation......................... 1,061,766
-------------
SEMICONDUCTOR EQUIPMENT-0.9%
16,150 KLA-Tencor Corporation*........................... 750,814
32,175 Novellus Systems, Inc.*........................... 1,178,281
-------------
1,929,095
-------------
SEMICONDUCTORS-3.3%
34,950 Altera Corporation*............................... 573,180
15,350 Broadcom Corporation*............................. 382,369
90,303 Intel Corporation................................. 1,876,858
79,400 Linear Technology Corporation..................... 2,557,474
30,175 Maxim Integrated Products, Inc.*.................. 1,031,683
24,500 Xilinx, Inc.*..................................... 620,095
-------------
7,041,659
-------------
SOFT DRINKS-1.8%
64,675 Coca-Cola Company................................. 3,001,567
49,650 Coca-Cola Enterprises, Inc........................ 901,148
-------------
3,902,715
-------------
SPECIALTY STORES-1.4%
92,125 Tiffany & Company................................. 3,010,645
-------------
SYSTEMS SOFTWARE-8.1%
83,375 Adobe Systems, Inc................................ 2,673,836
160,450 BMC Software, Inc.*............................... 2,620,149
279,916 Microsoft Corporation............................. 7,168,649
163,975 Oracle Corporation*............................... 1,970,980
93,454 VERITAS Software Corporation*..................... 2,679,326
-------------
17,112,940
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$172,825,813)................................................. 183,215,046
-------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-4.1%
INTEGRATED OIL & GAS-0.6%
25,400 Royal Dutch Petroleum Company NY Shares (NE)...... $ 1,184,148
-------------
IT CONSULTING & OTHER SERVICES-1.3%
159,225 Accenture Limited Class A ADR (BD)*............... 2,880,380
-------------
OIL & GAS DRILLING-0.2%
12,550 Nabors Industries Limited (BA)*................... 496,353
-------------
PHARMACEUTICALS-1.2%
44,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS).......................................... 2,504,920
-------------
RAILROADS-0.5%
21,600 Canadian National Railway Company (CA)............ 1,042,416
-------------
SEMICONDUCTORS-0.3%
17,500 Marvell Technology Group Limited (BD)*............ 601,468
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$7,444,963)................................................... 8,709,685
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-8.2%
OTHER DIVERSIFIED FINANCIAL SERVICES-4.5%
$ 9,600,000 Merrill Lynch & Company
1.12% 7/2/03...................................... $ 9,599,701
-------------
SPECIAL PURPOSE ENTITY-3.7%
7,900,000 Corporate Asset Funding Corporation
1.10% 7/1/03...................................... 7,900,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$17,499,701)........................................ 17,499,701
-------------
TOTAL INVESTMENTS-98.8%
(TOTAL COST-$197,770,477)........................................... 209,424,432
OTHER ASSETS AND LIABILITIES-1.2%................................... 2,468,573
-------------
NET ASSETS-100.0%................................................... $ 211,893,005
=============
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $197,770,477
------------
Investment securities, at market.................. 209,424,432
Cash.............................................. 634,139
Receivables:
Investment securities sold...................... 2,963,610
Capital shares sold............................. 33,492
Dividends....................................... 168,023
From adviser.................................... 39,319
From transfer agent............................. 35
------------
Total Assets.................................. 213,263,050
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 993,661
Capital shares redeemed......................... 58,565
Advisory fees................................... 114,384
Shareholder servicing fees...................... 24,341
Accounting fees................................. 10,558
Distribution fees............................... 46,068
Custodian fees.................................. 859
Other........................................... 121,609
------------
Total Liabilities............................. 1,370,045
------------
Net Assets........................................ $211,893,005
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $337,657,544
Undistributed net investment income............... 77,771
Accumulated net realized loss from security
transactions.................................... (137,496,265)
Net unrealized appreciation on investments........ 11,653,955
------------
Total......................................... $211,893,005
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A............................... $ 546,205
Shares Outstanding--Class A....................... 139,059
Net Asset Value, Redemption Price Per Share....... $ 3.93
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 4.17
Net Assets--Class B............................... $ 1,006,539
Shares Outstanding--Class B....................... 260,095
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 3.87
Net Assets--Class C............................... $ 154,456
Shares Outstanding--Class C....................... 40,674
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 3.80
Net Assets--Class F............................... $210,059,347
Shares Outstanding--Class F....................... 52,484,349
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 4.00
Net Assets--Class R............................... $ 89,376
Shares Outstanding--Class R....................... 22,547
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 3.96
Net Assets--Class T............................... $ 37,082
Shares Outstanding--Class T....................... 9,623
Net Asset Value, Redemption Price Per Share....... $ 3.85
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 4.03
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 1,008,372
Interest........................................ 100,601
Foreign taxes withheld.......................... (6,683)
------------
Total Investment Income....................... 1,102,290
------------
EXPENSES:
Advisory fees--Note 2........................... 638,894
Shareholder servicing fees--Note 2.............. 157,205
Accounting fees--Note 2......................... 58,975
Distribution fees--Note 2....................... 84,493
Transfer agency fees--Note 2.................... 69,069
Registration fees............................... 28,012
Postage and mailing expenses.................... 25,520
Custodian fees and expenses--Note 2............. 5,156
Printing expenses............................... 24,750
Legal and audit fees............................ 19,224
Directors' fees and expenses--Note 2............ 21,508
Other expenses.................................. 58,067
------------
Total Expenses................................ 1,190,873
Earnings Credits.............................. (1,986)
Reimbursed/Waived Expenses.................... (868)
Expense Offset to Broker Commissions.......... (3,146)
------------
Net Expenses.................................. 1,184,873
------------
Net Investment Loss............................. (82,583)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Loss on Security Transactions........ (3,617,568)
Net Change in Unrealized Appreciation/Depreciation
of Investments.................................... 30,576,074
------------
Net Realized and Unrealized Gain................ 26,958,506
------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 26,875,923
============
Purchases of long-term securities................. $101,511,219
Proceeds from sales of long-term securities....... $108,066,522
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Income (Loss)............ $ (82,583) $ 243,717
Net Realized Loss on Security
Transactions.......................... (3,617,568) (45,255,731)
Net Change in Unrealized
Appreciation/Depreciation............. 30,576,074 (25,124,429)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 26,875,923 (70,136,443)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
From Net Investment Income
Class F............................... 0 (109,803)
------------ ------------
Net Decrease from Dividends and
Distributions......................... 0 (109,803)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... 109,442 74,186
Class B............................... (124,548) (173,941)
Class C............................... (49,835) (19,371)
Class F............................... (8,306,950) (27,489,605)
Class R............................... 22,192 42,140
Class T............................... (309) (60,858)
------------ ------------
Net Decrease from Capital Share
Transactions.......................... (8,350,008) (27,627,449)
------------ ------------
Net Increase (Decrease) in Net Assets... 18,525,915 (97,873,695)
NET ASSETS
Beginning of period................... $193,367,090 $291,240,785
------------ ------------
End of period......................... $211,893,005 $193,367,090
============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 3.44 $ 4.66 $ 5.73 $ 7.61
Income from investment
operations:
Net investment income
(loss).................. 0.01 (0.02) (0.07) 0.00+
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.48 (1.20) (1.00) (1.45)
------ ------- ------- -------
Total from investment
operations.......... 0.49 (1.22) (1.07) (1.45)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (0.43)
Net Asset Value, end of
period...................... $ 3.93 $ 3.44 $ 4.66 $ 5.73
====== ======= ======= =======
Total Return/Ratios
Total return*............. 14.24% (26.18%) (18.65%) (19.04%)
Net assets, end of period
(000s).................. $ 546 $ 378 $ 442 $ 318
Net expenses to average
net assets#............. 1.52%** 1.87% 2.98% 1.01%
Gross expenses to average
net assets#............. 1.52%** 1.87% 2.98% 1.06%
Net investment loss to
average net assets...... (0.38%)** (0.67%) (1.82%) (0.03%)
Portfolio turnover
rate@................... 153% 152% 144% 165%
</Table>
+ Net investment loss for the year ended December 31, 2000 aggregated less
than $0.01 on a per share basis.
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of period....... $ 3.40 $ 4.61 $ 5.65 $ 7.61
Income from investment operations:
Net investment loss.................... (0.04) (0.05) (0.04) (0.02)
Net gains (losses) on securities (both
realized and unrealized)............. 0.51 (1.16) (1.00) (1.51)
------ ------- ------- -------
Total from investment operations... 0.47 (1.21) (1.04) (1.53)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (0.43)
Net Asset Value, end of period............. $ 3.87 $ 3.40 $ 4.61 $ 5.65
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 13.82% (26.25%) (18.38%) (20.09%)
Net assets, end of period (000s)....... $1,007 $ 1,013 $ 1,599 $ 1,170
Net expenses to average net assets#.... 2.29%** 2.14% 2.19% 1.76%
Gross expenses to average net
assets#.............................. 2.29%** 2.14% 2.20% 1.80%
Net investment loss to average net
assets............................... (1.16%)** (0.95%) (1.03%) (0.88%)
Portfolio turnover rate@............... 153% 152% 144% 165%
</Table>
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of period....... $ 3.34 $ 4.55 $ 5.66 $ 7.61
Income from investment operations:
Net investment loss.................... (0.10) (0.07) (0.13) (0.01)
Net gains (losses) on securities (both
realized and unrealized)............. 0.56 (1.14) (0.98) (1.51)
------ ------- ------- -------
Total from investment operations... 0.46 (1.21) (1.11) (1.52)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (0.43)
Net Asset Value, end of period............. $ 3.80 $ 3.34 $ 4.55 $ 5.66
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 13.77% (26.59%) (19.58%) (19.96%)
Net assets, end of period (000s)....... $ 154 $ 186 $ 270 $ 343
Net expenses to average net
assets#,+............................ 2.30%** 2.76% 3.16% 1.75%
Gross expenses to average net
assets#,+............................ 2.30%** 2.77% 3.17% 1.84%
Net investment loss to average net
assets+.............................. (1.17%)** (1.55%) (2.01%) (0.83%)
Portfolio turnover rate@............... 153% 152% 144% 165%
</Table>
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.01% (2002) and 3.55% (2001). The gross
expense ratios would have been 3.02% (2002) and 3.56% (2001). The net
investment loss ratios would have been (1.80%) (2002) and (2.40%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 3.50 $ 4.69 $ 5.69 $ 7.61 $ 7.32 $ 6.92
Income from investment operations:
Net investment income (loss)........... 0.00+ 0.00+ 0.00+ (0.02) 0.00+ 0.71
Net gains (losses) on securities (both
realized and unrealized)............. 0.50 (1.19) (1.00) (1.47) 1.06 0.51
-------- -------- -------- -------- -------- --------
Total from investment operations... 0.50 (1.19) (1.00) (1.49) 1.06 1.22
Less distributions:
From net investment income............. 0.00 0.00^ 0.00 0.00 0.00 (0.11)
From net realized gains................ 0.00 0.00 0.00^ (0.43) (0.77) (0.71)
-------- -------- -------- -------- -------- --------
Total distributions................ 0.00 0.00 0.00 (0.43) (0.77) (0.82)
Net Asset Value, end of period............. $ 4.00 $ 3.50 $ 4.69 $ 5.69 $ 7.61 $ 7.32
======== ======== ======== ======== ======== ========
Total Return/Ratios
Total return........................... 14.29% (25.33%) (17.55%) (19.57%) 15.03% 17.78%
Net assets, end of period (000s)....... $210,059 $191,701 $288,752 $385,816 $535,035 $542,307
Net expenses to average net assets#.... 1.20%** 1.08% 1.14% 1.10% 1.12% 1.08%
Gross expenses to average net
assets#.............................. 1.20%** 1.08% 1.14% 1.12% 1.13% 1.10%
Net investment income (loss) to average
net assets........................... (0.08%)** 0.11% 0.02% (0.24%) (0.05%) 1.38%
Portfolio turnover rate@............... 153% 152% 144% 165% 165% 259%
</Table>
+ Net investment income (loss) for the six months ended June 30, 2003 and the
years ended December 31, 2002, 2001 and 1999 aggregated less than $0.01 on
a per share basis.
^ Distributions from net investment income for the year ended December 31,
2002 and distributions from net realized gains for the year ended
December 31, 2001 aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of period....... $ 3.47 $ 4.74 $ 5.74 $ 7.61
Income from investment operations:
Net investment income (loss)........... 0.02 (0.08) (0.01) 0.00+
Net gains (losses) on securities (both
realized and unrealized)............. 0.47 (1.19) (0.99) (1.44)
------ ------- ------- -------
Total from investment operations... 0.49 (1.27) (1.00) (1.44)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (0.43)
Net Asset Value, end of period............. $ 3.96 $ 3.47 $ 4.74 $ 5.74
====== ======= ======= =======
Total Return/Ratios
Total return........................... 14.12% (26.79%) (17.39%) (18.91%)
Net assets, end of period (000s)....... $ 89 $ 57 $ 51 $ 1
Net expenses to average net
assets#,+............................ 1.44%** 2.95% 2.72% 0.76%
Gross expenses to average net
assets#,+............................ 1.45%** 2.95% 2.73% 0.79%
Net investment income (loss) to average
net assets+.......................... (0.35%)** (1.78%) (1.68%) 0.01%
Portfolio turnover rate@............... 153% 152% 144% 165%
</Table>
+ Net investment income (loss) for the year ended December 31, 2000
aggregated less than $0.01 on a per share basis.
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company during the years
ended December 31, 2002 and 2001. Had these fees not been reimbursed, the
net expense ratios would have been 4.68% (2002) and 82.22% (2001). The
gross expense ratios would have been 4.68% (2002) and 82.23% (2001). The
net investment loss ratios would have been (3.51%) (2002) and (81.18)%
(2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of period....... $ 3.39 $ 4.60 $ 5.68 $ 7.61
Income from investment operations:
Net investment loss.................... (0.02) (0.30) (0.09) (0.01)
Net gains (losses) on securities (both
realized and unrealized)............. 0.48 (0.91) (0.99) (1.49)
------ ------- ------- -------
Total from investment operations... 0.46 (1.21) (1.08) (1.50)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (0.43)
Net Asset Value, end of period............. $ 3.85 $ 3.39 $ 4.60 $ 5.68
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 13.57% (26.30%) (18.99%) (19.69%)
Net assets, end of period (000s)....... $ 37 $ 33 $ 127 $ 82
Net expenses to average net
assets#,+............................ 2.25%** 2.46% 3.13% 1.25%
Gross expenses to average net
assets#,+............................ 2.25%** 2.47% 3.14% 1.28%
Net investment loss to average net
assets+.............................. (1.13%)** (1.29%) (1.96%) (0.40%)
Portfolio turnover rate@............... 153% 152% 144% 165%
</Table>
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.70% (2002) and 6.31% (2001). The gross
expense ratios would have been 3.71% (2002) and 6.32% (2001). The net
investment loss ratios would have been (2.53%) (2002) and (5.14%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Growth and Income Fund (the "Fund"). The Fund offers
Class A, Class B, Class C, Class F, Class R, and Class T shares. Class A and
Class T shares are subject to a sales charge imposed at the time of purchase,
Class B shares are subject to a contingent deferred sales charge ("CDSC")
imposed on Class B share redemptions made within six years of purchase, Class C
shares are subject to a CDSC imposed on Class C shares redeemed within one year
of purchase, and Class F and Class R shares are sold at net asset value per
share (with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make
26
<Page>
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
0.65% of the first $250 million of net assets, 0.60% of the next $250
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
million of net assets, 0.55% of the next $250 million of net assets, and 0.50%
of net assets in excess of $750 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$48,158 and $107,055, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $21,807 and $34,527, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Transfer agency fees paid to DTI during the six months ended June 30, 2003 were
as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $ 829
Class B..................................................... $ 1,939
Class C..................................................... $ 356
Class R..................................................... $ 196
Class T..................................................... $ 152
</Table>
28
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $80,236 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's Class A,
B, C, and T shares for the six months ended June 30, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $ 545
Class B................................. $3,574 $1,191
Class C................................. $ 640 $ 213
Class T................................. $ 43 $ 43
</Table>
During the six months ended June 30, 2003, DSC retained $1,183 and $8 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $9,628 of contingent deferred sales charges relating to redemptions of
Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities,
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
equipment and clerical help. The fee is computed at the annual rate of 0.06% of
the average daily net assets of the Fund on the first $500 million, 0.04% of the
average daily net assets of the Fund on the next $500 million, and 0.02% of the
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $868. The amount paid to Mellon was reduced
by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to
30
<Page>
differing treatments for items such as deferral of wash sale losses, foreign
currency transactions, net operating losses, and capital loss carryovers.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2002, represent capital loss carryovers that may be
available to offset future realized capital gains and thereby reduce future
taxable gains distributions. Post-October 31 foreign currency losses noted
below, if any, may be used to offset future net investment income and thereby
reduce future ordinary income distributions. These carryovers expire between
December 31, 2009 and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income............................... $ 160,354
Accumulated Capital Losses.................................. $129,641,572
Post-October Capital Loss Deferral.......................... $ 0
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $203,468,272
Gross Tax Appreciation of Investments....................... $ 14,934,129
Gross Tax Depreciation of Investments....................... $ (8,977,969)
Net Tax Appreciation........................................ $ 5,956,160
</Table>
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- -----------------
CLASS A
Sold.................... 37,145 $ 140,503 71,858 $ 288,084
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (8,049) $ (31,061) (56,813) $ (213,898)
NET INCREASE............ 29,096 $ 109,442 15,045 $ 74,186
CLASS B
Sold.................... 22,342 $ 81,289 42,856 $ 174,005
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (59,970) $ (205,837) (92,065) $ (347,946)
NET DECREASE............ (37,628) $ (124,548) (49,209) $ (173,941)
CLASS C
Sold.................... 8,909 $ 33,097 29,530 $ 112,098
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (23,810) $ (82,932) (33,351) $ (131,469)
NET DECREASE............ (14,901) $ (49,835) (3,821) $ (19,371)
CLASS F
Sold.................... 541,846 $ 1,992,208 1,166,742 $ 4,906,800
Dividends or
Distributions
Reinvested............ 0 $ 0 27,018 $ 94,563
Redeemed................ (2,825,116) $ (10,299,158) (7,977,540) $ (32,490,968)
NET DECREASE............ (2,283,270) $ (8,306,950) (6,783,780) $ (27,489,605)
CLASS R
Sold.................... 21,704 $ 78,664 26,221 $ 110,661
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (15,432) $ (56,472) (20,676) $ (68,521)
NET INCREASE............ 6,272 $ 22,192 5,545 $ 42,140
CLASS T
Sold.................... 443 $ 1,580 1,045 $ 4,157
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (489) $ (1,889) (18,930) $ (65,015)
NET DECREASE............ (46) $ (309) (17,885) $ (60,858)
</Table>
32
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
33
<Page>
This page intentionally left blank.
34
<Page>
DREYFUS FOUNDERS
GROWTH AND INCOME FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
2930 East Third Avenue
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
This report is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus, which contains more complete
information including charges, expenses, and share classes. Please read the
prospectus carefully before you invest or send money. Date of first use: August
28, 2003
Dreyfus Service Corporation, Distributor. (C) 2003 Founders Asset
Management LLC.
A-636-GI-03
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
INVESTMENT UPDATE
JUNE 30, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus
Founders Funds regulatory material online? It's a simple, reliable process:
when new documents such as this Semiannual Report are available, we'll send
you an e-mail notification containing a convenient link that will take you
directly to that Fund information on our website.
To take advantage of this service, simply inform us online of your
decision to receive materials through the Founders E-Communications Program.
Cut down on mailbox clutter and help the Fund reduce printing and postage
charges by enrolling today at www.founders.com/ecommunications. If you own
Funds through a third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views
and the composition of the Fund's portfolio are subject to change at any time
based on market and other conditions. Companies appearing in bold print on
pages 3-8 were owned by the Fund on June 30, 2003. The amounts of these
holdings are included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, AND DANIEL B.
LEVAN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE SIX MONTHS ENDED JUNE
30?
The markets have seen a strong rebound during the first half of 2003. During the
period, the Dreyfus Founders International Equity Fund underperformed the 10.25%
return posted by its benchmark, the Morgan Stanley Capital International (MSCI)
World ex U.S. Index. The Fund, due to its focus on companies with sustainable
and quality earnings growth, was not exposed to the lower quality, weaker credit
companies which performed remarkably well during the period.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUNDS PERFORMANCE DURING THE PERIOD?
The market experienced two distinct environments during the half, which
separated neatly into calendar quarters. The first quarter was plagued by the
uncertainty over a potential war in Iraq as well as the onset of Severe Acute
Respiratory Syndrome (SARS) in Asia. Both factors weighed heavily upon already
stressed domestic and foreign equity markets. However, by the opening of the
second quarter, expectations for an economic
[SIDENOTE]
"UPON OUR MOVE INTO THE FUND'S MANAGEMENT POSITION, CHANGES THAT WE
IMPLEMENTED HAD A POSITIVE EFFECT ON THE FUND'S PERFORMANCE FOR THE REPORTING
PERIOD."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Markets worldwide experienced a mid-period boom for the half-year ended June
30, 2003 despite initial war and international health concerns.
- - Compelling growth opportunities were found in the healthcare and consumer
staples sectors.
- - Falling returns for French, Japanese and Swiss holdings dampened overall
performance.
- - Despite future economic uncertainty, the Fund continues to search for
companies capable of delivering both revenue and earnings growth at reasonable
valuations.
recovery and improving investor confidence helped advance performance, more than
offsetting the declines experienced in the first quarter. The market remained,
at the end of the period, on solid ground, posting substantial year-to-date
returns.
WHAT CHANGES WERE MADE TO THE FUND AFTER YOU TOOK THE HELM IN MARCH?
Upon our move into the Fund's management position, three major changes in
particular were perhaps the most influential. First, we sold sixty-five percent
of previously-held companies, while at the same time increased the number of
holdings in the Fund from 56 to 117 by the end of March. Second, we reduced the
weighted average price-to-earnings ratio from 14 to 12 times, and increased the
weighted average earnings growth from 9% to 13%. Finally, the weighted average
market capitalization decreased from $38.8 billion to $25.3 billion. These
adjustments proved to have a positive effect on Fund performance.
4
<Page>
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUNDS PERFORMANCE DURING THE
SIX-MONTH PERIOD?
Fund performance was driven by strong stock selection in the healthcare and
consumer staples sectors. In addition, good stock selection in the United
Kingdom and Italy boosted the Fund's performance relative to the benchmark.
One of the largest positive contributors to the Fund's performance was
from Canadian-based BIOVAIL CORPORATION, which posted a 78% return for the
first half of the year. Biovail's strong performance was due in part to
positive development news the company released concerning several drugs
currently in their pipeline.
Another global leader, which was a major positive contributor to the
Fund, was German software company SAP AG. A multinational company with a
leading position in the enterprise software business, SAP reported strong
first quarter numbers in the beginning of April. This increase in performance
was attributable to its license business exceeding expectations, as well as
positive growth in U.S. markets. The company was also able to reduce costs
significantly, which helped expand its operating margins.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Vodafone Group PLC (United Kingdom; VOD) 3.14%
2. SAP AG (Germany; SAP) 2.31%
3. BP PLC (United Kingdom; BP) 2.28%
4. HBOS PLC (United Kingdom; HBOS) 2.14%
5. Novartis AG (Switzerland; NOV) 1.94%
6. Royal Bank of Scotland Group PLC (United Kingdom; RBS) 1.94%
7. Canon, Inc. (Japan; 7751) 1.58%
8. Orange SA (France; OGE) 1.52%
9. Takeda Chemical Industries Limited (Japan; 4502) 1.50%
10. GlaxoSmithKline PLC (United Kingdom; GSK) 1.47%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
WHAT WERE THE LARGEST HINDRANCES TO THE FUNDS PERFORMANCE?
Disappointments in a few major holdings and weak stock selection in
underperforming markets hampered Fund performance. For example,
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares
a $10,000 investment made in Class F shares of Dreyfus Founders International
Equity Fund on its inception date of 12/29/95 to a $10,000 investment made in
an unmanaged securities index on that date. The Fund's performance assumes
the reinvestment of dividends and capital gain distributions, but does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or redemption of Fund shares. The Fund offers multiple classes
of shares. Performance shown is for Class F, which is open only to
grandfathered investors. The Fund's performance in the graph takes into
account all applicable Class F fees and expenses, subject to fee waivers and
expense limitations. These figures do not reflect the maximum sales charges
applicable to Class A, B, C, or T shares of the Fund. For these share
classes, applying these charges will result in lower returns for investors.
The MSCI World ex U.S. Index is an average of the performance of selected
securities listed on the stock exchanges of Europe, Canada, Australia, New
Zealand, and the Far East. The performance data for the MSCI World ex U.S. Index
is from December 31, 1995 through June 30, 2003. Total return figures for this
index assume change in share price and reinvestment of dividends after the
deduction of local taxes, but do not reflect the costs of managing a mutual
fund. Further information related to Fund performance is contained elsewhere in
this report.
6
<Page>
some of our positions in the information technology and financials sectors,
including India's Satyam Computer Services Limited and Britain's Amvescap PLC,
were detrimental to the Fund. Both of these holdings were sold once our tenure
began.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 0.66% (16.91%) -- -- (22.25%)
Without sales charge 6.82% (11.87%) -- -- (20.93%)
CLASS B SHARES (12/31/99)
With redemption* 2.54% (16.00%) -- -- (22.11%)
Without redemption 6.54% (12.50%) -- -- (21.51%)
CLASS C SHARES (12/31/99)
With redemption** 5.41% (13.40%) -- -- (21.57%)
Without redemption 6.41% (12.53%) -- -- (21.57%)
CLASS F SHARES (12/29/95) 7.10% (11.67%) (7.75%) N/A 1.60%
CLASS R SHARES (12/31/99) 7.06% (11.52%) -- -- (20.74%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 2.01% (15.88%) -- -- (22.14%)
Without sales charge 6.86% (11.89%) -- -- (21.11%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but does reflect the
reinvestment of dividends and capital gain distributions, expense limitations,
and adjustments for financial statement purposes. Part of the Fund's historical
performance is due to the purchase of securities sold in initial public
offerings (IPOs). There is no guarantee that the Fund's investments in IPOs, if
any, will continue to have a similar impact on performance. Investments in
foreign securities may entail unique risks, including political, market, and
currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION
<Table>
25.03% United Kingdom
18.55% Japan
7.23% Germany
7.02% France
6.34% Switzerland
5.17% Canada
4.30% Spain
3.41% Australia
3.40% Cash & Equivalents
19.55% Other Countries
</Table>
The Fund's portfolio composition is subject to change, and there is no
assurance the Fund will continue to hold any particular security. Opinions
regarding sectors, industries, companies, and/or themes are those of the
portfolio managers and are subject to change at any time, based on market and
other conditions, and should not be construed as a recommendation of any
specific security.
Additionally, weak stock selection in three major foreign markets in
particular--France, Japan and Switzerland--curtailed the efforts of the Fund.
In conclusion, we will remain consistent in our approach to the Fund,
relying on our bottom-up research process to seek companies we believe are
capable of posting strong future revenue and earnings growth at valuations that
make sense. We will continue to look for companies with increasing business
momentum and strong underlying growth relative to their valuation.
/s/ Remi J. Browne /s/ Daniel B. LeVan
Remi J. Browne, CFA Daniel B. LeVan, CFA
Co-Portfolio Manager Co-Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-96.6%
AIRLINES-0.5%
64,600 British Airways (UK)*............................. $ 161,500
----------------
APPLICATION SOFTWARE-2.9%
7,400 Cognos, Inc. (CA)*................................ 198,615
6,300 SAP AG (GE)....................................... 737,942
----------------
936,557
----------------
AUTO PARTS & EQUIPMENT-1.2%
8,000 Canadian Tire Corporation Limited Class A (CA).... 191,345
11,000 NOK Corporation (JA).............................. 182,669
----------------
374,014
----------------
AUTOMOBILE MANUFACTURERS-2.4%
49,000 Nissan Motor Company Limited (JA)................. 468,474
6,700 PSA Peugeot Citroen (FR).......................... 325,459
----------------
793,933
----------------
BIOTECHNOLOGY-0.9%
2,400 Actelion Limited (SZ)*............................ 159,823
239 Serono SA (SZ).................................... 140,453
----------------
300,276
----------------
BREWERS-1.8%
30,000 Fraser & Neave Limited (SG)....................... 146,508
23,000 Kirin Brewery Company Limited (JA)................ 161,666
73,100 Lion Nathan Limited (AU).......................... 262,770
----------------
570,944
----------------
BROADCASTING & CABLE TV-0.6%
64,700 Seven Network Limited (AU)........................ 206,106
----------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMERCIAL PRINTING-0.6%
18,000 Dai Nippon Printing Company Limited (JA).......... $ 190,381
----------------
COMMUNICATIONS EQUIPMENT-1.1%
12,000 Nokia Oyj (FI).................................... 197,611
57,300 Nortel Networks Corporation (CA)*................. 153,497
----------------
351,108
----------------
COMPUTER STORAGE & PERIPHERALS-1.1%
9,100 Logitech International SA (SZ)*................... 341,292
----------------
CONSTRUCTION & ENGINEERING-1.1%
8,200 ACS, Actividades de Construccion y Servicios SA
(SP).............................................. 349,828
----------------
CONSTRUCTION MATERIALS-0.5%
51,300 Boral Limited (AU)*............................... 174,085
----------------
CONSUMER ELECTRONICS-2.1%
10,500 Pioneer Corporation (JA).......................... 236,102
34,000 Sharp Corporation (JA)............................ 436,344
----------------
672,446
----------------
CONSUMER FINANCE-0.6%
36,900 Bradford & Bingley PLC (UK)....................... 191,350
----------------
DIVERSIFIED BANKS-14.4%
8,800 ABN AMRO Holding NV (NE).......................... 168,259
11,400 Alliance & Leicester PLC (UK)..................... 156,139
26,700 Alpha Bank AE (GR)................................ 465,441
42,000 Anglo Irish Bank Corporation PLC (IE)............. 371,383
95,107 Banca Intesa SPA (IT)............................. 304,172
31,419 Barclays PLC (UK)................................. 233,309
8,807 BNP Paribas SA (FR)............................... 447,531
52,700 HBOS PLC (UK)..................................... 682,230
5,300 Jyske Bank SA (DE)*............................... 213,799
52 Mitsubishi Tokyo Financial Group, Inc. (JA)....... 235,153
22,034 Royal Bank of Scotland Group PLC (UK)............. 618,116
14,200 Skandinaviska Enskilda Banken (SW)................ 144,574
2,800 Societe Generale (FR)............................. 177,492
37,083 Standard Chartered PLC (UK)....................... 450,381
----------------
4,667,979
----------------
DIVERSIFIED CAPITAL MARKETS-0.6%
3,770 UBS AG (SZ)....................................... 209,723
----------------
DIVERSIFIED CHEMICALS-1.0%
7,500 BASF AG (GE)...................................... 319,103
----------------
DIVERSIFIED METALS & MINING-0.5%
29,200 BHP Billiton PLC (UK)............................. 153,710
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
ELECTRIC UTILITIES-2.7%
5,000 E.ON AG (GE)...................................... $ 256,373
25,938 Endesa SA (SP).................................... 434,286
4,500 Fortis, Inc. (CA)................................. 195,393
----------------
886,052
----------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.5%
23,000 Sumitomo Electric Industries Limited (JA)......... 167,987
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.0%
1,700 Keyence Corporation (JA).......................... 311,472
----------------
FOOD RETAIL-1.9%
6,600 Delhaize Group (BE)............................... 200,850
37,600 J Sainsbury PLC (UK).............................. 157,597
16,900 Metro, Inc. (CA).................................. 244,396
----------------
602,843
----------------
HEALTHCARE DISTRIBUTORS-0.5%
7,100 Suzuken Company Limited (JA)...................... 168,520
----------------
HEALTHCARE EQUIPMENT-0.7%
8,100 Getinge AB Class B (SW)........................... 215,025
----------------
HOME FURNISHINGS-0.5%
5,200 Hunter Douglas NV (NE)............................ 173,174
----------------
HOMEBUILDING-0.7%
33,400 Barratt Developments PLC (UK)..................... 238,099
----------------
HOUSEHOLD PRODUCTS-1.1%
19,550 Reckitt Benckiser PLC (UK)........................ 358,739
----------------
HOUSEWARES & SPECIALTIES-0.8%
6,200 Citizen Electronics Company Limited (JA).......... 270,564
----------------
HYPERMARKETS & SUPER CENTERS-0.5%
5,600 Metro AG (GE)..................................... 178,199
----------------
INDUSTRIAL CONGLOMERATES-2.0%
16,300 DCC PLC (IE)...................................... 219,006
37,000 Hutchison Whampoa Limited (HK).................... 225,375
71,000 Keppel Corporation Limited (SG)................... 197,558
----------------
641,939
----------------
INDUSTRIAL MACHINERY-0.5%
6,100 Saurer AG (SZ)*................................... 166,630
----------------
INTEGRATED OIL & GAS-5.3%
104,819 BP PLC (UK)....................................... 726,901
1,260 OMV AG (AT)....................................... 151,379
21,800 Repsol YPF SA (SP)................................ 353,486
50,450 Shell Transport & Trading Company PLC (UK)........ 333,003
978 Total SA (FR)..................................... 147,801
----------------
1,712,570
----------------
</Table>
12
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
INTEGRATED TELECOMMUNICATION SERVICES-6.8%
117,800 BT Group PLC (UK)................................. $ 396,068
11,100 Deutsche Telekom AG (GE)*......................... 169,024
41,700 Koninklijke NV (NE)*.............................. 295,463
9,600 NetCom AB Class B (SW)*........................... 356,781
74 Nippon Telegraph & Telephone Corporation (JA)..... 290,269
11,200 TDC AS Class B (DE)............................... 334,956
84,000 TeliaSonera AB (SW)............................... 348,387
----------------
2,190,948
----------------
IT CONSULTING & OTHER SERVICES-1.1%
10,300 Cap Gemini SA (FR)................................ 365,728
----------------
LEISURE PRODUCTS-0.5%
4,400 Bandai Company Limited (JA)....................... 167,828
----------------
OFFICE ELECTRONICS-1.6%
11,000 Canon, Inc. (JA).................................. 504,768
----------------
OIL & GAS DRILLING-0.7%
30,000 Saipem SPA (IT)................................... 224,621
----------------
OIL & GAS EQUIPMENT & SERVICES-0.7%
13,400 ProSafe ASA (NW)*................................. 243,184
----------------
OIL & GAS EXPLORATION & PRODUCTION-1.4%
34,800 Cairn Energy PLC (UK)*............................ 175,723
8,600 Penn West Petroleum Limited (CA)*................. 275,316
----------------
451,039
----------------
PACKAGED FOODS & MEATS-1.8%
19,000 Nisshin Seifun Group, Inc. (JA)................... 134,974
117,900 Parmalat Finaziaria SPA (IT)...................... 370,976
11,100 Viscofan SA (SP).................................. 86,424
----------------
592,374
----------------
PHARMACEUTICALS-10.7%
4,520 Altana AG (GE).................................... 282,889
7,750 AstraZeneca Group PLC (UK)........................ 310,767
4,368 Biovail Corporation (CA)*......................... 205,558
38,100 Galen Holdings PLC (UK)........................... 327,245
23,218 GlaxoSmithKline PLC (UK).......................... 468,574
15,659 Novartis AG (SZ).................................. 619,655
10,000 Ono Pharmaceuticals Company Limited (JA).......... 309,806
5,575 Sanofi-Synthelabo SA (FR)......................... 326,510
23,000 Shire Pharmaceuticals Group PLC (UK)*............. 151,815
13,000 Takeda Chemical Industries Limited (JA)........... 479,617
----------------
3,482,436
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
PRECIOUS METALS & MINERALS-0.6%
17,600 ThyssenKrupp AG (GE).............................. $ 201,709
----------------
PROPERTY & CASUALTY INSURANCE-2.1%
17,700 Kingsway Financial Services, Inc. (CA)*........... 212,978
74,000 QBE Insurance Group Limited (AU).................. 462,531
----------------
675,509
----------------
PUBLISHING-0.6%
26,200 Johnston Press PLC (UK)........................... 187,261
----------------
REAL ESTATE INVESTMENT TRUSTS-0.7%
100 Sumitomo Mitsui Financial Group, Inc. (JA)........ 218,197
----------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-4.0%
54,600 Cheung Kong (Holdings) Limited (CN)............... 328,380
196,000 Henderson Investment Limited (HK)................. 188,507
22,119 Inmobiliaria Urbis SA (SP)........................ 170,439
14,800 Land Securities PLC (UK).......................... 190,861
26,000 Mitsui Fudosan Company Limited (JA)............... 166,080
4,000 Wereldhave NV (NE)................................ 251,493
----------------
1,295,760
----------------
SEMICONDUCTORS-0.8%
13,300 Micronas Semiconductor Holding AG (SZ)*........... 268,062
----------------
SOFT DRINKS-0.5%
10,800 Kirin Beverage Corporation (JA)................... 162,259
----------------
SPECIALTY CHEMICALS-0.5%
2,500 Ciba Specialty Chemicals AG (SZ)*................. 151,347
----------------
THRIFTS & MORTGAGE FINANCE-1.4%
37,700 Northern Rock PLC (UK)............................ 443,566
----------------
TIRES & RUBBER-0.6%
9,400 Continental AG (GE)............................... 197,327
----------------
TRADING COMPANIES & DISTRIBUTORS-1.0%
45,000 Mitsubishi Corporation (JA)....................... 312,180
----------------
TRUCKING-0.5%
28,000 Seino Transportation Company Limited (JA)......... 160,200
----------------
WIRELESS TELECOMMUNICATION SERVICES-5.4%
72 KDDI Corporation (JA)............................. 278,826
54,600 Orange SA (FR)*................................... 484,678
511,775 Vodafone Group PLC (UK)........................... 1,000,750
----------------
1,764,254
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$27,143,355).................................................. 31,316,705
----------------
</Table>
14
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
AMORTIZED
PRINCIPAL AMOUNT COST
CORPORATE SHORT-TERM NOTES-1.2%
OTHER DIVERSIFIED FINANCIAL SERVICES-1.2%
$ 400,000 Merrill Lynch & Company
1.30% 7/1/03...................................... $ 400,000
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$400,000)........................................... 400,000
----------------
TOTAL INVESTMENTS-97.8%
(TOTAL COST-$27,543,355)............................................ 31,716,705
OTHER ASSETS AND LIABILITIES-2.2%................................... 702,534
----------------
NET ASSETS-100.0%................................................... $ 32,419,239
================
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $ 27,543,355
------------
Investment securities, at market.................. 31,716,705
Cash.............................................. 180,164
Foreign currency (cost $216,826).................. 216,830
Receivables:
Investment securities sold...................... 549,662
Capital shares sold............................. 191,187
Dividends....................................... 34,469
From adviser.................................... 46,098
From transfer agent............................. 536
Other assets...................................... 45,436
------------
Total Assets.................................. 32,981,087
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 454,099
Capital shares redeemed......................... 22,532
Advisory fees................................... 20,697
Shareholder servicing fees...................... 7,000
Accounting fees................................. 2,760
Distribution fees............................... 3,928
Custodian fees.................................. 7,654
Other........................................... 43,178
------------
Total Liabilities............................. 561,848
------------
Net Assets........................................ $ 32,419,239
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $ 70,032,858
Undistributed net investment income............... 308,062
Accumulated net realized loss from security
transactions (net of foreign taxes on Indian
investments of $59,078)......................... (42,099,998)
Net unrealized appreciation on investments and
foreign currency translation.................... 4,178,317
------------
Total......................................... $ 32,419,239
============
</Table>
16
<Page>
<Table>
Net Assets--Class A............................... $ 18,287,338
Shares Outstanding--Class A....................... 2,379,764
Net Asset Value, Redemption Price Per Share....... $ 7.68
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 8.15
Net Assets--Class B............................... $ 1,936,884
Shares Outstanding--Class B....................... 258,617
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 7.49
Net Assets--Class C............................... $ 473,309
Shares Outstanding--Class C....................... 63,323
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 7.47
Net Assets--Class F............................... $ 8,787,567
Shares Outstanding--Class F....................... 1,143,192
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 7.69
Net Assets--Class R............................... $ 2,791,266
Shares Outstanding--Class R....................... 361,028
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 7.73
Net Assets--Class T............................... $ 142,875
Shares Outstanding--Class T....................... 18,726
Net Asset Value, Redemption Price Per Share....... $ 7.63
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 7.99
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 594,834
Interest........................................ 11,119
Foreign taxes withheld.......................... (64,720)
------------
Total Investment Income....................... 541,233
------------
EXPENSES:
Advisory fees--Note 2........................... 156,510
Shareholder servicing fees--Note 2.............. 40,752
Accounting fees--Note 2......................... 15,651
Distribution fees--Note 2....................... 19,956
Transfer agency fees--Note 2.................... 57,732
Registration fees............................... 29,736
Postage and mailing expenses.................... 2,397
Custodian fees and expenses--Note 2............. 45,923
Printing expenses............................... 17,634
Legal and audit fees............................ 3,410
Directors' fees and expenses--Note 2............ 3,898
Other expenses.................................. 12,047
------------
Total Expenses................................ 405,646
Earnings Credits.............................. (788)
Reimbursed/Waived Expenses.................... (179,449)
Expense Offset to Broker Commissions.......... (70)
------------
Net Expenses.................................. 225,339
------------
Net Investment Income........................... 315,894
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security transactions (net of foreign taxes on
Indian investments of $59,078).................. (7,630,570)
Foreign currency transactions................... 2,604
------------
Net Realized Loss............................. (7,627,966)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation... 9,561,006
------------
Net Realized and Unrealized Gain.................. 1,933,040
------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 2,248,934
============
Purchases of long-term securities................. $ 32,918,506
Proceeds from sales of long-term securities....... $ 35,137,920
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Income................... $ 315,894 $ 32,165
Net Realized Loss....................... (7,627,966) (5,583,604)
Net Change in Unrealized
Appreciation/Depreciation............. 9,561,006 (8,376,964)
----------- ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 2,248,934 (13,928,403)
----------- ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
From Net Investment Income
Class A............................... 0 (32,238)
Class F............................... 0 (15,146)
Class R............................... 0 (9,276)
----------- ------------
Net Decrease from Dividends and
Distributions......................... 0 (56,660)
----------- ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... (1,232,448) (3,344,747)
Class B............................... (375,373) (592,334)
Class C............................... (78,193) (629,053)
Class F............................... (1,133,871) (3,309,006)
Class R............................... 140,294 (2,588,838)
Class T............................... (49,748) (102,473)
----------- ------------
Net Decrease from Capital Share
Transactions.......................... (2,729,339) (10,566,451)
----------- ------------
Net Decrease in Net Assets.............. (480,405) (24,551,514)
NET ASSETS
Beginning of period................... $32,899,644 $ 57,451,158
----------- ------------
End of period......................... $32,419,239 $ 32,899,644
=========== ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 7.19 $ 10.03 $ 14.42 $ 19.88
Income from investment
operations:
Net investment income
(loss).................. 0.08 0.01 0.00+ (0.03)
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.41 (2.84) (4.39) (3.53)
------- ------- ------- -------
Total from investment
operations.......... 0.49 (2.83) (4.39) (3.56)
Less distributions:
From net investment
income.................. 0.00 (0.01) 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.90)
------- ------- ------- -------
Total distributions... 0.00 (0.01) 0.00 (1.90)
Net Asset Value, end of
period...................... $ 7.68 $ 7.19 $ 10.03 $ 14.42
======= ======= ======= =======
Total Return/Ratios
Total return*............. 6.82% (28.19%) (30.44%) (17.60%)
Net assets, end of period
(000s).................. $18,287 $18,217 $29,151 $ 4,434
Net expenses to average
net assets#,+........... 1.40%** 1.40% 1.44% 1.77%
Gross expenses to average
net assets#,+........... 1.41%** 1.40% 1.46% 1.82%
Net investment income
(loss) to average net
assets+................. 2.07%** 0.13% (0.74%) (0.36%)
Portfolio turnover
rate@................... 133% 220% 213% 184%
</Table>
+ Net investment loss for the year ended December 31, 2001 aggregated less
than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 2.55% (2003), 2.18% (2002) and 1.76% (2001).
The gross expense ratios would have been 2.56% (2003), 2.18% (2002) and
1.78% (2001). The net investment income (loss) ratios would have been 0.92%
(2003), (0.65%) (2002) and (1.06%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of period....... $ 7.03 $ 9.87 $ 14.29 $ 19.88
Income from investment operations:
Net investment (loss).................. (0.02) (0.11) (0.12) (0.09)
Net gains (losses) on securities (both
realized and unrealized)............. 0.48 (2.73) (4.30) (3.60)
------ ------- ------- -------
Total from investment operations... 0.46 (2.84) (4.42) (3.69)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (1.90)
Net Asset Value, end of period............. $ 7.49 $ 7.03 $ 9.87 $ 14.29
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 6.54% (28.77%) (30.93%) (18.27%)
Net assets, end of period (000s)....... $1,937 $ 2,201 $ 3,786 $ 5,129
Net expenses to average net
assets#,+............................ 2.15%** 2.15% 2.26% 2.52%
Gross expenses to average net
assets#,+............................ 2.16%** 2.16% 2.28% 2.57%
Net investment income (loss) to average
net assets+.......................... 1.29%** (0.61%) (1.03%) (1.18%)
Portfolio turnover rate@............... 133% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.33% (2003), 2.90% (2002) and 2.65%.
(2001). The gross expense ratios would have been 3.34% (2003), 2.91% (2002)
and 2.67% (2001). The net investment income (loss) ratios would have been
0.11% (2003), (1.36%) (2002) and (1.42%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of period....... $ 7.02 $ 9.86 $ 14.27 $ 19.88
Income from investment operations:
Net investment (loss).................. (0.06) (0.29) (0.16) (0.07)
Net gains (losses) on securities (both
realized and unrealized)............. 0.51 (2.55) (4.25) (3.64)
------ ------- ------- -------
Total from investment operations... 0.45 (2.84) (4.41) (3.71)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (1.90)
Net Asset Value, end of period............. $ 7.47 $ 7.02 $ 9.86 $ 14.27
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 6.41% (28.80%) (30.90%) (18.37%)
Net assets, end of period (000s)....... $ 473 $ 532 $ 1,429 $ 2,635
Net expenses to average net
assets#,+............................ 2.15%** 2.15% 2.26% 2.50%
Gross expenses to average net
assets#,+............................ 2.16%** 2.16% 2.29% 2.55%
Net investment income (loss) to average
net assets+.......................... 1.30%** (0.63%) (0.99%) (1.18%)
Portfolio turnover rate@............... 133% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.31% (2003), 3.10% (2002) and 2.83% (2001).
The gross expense ratios would have been 3.32% (2003), 3.11% (2002) and
2.85% (2001). The net investment income (loss) ratios would have been 0.14%
(2003), (1.58%) (2002) and (1.56%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 7.18 $ 10.03 $ 14.40 $ 19.87 $ 14.03 $ 12.05
Income from investment operations:
Net investment income (loss)........... 0.04 (0.05) (0.07) (0.08) (0.05) 0.03
Net gains (losses) on securities (both
realized and unrealized)............. 0.47 (2.79) (4.30) (3.49) 8.07 2.02
------ ------- -------- -------- ------- -------
Total from investment operations... 0.51 (2.84) (4.37) (3.57) 8.02 2.05
Less distributions:
From net investment income............. 0.00 (0.01) 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90) (2.18) (0.07)
------ ------- -------- -------- ------- -------
Total distributions................ 0.00 (0.01) 0.00 (1.90) (2.18) (0.07)
Net Asset Value, end of period............. $ 7.69 $ 7.18 $ 10.03 $ 14.40 $ 19.87 $ 14.03
====== ======= ======== ======== ======= =======
Total Return/Ratios
Total return........................... 7.10% (28.30%) (30.35%) (17.65%) 58.71% 17.01%
Net assets, end of period (000s)....... $8,788 $ 9,321 $ 16,640 $ 30,040 $35,607 $18,938
Net expenses to average net
assets#,+............................ 1.40%** 1.40% 1.52% 1.80% 1.80% 1.80%
Gross expenses to average net
assets#,+............................ 1.41%** 1.40% 1.55% 1.84% 1.82% 1.83%
Net investment income (loss) to average
net assets+.......................... 2.03%** 0.12% (0.26%) (0.55%) (0.36%) 0.02%
Portfolio turnover rate@............... 133% 220% 213% 184% 205% 148%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates.
Had these fees not been reimbursed, the net expense ratios would have been
2.59% (2003), 2.13% (2002), 1.96% (2001), 1.91% (2000), 1.97% (1999), and
1.89% (1998). The gross expense ratios would have been 2.60% (2003), 2.13%
(2002), 1.99% (2001), 1.95% (2000), 1.99% (1999), and 1.92% (1998). The net
investment income (loss) ratios would have been 0.84% (2003), (0.61%)
(2002), (0.70%) (2001), (0.66%) (2000), (0.53%) (1999), and (0.07%) (1998).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of period....... $ 7.22 $ 10.08 $ 14.45 $ 19.88
Income from investment operations:
Net investment income (loss)........... 0.08 0.02 0.00+ (0.01)
Net gains (losses) on securities (both
realized and unrealized)............. 0.43 (2.85) (4.37) (3.52)
------ ------- ------- -------
Total from investment operations... 0.51 (2.83) (4.37) (3.53)
Less distributions:
From net investment income............. 0.00 (0.03) 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90)
------ ------- ------- -------
Total distributions................ 0.00 (0.03) 0.00 (1.90)
Net Asset Value, end of period............. $ 7.73 $ 7.22 $ 10.08 $ 14.45
====== ======= ======= =======
Total Return/Ratios
Total return........................... 7.06% (28.10%) (30.24%) (17.45%)
Net assets, end of period (000s)....... $2,791 $ 2,470 $ 6,102 $ 2,716
Net expenses to average net
assets#,+............................ 1.15%** 1.15% 1.26% 1.53%
Gross expenses to average net
assets#,+............................ 1.15%** 1.16% 1.28% 1.63%
Net investment income (loss) to average
net assets+.......................... 2.31%** 0.27% (0.04%) (0.40%)
Portfolio turnover rate@............... 133% 220% 213% 184%
</Table>
+ Net investment loss for the year ended December 31, 2001 aggregated less
than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 2.02% (2003), 1.70% (2002) and 1.55% (2001).
The gross expense ratios would have been 2.02% (2003), 1.71% (2002) and
1.57% (2001). The net investment income (loss) ratios would have been 1.44%
(2003), (0.28%) (2002) and (0.33%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of period....... $ 7.14 $ 9.97 $ 14.37 $ 19.88
Income from investment operations:
Net investment income (loss)........... 0.04 (0.10) (0.09) (0.06)
Net gains (losses) on securities (both
realized and unrealized)............. 0.45 (2.73) (4.31) (3.55)
------ ------- ------- -------
Total from investment operations... 0.49 (2.83) (4.40) (3.61)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (1.90)
Net Asset Value, end of period............. $ 7.63 $ 7.14 $ 9.97 $ 14.37
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 6.86% (28.39%) (30.62%) (17.85%)
Net assets, end of period (000s)....... $ 143 $ 158 $ 343 $ 654
Net expenses to average net
assets#,+............................ 1.65%** 1.65% 1.77% 1.98%
Gross expenses to average net
assets#,+............................ 1.66%** 1.65% 1.80% 2.03%
Net investment income (loss) to average
net assets+.......................... 1.72%** (0.12%) (0.53%) (0.70%)
Portfolio turnover rate@............... 133% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.21% (2003), 4.00% (2002) and 2.83% (2001).
The gross expense ratios would have been 3.22% (2003), 4.00% (2002) and
2.86% (2001). The net investment income (loss) ratios would have been 0.16%
(2003), (2.47%) (2002) and (1.59%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders International Equity Fund (the "Fund"). The Fund offers
Class A, Class B, Class C, Class F, Class R, and Class T shares. Class A and
Class T shares are subject to a sales charge imposed at the time of purchase,
Class B shares are subject to a contingent deferred sales charge ("CDSC")
imposed on Class B share redemptions made within six years of purchase, Class C
shares are subject to a CDSC imposed on Class C shares redeemed within one year
of purchase, and Class F and Class R shares are sold at net asset value per
share (with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
26
<Page>
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
normally invests a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2003 for settling foreign trades is listed on
the Statement of Assets and Liabilities.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The
28
<Page>
fee is 1.00% of the first $250 million of net assets, 0.80% of the next $250
million of net assets, and 0.70% of net assets in excess of $500 million.
Founders has agreed to waive a portion of its management fee and to limit the
total expenses of the Fund. Founders agreed to waive that portion of its
management fee that exceeds 0.75% of the Fund's average net assets and to limit
the annual expenses of the Fund (net of credits received from the Fund's
custodian) to 1.40% for Class A and Class F shares, 2.15% for Class B and
Class C shares, 1.15% for Class R shares, and 1.65% for Class T shares. These
reductions are made pursuant to a permanent contractual commitment. For the six
months ended June 30, 2003, $172,177 was reimbursed to the Fund by Founders
pursuant to this provision.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$4,772 and $10,586, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $1,694 and $3,228, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $ 38,346
Class B..................................................... $ 4,634
Class C..................................................... $ 1,030
Class R..................................................... $ 1,760
Class T..................................................... $ 674
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $10,659 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
30
<Page>
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $22,140
Class B................................. $7,319 $ 2,440
Class C................................. $1,746 $ 582
Class T................................. $ 232 $ 232
</Table>
During the six months ended June 30, 2003, DSC retained $16,358 and $6 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $13,847 and $189 of contingent deferred sales charges relating
to redemptions of Class B and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the average daily net assets of the Fund on the first $500 million,
0.065% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has agreed to waive any fees
received for these services to the extent they exceed Founders' costs in
providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $7,272. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
offset future realized capital gains and thereby reduce future taxable gains
distributions. The utilization of acquired losses may be limited under federal
tax laws. Post-October 31 foreign currency losses noted below, if any, may be
used to offset future net investment income and thereby reduce future ordinary
income distributions. These carryovers expire between December 31, 2007 and
December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income............................... $ 51,376
Accumulated Capital Losses.................................. $ 32,278,870
Post-October Capital Loss Deferral.......................... $ 1,940,686
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $ 27,650,900
Gross Tax Appreciation of Investments....................... $ 4,511,981
Gross Tax Depreciation of Investments....................... $ (446,176)
Net Tax Appreciation........................................ $ 4,065,805
</Table>
32
<Page>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------------- ---------- ------------
CLASS A
Sold.................... 582,061 $ 4,176,010 4,149,772 $ 34,712,760
Dividends or
Distributions
Reinvested............ 0 $ 0 4,234 $ 30,237
Redeemed................ (737,546) $ (5,408,458) (4,523,803) $(38,087,744)
NET DECREASE............ (155,485) $ (1,232,448) (369,797) $ (3,344,747)
CLASS B
Sold.................... 59,952 $ 405,324 144,790 $ 1,041,200
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (114,438) $ (780,697) (215,227) $ (1,633,534)
NET DECREASE............ (54,486) $ (375,373) (70,437) $ (592,334)
CLASS C
Sold.................... 145,298 $ 967,094 27,418 $ 241,026
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (157,841) $ (1,045,287) (96,541) $ (870,079)
NET DECREASE............ (12,543) $ (78,193) (69,123) $ (629,053)
CLASS F
Sold.................... 1,111,552 $ 7,908,835 1,879,837 $ 15,539,534
Dividends or
Distributions
Reinvested............ 0 $ 0 1,997 $ 14,235
Redeemed................ (1,266,578) $ (9,042,706) (2,242,842) $(18,862,775)
NET DECREASE............ (155,026) $ (1,133,871) (361,008) $ (3,309,006)
CLASS R
Sold.................... 85,542 $ 602,075 280,113 $ 2,397,887
Dividends or
Distributions
Reinvested............ 0 $ 0 1,130 $ 8,099
Redeemed................ (66,477) $ (461,781) (544,644) $ (4,994,824)
NET INCREASE
(DECREASE)............ 19,065 $ 140,294 (263,401) $ (2,588,838)
CLASS T
Sold.................... 97,416 $ 651,194 291 $ 2,419
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (100,835) $ (700,942) (12,536) $ (104,892)
NET DECREASE............ (3,419) $ (49,748) (12,245) $ (102,473)
</Table>
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
34
<Page>
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
2930 East Third Avenue
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
This report is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus, which contains more complete
information including charges, expenses, and share classes. Please read the
prospectus carefully before you invest or send money. Date of first use:
August 28, 2003
Dreyfus Service Corporation, Distributor. (C) 2003 Founders Asset Management
LLC.
A-636-IE-03
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 15
Statement of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Notes to Financial Statements 25
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? Its a simple, reliable process: when new documents
such as this Semiannual Report are available, well send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website.
To take advantage of this service, simply inform us online of your decision
to receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views
and the composition of the Funds portfolio are subject to change at any time
based on market and other conditions. Companies appearing in bold print on
pages 3-9 were owned by the Fund on June 30, 2003. The amounts of these
holdings are included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF KEVIN SONNETT]
A DISCUSSION WITH PORTFOLIO
MANAGER KEVIN SONNETT, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS
BENCHMARK IN THE SIX MONTHS ENDED JUNE 30?
Equities faced a difficult market environment during the first part of the
period, as a weaker-than-expected economy, coupled with geopolitical
uncertainty, resulted in a stall for both consumer and business discretionary
spending. However, by mid-March the situation in Iraq began to stabilize, which
contributed to a rally in the equity markets that continued throughout the
period. In the first six months of the year, the Mid-Cap Growth Fund
underperformed its benchmark, the Russell Midcap Growth Index, which posted an
18.74% return in the first half.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE?
While it is always difficult to pinpoint the precise drivers of market
performance, we can speculate on some contributing factors. The first half of
2003 saw geopolitical uncertainty in Iraq subside, and the market respond with a
rally that lasted through the period. Further, after years of disappointing
investors, public companies finally began to set realistic revenue and profit
expectations. Generally-stable business conditions, aggressive
[SIDENOTE]
"WHILE MUCH OF THE FUND'S GAIN WAS MARKET-DRIVEN, MANY INDIVIDUAL
INVESTMENT DECISIONS CONTRIBUTED TO OVERALL PERFORMANCE."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - An improving economic environment proved a strong foundation for stocks
during the first half of the year.
- - The Fund underperformed its benchmark, the Russell Midcap Growth Index,
during the first six months of 2003.
- - The Fund's weighting in healthcare stocks was roughly comparable to the
Index, but many individual holdings performed significantly better than
those in the benchmark.
- - While most of the Fund's technology holdings performed well during the
period, an underweight position, as well as poor performance from a few
stocks in this sector, dampened the Funds relative performance.
cost-cutting measures, a weak U.S. dollar and lower interest rates also allowed
many companies to meet or beat earnings forecasts. More attractive valuations
began to appear, with higher profits and lower stock prices. And, after numerous
rate cuts, the Federal Open Market Committee encouraged consumers to borrow and
spend, and businesses to invest in new capital equipment, enhancing the case for
strong future profits. Moreover, poorly yielding savings alternatives led
investors to equities. Lower income tax, capital gain and dividend tax rates
also served to make stocks more attractive to investors, compared to other asset
classes.
WHAT WERE THE PRIMARY DRIVERS BEHIND
THE FUND'S PERFORMANCE DURING THE PERIOD?
While much of the Fund's gain was market-driven, many individual investment
decisions contributed to overall performance. Favorable stock selection in the
Fund's healthcare investments, the Fund's largest sector during the period,
boosted performance.
Rising healthcare costs are currently forcing businesses, governments and
consumers to grapple with these sometimes double-digit increases. The Fund holds
stocks in many companies that provide solutions to rising healthcare costs by
developing less expensive systems and products, and providing cheaper yet
high-quality health services. Pharmacy Benefit
4
<Page>
Managers CAREMARK RX, INC. and EXPRESS SCRIPTS, INC., two such holdings,
implement services such as formularies to improve the effectiveness and safety
of prescription drug use, while reducing the costs of the overall plan. During
the six-month period, Caremark rose 58%, while Express Scripts saw an increase
of 42%, both heavily contributing to the Fund's overall performance in this
sector.
Other examples of positive contributors to Fund performance in the
healthcare sector include BARR LABORATORIES, INC., and TEVA PHARMACEUTICAL
INDUSTRIES LIMITED, which both specialize in the development and marketing of
generic drugs. Sales and earnings results and future expectations continued to
rise for these companies as many types of pharmaceutical buyers begin choosing
less costly but equally effective generic drugs over their branded counterparts.
Note should also be made to the performance of INTERNATIONAL GAME
TECHNOLOGY. The developer and marketer of electronic casino games benefited from
the cashless trend in gaming that allows casino operators to create a higher
profit from each game played, through reduced downtime and faster play.
A final notable positive contributor to Fund performance was LENNAR
CORPORATION, a homebuilder that is reaping the benefits of record-low mortgage
rates and an increase in demand for new housing.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Barr Laboratories, Inc. (BRL) 2.45%
2. International Game Technology (IGT) 2.31%
3. Ross Stores, Inc. (ROST) 2.30%
4. CDW Corporation (CDWC) 2.29%
5. Caremark Rx, Inc. (CMX) 2.23%
6. AutoZone, Inc. (AZO) 2.23%
7. Brinker International, Inc. (EAT) 2.14%
8. DENTSPLY International, Inc. (XRAY) 2.12%
9. Affiliated Computer Services, Inc. (ACS) 2.12%
10. Teva Pharmaceutical Industries Limited (TEVA) 2.11%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
WHAT FACTORS HINDERED THE FUND'S PERFORMANCE?
Despite the recent market rally, the Fund's investment style faced a significant
headwind in the first half of 2003. Many of the strongest performing equities
during the period were companies we consider to be relatively low quality. By
low quality, we are referring to companies that, for example, are not profitable
or have demonstrated very inconsistent historical results. Companies that
produce strong earnings but poor cash flow, or those that have a history of
repeated "non-recurring" write-offs,
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Mid-Cap Growth
Fund on 6/30/93 to a $10,000 investment made in an unmanaged securities index on
that date. The Fund's performance assumes the reinvestment of dividends and
capital gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Russell Midcap Growth Index measures the performance of the 800
smallest companies in the Russell 1000 Index with higher price-to-book ratios
and higher forecasted growth values. The Russell 1000 Index measures the
performance of the largest 1,000 publicly traded U.S. companies. The total
return figures cited for this index assume change in security prices and
reinvestment of dividends, but do not reflect the costs of managing a mutual
fund. Further information related to Fund performance is contained elsewhere in
this report.
6
<Page>
also fall into this category. Despite these characteristics, stocks of these
firms generally performed better than the consistent, truly profitable growth
companies we favored during the period. Since the market lows in October of
2002, these lower quality companies enjoyed dramatic rebounds in their stock
price and led the market. In some cases, these rebounds were a result of
unfairly depressed valuations. In others, increased market confidence in the
company's financial viability, or simply investors returning to the big winners
of the late 1990s, hoping for another round of out-sized gains, were the impetus
for the stock's pricing.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 8.03% (7.21%) -- -- (18.54%)
Without sales charge 14.73% (1.66%) -- -- (17.15%)
CLASS B SHARES (12/31/99)
With redemption* 10.17% (5.95%) -- -- (18.00%)
Without redemption 14.17% (2.03%) -- -- (17.54%)
CLASS C SHARES (12/31/99)
With redemption** 13.40% (3.03%) -- -- (17.86%)
Without redemption 14.40% (2.05%) -- -- (17.86%)
CLASS F SHARES (9/8/61) 14.89% (1.31%) (8.30%) 2.76% N/A
CLASS R SHARES (12/31/99) 14.94% (0.99%) -- -- (16.85%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 9.13% (7.12%) -- -- (18.91%)
Without sales charge 14.34% (2.71%) -- -- (17.84%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions, expense limits for
certain share classes, and adjustments for financial statement purposes. Part of
the Fund's year-to-date performance is due to amounts received from class action
settlements regarding prior Fund holdings. There is no guarantee that these
settlement distributions will occur in the future or have a similar impact on
performance. Part of the Fund's historical performance is due to the purchase of
securities sold in initial public offerings (IPOs). There is no guarantee that
the Fund's investments in IPOs, if any, will continue to have a similar impact
on performance. There are risks associated with mid-cap investing, such as
limited product lines, less liquidity, and small market share.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
Many of these lower quality companies are in the technology and
telecommunications sectors, as well as biotechnology and internet retail areas,
and accounted for more than half of the Index's return during the six-month
timeframe. While almost 20% of the Fund was invested in technology during the
period, our tendency to invest in high-quality companies with strong cash flows
and high returns on investments often steers us away from the lower quality
companies in these industries. In addition, we believe many of these lower
quality stocks are pricing in unrealistic expectations, and we remain
disciplined to our bottom-up investment strategy of searching for companies with
the strongest secular profit growth potential at reasonable valuations.
Although several of the Fund's technology holdings performed well on an
absolute basis, an underweight position in technology and telecommunications, as
well as poor performance from some stock selections in these areas, dampened the
Fund's performance relative to the Index. For example, Tech Data Corporation, a
distributor of technology-related products, faced aggressive pricing among its
main competitors, as well as vendors who are attempting to sell directly to end
PORTFOLIO COMPOSITION
<Table>
23.49% Healthcare
22.79% Consumer Discretionary
19.42% Information Technology
13.23% Industrials
8.83% Financials
4.54% Energy
2.24% Consumer Staples
2.15% Materials
0.37% Telecommunications Services
2.94% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
8
<Page>
customers. Due to these factors, Tech Data posted disappointing financial
performance and the stock suffered as a result, posting a 1% loss during the
period.
Our investment in Cephalon, Inc., a biotech company with products that
treat narcolepsy and reduce pain, was also a hindrance to Fund performance,
falling 15.7% over the period. Sales of the company's leading daytime sleepiness
drug, Provigal, fell short of expectations leading to weaker-than-expected
profits.
The Fund's cash position, which averaged around 3% during the period,
created an additional impediment to increased performance as compared to the
fully invested Index.
Stock performance in the Fund's consumer discretionary sector also lagged
the benchmark. Darden Restaurants, Inc., one such weak performing holding in the
sector, was forced to lower its full-year forecast after sub-par performance by
its key concept restaurants, Red Lobster and Olive Garden.
Finally, the Fund was overweight the industrials sector during the period,
as many attractive companies had been identified and added to this area.
Unfortunately, the holdings did not perform well compared to the strong gains of
other sectors during first six months of the year, as investors instead
displayed their preference for riskier beneficiaries of a better economy.
As we prepare for the next six-month period, our strategy for the Fund remains
consistent. We will continue to search one-by-one for great mid-cap companies
with strong, secular profit opportunities. We will also place an emphasis on
management quality, businesses with high returns and significant competitive
advantages, strong free cash flow and reasonable valuations.
/s/ Kevin Sonnett
Kevin Sonnett, CFA
Portfolio Manager
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-92.2%
AEROSPACE & DEFENSE-0.6%
10,875 General Dynamics Corporation...................... $ 788,438
-------------
AIR FREIGHT & LOGISTICS-1.5%
21,750 C.H. Robinson Worldwide, Inc...................... 773,430
36,043 Expeditors International of Washington, Inc....... 1,248,530
-------------
2,021,960
-------------
APPAREL RETAIL-2.3%
72,547 Ross Stores, Inc.................................. 3,100,659
-------------
APPAREL, ACCESSORIES & LUXURY GOODS-0.3%
8,000 Coach, Inc.*...................................... 397,920
-------------
APPLICATION SOFTWARE-3.8%
91,300 BEA Systems, Inc.*................................ 991,518
167,400 Cadence Design Systems, Inc.*..................... 2,018,844
22,675 Mercury Interactive Corporation*.................. 875,482
43,365 Reynolds and Reynolds Company..................... 1,238,504
-------------
5,124,348
-------------
ASSET MANAGEMENT & CUSTODY BANKS-3.2%
59,300 Federated Investors, Inc. Class B................. 1,626,006
85,800 SEI Investments Company........................... 2,745,600
-------------
4,371,606
-------------
BIOTECHNOLOGY-0.9%
21,075 Gilead Sciences, Inc.*............................ 1,171,349
-------------
BROADCASTING & CABLE TV-1.3%
74,525 Cox Radio, Inc. Class A*.......................... 1,722,273
-------------
BUILDING PRODUCTS-1.5%
81,875 Masco Corporation................................. 1,952,719
-------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
CASINOS & GAMING-2.3%
30,500 International Game Technology*.................... $ 3,121,065
-------------
COMMUNICATIONS EQUIPMENT-1.4%
62,975 NetScreen Technologies, Inc.*..................... 1,420,086
36,450 Polycom, Inc.*.................................... 505,197
-------------
1,925,283
-------------
COMPUTER & ELECTRONICS RETAIL-0.5%
15,650 Best Buy Company, Inc.*........................... 687,348
-------------
COMPUTER STORAGE & PERIPHERALS-1.3%
37,200 QLogic Corporation*............................... 1,797,876
-------------
CONSUMER ELECTRONICS-1.1%
19,175 Harman International Industries, Inc.............. 1,517,510
-------------
DATA PROCESSING & OUTSOURCED SERVICES-5.1%
62,660 Affiliated Computer Services, Inc. Class A*....... 2,865,442
72,050 BISYS Group, Inc.*................................ 1,323,559
76,750 Fiserv, Inc.*..................................... 2,733,068
-------------
6,922,069
-------------
DIVERSIFIED BANKS-0.6%
19,975 TCF Financial Corporation......................... 795,804
-------------
DIVERSIFIED COMMERCIAL SERVICES-2.2%
88,589 ARAMARK Corporation Class B*...................... 1,986,165
26,600 Cintas Corporation................................ 942,704
-------------
2,928,869
-------------
ELECTRONIC EQUIPMENT MANUFACTURERS-0.8%
18,175 National Instruments*............................. 686,652
14,500 Waters Corporation*............................... 422,385
-------------
1,109,037
-------------
ELECTRONIC MANUFACTURING SERVICES-0.5%
23,650 Molex, Inc........................................ 638,314
-------------
ENVIRONMENTAL SERVICES-0.9%
52,925 Republic Services, Inc.*.......................... 1,199,810
-------------
FOOD DISTRIBUTORS-1.7%
77,925 Sysco Corporation................................. 2,340,867
-------------
FOOD RETAIL-0.5%
33,650 Safeway, Inc.*.................................... 688,479
-------------
GENERAL MERCHANDISE STORES-1.7%
73,625 Dollar Tree Stores, Inc.*......................... 2,336,121
-------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
HEALTHCARE DISTRIBUTORS-2.8%
24,275 AmerisourceBergen Corporation..................... $ 1,683,471
44,825 Patterson Dental Company*......................... 2,034,159
-------------
3,717,630
-------------
HEALTHCARE EQUIPMENT-5.7%
49,875 Biomet, Inc....................................... 1,429,418
36,775 Boston Scientific Corporation*.................... 2,246,953
70,112 DENTSPLY International, Inc....................... 2,867,581
18,825 St. Jude Medical, Inc.*........................... 1,082,438
-------------
7,626,390
-------------
HEALTHCARE SERVICES-4.1%
117,375 Caremark Rx, Inc.*................................ 3,014,190
37,800 Express Scripts, Inc. Class A*.................... 2,582,496
-------------
5,596,686
-------------
HOME FURNISHINGS-1.5%
50,025 Leggett & Platt, Inc.............................. 1,025,513
18,275 Mohawk Industries, Inc.*.......................... 1,014,811
-------------
2,040,324
-------------
HOMEBUILDING-1.0%
18,450 Lennar Corporation................................ 1,319,175
-------------
HOTELS, RESORTS & CRUISE LINES-0.8%
86,450 Hilton Hotels Corporation......................... 1,105,696
-------------
INDUSTRIAL CONGLOMERATES-1.8%
35,830 Danaher Corporation............................... 2,438,232
-------------
INDUSTRIAL GASES-1.0%
21,350 Praxair, Inc...................................... 1,283,135
-------------
INDUSTRIAL MACHINERY-1.6%
33,095 ITT Industries, Inc............................... 2,166,399
-------------
LEISURE FACILITIES-1.0%
58,975 Royal Caribbean Cruises Limited................... 1,365,861
-------------
LEISURE PRODUCTS-0.6%
12,125 Polaris Industries, Inc........................... 744,475
-------------
MANAGED HEALTHCARE-3.8%
27,125 Anthem, Inc.*..................................... 2,092,694
13,050 PacifiCare Health Systems, Inc.*.................. 643,757
27,575 WellPoint Health Networks, Inc.*.................. 2,324,573
-------------
5,061,024
-------------
METAL & GLASS CONTAINERS-1.2%
35,600 Ball Corporation.................................. 1,620,156
-------------
</Table>
12
<Page>
<Table>
- -----------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
OIL & GAS EQUIPMENT & SERVICES-3.0%
55,700 BJ Services Company*.............................. $ 2,080,952
54,600 Smith International, Inc.*........................ 2,006,004
-------------
4,086,956
-------------
OIL & GAS EXPLORATION & PRODUCTION-1.5%
31,426 Apache Corporation................................ 2,044,576
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES-2.6%
40,250 Ambac Financial Group, Inc........................ 2,666,563
64,500 Friedman, Billings, Ramsey Group, Inc............. 864,300
-------------
3,530,863
-------------
PHARMACEUTICALS-4.2%
50,450 Barr Laboratories, Inc.*.......................... 3,304,475
43,600 Forest Laboratories, Inc.*........................ 2,387,100
-------------
5,691,575
-------------
PUBLISHING-4.0%
7,800 E.W. Scripps Company.............................. 692,016
52,625 Getty Images, Inc.*............................... 2,173,413
21,925 McClatchy Company................................. 1,263,319
27,975 New York Times Company............................ 1,272,863
-------------
5,401,611
-------------
RESTAURANTS-2.1%
80,200 Brinker International, Inc.*...................... 2,888,804
-------------
SEMICONDUCTORS-0.8%
33,350 National Semiconductor Corporation*............... 657,662
30,650 Semtech Corporation*.............................. 436,456
-------------
1,094,118
-------------
SPECIALIZED FINANCE-1.0%
25,350 Moody's Corporation............................... 1,336,199
-------------
SPECIALTY STORES-2.2%
39,675 AutoZone, Inc.*................................... 3,014,110
-------------
SYSTEMS SOFTWARE-1.0%
20,600 Adobe Systems, Inc................................ 660,642
32,100 Macrovision Corporation*.......................... 639,432
-------------
1,300,074
-------------
TECHNOLOGY DISTRIBUTORS-2.3%
67,375 CDW Corporation*.................................. 3,085,775
-------------
THRIFTS & MORTGAGE FINANCE-1.0%
48,031 New York Community Bancorp, Inc................... 1,397,222
-------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS-1.7%
38,775 Fastenal Company.................................. $ 1,316,024
21,660 W.W. Grainger, Inc................................ 1,012,822
-------------
2,328,846
-------------
TRUCKING-1.5%
53,650 J.B. Hunt Transport Services, Inc.*............... 2,025,288
-------------
WIRELESS TELECOMMUNICATION SERVICES-0.4%
27,425 Nextel Communications, Inc.*...................... 495,844
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$108,349,456)................................................. 124,466,768
-------------
COMMON STOCKS (FOREIGN)-4.9%
APPLICATION SOFTWARE-0.5%
29,800 Amdocs Limited (CI)*.............................. 715,200
-------------
IT CONSULTING & OTHER SERVICES-1.4%
101,750 Accenture Limited Class A ADR (BD)*............... 1,840,658
-------------
PHARMACEUTICALS-2.1%
50,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS).......................................... 2,846,500
-------------
SYSTEMS SOFTWARE-0.5%
33,700 Check Point Software Technologies Limited (IS)*... 658,820
-------------
THRIFTS & MORTGAGE FINANCE-0.4%
10,800 Doral Financial Corporation (PU).................. 482,220
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$4,815,654)................................................... 6,543,398
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-7.6%
OTHER DIVERSIFIED FINANCIAL SERVICES-2.2%
$ 3,000,000 Merrill Lynch & Company
1.30% 7/1/03...................................... $ 3,000,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$3,000,000)......................................... 3,000,000
-------------
TOTAL INVESTMENTS-99.3%
(TOTAL COST-$116,165,110)........................................... 134,010,166
OTHER ASSETS AND LIABILITIES-0.7%................................... 962,634
-------------
NET ASSETS-100.0%................................................... $ 134,972,800
=============
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $ 116,165,110
-------------
Investment securities, at market.................. 134,010,166
Cash.............................................. 419,521
Receivables:
Investment securities sold...................... 3,004,594
Capital shares sold............................. 14,066
Dividends....................................... 49,883
From transfer agent............................. 131
Other assets...................................... 11,095
-------------
Total Assets.................................. 137,509,456
-------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 2,204,839
Capital shares redeemed......................... 23,295
Advisory fees................................... 89,409
Shareholder servicing fees...................... 15,078
Accounting fees................................. 6,660
Distribution fees............................... 22,568
Custodian fees.................................. 1,083
Other........................................... 173,724
-------------
Total Liabilities............................. 2,536,656
-------------
Net Assets........................................ $ 134,972,800
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $ 217,697,660
Accumulated net investment loss................... (630,031)
Accumulated net realized loss from security
transactions.................................... (99,939,885)
Net unrealized appreciation on investments........ 17,845,056
-------------
Total......................................... $ 134,972,800
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A............................... $ 518,024
Shares Outstanding--Class A....................... 174,779
Net Asset Value, Redemption Price Per Share....... $ 2.96
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 3.14
Net Assets--Class B............................... $ 1,134,677
Shares Outstanding--Class B....................... 391,454
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 2.90
Net Assets--Class C............................... $ 319,544
Shares Outstanding--Class C....................... 111,871
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 2.86
Net Assets--Class F............................... $132,865,970
Shares Outstanding--Class F....................... 44,103,890
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 3.01
Net Assets--Class R............................... $ 104,639
Shares Outstanding--Class R....................... 34,931
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 3.00
Net Assets--Class T............................... $ 29,946
Shares Outstanding--Class T....................... 10,441
Net Asset Value, Redemption Price Per Share....... $ 2.87
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 3.01
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 267,283
Interest........................................ 23,083
Foreign taxes withheld.......................... (1,325)
------------
Total Investment Income....................... 289,041
------------
EXPENSES:
Advisory fees--Note 2........................... 457,385
Shareholder servicing fees--Note 2.............. 97,036
Accounting fees--Note 2......................... 33,615
Distribution fees--Note 2....................... 142,488
Transfer agency fees--Note 2.................... 61,266
Registration fees............................... 37,485
Postage and mailing expenses.................... 14,396
Custodian fees and expenses--Note 2............. 6,498
Printing expenses............................... 21,266
Legal and audit fees............................ 13,028
Directors' fees and expenses--Note 2............ 13,820
Other expenses.................................. 27,007
------------
Total Expenses................................ 925,290
Earnings Credits.............................. (1,062)
Reimbursed/Waived Expenses.................... (1,161)
Expense Offset to Broker Commissions.......... (3,995)
------------
Net Expenses.................................. 919,072
------------
Net Investment Loss............................. (630,031)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions........ 3,442,901
Net Change in Unrealized Appreciation of
Investments....................................... 16,785,289
------------
Net Realized and Unrealized Gain................ 20,228,190
------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 19,598,159
============
Purchases of long-term securities................. $117,395,730
Proceeds from sales of long-term securities....... $ 95,837,901
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Loss..................... $ (630,031) $ (1,349,450)
Net Realized Gain (Loss) on Security
Transactions.......................... 3,442,901 (27,913,342)
Net Realized Gain from Foreign Currency
Transactions.......................... 0 264
Net Change in Unrealized
Appreciation/Depreciation............. 16,785,289 (1,680,486)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 19,598,159 (30,943,014)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... (24,964) 66,609
Class B............................... 31,260 150,527
Class C............................... 5,051 (6,389)
Class F............................... 23,555,986 620,840
Class R............................... 13,949 57,755
Class T............................... 6,710 6,135
------------ ------------
Net Increase from Capital Share
Transactions.......................... 23,587,992 895,477
------------ ------------
Net Increase (Decrease) in Net Assets... 43,186,151 (30,047,537)
NET ASSETS
Beginning of period................... $ 91,786,649 $121,834,186
------------ ------------
End of period......................... $134,972,800 $ 91,786,649
============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 2.58 $ 3.44 $ 4.38 $ 8.68
Income from investment
operations:
Net investment loss....... (0.03) (0.04) (0.06) (0.02)
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.41 (0.82) (0.88) (2.05)
------ ------- ------- -------
Total from investment
operations.......... 0.38 (0.86) (0.94) (2.07)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (2.23)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (2.23)
Net Asset Value, end of
period...................... $ 2.96 $ 2.58 $ 3.44 $ 4.38
====== ======= ======= =======
Total Return/Ratios
Total return*............. 14.73% (25.00%) (21.46%) (23.40%)
Net assets, end of period
(000s).................. $ 518 $ 476 $ 538 $ 625
Net expenses to average
net assets#............. 2.01%** 2.15% 2.46% 1.25%
Gross expenses to average
net assets#............. 2.01%** 2.15% 2.47% 1.29%
Net investment loss to
average net assets...... (1.50%)** (1.81%) (1.93%) (0.74%)
Portfolio turnover
rate@................... 227% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of
period...................... $ 2.54 $ 3.39 $ 4.32 $ 8.68
Income from investment
operations:
Net investment loss....... (0.02) (0.05) (0.05) (0.04)
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.38 (0.80) (0.88) (2.09)
------ ------- ------- -------
Total from investment
operations.......... 0.36 (0.85) (0.93) (2.13)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (2.23)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (2.23)
Net Asset Value, end of
period...................... $ 2.90 $ 2.54 $ 3.39 $ 4.32
====== ======= ======= =======
Total Return/Ratios
Total return*............. 14.17% (25.07%) (21.53%) (24.14%)
Net assets, end of period
(000s).................. $1,135 $ 969 $ 1,138 $ 1,047
Net expenses to average
net assets#............. 2.79%** 2.67% 2.58% 1.99%
Gross expenses to average
net assets#............. 2.80%** 2.68% 2.59% 2.04%
Net investment loss to
average net assets...... (2.29%)** (2.33%) (2.06%) (1.47%)
Portfolio turnover
rate@................... 227% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of period....... $ 2.50 $ 3.36 $ 4.32 $ 8.68
Income from investment operations:
Net investment loss.................... (0.02) (0.08) (0.08) (0.04)
Net gains (losses) on securities (both
realized and unrealized)............. 0.38 (0.78) (0.88) (2.09)
------ ------- ------- -------
Total from investment operations... 0.36 (0.86) (0.96) (2.13)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (2.23)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (2.23)
Net Asset Value, end of period............. $ 2.86 $ 2.50 $ 3.36 $ 4.32
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 14.40% (25.60%) (22.22%) (24.14%)
Net assets, end of period (000s)....... $ 320 $ 274 $ 380 $ 422
Net expenses to average net
assets#,+............................ 2.67%** 2.98% 3.93% 2.00%
Gross expenses to average net
assets#,+............................ 2.68%** 2.99% 3.94% 2.04%
Net investment loss to average net
assets+.............................. (2.17%)** (2.65%) (3.41%) (1.46%)
Portfolio turnover rate@............... 227% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.03% (2002) and 4.24% (2001). The gross
expense ratios would have been 3.04% (2002) and 4.25% (2001). The net
investment loss ratios would have been (2.70%) (2002) and (3.72%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 2.62 $ 3.47 $ 4.36 $ 8.68 $ 7.44 $ 7.72
Income from investment operations:
Net investment income (loss)........... 0.04 (0.04) (0.05) (0.03) (0.08) (0.03)
Net gains (losses) on securities (both
realized and unrealized)............. 0.35 (0.81) (0.84) (2.06) 3.12 (0.11)
-------- ------- -------- -------- -------- --------
Total from investment operations... 0.39 (0.85) (0.89) (2.09) 3.04 (0.14)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00 0.00^ 0.00^
From net realized gains................ 0.00 0.00 0.00 (2.23) (1.80) (0.14)
-------- ------- -------- -------- -------- --------
Total distributions................ 0.00 0.00 0.00 (2.23) (1.80) (0.14)
Net Asset Value, end of period............. $ 3.01 $ 2.62 $ 3.47 $ 4.36 $ 8.68 $ 7.44
======== ======= ======== ======== ======== ========
Total Return/Ratios
Total return........................... 14.89% (24.50%) (20.41%) (23.69%) 42.27% (1.73%)
Net assets, end of period (000s)....... $132,866 $89,970 $119,708 $166,365 $253,385 $252,855
Net expenses to average net assets#.... 1.63%** 1.56% 1.37% 1.36% 1.40% 1.33%
Gross expenses to average net
assets#.............................. 1.63%** 1.56% 1.39% 1.39% 1.42% 1.35%
Net investment loss to average net
assets............................... (1.11%)** (1.22%) (0.84%) (0.92%) (0.98%) (0.39%)
Portfolio turnover rate@............... 227% 216% 214% 226% 186% 152%
</Table>
^ Distributions from net investment income for the years ended December 31,
1999 and 1998 aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of period....... $ 2.61 $ 3.48 $ 4.39 $ 8.68
Income from investment operations:
Net investment income (loss)........... (0.01) (0.04) 0.01 (0.03)
Net gains (losses) on securities (both
realized and unrealized)............. 0.40 (0.83) (0.92) (2.03)
------- ------- ------- -------
Total from investment operations... 0.39 (0.87) (0.91) (2.06)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (2.23)
------- ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (2.23)
Net Asset Value, end of period............. $ 3.00 $ 2.61 $ 3.48 $ 4.39
======= ======= ======= =======
Total Return/Ratios
Total return........................... 14.94% (25.00%) (20.73%) (23.28%)
Net assets, end of period (000s)....... $ 105 $ 77 $ 49 $ 7
Net expenses to average net
assets#,+............................ 1.73%** 1.97% 2.89% 1.00%
Gross expenses to average net
assets#,+............................ 1.73%** 1.97% 2.91% 1.03%
Net investment loss to average net
assets+.............................. (1.22%)** (1.63%) (2.40%) (0.55%)
Portfolio turnover rate@............... 227% 216% 214% 226%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.49% (2002) and 57.53% (2001). The gross
expense ratios would have been 3.49% (2002) and 57.54% (2001). The net
investment loss ratios would have been (3.15%) (2002) and (57.04%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of
period...................... $ 2.51 $ 3.39 $ 4.35 $ 8.68
Income from investment
operations:
Net investment income
(loss).................. 0.02 (0.06) (0.11) (0.02)
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.34 (0.82) (0.85) (2.08)
------ ------- ------- -------
Total from investment
operations.......... 0.36 (0.88) (0.96) (2.10)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (2.23)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (2.23)
Net Asset Value, end of
period...................... $ 2.87 $ 2.51 $ 3.39 $ 4.35
====== ======= ======= =======
Total Return/Ratios
Total return*............. 14.34% (25.96%) (22.07%) (23.80%)
Net assets, end of period
(000s).................. $ 30 $ 20 $ 20 $ 29
Net expenses to average
net assets#,+........... 2.88%** 3.63% 3.11% 1.50%
Gross expenses to average
net assets#,+........... 2.89%** 3.64% 3.13% 1.55%
Net investment loss to
average net assets+..... (2.37%)** (3.29%) (2.57%) (0.98%)
Portfolio turnover
rate@................... 227% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 10.29% (2002) and 28.89% (2001). The gross
expense ratios would have been 10.30% (2002) and 28.91% (2001). The net
investment loss ratios would have been (9.95%) (2002) and (28.35%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Mid-Cap Growth Fund (the "Fund"). The Fund offers Class A,
Class B, Class C, Class F, Class R, and Class T shares. Class A and Class T
shares are subject to a sales charge imposed at the time of purchase, Class B
shares are subject to a contingent deferred sales charge ("CDSC") imposed on
Class B share redemptions made within six years of purchase, Class C shares are
subject to a CDSC imposed on Class C shares redeemed within one year of
purchase, and Class F and Class R shares are sold at net asset value per share
(with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions areaccounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make
26
<Page>
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions of Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $30 million of net assets, 0.75% of the next $270 million
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
of net assets, 0.70% of the next $200 million of net assets, and 0.65% of net
assets in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$29,442 and $65,407, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $11,652 and $23,773, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $ 1,495
Class B..................................................... $ 3,195
Class C..................................................... $ 766
Class R..................................................... $ 251
Class T..................................................... $ 137
</Table>
28
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $137,773 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C, shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $ 597
Class B................................. $3,624 $1,208
Class C................................. $1,064 $ 355
Class T................................. $ 27 $ 27
</Table>
During the six months ended June 30, 2003, DSC retained $203 and $341 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,864 of contingent deferred sales charges relating to redemptions of
Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
monitoring, regulatory and shareholder reporting, as well as related facilities,
equipment and clerical help. The fee is computed at the annual rate of 0.06% of
the average daily net assets of the Fund on the first $500 million, 0.04% of the
average daily net assets of the Fund on the next $500 million, and 0.02% of the
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $1,161. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
For the six months ended June 30, 2003, Founders reimbursed the Fund for
certain trading errors, the amounts of which were insignificant.
30
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2002, represent capital loss carryovers that may be
available to offset future realized capital gains and thereby reduce future
taxable gains distributions. Post-October 31 foreign currency losses noted
below, if any, may be used to offset future net investment income and thereby
reduce future ordinary income distributions. These carryovers expire between
December 31, 2009 and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $ 99,490,663
Post-October Capital Loss Deferral.......................... $ 0
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $117,109,994
Gross Tax Appreciation of Investments....................... $ 17,183,567
Gross Tax Depreciation of Investments....................... $ (283,395)
Net Tax Appreciation........................................ $ 16,900,172
</Table>
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 500 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- -----------------
CLASS A
Sold.................... 19,786 $ 52,019 282,153 $ 757,701
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (29,382) $ (76,983) (254,287) $ (691,092)
NET INCREASE
(DECREASE)............ (9,596) $ (24,964) 27,866 $ 66,609
CLASS B
Sold.................... 40,400 $ 111,473 156,797 $ 474,952
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (30,946) $ (80,213) (110,190) $ (324,425)
NET INCREASE............ 9,454 $ 31,260 46,607 $ 150,527
CLASS C
Sold.................... 21,990 $ 58,231 29,342 $ 92,484
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (19,664) $ (53,180) (32,951) $ (98,873)
NET INCREASE
(DECREASE)............ 2,326 $ 5,051 (3,609) $ (6,389)
CLASS F
Sold.................... 14,690,270 $ 36,283,172 15,890,407 $ 45,272,617
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (4,910,975) $ (12,727,186) (16,090,739) $ (44,651,777)
NET INCREASE
(DECREASE)............ 9,779,295 $ 23,555,986 (200,332) $ 620,840
CLASS R
Sold.................... 8,633 $ 23,507 41,636 $ 135,210
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (3,403) $ (9,558) (26,128) $ (77,455)
NET INCREASE............ 5,230 $ 13,949 15,508 $ 57,755
CLASS T
Sold.................... 2,448 $ 6,710 4,300 $ 13,887
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (0) $ (0) (2,324) $ (7,752)
NET INCREASE............ 2,448 $ 6,710 1,976 $ 6,135
</Table>
32
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
33
<Page>
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
2930 East Third Avenue
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
This report is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus, which contains more complete
information including charges, expenses, and share classes. Please read the
prospectus carefully before you invest or send money. Date of first use: August
28, 2003
Dreyfus Service Corporation, Distributor. (C)2003 Founders Asset Management
LLC.
A-636-MC-03
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
PASSPORT FUND
INVESTMENT UPDATE
JUNE 30, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 19
Statement of Operations 21
Statements of Changes in Net Assets 22
Financial Highlights 23
Notes to Financial Statements 29
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website.
To take advantage of this service, simply inform us online of your decision
to receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2003. The amounts of these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF TRACY STOUFFER, CFA]
A DISCUSSION WITH PORTFOLIO
MANAGER TRACY STOUFFER, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARKS FOR THE SIX MONTHS ENDED
JUNE 30?
The global markets had their best performance in four and a half years.
In an environment of diminishing geopolitical uncertainty and accelerating
global liquidity, many industries were able to aggressively cut costs,
restructure and consolidate. This paved the way for an earnings recovery and
higher equity valuations for many small-cap stocks worldwide.
The Dreyfus Founders Passport Fund was able to capitalize on these
convalescing markets. The Fund's performance(1) was competitive with its
small-cap benchmark, the Morgan Stanley Capital International (MSCI) World ex
U.S. Small Cap Index, which returned 21.57% during the period. The Fund
outperformed the MSCI World ex U.S. Index, which returned 10.25%. This relative
outperformance of the latter benchmark was due mostly to the benchmark's
constituents of larger capitalization stocks, which as a whole did not produce
the returns international small-cap stocks saw during the period.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"WE INCREASED THE FUND'S WEIGHTING IN JAPAN TO THE LEVEL OF OUR SMALL-CAP
BENCHMARK TO TAKE ADVANTAGE OF BOTH THE MACRO AND MICRO VIRTUES OF THE JAPANESE
MARKET."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Despite continued volatility and lackluster economic conditions leading up to
the war in Iraq, stocks began to rally as the fighting subsided and investors
turned their attention back to the prospects for the global economy.
- - Small-capitalization stocks generally outperformed large-cap stocks in many
international markets.
- - The Fund benefited from strong performing stock selections in the consumer
staples sector.
- - The outbreak of SARS hindered returns in Asian markets.
- - Our strategy remains the same. We will continue to seek opportunities outside
the U.S. for new technologies, restructuring companies and unit volume growth
stocks.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
A cloud of uncertainty hovered over the international stock markets during the
first quarter of 2003 while the United States and the United Kingdom prepared
for war in Iraq. Corporate spending remained sluggish, and several industries
continued to struggle with excess inventories and high debt burdens. Consumer
spending fared slightly better.
However, as the conflict in Iraq moved toward resolution, investors worldwide
began to regain confidence and to anticipate a much hoped for second-half
recovery. By mid-March, markets were recovering in North America, Europe and
Latin America. Many Asian markets initially lagged due to the outbreak of Severe
Acute Respiratory Syndrome (SARS), but rebounded by the end of April.
On a more specific level, many investors were reassured that a series of
tax cuts implemented by President Bush would help boost chances of a domestic
recovery, which they believed could, in turn, benefit the global economic
picture. The implementation of a further domestic interest rate
4
<Page>
cut in June was aimed at encouraging borrowing and providing insurance against
deflationary pressure. Additionally, the European Central Bank eased rates by
another 50 basis points to encourage its economic jumpstart as well. All of
these factors helped contribute to a significant second quarter gain in most
world equity markets, the largest quarterly gain since 1998.
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE DURING THE PERIOD?
Our research approach led us to uncover many strong performers across various
countries and market sectors. For instance, we saw a compelling global theme
emerge during the period. A number of Internet companies began exhibiting signs
of both strong growth and profitability due to either the filling of a niche
market, or performing what are fast becoming necessary public services. The Fund
purchased shares in several Internet service companies in Europe and Asia, which
performed well during the period. We were perhaps most pleased with the Fund's
second largest holding, lastminute.com PLC, a website in the United Kingdom that
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Puma AG Rudolf Dassler Sport (Germany; PUM) 1.97%
2. lastminute.com PLC (United Kingdom; LMC) 1.52%
3. Kenwood Corporation (Japan; 6765) 1.49%
4. Italian-Thai Development PCL (Thailand; ITD.F) 1.31%
5. Golar LNG Limited (United Kingdom; GOL) 1.20%
6. First Engineering Limited (Singapore; FEN) 1.13%
7. SSL International PLC (United Kingdom; SSL) 1.11%
8. CoolBrands International, Inc. (Canada; COB.A) 1.11%
9. Nachi-Fujikoshi Corporation (Japan; 6474) 1.10%
10. Ayala Land, Inc. (Philippines; ALI) 1.09%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
offers consumers last minute opportunities for travel and entertainment. In its
short existence, lastminute.com has established a powerful brand name and
created a niche market. Last year the stock was the best performing stock on the
FTSE 350 Index, climbing 240%. This year, the stock continued to climb by an
additional 69% as of June 30, 2003.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Passport Fund on
its inception date of 11/16/93 to a $10,000 investment made in an unmanaged
securities index. The Fund's performance assumes the reinvestment of dividends
and capital gain distributions, but does not reflect the deduction of taxes that
a shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The MSCI World ex U.S. Index is an average of the performance of selected
securities listed on the stock exchanges of Europe, Canada, Australia, New
Zealand, and the Far East. The performance data for the MSCI World ex U.S. Index
is from November 30, 1993 through June 30, 2003. Total return figures for this
index assume change in share price and reinvestment of dividends after the
deduction of local taxes, but do not reflect the costs of managing a mutual
fund. Further information related to Fund performance is contained elsewhere in
this report.
6
<Page>
In the consumer discretionary sector, PUMA AG RUDOLF DASSLER SPORT, the
German-based footwear and apparel manufacturer, contributed favorable results
to the Fund due to its continued strong performance. Puma has remained a very
popular brand among trendsetters for quite some time. It was also the Fund's
largest holding at the end of the period.
The Fund also took advantage of opportunities in the telecommunications
service sector, an industry that appears to be stabilizing due to a tremendous
amount of cost cutting and consolidation.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 15.51% (6.64%) -- -- (19.56%)
Without sales charge 22.60% (0.99%) -- -- (18.18%)
CLASS B SHARES (12/31/99)
With redemption* 18.01% (5.84%) -- -- (19.44%)
Without redemption 22.01% (1.92%) -- -- (18.83%)
CLASS C SHARES (12/31/99)
With redemption** 21.07% (2.81%) -- -- (18.87%)
Without redemption 22.07% (1.83%) -- -- (18.87%)
CLASS F SHARES (11/16/93) 22.63% (0.89%) (3.22%) N/A 4.27%
CLASS R SHARES (12/31/99) 22.74% (2.52%) -- -- (18.95%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 16.75% (6.15%) -- -- (20.09%)
Without sales charge 22.24% (1.74%) -- -- (19.03%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions, expense limitations,
and adjustments for financial statement purposes. Part of the Fund's historical
performance is due to the purchase of securities sold in initial public
offerings (IPOs). There is no guarantee that the Fund's investments in IPOs, if
any, will continue to have a similar impact on performance. There are risks
associated with small-cap investments such as limited product lines, less
liquidity, and small market share. Investments in foreign securities may entail
unique risks, including political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
The Fund was also positively impacted by its exposure to emerging markets.
As of June 30, 2003, about 20% of the Fund's holdings were in emerging markets.
Our ability to invest in such markets boosted the Fund's overall performance, as
these markets experienced an exceptional first half.
Changes in currency exchange rates also contributed positively to the
Fund's performance during the reporting period, with most major world currencies
gaining against the dollar.
On a relative basis, the Fund's holdings in the United Kingdom were the
largest contributor to the Funds performance versus the MSCI World ex U.S. Small
Cap Index.
Finally, we increased the Fund's weighting in Japan to the level of our
small-cap benchmark to take advantage of both the macro and micro virtues of the
Japanese market. On the macro front, Japan is exiting a 13-year period of
deflation. Unemployment is falling, jobs are being
[CHART]
PORTFOLIO COMPOSITION
<Table>
28.27% Japan
15.80% United Kingdom
8.21% Thailand
6.25% Germany
6.10% Canada
4.73% France
4.37% South Korea
3.41% Singapore
3.11% Cash & Equivalents
19.75% Other Countries
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
The Morgan Stanley Capital International (MSCI) World ex U.S. Small Cap Index is
an average of the performance of selected foreign small-capitalization
securities. Total return figures assume change in share price and reinvestment
of dividends after the deduction of local taxes, but do not reflect the costs of
managing a mutual fund.
8
<Page>
created, and households are spending. On a micro level, companies have
restructured, paid down debt and moved production to low-cost countries. Much of
the media focus has been on the large-cap sector in Japan, which still faces
many challenges because many of its constituents are distressed banks and large
companies involved in the onerous task of unwinding cross-share holdings.
Meanwhile, their small-cap counterparts have few of these ills and outperformed
during the period.
WHAT FACTORS NEGATIVELY IMPACTED THE FUND'S PERFORMANCE?
A slight detractor to the Fund's performance was the SARS epidemic in Asia. The
Fund avoided industries and regions most likely to be affected by the outbreak.
However, some stocks in Hong Kong and Taiwan were still portfolio holdings at
the onset of the SARS outbreak. Sectors sensitive to the effects of a travel
advisory to the Asian region, such as airlines, sold off at the onset.
Additionally, bad timing on some technology purchases hindered performance.
As we prepare for the final six months of 2003, we remain consistent
in our investment strategy and process. We will continue to use our
growth-focused investment research process in seeking out small-capitalization
international companies with strong growth potential.
/s/ Tracy Stouffer
Tracy Stouffer, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-96.8%
ADVERTISING-1.9%
1,462,150 Incepta Group PLC (UK)............................ $ 373,982
6,850 Ipsos (FR)*....................................... 425,175
281,575 Taylor Nelson Sofres PLC (UK)..................... 780,604
----------------
1,579,761
----------------
ALTERNATIVE CARRIERS-0.7%
32,825 Genesys (FR)*..................................... 162,089
226,050 QSC AG (GE)*...................................... 438,705
----------------
600,794
----------------
ALUMINUM-1.5%
144,000 Daiki Aluminum Industry Company Limited (JA)...... 428,132
540,000 Nippon Light Metal Company Limited (JA)........... 796,002
----------------
1,224,134
----------------
APPAREL RETAIL-0.5%
7,175 Camaieu (FR)...................................... 407,034
----------------
APPAREL, ACCESSORIES & LUXURY GOODS-1.6%
66,725 Burberry Group PLC (UK)........................... 273,066
51,925 Hockey Company Holdings, Inc. 144A (CA)*+......... 616,390
8,500 Marzotto SPA (IT)................................. 57,102
68,000 Sanyo Shokai Limited (JA)......................... 411,143
----------------
1,357,701
----------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
APPLICATION SOFTWARE-2.7%
76,700 Aldata Solution Oyj (FI)*......................... $ 133,881
25,825 Exact Holding NV (NE)*............................ 414,303
1,211,175 Intec Telecom Systems PLC (UK)*................... 499,660
75,871 Merant PLC (UK)*.................................. 165,264
37,825 NDS Group PLC Sponsored ADR (UK)*................. 585,909
1,214,500 Symphony House Berhad (MA)*....................... 393,134
----------------
2,192,151
----------------
ASSET MANAGEMENT & CUSTODY BANKS-0.8%
55,925 Liontrust Asset Management PLC (UK)............... 389,306
47 Sparx Asset Management Company Limited (JA)....... 293,958
----------------
683,264
----------------
AUTO PARTS & EQUIPMENT-1.3%
144,900 Aapico Hitech Public Company Limited NVDR Shares
(TH).............................................. 236,100
265,000 Press Kogyo Company Limited (JA)*................. 403,873
96,075 Thai Stanley Electric Public Company Limited NVDR
Shares (TH)*...................................... 457,065
----------------
1,097,038
----------------
AUTOMOBILE MANUFACTURERS-0.6%
305,000 Isuzu Motors Limited (JA)*........................ 449,594
----------------
BIOTECHNOLOGY-1.1%
79,500 Acambis PLC (UK)*................................. 484,084
527,125 Antisoma PLC (UK)*................................ 390,908
----------------
874,992
----------------
BUILDING PRODUCTS-2.2%
3,602,000 Asia Aluminum Holdings Limited (CN)............... 475,765
673,500 Dynasty Ceramic Public Company Limited Foreign
Shares (TH)....................................... 211,470
95,000 Nippon Sheet Glass Company Limited (JA)........... 284,820
85,000 Okura Industrial Company Limited (JA)............. 397,835
2,068,200 Vanachai Group Public Company Limited Foreign
Shares (TH)....................................... 435,385
----------------
1,805,275
----------------
CASINOS & GAMING-0.8%
36,075 Lottomatica SPA (IT)*............................. 635,497
----------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
NVDR - NON-VOTING DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.3%
94,725 ADVA AG Optical Networking (GE)*.................. $ 321,987
95,050 Bookham Technology PLC (UK)*...................... 130,184
227,000 Denki Kogyo Company Limited (JA).................. 606,846
288,450 Digital Chosun Company Limited (KR)*.............. 350,149
151,000 Oki Electric Industry Company Limited (JA)*....... 432,596
102,850 Sierra Wireless, Inc. (CA)*....................... 632,026
124,650 Wi-LAN, Inc. (CA)*................................ 229,338
----------------
2,703,126
----------------
COMPUTER & ELECTRONICS RETAIL-0.4%
17,120 Germanos SA (GR).................................. 286,644
----------------
COMPUTER HARDWARE-0.5%
1,608,000 MFS Technology Limited (SG)*...................... 438,296
----------------
COMPUTER STORAGE & PERIPHERALS-1.6%
2,502,000 First Engineering Limited (SG).................... 930,613
271,650 Gemplus International SA (LU)*.................... 371,226
----------------
1,301,839
----------------
CONSTRUCTION & ENGINEERING-4.9%
49,340 Daewoo Shipbuilding & Marine Engineering Company
Limited (KR)*..................................... 417,190
30 EPCO Corporation (JA)............................. 154,903
11,325 Imtech NV (NE).................................... 209,775
1,346,500 Italian-Thai Development Public Company Limited
Foreign Shares (TH)*.............................. 1,072,972
61,000 JGC Corporation (JA).............................. 410,477
140,000 Kyowa Exeo Corporation (JA)....................... 494,359
305,000 Meisei Industrial Company Limited (JA)*........... 640,100
4,014,200 Sino Thai Engineering & Development Public Company
Limited NVDR Shares (TH)*......................... 630,203
----------------
4,029,979
----------------
CONSTRUCTION MATERIALS-0.7%
6,770 Hanil Cement Manufacturing Company Limited (KR)... 271,480
396,500 Tipco Asphalt Public Company Limited NVDR Shares
(TH)*............................................. 332,460
----------------
603,940
----------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.5%
6,866,500 PT United Tractors Tbk (ID)*...................... 395,344
----------------
CONSUMER ELECTRONICS-1.5%
436,000 Kenwood Corporation (JA)*......................... 1,227,300
----------------
CONSUMER FINANCE-1.5%
233,500 AEON Thana Sinsap Public Company Limited NVDR
Shares (TH)....................................... 777,593
138,000 Daiei OMC, Inc. (JA)*............................. 421,786
----------------
1,199,379
----------------
DEPARTMENT STORES-0.6%
506,075 David Jones Limited (AU).......................... 448,004
----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
DISTRIBUTORS-0.3%
9,800 Kuroda Electric Company Limited (JA).............. $ 221,995
----------------
DIVERSIFIED CHEMICALS-0.3%
167,000 Ishihara Sangyo Kaisha Limited (JA)............... 282,332
----------------
DIVERSIFIED COMMERCIAL SERVICES-1.7%
64,370 Autohellas SA (GR)................................ 416,912
54,050 ebookers PLC (UK)*................................ 398,686
46,725 Techem AG (GE)*................................... 574,136
----------------
1,389,734
----------------
DIVERSIFIED METALS & MINING-1.0%
299,600 Banpu Public Company Limited NVDR Shares (TH)..... 322,476
4,900 Sumitomo Titanium Corporation (JA)................ 57,743
301,000 Toho Zinc Company Limited (JA).................... 428,657
----------------
808,876
----------------
ELECTRIC UTILITIES-0.6%
295,450 Electricity Generating Public Company Limited
Foreign Shares (TH)............................... 397,072
49,125 Electricity Generating Public Company Limited NVDR
Shares (TH)....................................... 64,853
----------------
461,925
----------------
ELECTRICAL COMPONENTS & EQUIPMENT-3.4%
91,000 Dainippon Screen Manufacturing Company Limited
(JA)*............................................. 445,621
26,080 HiSmarTech Company Limited (KR)*.................. 202,396
6,740 KH Vatec Company Limited (KR)*.................... 615,036
8,850 Leoni AG (GE)..................................... 438,028
1,635,000 Magnecomp International Limited (SG)*............. 459,583
81,000 Shibaura Mechatronic (JA)*........................ 422,286
10 Wacom Company Limited (JA)........................ 201,541
----------------
2,784,491
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.4%
16,270 Kumho Electric, Inc. (KR)*........................ 422,244
149,000 Kyosan Electric Manufacturing Company Limited
(JA).............................................. 438,035
99,000 Tamura Corporation (JA)........................... 325,671
----------------
1,185,950
----------------
EMPLOYMENT SERVICES-0.8%
70 en-japan, inc. (JA)*.............................. 320,633
70 en-japan, inc. New Shares (JA)*................... 320,633
----------------
641,266
----------------
</Table>
* NON-INCOME PRODUCING.
NVDR - NON-VOTING DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
FOOTWEAR-2.0%
11,200 Puma AG Rudolf Dassler Sport (GE)................. $ 1,102,251
5,200 Puma AG Rudolf Dassler Sport 144A (GE)+........... 511,759
----------------
1,614,010
----------------
GENERAL MERCHANDISE STORES-0.9%
9,000 Gifi (FR)......................................... 427,882
500 Plant Company Limited (JA)........................ 6,454
10,300 Ryohin Keikaku Company Limited (JA)............... 264,202
----------------
698,538
----------------
GOLD-0.5%
194,977 Kingsgate Consolidated Limited (AU)............... 384,436
----------------
HEALTHCARE EQUIPMENT-1.0%
21,825 Amplifon SPA (IT)................................. 410,785
12,000 Nakanishi, Inc. (JA).............................. 397,751
----------------
808,536
----------------
HEALTHCARE SUPPLIES-1.1%
188,400 SSL International PLC (UK)........................ 910,911
----------------
HEAVY ELECTRICAL EQUIPMENT-0.4%
1,846,000 Dongfang Electrical Machinery Company Limited
(CN)*............................................. 338,516
----------------
HIGHWAYS & RAILTRACKS-0.6%
487,950 Eurotunnel SA (FR)*............................... 358,622
798,000 GZI Transport Limited (CN)........................ 156,569
----------------
515,191
----------------
HOMEBUILDING-1.6%
85,025 George Wimpey PLC (UK)............................ 413,901
67,200 Joint Corporation (JA)............................ 456,675
138,150 Wilson Connolly Holdings PLC (UK)................. 424,025
----------------
1,294,601
----------------
HOTELS, RESORTS & CRUISE LINES-0.5%
72,000 De Vere Group PLC (UK)............................ 423,564
----------------
HOUSEHOLD PRODUCTS-0.3%
45 Dr. Ci:Labo Company Limited (JA).................. 228,607
----------------
INDUSTRIAL CONGLOMERATES-0.7%
10,453 Financiere Marc de Lacharriere SA (FR)............ 288,094
189,400 Palmco Holdings Berhad (MA)....................... 296,563
----------------
584,657
----------------
INDUSTRIAL MACHINERY-3.4%
97,100 ATS Automation Tooling Systems, Inc. (CA)*........ 850,375
60,100 Fuji Machine Manufacturing Company Limited (JA)... 695,724
492,000 Nachi-Fujikoshi Corporation (JA).................. 905,534
130 Sodick Plustech Company Limited (JA).............. 313,970
----------------
2,765,603
----------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-0.9%
144 G-mode Company Limited (JA)....................... $ 365,771
196 Invoice, Inc. (JA)................................ 412,975
----------------
778,746
----------------
INTERNET SOFTWARE & SERVICES-2.9%
22 Access Company Limited (JA)*...................... 439,725
61,025 Easynet Group PLC (UK)*........................... 126,501
395,675 Emblaze Systems Limited (IS)*..................... 701,899
66,500 Global Media Online, Inc. (JA).................... 357,768
4,220,000 Hongkong.com Corporation (CN)*.................... 351,752
35 Index Corporation (JA)............................ 203,748
52,200 Internet Initiative Japan, Inc. Sponsored ADR
(JA)*............................................. 227,592
----------------
2,408,985
----------------
INVESTMENT BANKING & BROKERAGE-1.5%
1,090,000 CIMB Berhad (MA).................................. 872,000
54,375 Collins Stewart Tullett PLC (UK).................. 376,856
----------------
1,248,856
----------------
IT CONSULTING & OTHER SERVICES-2.0%
1,229,300 BATM Advanced Communications Limited (IS)*........ 410,781
1,770,000 CSE Global Limited (SG)........................... 482,453
195 Gigno System Japan, Inc. (JA)..................... 394,628
146 Netmarks, Inc. (JA)............................... 383,011
----------------
1,670,873
----------------
LEISURE FACILITIES-0.5%
588,775 Euro Disney SCA (FR)*............................. 398,917
----------------
LEISURE PRODUCTS-3.5%
128,075 Hip Interactive Corporation (CA)*................. 152,695
429,950 lastminute.com PLC (UK)*.......................... 1,248,700
43,100 Mega Bloks, Inc. 144A (CA)*+...................... 666,102
63,900 Sanrio Company Limited (JA)....................... 394,868
64,000 Takara Company Limited (JA)....................... 405,613
----------------
2,867,978
----------------
MARINE-1.1%
49,290 Hanjin Shipping Company Limited (KR)*............. 405,214
964,000 Jaya Holdings Limited (SG)........................ 205,281
1,674,300 Thoresen Thai Agencies NVDR Shares (TH)........... 304,672
----------------
915,167
----------------
MOVIES & ENTERTAINMENT-0.8%
160,675 HIT Entertainment PLC (UK)........................ 655,480
----------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
NVDR - NON-VOTING DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE-0.9%
280,250 Hiscox PLC (UK)................................... $ 753,808
----------------
MULTI-UTILITIES & UNREGULATED POWER-1.0%
121 Japan Wind Development Company Limited (JA)*...... 852,517
----------------
OFFICE SERVICES & SUPPLIES-0.2%
8,800 Glory Limited (JA)................................ 194,945
----------------
OIL & GAS EQUIPMENT & SERVICES-2.9%
1,203,000 Federal International (2000) Limited (SG)......... 283,501
186,475 John Wood Group PLC 144A (UK)+.................... 553,886
35,300 Schoeller-Bleckmann Oilfield Equipment AG (AT).... 356,729
227,000 Scomi Group Berhad (MA)*.......................... 296,303
201,950 Total Energy Services Limited (CA)*............... 401,284
388,000 Toyo Kanetsu KK (JA)*............................. 465,309
----------------
2,357,012
----------------
OIL & GAS EXPLORATION & PRODUCTION-0.2%
43,025 Great Northern Exploration Limited (CA)*.......... 126,656
----------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION-1.7%
11,175 Exmar NV (BE)*.................................... 381,911
95,000 Golar LNG Limited (UK)*........................... 987,061
----------------
1,368,972
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-2.5%
57,625 Comdirect Bank AG (GE)*........................... 436,754
15,507 Grenkeleasing AG (GE)*............................ 297,390
28,075 Home Capital Group, Inc. (CA)..................... 423,563
2,403,350 National Finance Public Company Limited Foreign
Shares (TH)*...................................... 863,239
----------------
2,020,946
----------------
PACKAGED FOODS & MEATS-1.7%
91,950 CoolBrands International, Inc. (CA)*.............. 910,162
15,850 Dongwon F&B Company Limited (KR).................. 457,786
----------------
1,367,948
----------------
PHARMACEUTICALS-0.7%
516,800 SykePharma PLC (UK)*.............................. 592,700
----------------
PHOTOGRAPHIC PRODUCTS-0.7%
15,700 Nidec Copal Corporation (JA)...................... 247,121
16,100 Studio Alice Company Limited (JA)................. 348,615
----------------
595,736
----------------
PUBLISHING-1.0%
111,400 Bloomsbury Publishing PLC (UK).................... 431,997
30,375 Schibsted ASA (NW)................................ 420,800
----------------
852,797
----------------
REAL ESTATE INVESTMENT TRUSTS-0.5%
75 Japan Retail Fund Investment Corporation (JA)..... 392,255
----------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-2.4%
7,974,000 Ayala Land, Inc. (PH)............................. $ 895,201
21,810,900 Filinvest Land, Inc. (PH)*........................ 416,262
962,300 Glomac Berhad (MA)................................ 425,438
220,575 Marylebone Warwick Balfour Group PLC (UK)*........ 222,031
----------------
1,958,932
----------------
REGIONAL BANKS-0.6%
6,417,500 PT Bank Mandiri 144A (ID)*+....................... 525,068
----------------
RESTAURANTS-0.2%
619,450 Leon de Bruxelles (FR)*........................... 163,612
----------------
SEMICONDUCTOR EQUIPMENT-0.8%
88,825 Silicon-On-Insulator Technologies (FR)*........... 528,380
13,000 Tosei Engineering Corporation (JA)................ 123,748
----------------
652,128
----------------
SEMICONDUCTORS-3.8%
271,425 ARM Holdings PLC (UK)*............................ 300,090
339,575 Dialog Semiconductor PLC (GE)*.................... 620,032
21,800 Disco Corporation (JA)............................ 836,960
50,600 ELMOS Semiconductor AG (GE)*...................... 388,739
123,000 Malaysian Pacific Industries Berhad (MA).......... 466,105
69,000 New Japan Radio Company Limited (JA).............. 519,475
----------------
3,131,401
----------------
SPECIALIZED FINANCE-0.5%
100 Banque Nationale de Belgique (BE)................. 428,227
----------------
SPECIALTY CHEMICALS-0.5%
116,000 Chugoku Marine Paints Limited (JA)................ 396,086
----------------
SPECIALTY STORES-0.5%
2,000 Valora Holding AG (SZ)............................ 409,007
----------------
STEEL-1.6%
1,816,000 Angang New Steel Company Limited Class H (CN)..... 402,878
2,666,000 Maanshan Iron and Steel Company Limited (CN) *.... 451,279
326,500 Nippon Yakin Kogyo Company Limited (JA)*.......... 497,601
----------------
1,351,758
----------------
SYSTEMS SOFTWARE-0.4%
44,000 ILOG SA (FR)*..................................... 362,793
----------------
THRIFTS & MORTGAGE FINANCE-0.4%
8,650 Entenial (FR)..................................... 358,596
----------------
TIRES & RUBBER-0.5%
91,140 Hankook Tire Company Limited (KR)................. 449,405
----------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS-0.6%
417,000 Sumikin Bussan Corporation (JA)*.................. $ 472,305
----------------
WATER UTILITIES-0.6%
93,625 Athens Water Supply and Sewage Company (GR)....... 458,018
----------------
WIRELESS TELECOMMUNICATION SERVICES-2.5%
31,100 Millicom International Cellular SA (LU)*.......... 815,131
200 Okinawa Cellular Telephone Company (JA)........... 597,960
480,400 Total Access Communication Public Company Limited
(TH)*............................................. 638,939
----------------
2,052,030
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$76,642,537).................................................. 79,475,485
----------------
RIGHTS AND WARRANTS (FOREIGN)-0.1%
COMMUNICATIONS EQUIPMENT-0.1%
292,431 Marconi PLC Warrants (UK)*........................ 82,083
----------------
TOTAL RIGHTS AND WARRANTS (FOREIGN)
(COST-$175,517)..................................................... 82,083
----------------
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
- -------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-3.6%
OTHER DIVERSIFIED FINANCIAL SERVICES-3.6%
$ 3,000,000 Merrill Lynch & Company
1.30% 7/1/03...................................... $ 3,000,000
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$3,000,000)......................................... 3,000,000
----------------
TOTAL INVESTMENTS-100.5%
(TOTAL COST-$79,818,054)............................................ 82,557,568
OTHER ASSETS AND LIABILITIES-(0.5%)................................. (441,046)
----------------
NET ASSETS-100.0%................................................... $ 82,116,522
================
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $ 79,818,054
---------------
Investment securities, at market.................. 82,557,568
Cash.............................................. 273,267
Foreign currency (cost $1,653,512)................ 1,637,735
Receivables:
Investment securities sold...................... 6,097,890
Capital shares sold............................. 76,127
Dividends....................................... 121,042
Other assets...................................... 58,992
---------------
Total Assets.................................. 90,822,621
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 8,248,101
Capital shares redeemed......................... 92,307
Advisory fees................................... 68,820
Shareholder servicing fees...................... 12,714
Accounting fees................................. 6,882
Distribution fees............................... 26,471
Custodian fees.................................. 31,538
Thailand taxes.................................. 111,719
Other........................................... 107,547
---------------
Total Liabilities............................. 8,706,099
---------------
Net Assets........................................ $ 82,116,522
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $ 270,351,933
Undistributed net investment income............... 149,494
Accumulated net realized loss from security
transactions (net of foreign taxes on Thailand
investments of $252,282)........................ (191,132,519)
Net unrealized appreciation on investments and
foreign currency translation.................... 2,747,614
---------------
Total......................................... $ 82,116,522
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A............................... $ 10,718,094
Shares Outstanding--Class A....................... 1,074,037
Net Asset Value, Redemption Price Per Share....... $ 9.98
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 10.59
Net Assets--Class B............................... $ 13,586,120
Shares Outstanding--Class B....................... 1,400,622
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 9.70
Net Assets--Class C............................... $ 5,524,669
Shares Outstanding--Class C....................... 570,661
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 9.68
Net Assets--Class F............................... $ 51,895,495
Shares Outstanding--Class F....................... 5,205,841
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 9.97
Net Assets--Class R............................... $ 45,696
Shares Outstanding--Class R....................... 4,730
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 9.66
Net Assets--Class T............................... $ 346,448
Shares Outstanding--Class T....................... 36,003
Net Asset Value, Redemption Price Per Share....... $ 9.62
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 10.07
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 1,203,135
Interest........................................ 25,947
Foreign taxes withheld.......................... (95,260)
---------------
Total Investment Income....................... 1,133,822
---------------
EXPENSES:
Advisory fees--Note 2........................... 382,385
Shareholder servicing fees--Note 2.............. 73,423
Accounting fees--Note 2......................... 38,239
Distribution fees--Note 2....................... 127,387
Transfer agency fees--Note 2.................... 98,601
Registration fees............................... 30,944
Postage and mailing expenses.................... 9,652
Custodian fees and expenses--Note 2............. 189,230
Printing expenses............................... 25,099
Legal and audit fees............................ 13,613
Directors' fees and expenses--Note 2............ 9,922
Other expenses.................................. 21,357
---------------
Total Expenses................................ 1,019,852
Earnings Credits.............................. (2,201)
Reimbursed/Waived Expenses.................... (33,699)
Expense Offset to Broker Commissions.......... (1,460)
---------------
Net Expenses.................................. 982,492
---------------
Net Investment Income........................... 151,330
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security transactions (net of foreign taxes on
Thailand investments of $252,282)............... 10,310,704
Foreign currency transactions................... (73,878)
---------------
Net Realized Gain............................. 10,236,826
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation... 5,564,266
---------------
Net Realized and Unrealized Gain.................. 15,801,092
---------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 15,952,422
===============
Purchases of long-term securities................. $ 257,173,777
Proceeds from sales of long-term securities....... $ 268,017,575
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Income (Loss)............ $ 151,330 $ (1,023,871)
Net Realized Gain (Loss)................ 10,236,826 (12,388,968)
Net Change in Unrealized
Appreciation/Depreciation............. 5,564,266 (2,075,681)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 15,952,422 (15,488,520)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A............................... (753,924) (2,916,773)
Class B............................... (1,716,491) (4,098,985)
Class C............................... (789,080) (2,563,176)
Class F............................... (9,059,300) (17,949,856)
Class R............................... (36,271) (21,426)
Class T............................... (104,311) (148,171)
------------ ------------
Net Decrease from Capital Share
Transactions.......................... (12,459,377) (27,698,387)
------------ ------------
Net Increase (Decrease) in Net Assets... 3,493,045 (43,186,907)
NET ASSETS
Beginning of period................... $ 78,623,477 $121,810,384
------------ ------------
End of period......................... $ 82,116,522 $ 78,623,477
============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -------------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ----------- ----------- -----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 8.14 $ 9.68 $ 14.18 $ 22.93
Income from investment
operations:
Net investment loss....... (0.01) (0.16) (0.14) (0.13)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.85 (1.38) (4.36) (6.65)
------- ------- ------- -------
Total from investment
operations.......... 1.84 (1.54) (4.50) (6.78)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------- ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.98 $ 8.14 $ 9.68 $ 14.18
======= ======= ======= =======
Total Return/Ratios
Total return*............. 22.60% (15.91%) (31.74%) (29.61%)
Net assets, end of period
(000s).................. $10,718 $ 9,422 $14,033 $36,353
Net expenses to average
net assets#,+........... 2.46%** 2.24% 1.87% 1.59%
Gross expenses to average
net assets#,+........... 2.46%** 2.24% 1.88% 1.61%
Net investment income
(loss) to average net
assets+................. 0.49%** (0.80%) (0.26%) (0.80%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 2.55% (2003) and 2.27% (2002). The gross
expense ratios would have been 2.55% (2003) and 2.27% (2002). The net
investment income (loss) ratios would have been 0.40% (2003) and (0.83%)
(2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -------------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ----------- ----------- -----------
CLASS B SHARES
Net Asset Value, beginning of
period...................... $ 7.95 $ 9.54 $ 14.08 $ 22.93
Income from investment
operations:
Net investment loss....... (0.12) (0.29) (0.18) (0.23)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.87 (1.30) (4.36) (6.65)
------- ------- ------- -------
Total from investment
operations.......... 1.75 (1.59) (4.54) (6.88)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------- ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.70 $ 7.95 $ 9.54 $ 14.08
======= ======= ======= =======
Total Return/Ratios
Total return*............. 22.01% (16.67%) (32.24%) (30.05%)
Net assets, end of period
(000s).................. $13,586 $12,810 $19,661 $35,000
Net expenses to average
net assets#,+........... 3.31%** 3.09% 2.64% 2.35%
Gross expenses to average
net assets#,+........... 3.32%** 3.09% 2.66% 2.38%
Net investment loss to
average net assets+..... (0.36%)** (1.64%) (1.06%) (1.50%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 3.40% (2003) and 3.12% (2002). The gross
expense ratios would have been 3.41% (2003) and 3.12% (2002). The net
investment loss ratios would have been (0.45%) (2003) and (1.67%) (2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS C SHARES
Net Asset Value, beginning of
period...................... $ 7.93 $ 9.52 $ 14.06 $ 22.93
Income from investment
operations:
Net investment loss....... (0.14) (0.35) (0.22) (0.21)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.89 (1.24) (4.32) (6.69)
------ ------- ------- -------
Total from investment
operations.......... 1.75 (1.59) (4.54) (6.90)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.68 $ 7.93 $ 9.52 $ 14.06
====== ======= ======= =======
Total Return/Ratios
Total return*............. 22.07% (16.70%) (32.29%) (30.13%)
Net assets, end of period
(000s).................. $5,525 $ 5,268 $ 8,928 $17,925
Net expenses to average
net assets#,+........... 3.26%** 3.05% 2.65% 2.35%
Gross expenses to average
net assets#,+........... 3.26%** 3.06% 2.67% 2.38%
Net investment loss to
average net assets+..... (0.31%)** (1.58%) (1.08%) (1.50%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 3.35% (2003) and 3.07% (2002). The gross
expense ratios would have been 3.35% (2003) and 3.08% (2002). The net
investment loss ratios would have been (0.40%) (2003) and (1.60%) (2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- -----------
CLASS F SHARES
Net Asset Value,
beginning of period.... $ 8.13 $ 9.67 $ 14.17 $ 22.93 $ 14.93 $ 13.64
Income from investment
operations:
Net investment
loss............... (0.12) (0.23) (0.22) (0.19) (0.11) 0.00
Net gains (losses) on
securities (both
realized and
unrealized)........ 1.96 (1.31) (4.28) (6.60) 12.94 1.68
------- ------- ------- -------- -------- --------
Total from
investment
operations..... 1.84 (1.54) (4.50) (6.79) 12.83 1.68
Less distributions:
From net investment
income............. 0.00 0.00 0.00 0.00 0.00 (0.01)
From net realized
gains.............. 0.00 0.00 0.00 (1.97) (4.83) (0.38)
------- ------- ------- -------- -------- --------
Total
distributions... 0.00 0.00 0.00 (1.97) (4.83) (0.39)
Net Asset Value, end of
period................. $ 9.97 $ 8.13 $ 9.67 $ 14.17 $ 22.93 $ 14.93
======= ======= ======= ======== ======== ========
Total Return/Ratios
Total return......... 22.63% (15.93%) (31.76%) (29.65%) 87.44% 12.50%
Net assets, end of
period (000s)...... $51,895 $50,742 $78,574 $182,036 $261,437 $124,572
Net expenses to
average net
assets#,+.......... 2.33%** 2.18% 1.90% 1.59% 1.63% 1.52%
Gross expenses to
average net
assets#,+.......... 2.33%** 2.18% 1.92% 1.61% 1.64% 1.54%
Net investment income
(loss) to average
net assets+........ 0.64%** (0.74%) (0.30%) (0.88%) (0.91%) 0.09%
Portfolio turnover
rate@.............. 583% 495% 704% 535% 330% 34%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 2.42% (2003) and 2.21% (2002). The gross
expense ratios would have been 2.42% (2003) and 2.21% (2002). The net
investment income (loss) ratios would have been 0.55% (2003) and (0.77%)
(2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
26
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS R SHARES
Net Asset Value, beginning of
period...................... $ 7.87 $ 9.56 $ 14.22 $ 22.93
Income from investment
operations:
Net investment income
(loss).................. 0.08 (0.81) (0.17) (0.09)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.71 (0.88) (4.49) (6.65)
------ ------- ------- -------
Total from investment
operations.......... 1.79 (1.69) (4.66) (6.74)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.66 $ 7.87 $ 9.56 $ 14.22
====== ======= ======= =======
Total Return/Ratios
Total return.............. 22.74% (17.68%) (32.77%) (29.44%)
Net assets, end of period
(000s).................. $ 46 $ 37 $ 76 $ 241
Net expenses to average
net assets#,+........... 2.38%** 3.91% 1.84% 1.31%
Gross expenses to average
net assets#,+........... 2.39%** 3.94% 1.86% 1.33%
Net investment income
(loss) to average net
assets+................. 0.88%** (2.20%) (0.08%) (0.55%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian or reimbursed by the management
company for the six months ended June 30, 2003 and the years ended December
31, 2002 and 2001. Had these fees not been waived or reimbursed, the net
expense ratios would have been 2.48% (2003), 4.62% (2002), and 2.76%
(2001). The gross expense ratios would have been 2.49% (2003), 4.65%
(2002), and 2.78% (2001). The net investment income (loss) ratios would
have been 0.78% (2003), (2.91%) (2002), and (1.00%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS T SHARES
Net Asset Value, beginning of
period...................... $ 7.87 $ 9.50 $ 14.14 $ 22.93
Income from investment
operations:
Net investment loss....... (0.17) (0.45) (0.22) (0.16)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.92 (1.18) (4.42) (6.66)
------ ------- ------- -------
Total from investment
operations.......... 1.75 (1.63) (4.64) (6.82)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.62 $ 7.87 $ 9.50 $ 14.14
====== ======= ======= =======
Total Return/Ratios
Total return*............. 22.24% (17.16%) (32.82%) (29.79%)
Net assets, end of period
(000s).................. $ 346 $ 345 $ 538 $ 869
Net expenses to average
net assets#,+........... 3.12%** 4.03% 3.14% 1.84%
Gross expenses to average
net assets#,+........... 3.13%** 4.03% 3.16% 1.87%
Net investment income
(loss) to average net
assets+................. 0.07%** (2.69%) (1.60%) (1.00%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 3.21% (2003) and 4.05% (2002). The gross
expense ratios would have been 3.22% (2003) and 4.05% (2002). The net
investment loss ratios would have been (0.02%) (2003) and (2.71%) (2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Passport Fund (the "Fund"). The Fund offers Class A,
Class B, Class C, Class F, Class R, and Class T shares. Class A and Class T
shares are subject to a sales charge imposed at the time of purchase, Class B
shares are subject to a contingent deferred sales charge ("CDSC") imposed on
Class B share redemptions made within six years of purchase, Class C shares are
subject to a CDSC imposed on Class C shares redeemed within one year of
purchase, and Class F and Class R shares are sold at net asset value per share
(with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
normally will invest a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2003 for settling foreign trades is listed on
the Statement of Assets and Liabilities.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal
30
<Page>
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$12,278 and $26,862, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $5,644 and $9,893, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $17,372
Class B..................................................... $29,342
Class C..................................................... $10,739
Class R..................................................... $ 270
Class T..................................................... $ 1,442
</Table>
32
<Page>
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 applicable to its Class F shares. Under
the plan, the Fund is authorized to reimburse DSC for expenses paid for
distributing its Class F shares at an annual rate of up to 0.25% of the value of
the average daily net assets of the Fund's Class F shares. During the six months
ended June 30, 2003, Class F shares were charged $61,200 pursuant to this
Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A..................................................... N/A $11,918
Class B..................................................... $46,453 $15,484
Class C..................................................... $19,281 $ 6,428
Class T..................................................... $ 453 $ 453
</Table>
During the six months ended June 30, 2003, DSC retained $4,828 and $37 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $79,895 and $493 of contingent deferred sales charges relating
to redemptions of Class B and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the average daily net assets of the Fund on the first $500 million,
0.065% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $33,699. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
34
<Page>
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2008
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $199,680,397
Post-October Capital Loss Deferral.......................... $1,210,495
Post-October Currency Loss Deferral......................... $ 1,893
Federal Tax Cost............................................ $79,957,211
Gross Tax Appreciation of Investments....................... $5,384,679
Gross Tax Depreciation of Investments....................... $(2,784,322)
Net Tax Appreciation........................................ $2,600,357
</Table>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 400 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- -------------
CLASS A
Sold.................................................. 1,470,573 $ 12,236,435 5,383,012 $ 50,430,851
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (1,554,686) $ (12,990,359) (5,673,919) $ (53,347,624)
NET DECREASE.......................................... (84,113) $ (753,924) (290,907) $ (2,916,773)
CLASS B
Sold.................................................. 15,750 $ 135,748 41,666 $ 391,779
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (227,218) $ (1,852,239) (489,773) $ (4,490,764)
NET DECREASE.......................................... (211,468) $ (1,716,491) (448,107) $ (4,098,985)
</Table>
35
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- -------------
CLASS C
Sold.................................................. 750,180 $ 5,971,628 481,390 $ 4,684,798
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (843,855) $ (6,760,708) (754,486) $ (7,247,974)
NET DECREASE.......................................... (93,675) $ (789,080) (273,096) $ (2,563,176)
CLASS F
Sold.................................................. 2,341,034 $ 19,863,862 9,855,244 $ 92,121,343
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (3,379,560) $ (28,923,162) (11,734,716) $(110,071,199)
NET DECREASE.......................................... (1,038,526) $ (9,059,300) (1,879,472) $ (17,949,856)
CLASS R
Sold.................................................. 40,754 $ 335,000 315,313 $ 3,139,336
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (40,754) $ (371,271) (318,502) $ (3,160,762)
NET DECREASE.......................................... 0 $ (36,271) (3,189) $ (21,426)
CLASS T
Sold.................................................. 149,855 $ 1,164,172 371,045 $ 3,559,032
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (157,674) $ (1,268,483) (383,873) $ (3,707,203)
NET DECREASE.......................................... (7,819) $ (104,311) (12,828) $ (148,171)
</Table>
36
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings is subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
37
<Page>
This page intentionally left blank.
38
<Page>
DREYFUS FOUNDERS PASSPORT FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
2930 East Third Avenue
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
This report is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus, which contains more complete
information including charges, expenses, and share classes. Please read the
prospectus carefully before you invest or send money. Date of first use: August
28, 2003
Dreyfus Service Corporation, Distributor. (C) 2003 Founders Asset
Management LLC.
A-636-PAS-03
<Page>
SEMIANNUAL REPORT
[GRAPHIC]
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
INVESTMENT UPDATE
JUNE 30, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 19
Statement of Operations 21
Statements of Changes in Net Assets 22
Financial Highlights 23
Notes to Financial Statements 29
</Table>
PAPERLESS DELIVERY OF THIS REPORT
[GRAPHIC]
Did you know you can reduce your postal mail by accessing Dreyfus Founders Funds
regulatory material online? It's a simple, reliable process: when new documents
such as this Semiannual Report are available, we'll send you an e-mail
notification containing a convenient link that will take you directly to that
Fund information on our website.
To take advantage of this service, simply inform us online of your decision
to receive materials through the Founders E-Communications Program. Cut down on
mailbox clutter and help the Fund reduce printing and postage charges by
enrolling today at www.founders.com/ecommunications. If you own Funds through a
third party, enroll at www.icsdelivery.com.
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2003. The amounts of these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF JOHN B. JARES]
[PHOTO OF DANIEL B. LEVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, JOHN B. JARES, CFA,
AND DANIEL B. LEVAN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30?
It has been an interesting time period for world equity markets. After three
years of negative returns, stocks have again begun to post positive numbers. On
a Fund level, the Dreyfus Founders Worldwide Growth Fund gained ground during
the period and posted a return(1) that was competitive with its benchmark, the
Morgan Stanley Capital International (MSCI) World Index which gained 11.12%.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
The market experienced two distinct environments during the half, which
separated neatly into calendar quarters. The first quarter experienced
continued downshifting as geopolitical uncertainty in the Middle East and
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"THE FUND'S PERFORMANCE WAS DRIVEN PRIMARILY BY STRONG STOCK SELECTION IN THE
HEALTHCARE AND CONSUMER DISCRETIONARY SECTORS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - The impressive mid-period rally continued to boost the market through the end
of the June reporting period.
- - Technology and telecommunications sectors performed well for both the market
and the Fund.
- - Changes made to the Fund upon its management shift showed positive results.
- - Our strategy in the midst of economic and market changes remains constant as
we dedicate ourselves to seeking the best growth companies through our
bottom-up fundamentals-based research approach.
health concerns over the onset of Severe Acute Respiratory Syndrome (SARS) in
Asia depressed equity prices. Both factors weighed heavily upon already stressed
domestic and foreign equity markets. However, by the opening of the second
quarter, expectations for an economic recovery and improving investor confidence
helped advance performance, more than offsetting the declines experienced in the
first quarter. The market remained, at the end of the period, on solid ground,
posting substantial year-to-date returns.
MR. BROWNE AND MR. LEVAN, WHAT CHANGES WERE MADE TO THE INTERNATIONAL PORTION OF
THE FUND AFTER YOU BECAME CO-PORTFOLIO MANAGERS IN MARCH?
The international portion of the Fund was revamped upon our move into its
management position. While we were familiar with many of the international names
held in the Fund, we kept select names, but repositioned the international
portion of the Fund to reflect our focus on companies with increasing business
momentum and strong underlying growth relative to their valuation. We did
increase the number of names in the portfolio, while reducing our weighted
average price-to-earnings ratio and increasing our exposure to earnings growth.
4
<Page>
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE DURING THE
SIX-MONTH PERIOD?
Fund performance was primarily driven by strong stock selection in the
healthcare and consumer discretionary sectors. In addition, good stock selection
in the United States, Greece, the United Kingdom and Italy boosted the Fund's
relative performance.
One of the Fund's stronger healthcare holdings, Canadian-based
pharmaceutical company BIOVAIL CORPORATION, was up 78% for the first half of the
year, and contributed significantly to the Fund's overall performance. Biovail's
strong performance was due in part to positive news the company released
concerning several drugs in their pipeline.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Estee Lauder Companies, Inc. (United States; EL) 2.79%
2. General Electric Company (United States; GE) 2.46%
3. Best Buy Company, Inc. (United States; BBY) 2.08%
4. Pfizer, Inc. (United States; PFE) 2.06%
5. Royal Caribbean Cruises Limited (United States; RCL) 1.87%
6. MBNA Corporation (United States; KRB) 1.79%
7. Smith International, Inc. (United States; SII) 1.51%
8. Tiffany & Company (United States; TIF) 1.43%
9. Wal-Mart Stores, Inc. (United States; WMT) 1.31%
10. Vodafone Group PLC (United Kingdom; VOD) 1.30%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
Another global leader that was a major positive contributor to the Fund was
German software company SAP AG. A multinational company with a leading position
in the enterprise software business, SAP reported strong first quarter numbers
in the beginning of April. This increase in
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Worldwide Growth
Fund on 6/30/93 to a $10,000 investment made in an unmanaged securities index on
that date. The Fund's performance assumes the reinvestment of dividends and
capital gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Morgan Stanley Capital International (MSCI) World Index is an
arithmetical average of the performance of selected securities listed on the
stock exchanges of the United States, Europe, Canada, Australia, New Zealand,
and the Far East. Total return figures for this index assume change in share
price and reinvestment of dividends after the deduction of local taxes, but do
not reflect the costs of managing a mutual fund. Further information related to
Fund performance is contained elsewhere in this report.
6
<Page>
performance was attributable to its license business exceeding expectations, as
well as positive growth in U.S. markets. The company was also able to reduce
costs significantly, which helped expand its operating margins.
In the Fund's domestic holdings, we saw excellent returns in the
consumer-related sectors. Holdings such as BEST BUY COMPANY, INC., the leading
retailer of consumer electronics, and ESTEE LAUDER COMPANIES, INC.,
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 6.00% (10.09%) -- -- (21.06%)
Without sales charge 12.50% (4.59%) -- -- (19.71%)
CLASS B SHARES (12/31/99)
With redemption* 8.07% (9.09%) -- -- (20.85%)
Without redemption 12.07% (5.31%) -- -- (20.30%)
CLASS C SHARES (12/31/99)
With redemption** 11.19% (6.15%) -- -- (20.72%)
Without redemption 12.19% (5.20%) -- -- (20.72%)
CLASS F SHARES (12/31/89) 12.61% (4.58%) (7.99%) 3.56% 5.80%
CLASS R SHARES (12/31/99) 12.80% (4.03%) -- -- (19.31%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 6.78% (11.18%) -- -- (22.06%)
Without sales charge 11.79% (6.96%) -- -- (21.03%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions, expense limits for
certain share classes, and adjustments for financial statement purposes. Part of
the Fund's historical performance is due to the purchase of securities sold in
initial public offerings (IPOs). There is no guarantee that the Fund's
investments in IPOs, if any, will continue to have a similar impact on
performance. Investments in foreign securities may entail unique risks,
including political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
the manufacturer and distributor of cosmetics and fragrances, benefited from an
increase in consumer spending during the period and posted strong gains. Another
standout performer that benefited from this spending trend was credit-card
issuer, MBNA CORPORATION.
WHAT WERE THE LARGEST HINDRANCES TO THE FUND'S PERFORMANCE?
Disappointments in a few major holdings and weak stock selection in France,
Japan and Switzerland hampered Fund performance. For example, some of our
positions in the information technology and financials sectors, including
India's Satyam Computer Services Limited and Britain's Amvescap PLC, were
detrimental to the Fund. Both of these international holdings were sold once our
combined tenure began.
[CHART]
PORTFOLIO COMPOSITION
<Table>
53.51% United States
10.57% United Kingdom
8.33% Japan
3.14% Germany
2.99% France
2.72% Canada
2.71% Switzerland
1.70% Spain
2.83% Cash & Equivalents
11.50% Other Countries
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
managers and are subject to change at any time, based on market and other
conditions, and should not be construed as a recommendation of any specific
security.
8
<Page>
On the domestic front, JOHNSON & JOHNSON was a notable underperformer
during the period as the company grappled with competition in some of its
larger, more profitable products. Soft drink bottler Coca-Cola Enterprises, Inc.
also posted poor results, which put an additional drag on the Fund's
performance.
As we move into the second half of 2003, our strategy remains consistent. We
will continue to rely on our bottom-up research process to seek companies
throughout the world that we believe are capable of posting strong future
revenue and earnings growth at valuations that make sense.
/s/ Remi J. Browne
Remi J. Browne, CFA
Co-Portfolio Manager
/s/ John B. Jares
John B. Jares, CFA
Co-Portfolio Manager
/s/ Daniel B. LeVan
Daniel B. LeVan, CFA
Co-Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-53.5%
AIRLINES-2.0%
23,050 Delta Air Lines, Inc.............................. $ 338,374
39,300 Northwest Airlines Corporation Class A*........... 443,697
48,875 Southwest Airlines Company........................ 840,650
----------------
1,622,721
----------------
APPLICATION SOFTWARE-0.4%
17,875 PeopleSoft, Inc.*................................. 314,421
----------------
ASSET MANAGEMENT & CUSTODY BANKS-1.5%
8,325 Bank of New York Company, Inc..................... 239,344
58,200 Janus Capital Group, Inc.......................... 954,480
----------------
1,193,824
----------------
BIOTECHNOLOGY-0.7%
10,125 Gilead Sciences, Inc.*............................ 562,748
----------------
BROADCASTING & CABLE TV-2.3%
10,000 Clear Channel Communications, Inc.*............... 423,900
35,075 Comcast Corporation Special Class A*.............. 1,011,212
13,875 Cox Communications, Inc.*......................... 442,613
----------------
1,877,725
----------------
COMMUNICATIONS EQUIPMENT-0.7%
35,375 Cisco Systems, Inc.*.............................. 590,409
----------------
COMPUTER & ELECTRONICS RETAIL-2.1%
38,237 Best Buy Company, Inc.*........................... 1,679,369
----------------
COMPUTER HARDWARE-1.2%
11,525 International Business Machines Corporation....... 950,813
----------------
CONSUMER FINANCE-1.8%
69,525 MBNA Corporation.................................. 1,448,901
----------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-2.2%
17,750 First Data Corporation............................ $ 735,560
29,000 Fiserv, Inc.*..................................... 1,032,690
----------------
1,768,250
----------------
DIVERSIFIED BANKS-2.2%
12,500 Bank of America Corporation....................... 987,875
15,125 Wells Fargo & Company............................. 762,300
----------------
1,750,175
----------------
FOOD RETAIL-1.1%
41,550 Safeway, Inc.*.................................... 850,113
----------------
GAS UTILITIES-1.1%
16,325 Kinder Morgan, Inc................................ 892,161
----------------
HEALTHCARE EQUIPMENT-1.3%
16,500 Boston Scientific Corporation*.................... 1,008,150
----------------
HEALTHCARE SERVICES-0.7%
22,900 Caremark Rx, Inc.*................................ 588,072
----------------
HOME IMPROVEMENT RETAIL-1.2%
28,300 Home Depot, Inc................................... 937,296
----------------
HOUSEHOLD PRODUCTS-0.9%
13,000 Colgate-Palmolive Company......................... 753,350
----------------
HYPERMARKETS & SUPER CENTERS-1.3%
19,750 Wal-Mart Stores, Inc.............................. 1,059,983
----------------
INDUSTRIAL CONGLOMERATES-2.7%
69,325 General Electric Company.......................... 1,988,241
4,650 Ingersoll-Rand Company Class A.................... 220,038
----------------
2,208,279
----------------
INDUSTRIAL GASES-0.6%
8,000 Praxair, Inc...................................... 480,800
----------------
INDUSTRIAL MACHINERY-0.7%
8,825 Illinois Tool Works, Inc.......................... 581,126
----------------
INVESTMENT BANKING & BROKERAGE-0.6%
6,125 Goldman Sachs Group, Inc.......................... 512,969
----------------
LEISURE FACILITIES-1.9%
65,100 Royal Caribbean Cruises Limited................... 1,507,716
----------------
MOVIES & ENTERTAINMENT-0.3%
6,325 Viacom, Inc. Class B*............................. 276,150
----------------
OIL & GAS DRILLING-0.2%
7,900 GlobalSantaFe Corporation......................... 184,386
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.5%
33,275 Smith International, Inc.*........................ $ 1,222,524
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.1%
21,583 Citigroup, Inc.................................... 923,752
----------------
PERSONAL PRODUCTS-2.8%
67,175 Estee Lauder Companies, Inc. Class A.............. 2,252,378
----------------
PHARMACEUTICALS-3.5%
4,775 Forest Laboratories, Inc.*........................ 261,431
16,475 Johnson & Johnson................................. 851,758
48,612 Pfizer, Inc....................................... 1,660,100
----------------
2,773,289
----------------
RAILROADS-0.5%
7,025 Union Pacific Corporation......................... 407,591
----------------
SEMICONDUCTOR EQUIPMENT-1.2%
11,300 KLA-Tencor Corporation*........................... 525,337
12,525 Novellus Systems, Inc.*........................... 458,678
----------------
984,015
----------------
SEMICONDUCTORS-3.1%
13,375 Altera Corporation*............................... 219,350
32,050 Intel Corporation................................. 666,127
30,350 Linear Technology Corporation..................... 977,574
11,575 Maxim Integrated Products, Inc.*.................. 395,749
9,450 Xilinx, Inc.*..................................... 239,180
----------------
2,497,980
----------------
SOFT DRINKS-1.0%
17,275 Coca-Cola Company................................. 801,733
----------------
SPECIALTY STORES-1.4%
35,225 Tiffany & Company................................. 1,151,153
----------------
SYSTEMS SOFTWARE-5.7%
28,875 Adobe Systems, Inc................................ 926,021
57,975 BMC Software, Inc.*............................... 946,732
34,400 Microsoft Corporation............................. 880,984
84,600 Oracle Corporation*............................... 1,016,892
28,125 VERITAS Software Corporation*..................... 806,344
----------------
4,576,973
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST- $37,359,358)................................................. 43,191,295
----------------
</Table>
12
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
COMMON STOCKS (FOREIGN)-43.7%
APPLICATION SOFTWARE-1.2%
7,800 Cognos, Inc. (CA)*................................ $ 209,351
6,600 SAP AG (GE)....................................... 773,082
----------------
982,433
----------------
AUTO PARTS & EQUIPMENT-0.5%
8,400 Canadian Tire Corporation Limited Class A (CA).... 200,913
11,000 Nok Corporation (JA).............................. 182,669
----------------
383,582
----------------
AUTOMOBILE MANUFACTURERS-1.0%
51,600 Nissan Motor Company Limited (JA)................. 493,332
7,100 PSA Peugeot Citroen (FR).......................... 344,890
----------------
838,222
----------------
BIOTECHNOLOGY-0.2%
2,900 Actelion Limited (SZ)*............................ 193,119
----------------
BREWERS-0.7%
30,000 Fraser & Neave Limited (SG)....................... 146,508
20,000 Kirin Brewery Company Limited (JA)................ 140,579
65,100 Lion Nathan Limited (AU).......................... 234,012
----------------
521,099
----------------
BROADCASTING & CABLE TV-0.2%
57,500 Seven Network Limited (AU)........................ 183,170
----------------
COMMERCIAL PRINTING-0.3%
19,000 Dai Nippon Printing Company Limited (JA).......... 200,958
----------------
COMMUNICATIONS EQUIPMENT-0.6%
16,300 Nokia Oyj (FI).................................... 268,422
82,100 Nortel Networks Corporation (CA)*................. 219,932
----------------
488,354
----------------
COMPUTER STORAGE & PERIPHERALS-0.4%
9,100 Logitech International SA (SZ)*................... 341,292
----------------
CONSTRUCTION & ENGINEERING-0.5%
8,600 ACS, Actividades de Construccion y Servicios SA
(SP).............................................. 366,893
----------------
CONSTRUCTION MATERIALS-0.2%
50,500 Boral Limited (AU)*............................... 171,370
----------------
CONSUMER ELECTRONICS-0.7%
7,700 Pioneer Corporation (JA).......................... 173,142
30,000 Sharp Corporation (JA)............................ 385,009
----------------
558,151
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
CONSUMER FINANCE-0.2%
37,200 Bradford & Bingley PLC (UK)....................... $ 192,906
----------------
DIVERSIFIED BANKS-7.0%
10,700 ABN AMRO Holding NV (NE).......................... 204,588
14,100 Alliance & Leicester PLC (UK)..................... 193,119
38,000 Alpha Bank AE (GR)................................ 662,425
42,400 Anglo Irish Bank Corporation PLC (IE)............. 374,920
90,302 Banca Intesa SPA (IT)............................. 288,805
51,071 Barclays PLC (UK)................................. 379,240
10,589 BNP Paribas SA (FR)............................... 538,084
52,500 HBOS PLC (UK)..................................... 679,641
7,600 Jyske Bank SA (DE)*............................... 306,579
69 Mitsubishi Tokyo Financial Group, Inc. (JA)....... 312,030
25,088 Royal Bank of Scotland Group PLC (UK)............. 703,789
17,400 Skandinaviska Enskilda Banken (SW)................ 177,154
2,800 Societe Generale (FR)............................. 177,492
50,632 Standard Chartered PLC (UK)....................... 614,937
----------------
5,612,803
----------------
DIVERSIFIED CAPITAL MARKETS-0.3%
3,744 UBS AG (SZ)....................................... 208,276
----------------
DIVERSIFIED CHEMICALS-0.4%
6,600 BASF AG (GE)...................................... 280,811
----------------
DIVERSIFIED METALS & MINING-0.2%
33,800 BHP Billiton PLC (UK)............................. 177,924
----------------
ELECTRIC UTILITIES-1.0%
6,900 E.ON AG (GE)...................................... 353,795
15,973 Endesa SA (SP).................................... 267,440
4,700 Fortis, Inc. (CA)................................. 204,077
----------------
825,312
----------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.3%
29,000 Sumitomo Electric Industries Limited (JA)......... 211,809
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS-0.4%
1,700 Keyence Corporation (JA).......................... 311,472
----------------
FOOD RETAIL-0.5%
6,900 Delhaize Group (BE)............................... 209,979
16,100 Metro, Inc. (CA).................................. 232,827
----------------
442,806
----------------
HEALTHCARE DISTRIBUTORS-0.2%
8,100 Suzuken Company Limited (JA)...................... 192,255
----------------
HEALTHCARE EQUIPMENT-0.3%
8,200 Getinge AB Class B (SW)........................... 217,679
----------------
HOME FURNISHINGS-0.3%
6,300 Hunter Douglas NV (NE)............................ 209,807
----------------
</Table>
14
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
HOMEBUILDING-0.2%
26,600 Barratt Developments PLC (UK)..................... $ 189,624
----------------
HOUSEHOLD PRODUCTS-0.5%
21,350 Reckitt Benckiser PLC (UK)........................ 391,769
----------------
HOUSEWARES & SPECIALTIES-0.4%
7,600 Citizen Electronics Company Limited (JA).......... 331,659
----------------
HYPERMARKETS & SUPER CENTERS-0.3%
6,800 Metro AG (GE)..................................... 216,385
----------------
INDUSTRIAL CONGLOMERATES-0.8%
17,200 DCC PLC (IE)...................................... 231,098
39,000 Hutchison Whampoa Limited (HK).................... 237,558
71,700 Keppel Corporation Limited (SG)................... 199,506
----------------
668,162
----------------
INDUSTRIAL MACHINERY-0.3%
7,400 Saurer AG (SZ)*................................... 202,141
----------------
INTEGRATED OIL & GAS-2.0%
94,942 BP PLC (UK)....................................... 658,406
1,300 OMV AG (AT)....................................... 156,185
22,000 Repsol YPF SA (SP)................................ 356,729
51,300 Shell Transport & Trading Company PLC (UK)........ 338,614
601 Total SA (FR)..................................... 90,826
----------------
1,600,760
----------------
INTEGRATED TELECOMMUNICATION SERVICES-2.7%
116,000 BT Group PLC (UK)................................. 390,017
14,100 Deutsche Telekom AG (GE)*......................... 214,706
35,700 Koninklijke NV (NE)*.............................. 252,950
9,500 NetCom AB Class B (SW)*........................... 353,065
75 Nippon Telegraph & Telephone Corporation (JA)..... 294,191
11,000 TDC AS Class B (DE)............................... 328,975
83,000 TeliaSonera AB (SW)............................... 344,239
----------------
2,178,143
----------------
IT CONSULTING & OTHER SERVICES-1.6%
46,400 Accenture Limited Class A ADR (BD)*............... 839,376
12,300 Cap Gemini SA (FR)................................ 436,743
----------------
1,276,119
----------------
LEISURE PRODUCTS-0.5%
10,600 Bandai Company Limited (JA)....................... 404,314
----------------
OFFICE ELECTRONICS-0.7%
13,000 Canon, Inc. (JA).................................. 596,544
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
OIL & GAS DRILLING-0.4%
46,300 Saipem SPA (IT)................................... $ 346,665
4,825 Nabors Industries Limited (BA)*................... 190,829
----------------
537,494
----------------
OIL & GAS EQUIPMENT & SERVICES-0.3%
11,400 ProSafe ASA (NW)*................................. 206,888
----------------
OIL & GAS EXPLORATION & PRODUCTION-0.7%
40,200 Cairn Energy PLC (UK)*............................ 202,990
10,100 Eni SPA (IT)...................................... 152,753
7,600 Penn West Petroleum Limited (CA)*................. 243,303
----------------
599,046
----------------
PACKAGED FOODS & MEATS-0.8%
20,000 Nisshin Seifun Group, Inc. (JA)................... 142,078
94,300 Parmalat Finaziaria SPA (IT)...................... 296,718
26,900 Viscofan SA (SP).................................. 209,442
----------------
648,238
----------------
PHARMACEUTICALS-4.9%
4,600 Altana AG (GE).................................... 287,896
7,100 AstraZeneca Group PLC (UK)........................ 284,703
5,763 Biovail Corporation (CA)*......................... 271,207
47,900 Galen Holdings PLC (UK)........................... 411,418
23,452 GlaxoSmithKline PLC (UK).......................... 473,297
19,188 Novartis AG (SZ).................................. 759,304
13,000 Ono Pharmaceuticals Company Limited (JA).......... 402,748
5,975 Sanofi-Synthelabo SA (FR)......................... 349,937
27,000 Shire Pharmaceuticals Group PLC (UK)*............. 178,218
14,000 Takeda Chemical Industries Limited (JA)........... 516,511
----------------
3,935,239
----------------
PRECIOUS METALS & MINERALS-0.3%
17,300 ThyssenKrupp AG (GE).............................. 198,271
----------------
PROPERTY & CASUALTY INSURANCE-0.8%
17,900 Kingsway Financial Services, Inc. (CA)*........... 215,385
68,000 QBE Insurance Group Limited (AU).................. 425,029
----------------
640,414
----------------
PUBLISHING-0.3%
27,700 Johnston Press PLC (UK)........................... 197,982
----------------
RAILROADS-0.5%
8,300 Canadian National Railway Company (CA)............ 400,558
----------------
REAL ESTATE INVESTMENT TRUSTS-0.3%
110 Sumitomo Mitsui Financial Group, Inc. (JA)........ 240,017
----------------
</Table>
16
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.8%
55,300 Cheung Kong (Holdings) Limited (CN)............... $ 332,590
197,000 Henderson Investment Limited (HK)................. 189,469
22,302 Inmobiliaria Urbis SA (SP)........................ 171,849
15,000 Land Securities PLC (UK).......................... 193,441
41,000 Mitsui Fudosan Company Limited (JA)............... 261,895
4,900 Wereldhave NV (NE)................................ 308,079
----------------
1,457,323
----------------
SEMICONDUCTORS-0.7%
6,775 Marvell Technology Group Limited (BD)*............ 232,857
15,400 Micronas Semiconductor Holding AG (SZ)*........... 310,388
----------------
543,245
----------------
SOFT DRINKS-0.1%
8,000 Kirin Beverage Corporation (JA)................... 120,192
----------------
SPECIALTY CHEMICALS-0.2%
2,900 Ciba Specialty Chemicals AG (SZ)*................. 175,563
----------------
THRIFTS & MORTGAGE FINANCE-0.5%
38,000 Northern Rock PLC (UK)............................ 447,096
----------------
TIRES & RUBBER-0.3%
9,900 Continental AG (GE)............................... 207,823
----------------
TRADING COMPANIES & DISTRIBUTORS-0.4%
42,000 Mitsubishi Corporation (JA)....................... 291,368
----------------
TRUCKING-0.3%
37,000 Seino Transportation Company Limited (JA)......... 211,693
----------------
WATER UTILITIES-0.2%
26,700 Kelda Group PLC (UK).............................. 188,354
----------------
WIRELESS TELECOMMUNICATION SERVICES-2.3%
79 KDDI Corporation (JA)............................. 305,934
53,800 Orange SA (FR)*................................... 477,577
535,475 Vodafone Group PLC (UK)........................... 1,047,081
----------------
1,830,592
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$30,737,052).................................................. 35,245,519
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-3.2%
OTHER DIVERSIFIED FINANCIAL SERVICES-3.2%
$ 2,600,000 Merrill Lynch & Company
1.30% 7/1/03...................................... $ 2,600,000
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$2,600,000)......................................... 2,600,000
----------------
TOTAL INVESTMENTS-100.4%
(TOTAL COST-$70,696,410)............................................ 81,036,814
----------------
OTHER ASSETS AND LIABILITIES-(0.4%)................................. (317,842)
----------------
NET ASSETS-100.0%................................................... $ 80,718,972
================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.............................. $ 70,696,410
------------
Investment securities, at market............................ 81,036,814
Cash........................................................ 156,246
Foreign currency (cost $242,802)............................ 241,919
Receivables:
Investment securities sold................................ 1,124,773
Capital shares sold....................................... 3,696
Dividends................................................. 58,517
From transfer agent....................................... 1,644
Other assets................................................ 71,349
------------
Total Assets............................................ 82,694,958
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased........................... 1,745,533
Capital shares redeemed................................... 32,919
Advisory fees............................................. 67,711
Shareholder servicing fees................................ 9,648
Accounting fees........................................... 5,180
Distribution fees......................................... 16,891
Custodian fees............................................ 6,568
Other..................................................... 91,536
------------
Total Liabilities....................................... 1,975,986
------------
Net Assets.................................................. $ 80,718,972
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)..................... $161,938,727
Undistributed net investment income......................... 16,175
Accumulated net realized loss from security transactions
(net of foreign taxes on Indian investments of $59,092)... (91,581,201)
Net unrealized appreciation on investments and foreign
currency translation...................................... 10,345,271
------------
Total................................................... $ 80,718,972
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A......................................... $ 511,674
Shares Outstanding--Class A................................. 54,666
Net Asset Value, Redemption Price Per Share................. $ 9.36
Maximum offering price per share
(net asset value plus sales charge of 5.75% of offering
price).................................................... $ 9.93
Net Assets--Class B......................................... $ 1,548,657
Shares Outstanding--Class B................................. 170,088
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge)
Per Share................................................. $ 9.10
Net Assets--Class C......................................... $ 232,560
Shares Outstanding--Class C................................. 26,051
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge)
Per Share................................................. $ 8.93
Net Assets--Class F......................................... $ 61,966,520
Shares Outstanding--Class F................................. 6,604,310
Net Asset Value, Offering and Redemption Price Per Share.... $ 9.38
Net Assets--Class R......................................... $ 16,408,825
Shares Outstanding--Class R................................. 1,723,585
Net Asset Value, Offering and Redemption Price Per Share.... $ 9.52
Net Assets--Class T......................................... $ 50,736
Shares Outstanding--Class T................................. 5,750
Net Asset Value, Redemption Price Per Share................. $ 8.82
Maximum offering price per share
(net asset value plus sales charge of 4.50% of offering
price).................................................... $ 9.24
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends................................................. $ 793,094
Interest.................................................. 15,975
Foreign taxes withheld.................................... (66,394)
------------
Total Investment Income................................. 742,675
------------
EXPENSES:
Advisory fees--Note 2..................................... 373,950
Shareholder servicing fees--Note 2........................ 61,221
Accounting fees--Note 2................................... 28,674
Distribution fees--Note 2................................. 78,756
Transfer agency fees--Note 2.............................. 54,077
Registration fees......................................... 29,893
Postage and mailing expenses.............................. 11,896
Custodian fees and expenses--Note 2....................... 39,409
Printing expenses......................................... 22,160
Legal and audit fees...................................... 7,934
Directors' fees and expenses--Note 2...................... 8,718
Other expenses............................................ 20,330
------------
Total Expenses.......................................... 737,018
Earnings Credits........................................ (1,013)
Reimbursed/Waived Expenses.............................. (6,501)
Expense Offset to Broker Commissions.................... (3,004)
------------
Net Expenses............................................ 726,500
------------
Net Investment Income..................................... 16,175
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security transactions (net of foreign taxes on Indian
investments of $59,092)................................... (7,371,859)
Foreign currency transactions............................. 3,286
------------
Net Realized Loss....................................... (7,368,573)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation................ 16,390,671
------------
Net Realized and Unrealized Gain........................ 9,022,098
------------
Net Increase in Net Assets Resulting from Operations........ $ 9,038,273
============
Purchases of long-term securities........................... $ 59,647,602
Proceeds from sales of long-term securities................. $ 62,661,515
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Income (Loss)................................ $ 16,175 $ (493,713)
Net Realized Loss........................................... (7,368,573) (21,248,091)
Net Change in Unrealized Appreciation/Depreciation.......... 16,390,671 (11,501,638)
----------- ------------
Net Increase (Decrease) in Net Assets Resulting from
Operations.............................................. 9,038,273 (33,243,442)
----------- ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A................................................... (110,347) (185,979)
Class B................................................... (80,441) (3,433)
Class C................................................... (15,459) (61,045)
Class F................................................... (4,815,878) (14,839,943)
Class R................................................... 486,547 225,695
Class T................................................... (1,835) (19,951)
----------- ------------
Net Decrease from Capital Share Transactions................ (4,537,413) (14,884,656)
----------- ------------
Net Increase (Decrease) in Net Assets....................... 4,500,860 (48,128,098)
NET ASSETS
Beginning of period....................................... $76,218,112 $124,346,210
----------- ------------
End of period............................................. $80,718,972 $ 76,218,112
=========== ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS A SHARES
Net Asset Value, beginning of period........................ $ 8.32 $ 11.71 $ 15.78 $ 25.18
Income from investment operations:
Net investment loss..................................... (0.07) (0.15) (0.09) (0.09)
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.11 (3.24) (3.98) (5.44)
------- ------- ------- -------
Total from investment operations.................... 1.04 (3.39) (4.07) (5.53)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 9.36 $ 8.32 $ 11.71 $ 15.78
======= ======= ======= =======
Total Return/Ratios
Total return*........................................... 12.50% (28.95%) (25.79%) (21.82%)
Net assets, end of period (000s)........................ $ 512 $ 543 $ 1,003 $ 800
Net expenses to average net assets#,+................... 2.02%** 2.06% 2.09% 1.41%
Gross expenses to average net assets#,+................. 2.02%** 2.06% 2.10% 1.43%
Net investment loss to average net assets+.............. (0.03%)** (0.77%) (0.96%) (0.35%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003. Had these fees not been waived, the net expense ratio would have been
2.03%. The gross expense ratio would have been 2.03%. The net investment
loss ratio would have been (0.04%).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS B SHARES
Net Asset Value, beginning of period........................ $ 8.12 $ 11.52 $ 15.57 $ 25.18
Income from investment operations:
Net investment loss..................................... (0.06) (0.14) (0.15) (0.11)
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.04 (3.26) (3.90) (5.63)
------- ------- ------- -------
Total from investment operations.................... 0.98 (3.40) (4.05) (5.74)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 9.10 $ 8.12 $ 11.52 $ 15.57
======= ======= ======= =======
Total Return/Ratios
Total return*........................................... 12.07% (29.51%) (26.01%) (22.67%)
Net assets, end of period (000s)........................ $ 1,549 $ 1,459 $ 2,089 $ 2,329
Net expenses to average net assets#,+................... 2.81%** 2.70% 2.53% 2.21%
Gross expenses to average net assets#,+................. 2.81%** 2.71% 2.54% 2.25%
Net investment loss to average net assets+.............. (0.82%)** (1.41%) (1.43%) (1.40%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003. Had these fees not been waived, the net expense ratio would have been
2.83%. The gross expense ratio would have been 2.83%. The net investment
loss ratio would have been (0.84%).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS C SHARES
Net Asset Value, beginning of period........................ $ 7.96 $ 11.34 $ 15.56 $ 25.18
Income from investment operations:
Net investment loss..................................... (0.08) (0.30) (0.30) (0.11)
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.05 (3.08) (3.92) (5.64)
------- ------- ------- -------
Total from investment operations.................... 0.97 (3.38) (4.22) (5.75)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 8.93 $ 7.96 $ 11.34 $ 15.56
======= ======= ======= =======
Total Return/Ratios
Total return*........................................... 12.19% (29.81%) (27.12%) (22.70%)
Net assets, end of period (000s)........................ $ 233 $ 218 $ 380 $ 375
Net expenses to average net assets#,+................... 2.86%** 3.33% 4.17% 2.21%
Gross expenses to average net assets#,+................. 2.87%** 3.33% 4.18% 2.25%
Net investment loss to average net assets,+............. (0.97%)** (2.05%) (3.07%) (1.31%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian or reimbursed by the management
company for the six months ended June 30, 2003 and year ended December 31,
2002. Had these fees not been waived or reimbursed, the net expense ratios
would have been 2.88% (2003) and 3.40% (2002). The gross expense ratios
would have been 2.89% (2003) and 3.40% (2002). The net investment loss
ratios would have been (0.99%) (2003) and (2.12%) (2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ------- -------- -------- -------- --------
CLASS F SHARES
Net Asset Value, beginning of period.............. $ 8.33 $ 11.72 $ 15.69 $ 25.17 $ 22.06 $ 21.11
Income from investment operations:
Net investment income (loss).................. (0.04) (0.13) (0.14) (0.16) (0.06) 0.08
Net gains (losses) on securities (both
realized and unrealized).................... 1.09 (3.26) (3.83) (5.45) 10.11 1.90
------- ------- -------- -------- -------- --------
Total from investment operations.......... 1.05 (3.39) (3.97) (5.61) 10.05 1.98
Less distributions:
From net investment income.................... 0.00 0.00 0.00 0.00 0.00 (0.09)
From net realized gains....................... 0.00 0.00 0.00 (3.87) (6.94) (0.94)
------- ------- -------- -------- -------- --------
Total distributions....................... 0.00 0.00 0.00 (3.87) (6.94) (1.03)
Net Asset Value, end of period.................... $ 9.38 $ 8.33 $ 11.72 $ 15.69 $ 25.17 $ 22.06
======= ======= ======== ======== ======== ========
Total Return/Ratios
Total return.................................. 12.61% (28.92%) (25.30%) (22.14%) 48.78% 9.63%
Net assets, end of period (000s).............. $61,967 $59,890 $101,592 $176,405 $284,839 $272,053
Net expenses to average net assets#,+......... 2.02%** 1.84% 1.60% 1.52% 1.53% 1.47%
Gross expenses to average net assets#,+....... 2.02%** 1.84% 1.61% 1.54% 1.55% 1.49%
Net investment income (loss) to average net
assets+..................................... (0.03%)** (0.55%) (0.50%) (0.67%) (0.27%) 0.33%
Portfolio turnover rate@...................... 172% 211% 145% 210% 157% 86%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003. Had these fees not been waived, the net expense ratio would have been
2.04%. The gross expense ratio would have been 2.04%. The net investment
loss ratio would have been (0.05%).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
26
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS R SHARES
Net Asset Value, beginning of period........................ $ 8.44 $ 11.81 $ 15.75 $ 25.18
Income from investment operations:
Net investment income (loss)............................ 0.02 (0.01) (0.02) 0.00+
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.06 (3.36) (3.92) (5.56)
------- ------- ------- -------
Total from investment operations.................... 1.08 (3.37) (3.94) (5.56)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 9.52 $ 8.44 $ 11.81 $ 15.75
======= ======= ======= =======
Total Return/Ratios
Total return............................................ 12.80% (28.54%) (25.02%) (21.94%)
Net assets, end of period (000s)........................ $16,409 $14,060 $19,193 $27,611
Net expenses to average net assets#,+................... 1.53%** 1.41% 1.24% 1.22%
Gross expenses to average net assets#,+................. 1.53%** 1.41% 1.25% 1.26%
Net investment income (loss) to average net assets+..... 0.46%** (0.13%) (0.14%) (0.49%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
+ Net investment loss for the year ended December 31, 2000 aggregated less
than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003. Had these fees not been waived, the net expense ratio would have been
1.55%. The gross expense ratio would have been 1.55%. The net investment
income ratio would have been 0.44%.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS T SHARES
Net Asset Value, beginning of period........................ $ 7.89 $ 11.46 $ 15.65 $ 25.18
Income from investment operations:
Net investment loss..................................... (0.09) (0.59) (0.26) (0.06)
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.02 (2.98) (3.93) (5.60)
------- ------- ------- -------
Total from investment operations.................... 0.93 (3.57) (4.19) (5.66)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 8.82 $ 7.89 $ 11.46 $ 15.65
======= ======= ======= =======
Total Return/Ratios
Total return*........................................... 11.79% (31.15%) (26.77%) (22.34%)
Net assets, end of period (000s)........................ $ 51 $ 47 $ 90 $ 48
Net expenses to average net assets#,+................... 3.24%** 4.60% 3.74% 1.72%
Gross expenses to average net assets#,+................. 3.24%** 4.60% 3.75% 1.76%
Net investment loss to average net assets+.............. (1.26%)** (2.88%) (2.72%) (0.76%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian or reimbursed by the management
company for the six months ended June 30, 2003 and the years ended December
31, 2002 and 2001. Had these fees not been waived or reimbursed, the net
expense ratios would have been 3.26% (2003), 5.48% (2002), and 10.01%
(2001). The gross expense ratios would have been 3.26% (2003), 5.48%
(2002), and 10.02% (2001). The net investment loss ratios would have been
(1.28%) (2003), (3.76%) (2002), and (8.99%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Worldwide Growth Fund (the "Fund"). The Fund offers
Class A, Class B, Class C, Class F, Class R, and Class T shares. Class A and
Class T shares are subject to a sales charge imposed at the time of purchase,
Class B shares are subject to a contingent deferred sales charge ("CDSC")
imposed on Class B share redemptions made within six years of purchase, Class C
shares are subject to a CDSC imposed on Class C shares redeemed within one year
of purchase, and Class F and Class R shares are sold at net asset value per
share (with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITIES VALUATION--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
normally will invest a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2003 for settling foreign trades is listed on
the Statement of Assets and Liabilities.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal
30
<Page>
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$18,122 and $40,250, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $7,586 and $12,628, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A........................................... $ 816
Class B........................................... $2,279
Class C........................................... $ 396
Class R........................................... $2,868
Class T........................................... $ 293
</Table>
32
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $72,373 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $ 682
Class B................................. $5,414 $1,805
Class C................................. $ 911 $ 304
Class T................................. $ 58 $ 58
</Table>
During the six months ended June 30, 2003, DSC retained $1,497 and $18 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $7,130 of contingent deferred sales charges relating to
redemptions of Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE FEES--The Funds have agreed to compensate
Founders for providing accounting services, administration, compliance
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
monitoring, regulatory and shareholder reporting, as well as related facilities,
equipment and clerical help. The fee is computed by applying the following
rates, as applicable, to the domestic assets and foreign assets, with the
proportions of domestic and foreign assets recalculated monthly, plus reasonable
out-of-pocket expenses.
<Table>
<Caption>
ON ASSETS IN EXCESS OF BUT NOT EXCEEDING DOMESTIC FEE FOREIGN FEE
- ---------------------- ----------------- ------------ -----------
$0............... $500 million 0.06% 0.10%
$500 million..... $1 billion 0.04% 0.065%
$1 billion....... 0.02% 0.02%
</Table>
Founders has agreed to waive any fees received for these services to the
extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $6,501. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
34
<Page>
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2009
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $ 80,131,891
Post-October Capital Loss Deferral.......................... $ 1,926,432
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $ 72,202,583
Gross Tax Appreciation of Investments....................... $ 10,129,484
Gross Tax Depreciation of Investments....................... $ (1,295,253)
Net Tax Appreciation........................................ $ 8,834,231
</Table>
35
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- -----------------
CLASS A
Sold..................................................... 117,847 $ 1,090,513 431,081 $ 4,390,277
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (128,488) $ (1,200,860) (451,369) $ (4,576,256)
NET DECREASE............................................. (10,641) $ (110,347) (20,288) $ (185,979)
CLASS B
Sold..................................................... 3,011 $ 25,092 40,977 $ 409,634
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (12,549) $ (105,533) (42,643) $ (413,067)
NET DECREASE............................................. (9,538) $ (80,441) (1,666) $ (3,433)
CLASS C
Sold..................................................... 49,191 $ 387,675 12,934 $ 110,508
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (50,577) $ (403,134) (19,036) $ (171,553)
NET DECREASE............................................. (1,386) $ (15,459) (6,102) $ (61,045)
CLASS F
Sold..................................................... 1,383,462 $ 11,480,913 4,440,187 $ 42,616,720
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (1,965,714) $ (16,296,791) (5,924,226) $ (57,456,663)
NET DECREASE............................................. (582,252) $ (4,815,878) (1,484,039) $ (14,839,943)
CLASS R
Sold..................................................... 129,377 $ 1,113,981 427,695 $ 4,393,330
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (71,993) $ (627,434) (386,843) $ (4,167,635)
NET INCREASE............................................. 57,384 $ 486,547 40,852 $ 225,695
CLASS T
Sold..................................................... 0 $ 0 142,397 $ 1,559,000
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (231) $ (1,835) (144,278) $ (1,578,951)
NET DECREASE............................................. (231) $ (1,835) (1,881) $ (19,951)
</Table>
36
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
37
<Page>
This page intentionally left blank.
38
<Page>
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
P.O. Box 55360
Boston, MA 02205-8252
1-800-525-2440
www.founders.com
INVESTMENT MANAGER
Founders Asset Management LLC
A MELLON FINANCIAL COMPANY(SM)
2930 East Third Avenue
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
This report is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus, which contains more complete
information including charges, expenses, and share classes. Please read the
prospectus carefully before you invest or send money. Date of first use: August
28, 2003
Dreyfus Service Corporation, Distributor. (C) 2003 Founders Asset Management
LLC.
A-636-WWG-03
<Page>
DREYFUS FOUNDERS
BALANCED FUND
SEMIANNUAL REPORT JUNE 30, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(sm)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2003. The amounts of these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN JARES]
[PHOTO OF JOHN JOHNSON]
A DISCUSSION WITH PORTFOLIO MANAGER JOHN JARES, CFA, LEFT, AND ASSISTANT
PORTFOLIO MANAGER JOHN JOHNSON, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30?
Although the first few months of the period showed that renewed confidence in
the equity market was slow to materialize, a mid-March rally was sparked by
increasing confidence in a more robust economic recovery.
While we were pleased with the Fund's performance, in this rising market
the Fund's fixed-income component caused performance to lag the all-equity
index, the Standard & Poor's 500 Index, which returned 11.76% for the period.
WHAT SPECIFIC MARKET DYNAMICS AFFECTED THE FUNDS PERFORMANCE DURING THE PERIOD?
It has been an interesting six months for the market and for the Fund.
At the beginning of the year, initial tepid interest in the market due to a
protracted economic recovery, the looming war with Iraq and additional
allegations of corporate malfeasance idled the interest of investors. Corporate
spending and hiring remained static. Continuing increases in unemployment--which
reached a nine-year high of 6.4% in
[SIDENOTE]
"CONSUMER CONFIDENCE CONTINUED TO DRIVE THE CONSUMER DISCRETIONARY SECTOR AS
SPENDING IMPROVED."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - The mid-March market rally spurred renewed, albeit cautious, confidence in the
equities market.
- - The Fund's holdings in the consumer discretionary sector fared well due to
continued consumer spending.
- - Cardiovascular innovations and gains in the generic drug marketplace propelled
the Fund's holdings in the healthcare sector.
- - Underperforming technology holdings hampered the Fund's performance.
- - Through in-depth research, we continue to seek investment opportunities in the
stock and bond markets.
June, up from 5.7% in January--also tempered equity investing. The reaction in
the marketplace was to move to more defensive securities.
However, as the reporting period passed its mid-point, the broad market saw
a powerful rally in equity prices. The Iraqi conflict seemed to be winding down.
Optimism for improved earnings strengthened. The low interest rate environment
kept consumer confidence at a relatively high level, helping maintain economic
growth. Investors began to move back into equities due to an improved
fundamental outlook and low-yielding alternative investments. The Fund was
poised to benefit from this measured shift.
WHAT DECISIONS POSITIVELY IMPACTED THE PERFORMANCE OF THE FUND DURING THE
PERIOD?
Through the first half of 2003, the Fund began to take advantage of the
improving fundamentals and valuations in the technology, financials and energy
sectors. Oil services companies gained, spurred by spending from the oil
companies due to tight supplies of North American natural gas, as well as the
continued decline in current production from existing wells.
4
<Page>
Consumer confidence continued to drive the consumer discretionary sector
as spending improved. The Fund's relative overweight position and strong
performing stock selections in this sector boosted the Fund's performance
during the period. Holdings such as BEST BUY COMPANY, INC., a leading
retailer of home electronics, and cruise-ship operator ROYAL CARIBBEAN
CRUISES LIMITED, took advantage of consumers' continued capital spending on
electronics and leisure travel, and because of this, both companies posted
solid gains. In addition, cosmetic and fragrance manufacturer ESTEE LAUDER
COMPANIES, INC., and the home improvement chain HOME DEPOT, INC. performed
well during the period, contributing positively to the Funds overall
performance.
Healthcare also provided positive opportunities during the period, as the
Fund capitalized on holdings focused on the improvement of cardiovascular health
as well as the production of affordable drugs. BOSTON SCIENTIFIC CORPORATION
contributed to the Fund's performance as it benefited from the success of its
pioneering approach to interventional cardiology. This approach improves upon
existing technology by applying a drug to cardiovascular stents to help control
coronary artery disease.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Estee Lauder Companies, Inc. (EL) 4.15%
2. Royal Caribbean Cruises Limited (RCL) 3.50%
3. General Electric Company (GE) 3.50%
4. Microsoft Corporation (MSFT) 2.76%
5. Pfizer, Inc. (PFE) 2.75%
6. Coca-Cola Company (KO) 2.60%
7. International Business Machines Corporation (IBM) 2.53%
8. Colgate-Palmolive Company (CL) 2.51%
9. Verizon Communications, Inc. (VZ) 2.36%
10. MBNA Corporation (KRB) 2.34%
</Table>
Holdings listed are a percentage of equity assets. Portfolio holdings are
subject to change, and should not be construed as a recommendation of any
security.
5
<Page>
Also during the period, Congress continued debate, passing separate
bills, on The Medicare Prescription Drug and Modernization Act of 2003. This
drew interest to many aspects of domestic healthcare, specifically the
generic drug industry. TEVA PHARMACEUTICAL INDUSTRIES LIMITED, a generic drug
manufacturer, proved to be a positive stock selection in light of this
attention.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares
a $10,000 investment made in Class F shares of Dreyfus Founders Balanced Fund
on 6/30/93 to a $10,000 investment made in unmanaged securities indexes on
that date. The Fund's performance assumes the reinvestment of dividends and
capital gain distributions, but does not reflect the deduction of taxes that
a shareholder would pay on Fund distributions or redemption of Fund shares.
The Fund offers multiple classes of shares. Performance shown is for Class F,
which is open only to grandfathered investors. The Fund's performance in the
graph takes into account all applicable Class F fees and expenses. These
figures do not reflect the maximum sales charges applicable to Class A, B, C,
or T shares of the Fund. For these share classes, applying these charges will
result in lower returns for investors.
The Standard & Poor's (S&P) 500 Index is a market-value-weighted,
unmanaged index of common stocks considered representative of the broad
market. The total return figures cited for this index assume change in
security prices and reinvestment of dividends, but do not reflect the costs
of managing a mutual fund. The S&P 500 Index does not include a fixed-income
component, while the Fund does. The Lipper Balanced Fund Index is an average
of the performance of the 30 largest balanced funds tracked by Lipper Inc.,
adjusted for the reinvestment of dividends and capital gain distributions and
reflective of the management expenses associated with the actual funds
included in the Index. Further information related to Fund performance is
contained elsewhere in this report.
6
<Page>
WHAT HINDERED THE FUNDS OVERALL PERFORMANCE DURING THE HALF?
Underperforming technology holdings also proved deficient to the Fund's
performance. BMC SOFTWARE, INC., a manufacturer of computer hardware and
software systems, was one such holding that performed poorly during the period
and hampered Fund performance. Already saddled with a difficult environment in
which to sell, BMC Software underperformed due to missed revenue growth
estimates.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 3.68% (3.96%) -- -- (10.25%)
Without sales charge 10.04% 1.88% -- -- (8.71%)
CLASS B SHARES (12/31/99)
With redemption* 5.46% (2.90%) -- -- (10.18%)
Without redemption 9.46% 1.10% -- -- (9.41%)
CLASS C SHARES (12/31/99)
With redemption** 8.34% (0.43%) -- -- (9.86%)
Without redemption 9.34% 0.57% -- -- (9.86%)
CLASS F SHARES (2/19/63) 10.01% 2.01% (5.68%) 4.79% N/A
CLASS R SHARES (12/31/99) 9.63% 8.66% -- -- (8.85%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 4.48% 2.77% -- -- (9.55%)
Without sales charge 9.34% 7.62% -- -- (8.36%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions, expense limits for
certain share classes, and adjustments for financial statement purposes.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
HOW DID THE FIXED-INCOME PORTION OF THE PORTFOLIO IMPACT THE FUND IN THE FIRST
HALF?
The fixed-income portion of the Fund fared well from the slowed recovery of the
economy and the market. Economic fundamentals remained not only stagnant during
the period, but in some cases showed signs of contracting. Manufacturing
activity and retail sales also became anemic. Unemployment reached a nine-year
high in June. All of these economic factors contributed to the positive
contribution the Fund's fixed-income holdings made to its overall performance.
Appropriate to the Fund's investment philosophy, corporate credits and
sectors were carefully selected for appreciation potential. At period's end, the
fixed-income portion of the Funds allocation to corporate
[CHART]
COMPOSITION OF EQUITY ASSETS
<Table>
18.36% Information Technology
17.80% Consumer Discretionary
15.05% Consumer Staples
13.52% Financials
13.37% Healthcare
8.78% Industrials
7.64% Energy
3.24% Telecommunications Services
1.56% Materials
0.68% Utilities
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
managers and are subject to change at any time, based on market and other
conditions, and should not be construed as a recommendation of any specific
security.
8
<Page>
bonds--34.2% with all bonds rated as investment-grade, the majority of exposure
concentrated in the AA and A rating categories--benefited performance.
Additionally, Treasury and Agency securities represented 42.2% of the
fixed-income portion of the Fund and provided much of the Fund's liquidity.
The Fund sold its position in Freddie Mac securities in June due to a
Securities and Exchange Commission-led investigation into the mortgage
financier's accounting issues. We are closely monitoring the Freddie Mac
situation, as well as Government Sponsored Enterprises in general, and view
any efforts to increase regulatory oversight, disclosure and capital
requirements positively for debt holders.
Overall, the Fund's fixed-income holdings provided a strong foundation
and a defensive position for investors as the market slowly moved toward
recovery.
As we move into the final half of 2003, our investment strategy remains
constant. We will continue to apply our fundamental bottom-up approach and
intensive research process for the Fund by seeking stocks that are poised to
exhibit growth characteristics at attractive valuations.
/s/ John B. Jares /s/ John Johnson
John B. Jares, CFA John Johnson, CFA
Portfolio Manager Assistant Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-53.0%
ADVERTISING-0.6%
24,300 Lamar Advertising Company*........................ $ 855,603
----------------
AIRLINES-1.2%
65,300 Northwest Airlines Corporation Class A*........... 737,237
48,600 Southwest Airlines Company........................ 835,920
----------------
1,573,157
----------------
APPLICATION SOFTWARE-0.2%
14,650 PeopleSoft, Inc.*................................. 257,694
----------------
ASSET MANAGEMENT & CUSTODY BANKS-1.3%
102,725 Janus Capital Group, Inc.......................... 1,684,690
----------------
BIOTECHNOLOGY-0.6%
11,400 Amgen, Inc.*...................................... 757,416
----------------
BROADCASTING & CABLE TV-1.3%
17,500 Clear Channel Communications, Inc.*............... 741,825
34,600 Comcast Corporation Special Class A*.............. 997,518
----------------
1,739,343
----------------
CASINOS & GAMING-0.4%
14,400 MGM Mirage, Inc.*................................. 492,192
----------------
COMMUNICATIONS EQUIPMENT-0.6%
51,100 Cisco Systems, Inc.*.............................. 852,859
----------------
COMPUTER & ELECTRONICS RETAIL-1.2%
35,450 Best Buy Company, Inc.*........................... 1,556,964
----------------
COMPUTER HARDWARE-1.4%
23,200 International Business Machines Corporation....... 1,914,000
----------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
CONSUMER FINANCE-1.3%
84,850 MBNA Corporation.................................. $ 1,768,274
----------------
DATA PROCESSING & OUTSOURCED SERVICES-1.0%
37,400 Fiserv, Inc.*..................................... 1,331,814
----------------
DEPARTMENT STORES-0.3%
18,500 Nordstrom, Inc.................................... 361,120
----------------
DIVERSIFIED BANKS-2.0%
13,200 Bank of America Corporation....................... 1,043,196
31,100 Wells Fargo & Company............................. 1,567,440
----------------
2,610,636
----------------
DIVERSIFIED COMMERCIAL SERVICES-0.3%
24,700 Cendant Corporation*.............................. 452,504
----------------
FOOD RETAIL-1.0%
68,000 Safeway, Inc.*.................................... 1,391,280
----------------
GAS UTILITIES-0.4%
9,475 Kinder Morgan, Inc................................ 517,809
----------------
HEALTHCARE EQUIPMENT-1.0%
20,600 Boston Scientific Corporation*.................... 1,258,660
----------------
HEALTHCARE SERVICES-0.8%
41,900 Caremark Rx, Inc.*................................ 1,075,992
----------------
HOME IMPROVEMENT RETAIL-1.0%
40,800 Home Depot, Inc................................... 1,351,296
----------------
HOTELS, RESORTS & CRUISE LINES-0.2%
9,700 Carnival Corporation Class A...................... 315,347
----------------
HOUSEHOLD PRODUCTS-2.1%
32,800 Colgate-Palmolive Company......................... 1,900,760
9,800 Procter & Gamble Company.......................... 873,964
----------------
2,774,724
----------------
HYPERMARKETS & SUPER CENTERS-1.2%
28,300 Wal-Mart Stores, Inc.............................. 1,518,861
----------------
INDUSTRIAL CONGLOMERATES-2.5%
5,100 3M Company........................................ 657,798
92,400 General Electric Company.......................... 2,650,032
----------------
3,307,830
----------------
INDUSTRIAL GASES-0.9%
19,600 Praxair, Inc...................................... 1,177,960
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-1.9%
26,200 SBC Communications, Inc........................... $ 669,410
45,300 Verizon Communications, Inc....................... 1,787,085
----------------
2,456,495
----------------
INVESTMENT BANKING & BROKERAGE-1.5%
14,200 Goldman Sachs Group, Inc.......................... 1,189,250
17,400 Morgan Stanley.................................... 743,850
----------------
1,933,100
----------------
LEISURE FACILITIES-2.0%
114,461 Royal Caribbean Cruises Limited................... 2,650,917
----------------
MOVIES & ENTERTAINMENT-2.3%
40,000 AOL Time Warner, Inc.*............................ 643,600
34,400 Viacom, Inc. Class B*............................. 1,501,904
43,700 Walt Disney Company............................... 863,075
----------------
3,008,579
----------------
MULTI-LINE INSURANCE-0.8%
18,000 American International Group, Inc................. 993,240
----------------
OIL & GAS DRILLING-0.6%
32,700 GlobalSantaFe Corporation......................... 763,218
----------------
OIL & GAS EQUIPMENT & SERVICES-1.4%
10,200 BJ Services Company*.............................. 381,072
39,100 Smith International, Inc.*........................ 1,436,534
----------------
1,817,606
----------------
OIL & GAS EXPLORATION & PRODUCTION-0.7%
13,335 Apache Corporation................................ 867,575
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.9%
29,066 Citigroup, Inc.................................... 1,244,025
----------------
PERSONAL PRODUCTS-2.4%
93,800 Estee Lauder Companies, Inc. Class A.............. 3,145,114
----------------
PHARMACEUTICALS-4.1%
10,000 Abbott Laboratories............................... 437,600
8,000 Forest Laboratories, Inc.*........................ 438,000
11,600 Johnson & Johnson................................. 599,720
19,600 Merck & Company, Inc.............................. 1,186,780
60,950 Pfizer, Inc....................................... 2,081,443
15,000 Wyeth............................................. 683,250
----------------
5,426,793
----------------
RAILROADS-0.5%
11,400 Union Pacific Corporation......................... 661,428
----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-0.7%
7,150 KLA-Tencor Corporation*........................... $ 332,404
34,300 Lam Research Corporation*......................... 624,603
----------------
957,007
----------------
SEMICONDUCTORS-1.2%
19,500 Broadcom Corporation*............................. 485,745
18,900 Maxim Integrated Products, Inc.*.................. 646,191
15,300 Xilinx, Inc.*..................................... 387,243
----------------
1,519,179
----------------
SOFT DRINKS-1.9%
42,400 Coca-Cola Company................................. 1,967,784
33,000 Coca-Cola Enterprises, Inc........................ 598,950
----------------
2,566,734
----------------
SPECIALTY STORES-0.9%
35,100 Tiffany & Company................................. 1,147,068
----------------
SYSTEMS SOFTWARE-4.4%
39,200 Adobe Systems, Inc................................ 1,257,144
102,000 BMC Software, Inc.*............................... 1,665,660
81,600 Microsoft Corporation............................. 2,089,776
25,100 Oracle Corporation*............................... 301,702
19,000 VERITAS Software Corporation*..................... 544,730
----------------
5,859,012
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$62,463,567).................................................. 69,915,115
----------------
COMMON STOCKS (FOREIGN)-4.4%
INTEGRATED OIL & GAS-0.8%
23,600 BP PLC Sponsored ADR (UK)......................... 991,672
----------------
IT CONSULTING & OTHER SERVICES-0.6%
45,725 Accenture Limited Class A ADR (BD)*............... 827,165
----------------
OIL & GAS DRILLING-1.0%
34,000 Nabors Industries Limited (BA)*................... 1,344,700
----------------
PHARMACEUTICALS-1.2%
28,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS).......................................... 1,594,040
----------------
RAILROADS-0.5%
13,500 Canadian National Railway Company (CA)............ 651,510
----------------
SEMICONDUCTORS-0.3%
11,025 Marvell Technology Group Limited (BD)*............ 378,929
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$4,782,137)................................................... 5,788,016
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- -------------------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)-14.6%
AUTOMOBILE MANUFACTURERS-2.5%
$ 3,000,000 Toyota Motor Credit Corporation Series MTN
5.65% 1/15/07..................................... $ 3,321,270
----------------
DIVERSIFIED BANKS-3.4%
3,540,000 Washington Mutual, Inc.
8.25% 4/1/10...................................... 4,458,630
----------------
GENERAL MERCHANDISE STORES-1.9%
2,500,000 Target Corporation
4.00% 6/15/13..................................... 2,449,650
----------------
HOUSEHOLD PRODUCTS-2.6%
3,000,000 Colgate-Palmolive Company
5.98% 4/25/12..................................... 3,458,910
----------------
MOVIES & ENTERTAINMENT-1.7%
2,000,000 Viacom, Inc.
7.75% 6/1/05...................................... 2,227,480
----------------
PHARMACEUTICALS-2.5%
3,000,000 Abbott Laboratories
5.625% 7/1/06..................................... 3,321,690
----------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST-$17,358,713).................................................. 19,237,630
----------------
U.S. GOVERNMENT SECURITIES-18.0%
AGENCY PASS THROUGH-3.5%
4,200,777 U.S. Small Business Administration Series 10-A
6.64% 2/1/11...................................... 4,598,716
----------------
U.S. AGENCIES-7.0%
Federal Home Loan Bank:
3,500,000 6.50% 11/15/05.................................... 3,905,895
3,000,000 6.70% 4/4/17 Callable 4/4/05...................... 3,237,450
2,000,000 Private Export Funding Corporation
3.40% 2/15/08..................................... 2,075,600
----------------
9,218,945
----------------
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------------
U.S. TREASURY NOTES-7.5%
$ 2,044,640 U.S. Treasury Inflation Index Note
3.00% 7/15/12..................................... $ 2,253,100
U.S. Treasury Note:
2,500,000 4.00% 11/15/12.................................... 2,601,475
3,000,000 5.00% 2/15/11..................................... 3,367,380
1,500,000 6.875% 5/15/06.................................... 1,718,970
------------------
9,940,925
------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST-$22,330,570).................................................. 23,758,586
------------------
GOVERNMENT BONDS (FOREIGN)-2.1%
GOVERNMENT SECURITIES-2.1%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA)................................ 2,794,232
------------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST-$2,384,524)................................................... 2,794,232
------------------
<Caption>
AMORTIZED
COST
- ---------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-7.6%
OTHER DIVERSIFIED FINANCIAL SERVICES-3.6%
$ 4,800,000 Merrill Lynch & Company
1.12% 7/2/03...................................... $ 4,799,851
------------------
SPECIAL PURPOSE ENTITY-4.0%
5,300,000 Corporate Asset Funding Corporation
1.10% 7/1/03...................................... 5,300,000
------------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$10,099,851)........................................ 10,099,851
------------------
TOTAL INVESTMENTS-99.7%
(TOTAL COST-$119,419,362)........................................... 131,593,430
------------------
OTHER ASSETS AND LIABILITIES-0.3%................................... 400,037
------------------
NET ASSETS-100.0%................................................... $ 131,993,467
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $119,419,362
------------
Investment securities, at market.................. 131,593,430
Cash.............................................. 438,207
Receivables:
Investment securities sold...................... 291,255
Capital shares sold............................. 124,199
Dividends and interest.......................... 609,969
Other assets...................................... 43,280
------------
Total Assets.................................. 133,100,340
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 249,075
Capital shares redeemed......................... 571,505
Advisory fees................................... 71,726
Shareholder servicing fees...................... 6,852
Accounting fees................................. 6,621
Distribution fees............................... 48,476
Custodian fees.................................. 544
Other........................................... 152,074
------------
Total Liabilities............................. 1,106,873
------------
Net Assets........................................ $131,993,467
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $330,144,048
Undistributed net investment income............... (8,111)
Accumulated net realized loss from security
transactions.................................... (210,316,504)
Net unrealized appreciation on investments and
foreign currency translation.................... 12,174,034
------------
Total......................................... $131,993,467
============
</Table>
16
<Page>
<Table>
Net Assets--Class A............................... $ 1,384,281
Shares Outstanding--Class A....................... 189,206
Net Asset Value, Redemption Price Per Share....... $ 7.32
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 7.77
Net Assets--Class B............................... $ 1,343,430
Shares Outstanding--Class B....................... 185,239
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 7.25
Net Assets--Class C............................... $ 216,228
Shares Outstanding--Class C....................... 30,236
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 7.15
Net Assets--Class F............................... $128,990,444
Shares Outstanding--Class F....................... 17,615,028
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 7.32
Net Assets--Class R............................... $ 42,309
Shares Outstanding--Class R....................... 5,795
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 7.30
Net Assets--Class T............................... $ 16,775
Shares Outstanding--Class T....................... 2,230
Net Asset Value, Redemption Price Per Share....... $ 7.52
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 7.87
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 404,786
Interest........................................ 1,332,672
Foreign taxes withheld.......................... (5,288)
------------
Total Investment Income....................... 1,732,170
------------
EXPENSES:
Advisory fees--Note 2........................... 423,091
Shareholder servicing fees--Note 2.............. 43,476
Accounting fees--Note 2......................... 39,055
Distribution fees--Note 2....................... 164,718
Transfer agency fees--Note 2.................... 216,567
Registration fees............................... 28,567
Postage and mailing expenses.................... 35,111
Custodian fees and expenses--Note 2............. 3,263
Printing expenses............................... 28,265
Legal and audit fees............................ 14,271
Directors' fees and expenses--Note 2............ 16,792
Other expenses.................................. 35,555
------------
Total Expenses................................ 1,048,731
Earnings Credits.............................. (1,328)
Reimbursed/Waived Expenses.................... (684)
Expense Offset to Broker Commissions.......... (5,005)
------------
Net Expenses.................................. 1,041,714
------------
Net Investment Income........................... 690,456
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security Transactions (including premiums on
options exercised).............................. (72,022)
Closing and expiration of options contracts
written......................................... (81,414)
Foreign currency transactions................... 10,642
------------
Net Realized Loss............................. (142,794)
Net Change in Unrealized Appreciation of
Investments and Foreign Currency Translation...... 11,878,484
------------
Net Realized and Unrealized Gain.................. 11,735,690
------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 12,426,146
============
Purchases of long-term securities................. $ 50,163,904
Proceeds from sales of long-term securities....... $ 71,981,868
Purchases of long-term U.S. Government
Obligations....................................... $ 7,583,053
Proceeds from sales of long-term U.S. Government
Obligations....................................... $ 5,228,260
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ -------------
OPERATIONS
Net Investment Income................... $ 690,456 $ 2,058,852
Net Realized Loss....................... (142,794) (35,873,999)
Net Change in Unrealized
Appreciation/Depreciation............. 11,878,484 (8,107,493)
------------ -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 12,426,146 (41,922,640)
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
From Net Investment Income
Class A............................... (5,606) (7,719)
Class B............................... (1,223) (558)
Class C............................... (17) 0
Class F............................... (691,602) (2,156,959)
Class R............................... (114) 0
Class T............................... (5) 0
------------ -------------
Net Decrease from Dividends and
Distributions......................... (698,567) (2,165,236)
------------ -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... 22,581 304,988
Class B............................... 51,775 (28,551)
Class C............................... (65,450) (151,251)
Class F............................... (12,784,706) (123,330,214)
Class R............................... 30,077 294
Class T............................... 2,392 (219,113)
------------ -------------
Net Decrease from Capital Share
Transactions.......................... (12,743,331) (123,423,847)
------------ -------------
Net Decrease in Net Assets.............. (1,015,752) (167,511,723)
NET ASSETS
Beginning of period................... $133,009,219 $ 300,520,942
------------ -------------
End of period......................... $131,993,467 $ 133,009,219
============ =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 6.68 $ 8.18 $ 9.24 $ 10.47
Income from investment
operations:
Net investment income..... 0.03 0.05 0.06 0.13
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.64 (1.51) (1.03) (1.18)
------ ------- ------- -------
Total from investment
operations.......... 0.67 (1.46) (0.97) (1.05)
Less distributions:
From net investment
income.................. (0.03) (0.04) (0.09) (0.16)
From net realized gains... 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions... (0.03) (0.04) (0.09) (0.18)
Net Asset Value, end of
period...................... $ 7.32 $ 6.68 $ 8.18 $ 9.24
====== ======= ======= =======
Total Return/Ratios
Total return*............. 10.04% (17.85%) (10.46%) (10.21%)
Net assets, end of period
(000s).................. $1,384 $ 1,243 $ 1,227 $ 699
Net expenses to average
net assets#............. 1.85%** 1.89% 1.87% 1.20%
Gross expenses to average
net assets#............. 1.86%** 1.89% 1.87% 1.23%
Net investment income to
average net assets...... 0.81%** 0.56% 0.51% 1.48%
Portfolio turnover
rate@................... 113% 122% 111% 126%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of period....... $ 6.63 $ 8.11 $ 9.18 $ 10.47
Income from investment operations:
Net investment income (loss)........... 0.01 (0.01) 0.01 0.10
Net gains (losses) on securities (both
realized and unrealized)............. 0.62 (1.47) (1.03) (1.24)
------ ------- ------- -------
Total from investment operations... 0.63 (1.48) (1.02) (1.14)
Less distributions:
From net investment income............. (0.01) 0.00^ (0.05) (0.13)
From net realized gains................ 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions................ (0.01) 0.00 (0.05) (0.15)
Net Asset Value, end of period............. $ 7.25 $ 6.63 $ 8.11 $ 9.18
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 9.46% (18.21%) (11.13%) (11.06%)
Net assets, end of period (000s)....... $1,343 $ 1,181 $ 1,484 $ 1,008
Net expenses to average net assets#.... 2.55%** 2.54% 2.49% 1.93%
Gross expenses to average net
assets#.............................. 2.56%** 2.54% 2.50% 1.96%
Net investment income (loss) to average
net assets........................... 0.11%** (0.10%) (0.13%) 0.71%
Portfolio turnover rate@............... 113% 122% 111% 126%
</Table>
^ Distributions from net investment income for the year ended December 31,
2002 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of period....... $ 6.54 $ 8.04 $ 9.17 $ 10.47
Income from investment operations:
Net investment income (loss)........... (0.07) (0.17) (0.05) 0.10
Net gains (losses) on securities (both
realized and unrealized)............. 0.68 (1.33) (1.03) (1.28)
------ ------- ------- -------
Total from investment operations... 0.61 (1.50) (1.08) (1.18)
Less distributions:
From net investment income............. 0.00^ 0.00 (0.05) (0.10)
From net realized gains................ 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions................ 0.00 0.00 (0.05) (0.12)
Net Asset Value, end of period............. $ 7.15 $ 6.54 $ 8.04 $ 9.17
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 9.34% (18.66%) (11.80%) (11.36%)
Net assets, end of period (000s)....... $ 216 $ 248 $ 496 $ 174
Net expenses to average net
assets#,+............................ 2.72%** 3.48% 3.96% 1.86%
Gross expenses to average net
assets#,+............................ 2.72%** 3.48% 3.96% 1.88%
Net investment income (loss) to average
net assets+.......................... 0.07%** (1.05%) (1.64%) 0.76%
Portfolio turnover rate@............... 113% 122% 111% 126%
</Table>
^ Distributions from net investment income for the six months ended June 30,
2003 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the year ended
December 31, 2001. Had these fees not been reimbursed, the net expense
ratio would have been 4.24%. The gross expense ratio would have been 4.24%.
The net investment income (loss) ratio would have been (1.92%).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 6.69 $ 8.20 $ 9.22 $ 10.47 $ 12.19 $ 11.35
Income from investment operations:
Net investment income.................. 0.04 0.07 0.10 0.15 0.32 0.30
Net gains (losses) on securities (both
realized and unrealized)............. 0.63 (1.50) (1.02) (1.23) (0.61) 1.27
-------- -------- -------- -------- ---------- ----------
Total from investment operations... 0.67 (1.43) (0.92) (1.08) (0.29) 1.57
Less distributions:
From net investment income............. (0.04) (0.08) (0.10) (0.15) (0.32) (0.30)
From net realized gains................ 0.00 0.00 0.00 (0.02) (1.11) (0.43)
-------- -------- -------- -------- ---------- ----------
Total distributions................ (0.04) (0.08) (0.10) (0.17) (1.43) (0.73)
Net Asset Value, end of period............. $ 7.32 $ 6.69 $ 8.20 $ 9.22 $ 10.47 $ 12.19
======== ======== ======== ======== ========== ==========
Total Return/Ratios
Total return........................... 10.01% (17.46%) (9.94%) (10.44%) (2.22%) 13.96%
Net assets, end of period (000s)....... $128,990 $130,314 $297,068 $552,675 $1,055,825 $1,244,221
Net expenses to average net assets#.... 1.59%** 1.42% 1.22% 1.07% 0.97% 0.99%
Gross expenses to average net
assets#.............................. 1.59%** 1.43% 1.23% 1.08% 0.98% 1.00%
Net investment income to average net
assets............................... 1.07%** 0.99% 1.20% 1.41% 2.64% 2.51%
Portfolio turnover rate@............... 113% 122% 111% 126% 218% 211%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of period....... $ 6.68 $ 8.18 $ 9.22 $ 10.47
Income from investment operations:
Net investment income (loss)........... 0.13 (0.16) 0.09 0.18
Net gains (losses) on securities (both
realized and unrealized)............. 0.51 (1.34) (1.02) (1.23)
------ ------- ------- -------
Total from investment operations... 0.64 (1.50) (0.93) (1.05)
Less distributions:
From net investment income............. (0.02) 0.00 (0.11) (0.18)
From net realized gains................ 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions................ (0.02) 0.00 (0.11) (0.20)
Net Asset Value, end of period............. $ 7.30 $ 6.68 $ 8.18 $ 9.22
====== ======= ======= =======
Total Return/Ratios
Total return........................... 9.63% (18.34%) (10.09%) (10.18%)
Net assets, end of period (000s)....... $ 42 $ 11 $ 14 $ 1
Net expenses to average net
assets#,+............................ 2.42%** 4.24% 3.07% 0.80%
Gross expenses to average net
assets#,+............................ 2.42%** 4.24% 3.07% 0.81%
Net investment income (loss) to average
net assets+.......................... 0.19%** (1.77%) (0.75%) 1.71%
Portfolio turnover rate@............... 113% 122% 111% 126%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company or its affiliates
for the six months ended June 30, 2003 and the years ended December 31,
2002 and 2001. Had these fees not been reimbursed, the net expense ratios
would have been 3.02% (2003), 19.52% (2002) and 272.77% (2001). The gross
expense ratios would have been 3.02% (2003), 19.52% (2002) and 272.77%
(2001). The net investment income (loss) ratios would have been (0.41%)
(2003), (17.05%) (2002) and (270.45%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of period....... $ 6.88 $ 8.17 $ 9.21 $ 10.47
Income from investment operations:
Net investment income (loss)........... 0.05 (0.37) 0.08 0.12
Net gains (losses) on securities (both
realized and unrealized)............. 0.59 (0.92) (1.04) (1.22)
------ ------- ------- -------
Total from investment operations... 0.64 (1.29) (0.96) (1.10)
Less distributions:
From net investment income............. 0.00^ 0.00 (0.08) (0.14)
From net realized gains................ 0.00 0.00 0.00 (0.02)
------ ------- ------- -------
Total distributions................ 0.00 0.00 (0.08) (0.16)
Net Asset Value, end of period............. $ 7.52 $ 6.88 $ 8.17 $ 9.21
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 9.34% (15.79%) (10.44%) (10.67%)
Net assets, end of period (000s)....... $ 17 $ 13 $ 232 $ 9
Net expenses to average net
assets#,+............................ 2.82%** 2.59% 3.36% 1.30%
Gross expenses to average net
assets#,+............................ 2.82%** 2.60% 3.36% 1.32%
Net investment income (loss) to average
net assets+.......................... (0.16%)** (0.31%) (1.12%) 1.22%
Portfolio turnover rate@............... 113% 122% 111% 126%
</Table>
^ Distributions from net investment income for the six months ended June 30,
2003 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company or its affiliates
for the six months ended June 30, 2003 and the years ended December 31,
2002 and 2001. Had these fees not been reimbursed, the net expense ratios
would have been 3.46% (2003), 14.62% (2002) and 18.37% (2001). The gross
expense ratios would have been 3.46% (2003), 14.63% (2002) and 18.37%
(2001). The net investment income (loss) ratios would have been (0.80%)
(2003), (12.34%) (2002) and (16.13%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Balanced Fund (the "Fund"). The Fund offers Class A,
Class B, Class C, Class F, Class R, and Class T shares. Class A and Class T
shares are subject to a sales charge imposed at the time of purchase, Class B
shares are subject to a contingent deferred sales charge ("CDSC") imposed on
Class B share redemptions made within six years of purchase, Class C shares are
subject to a CDSC imposed on Class C shares redeemed within one year of
purchase, and Class F and Class R shares are sold at net asset value per share
(with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or, in the case of written call options, at the
mean between the highest bid and lowest asked quotations, or based on quotes
from dealers making a market for the security if the closing bid price is not
available. In the event that the closing price of a foreign security is not
available in time to calculate the 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. London closing quotes for exchange rates are used to convert foreign
security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific
26
<Page>
country or region. The Fund amortizes premiums and discounts on all fixed-income
securities.
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
OPTION WRITING--When the Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
adjusted to the current market value of the option written. Premiums received
from writing options that expire unexercised are treated by the Fund on the
expiration date as realized gains from investments. The difference between the
premium and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or, if the
premium is less than the amount paid for the closing purchase transaction, as a
realized loss. If a call option is exercised, the premium is added to the
proceeds from the sale of the underlying security or currency in determining
whether the Fund has realized a gain or loss. If a put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The Fund
as writer of an option bears the market risk of an unfavorable change in the
price of the security underlying the written option.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make distributions of income and capital gains sufficient to relieve it from
all income taxes. The Fund is treated as a separate tax entity for federal
income tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends (if
any) quarterly and capital gains (if any) annually. Dividends and distributions,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date
28
<Page>
of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
0.65% of the first $250 million of net assets, 0.60% of the next $250 million of
net assets, 0.55% of the next $250 million of net assets, and 0.50% of net
assets in excess of $750 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$12,452 and $27,599, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003,
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Class F shares paid DTI and ITC $12,445 and $17,162, respectively, for
out-of-pocket transfer agent charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.73 to $13.13, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $ 2,469
Class B..................................................... $ 2,035
Class C..................................................... $ 487
Class R..................................................... $ 132
Class T..................................................... $ 120
</Table>
Founders has agreed to reimburse (or to cause its affiliates to reimburse) the
Class R and Class T share classes of the Fund for certain transfer agency and
printing expenses pursuant to a contractual commitment. This commitment will
extend through at least August 31, 2004, and will not be terminated without
prior notification to the Company's board of directors. For the six months ended
June 30, 2003, Class R and Class T were each reimbursed $44, which reduced the
amounts paid to DTI to $88 and $76, respectively.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC is also the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $159,284 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
30
<Page>
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $1,602
Class B................................. $4,557 $1,519
Class C................................. $ 860 $ 287
Class T................................. $ 17 $ 17
</Table>
During the six months ended June 30, 2003, DSC retained $8,718 and $320 of
contingent deferred sales charges relating to redemptions of Class B and
Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has agreed to waive any fees
received for these services to the extent they exceed Founders' costs in
providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Fund's portion of the fee waiver was $596. The amount paid to Mellon was reduced
by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2008
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $199,486,923
Post-October Capital Loss Deferral.......................... $ 5,744,775
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $123,405,797
Gross Tax Appreciation of Investments....................... $ 10,748,081
Gross Tax Depreciation of Investments....................... $ (2,560,448)
Net Tax Appreciation........................................ $ 8,187,633
</Table>
32
<Page>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 850 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- ------------------
CLASS A
Sold.................... 10,418 $ 72,880 78,405 $ 605,345
Dividends or
Distributions
Reinvested............ 768 $ 5,411 1,046 $ 7,280
Redeemed................ (7,954) $ (55,710) (43,543) $ (307,637)
NET INCREASE............ 3,232 $ 22,581 35,908 $ 304,988
CLASS B
Sold.................... 30,448 $ 210,267 38,811 $ 277,704
Dividends or
Distributions
Reinvested............ 138 $ 971 69 $ 461
Redeemed................ (23,551) $ (159,463) (43,542) $ (306,716)
NET INCREASE
(DECREASE)............ 7,035 $ 51,775 (4,662) $ (28,551)
CLASS C
Sold.................... 3,223 $ 22,294 24,035 $ 171,946
Dividends or
Distributions
Reinvested............ 1 $ 10 0 $ 0
Redeemed................ (10,853) $ (87,754) (47,882) $ (323,197)
NET DECREASE............ (7,629) $ (65,450) (23,847) $ (151,251)
CLASS F
Sold.................... 1,909,527 $ 13,118,759 3,379,558 $ 25,710,382
Dividends or
Distributions
Reinvested............ 95,161 $ 669,120 288,655 $ 2,097,722
Redeemed................ (3,877,305) $ (26,572,585) (20,429,796) $ (151,138,318)
NET DECREASE............ (1,872,617) $ (12,784,706) (16,761,583) $ (123,330,214)
CLASS R
Sold.................... 4,075 $ 30,000 5,874 $ 40,000
Dividends or
Distributions
Reinvested............ 11 $ 77 0 $ 0
Redeemed................ (0) $ (0) (5,874) $ (39,706)
NET INCREASE............ 4,086 $ 30,077 0 $ 294
CLASS T
Sold.................... 314 $ 2,387 365 $ 2,456
Dividends or
Distributions
Reinvested............ 1 $ 5 0 $ 0
Redeemed................ (0) $ (0) (26,771) $ (221,569)
NET INCREASE
(DECREASE)............ 315 $ 2,392 (26,406) $ (219,113)
</Table>
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
5. CALL OPTIONS WRITTEN
Transactions in options written during the six months ended June 30, 2003, were
as follows:
<Table>
<Caption>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
Options outstanding at December 31,
2002.................................. 0 $ 0
Options written......................... 690 151,125
Options terminated in closing purchase
transactions.......................... (350) (95,197)
Options expired......................... (170) (30,939)
Options exercised....................... (170) (24,989)
------- --------
Options outstanding at June 30, 2003.... 0 $ 0
======= ========
</Table>
6. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
34
<Page>
FOR MORE INFORMATION
DREYFUS FOUNDERS
BALANCED FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
2930 East Third Avenue
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
To obtain information:
- --------------------------------- Dreyfus Transfer, Inc.
BY TELEPHONE | 200 Park Avenue
Call your financial | New York, NY 10166
representative or |
1-800-554-4611 |
| DISTRIBUTOR
BY MAIL Write to: |
Dreyfus Founders Funds | Dreyfus Service Corporation
144 Glenn Curtiss Boulevard | 200 Park Avenue
Uniondale, NY 11556-0144 | New York, NY 10166
Dreyfus Founders Funds are managed by Founders Asset Management LLC.
Founders and Founders Funds are registered trademarks of Founders Asset
Management LLC.
(C)2003 Dreyfus Service Corporation 086SA0603
<Page>
DREYFUS FOUNDERS
DISCOVERY FUND
DREYFUS FOUNDERS DISCOVERY FUND IS CLOSED TO NEW INVESTORS.
PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION.
SEMIANNUAL REPORT JUNE 30, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(sm)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2003. The amounts of the these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF ROBERT AMMANN]
A DISCUSSION WITH PORTFOLIO
MANAGER ROBERT AMMANN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30?
During the period, the Dreyfus Founders Discovery Fund underperformed its
benchmark, returning less than the 19.33% return posted by the Russell 2000
Growth Index.
WHAT ECONOMIC OR MARKET DYNAMICS MOST IMPACTED THE PERIOD?
The opening of the period saw depressed investor optimism and dampened spending,
precipitated mostly by the geopolitical uncertainty that blanketed the market
for months. Weakened consumer spending that was experienced during the previous
period's holiday season carried into the first two months of 2003, as increased
uncertainty over the potential war in Iraq caused both consumers and
corporations to take a cautious approach to spending. Moreover, economic and
geopolitical concerns were not the only issues the market had to digest. The
impact of severe weather in the first quarter added to the market's difficulty
by dampening spending.
However, the market began an impressive rally in March as investor optimism
increased with the move toward a resolution in the Iraqi conflict. The strength
of this rally proved sustainable throughout the period, buoyed
[SIDENOTE]
"THE STRENGTH OF THE MID-MARCH MARKET RALLY PROVED SUSTAINABLE THROUGHOUT THE
PERIOD, BUOYED PRIMARILY BY A FAIRLY STRONG FIRST QUARTER EARNINGS-REPORTING
SEASON WHERE MANY COMPANIES MET OR EXCEEDED WALL STREET EXPECTATIONS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - A strong first quarter earnings-reporting season buoyed the market rally that
began in March of 2003.
- - Micro-cap companies showed the greatest strength during the market rally. The
Fund was limited in its ability to participate in this trend.
- - Strong stock selection in the industrials sector was a significant contributor
to the Fund's performance.
- - A higher-than-average cash position was a significant hindrance to
performance.
primarily by a fairly strong first quarter earnings-reporting season where many
companies met or exceeded Wall Street expectations. Low interest rates,
shareholder-friendly tax legislation and continued evidence that the U.S.
economy is showing modest improvements added fuel to the market rally.
This recent rally has been characterized by many of the smallest market
capitalization companies, or micro-cap stocks, showing the greatest strength.
This micro-cap bias can be seen when comparing the returns of the stocks in the
Russell 2000 Growth Index broken into quintiles by market cap. During this
period, the largest capitalization companies within the Index posted a return of
14.90%, while the smallest quintile stocks produced a whopping 32.66% return.(1)
However, the Fund, with its large asset base, finds it difficult to take
positions in many of these extremely small companies as liquidity often prevents
us from building a meaningful position.
WHAT MANAGEMENT DECISIONS POSITIVELY AFFECTED THE FUND DURING THE PERIOD?
The Fund saw strong outperformance relative to the Russell 2000
Growth Index from several holdings within the industrials sector, including less
economically sensitive holdings such as education-related stocks CORINTHIAN
COLLEGES, INC., EDUCATION MANAGEMENT CORPORATION, STRAYER EDUCATION, INC., and
Career Education Corporation. Each of these companies translated strong
enrollment trends into strong earnings growth and were significant contributors
to the Funds performance. Additionally,
- ----------
(1) Source: FactSet Research Systems; Frank Russell Co.; Prudential Securities.
4
<Page>
STERICYCLE, INC., a medical waste management company, which we also view as less
economically sensitive, proved to be a strong performer as it continued to
benefit from steady customer demand and increased opportunities for value-added
service offerings.
Among the more economically sensitive areas within the industrials sector,
the Fund saw strong performance in holdings such as airfreight and logistics
companies PACER INTERNATIONAL, INC. and UTI WORLDWIDE, INC. Both companies
posted strong returns and are beginning to see benefits from increased shipping
activity associated with stronger global economic activity. Other more
economically sensitive holdings that also did well during the period include
J.B. HUNT TRANSPORT SERVICES, INC. and JACOBS ENGINEERING GROUP, INC.
Another contributor to overall relative performance was the Fund's
underweight position in the weaker-performing financials sector. While our stock
selection in this sector proved to be relatively poor with holdings such as La
Quinta Corporation and Arthur J. Gallagher & Co., these selection missteps were
more than overcome by our overall underweight position in this weaker-performing
sector.
Strong stock selection proved fruitful in the Fund's consumer discretionary
sector. Some of the significant contributors to performance were MOVIE GALLERY,
INC., the video rental chain, which rebounded sharply following last years
mislaid concern over possible weaknesses. Similarly, auto parts retailer ADVANCE
AUTO PARTS, INC. performed well during the period, bolstered by strong sales and
earnings results and increased interest in the company's
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Stericycle, Inc. (SRCL) 2.09%
2. Medicis Pharmaceutical Corporation (MRX) 2.03%
3. Fisher Scientific International, Inc. (FSH) 2.00%
4. Advance Auto Parts, Inc. (AAP) 1.93%
5. Harman International Industries, Inc. (HAR) 1.92%
6. Jacobs Engineering Group, Inc. (JEC) 1.85%
7. Education Management Corporation (EDMC) 1.82%
8. Ruby Tuesday, Inc. (RI) 1.81%
9. National-Oilwell, Inc. (NOI) 1.76%
10. Leapfrog Enterprises, Inc. (LF) 1.68%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
potential to expand margins over time. HARMAN INTERNATIONAL INDUSTRIES, INC., a
provider of audio and other electronics to consumer and automobile Original
Equipment Manufacturer (OEM) markets, rose sharply, driven by strong earnings
results led by the automotive OEMs' adoption of Harmans newer infotainment
solutions. RUBY TUESDAY, INC. also performed well following resolution of
uncertainty about accounting changes as well as strong early results from a new
menu. Finally, LEAPFROG ENTERPRISES, INC., an educational toy company, excelled
as strong product adoption by consumers led to increased retail shelf space and
strong earnings growth.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Discovery Fund on
6/30/93 to a $10,000 investment made in an unmanaged securities index on that
date. The Fund's performance assumes the reinvestment of dividends and capital
gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Russell 2000 Index is a widely recognized, unmanaged small-cap index
comprising common stocks of the 2,000 U.S. public companies next in size after
the largest 1,000 publicly traded U.S. companies. The Russell 2000 Growth Index
measures the performance of those Russell 2000 companies with higher
price-to-book ratios and higher forecasted growth values. The total return
figures cited for this index assume change in security prices and reinvestment
of dividends, but do not reflect the costs of managing a mutual fund. Further
information related to Fund performance is contained elsewhere in this report.
6
<Page>
Although a few select stocks in the healthcare sector provided
disappointments for the Fund, the Fund benefited from several strong performers
in this sector. SELECT MEDICAL CORPORATION, a long-term acute care hospital and
outpatient rehabilitation services company, performed well as it began to
realize strong growth and a more favorable reimbursement environment. TARO
PHARMACEUTICALS INDUSTRIES LIMITED, a generic drug company, INTEGRA LIFESCIENCES
HOLDINGS, a life and neurosciences company, and ODYSSEY HEALTHCARE, INC., a
hospice care provider, were all meaningful contributors to the Funds performance
during the period.
WHAT FACTORS HINDERED THE FUNDS PERFORMANCE DURING THE PERIOD?
Chief among the negative impacts on the Fund's performance during the period
was a higher-than-normal cash position that dampened returns the
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 5.33% (14.61%) -- -- (16.47%)
Without sales charge 11.73% (9.39%) -- -- (15.05%)
CLASS B SHARES (12/31/99)
With redemption* 7.24% (13.83%) -- -- (16.44%)
Without redemption 11.24% (10.24%) -- -- (15.77%)
CLASS C SHARES (12/31/99)
With redemption** 10.29% (11.13%) -- -- (15.76%)
Without redemption 11.29% (10.23%) -- -- (15.76%)
CLASS F SHARES (12/31/89) 11.82% (9.40%) 2.99% 8.57% 12.38%
CLASS R SHARES (12/31/99) 11.96% (9.12%) -- -- (14.83%)
CLASS T SHARES (12/31/99)
With sales charge(4.50%) 6.55% (13.88%) -- -- (16.56%)
Without sales charge 11.60% (9.81%) -- -- (15.46%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investors shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions and adjustments for
financial statement purposes. Part of the Funds historical performance is due to
the purchase of securities sold in initial public offerings (IPOs). There is no
guarantee that the Funds investments in IPOs, if any, will continue to have a
similar impact on performance. There are risks associated with small-cap
investing such as limited product lines, less liquidity, and small market share.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
Fund might have otherwise seen in the strong market environment. Cash
averaged around 11% during the period, which is somewhat higher than the
preferred 5-10% range.
As mentioned earlier, the Fund suffered some selected disappointments in
the healthcare sector. The largest negative contribution came from Accredo
Health, Inc., a contract pharmacy services company, which fell sharply within
the period as it lowered expectations due to both product competition and
acquisition integration challenges. Nurse staffing organization AMN Health
Services, Inc. also fell during the period, as customer demand for temporary
staffing slowed. Charles River Laboratories International, Inc., a research
models company, lagged after slightly lowering earnings guidance early in the
year. Additionally, the markets rotation into more economically sensitive
holdings within the healthcare sector, paired with lagging performance due to
slowing admission trends, caused the hospital sub-sector to fare poorly overall.
Despite seeing some of the strongest absolute returns posted within the
Funds information technology holdings, an underweight position in this
strong-performing sector negatively impacted relative performance during the
period. Additionally, as a whole, the Fund suffered from some disappointing
stock selection on a relative basis. Technology distributor Tech Data
Corporation fell early in the period after revising downward their 2003 fiscal
year earnings guidance and announcing a large acquisition.
[CHART]
PORTFOLIO COMPOSITION
<Table>
24.85% Consumer Discretionary
22.05% Healthcare
17.72% Information Technology
16.51% Industrials
5.12% Energy
3.38% Consumer Staples
1.93% Financials
0.71% Telecommunications Services
0.48% Materials
7.25% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
8
<Page>
CREE, INC., a LED (light emitting diode) company, also performed poorly due to a
pending lawsuit by a former founder who is the brother of the company's current
chairman. Other weak contributors within the technology sector included
FAIRCHILD SEMICONDUCTOR CORPORATION, EMULEX CORPORATION, and BROOKS AUTOMATION,
INC.
An underweight position in the strong-performing telecommunications
services sector also impaired the Funds overall performance. Within this sector,
the returns realized from recent holding BOSTON COMMUNICATIONS GROUP, INC.
suffered due to concerns over the renewal of a large customer contract.
To a lesser extent, the relative returns among the Fund's energy holdings
did not keep pace with the Index during the period, caused by lagging returns
from NATIONAL-OILWELL, INC., and from exploration and production holdings such
as PIONEER NATURAL RESOURCES COMPANY and QUICKSILVER RESOURCES, INC.
Additional hindrances to performance included poor stock selection within
the consumer staples sector, with holdings such as Manhattan-based drug retailer
Duane Reade, Inc., which performed poorly as it was negatively impacted by a
weakened New York economy.
Alloy, Inc., a teen direct marketing and media company, also fell sharply
after announcing an earnings shortfall due to unexpected higher fulfillment
costs and more promotional activity. Other holdings that significantly reduced
the Funds overall returns include Atlantic Coast Airlines Holdings, Inc.,
Scholastic Corporation, RPM International, Inc., and Genesco, Inc.
As we move into the second half of 2003, our strategy remains consistent. We
strongly believe a strict focus on valuation is of great importance. We will
continue to employ our bottom-up research process to seek companies we believe
are capable of posting strong future earnings growth at attractive valuations.
/s/ Robert Ammann
Robert Ammann, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
-------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-87.4%
AEROSPACE & DEFENSE-0.8%
269,470 ManTech International Corporation*...... $ 5,168,435
------------
AIR FREIGHT & LOGISTICS-1.5%
529,095 Pacer International, Inc.*.............. 9,978,732
------------
APPAREL, ACCESSORIES & LUXURY GOODS-1.3%
168,920 Columbia Sportswear Company*............ 8,684,177
------------
APPLICATION SOFTWARE-2.6%
80,000 Ansys, Inc.*............................ 2,488,000
200,440 Cadence Design Systems, Inc.*........... 2,417,306
139,055 Documentum, Inc.*....................... 2,735,212
209,900 Filenet Corporation*.................... 3,786,596
121,725 Hyperion Solutions Corporation*......... 4,109,436
85,925 Reynolds and Reynolds Company........... 2,454,018
------------
17,990,568
------------
BROADCASTING & CABLE TV-1.5%
590,950 Radio One, Inc. Class D*................ 10,501,182
------------
CASINOS & GAMING-1.6%
613,650 Boyd Gaming Corporation*................ 10,591,599
------------
COMMUNICATIONS EQUIPMENT-6.6%
349,525 Avocent Corporation*.................... 10,461,283
68,850 Emulex Corporation*..................... 1,567,715
252,195 Harris Corporation...................... 7,578,460
354,155 NetScreen Technologies, Inc.*........... 7,986,195
294,975 Polycom, Inc.*.......................... 4,088,354
671,030 Powerwave Technologies, Inc.*........... 4,207,358
79,795 SafeNet, Inc.*.......................... 2,232,664
2,125,722 Stratex Networks, Inc.*................. 6,802,310
------------
44,924,339
------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
-------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-1.9%
302,405 Jacobs Engineering Group, Inc.*......... $ 12,746,371
------------
CONSUMER ELECTRONICS-1.9%
167,675 Harman International
Industries, Inc......................... 13,269,800
------------
DISTILLERS & VINTNERS-0.7%
160,840 Constellation Brands, Inc.*............. 5,050,376
------------
DIVERSIFIED COMMERCIAL SERVICES-4.8%
150,210 Corinthian Colleges, Inc.*.............. 7,295,700
235,955 Education Management Corporation*....... 12,548,087
135,410 FTI Consulting, Inc.*................... 3,381,188
280,420 Kroll, Inc.*............................ 7,588,165
28,810 Strayer Education, Inc.................. 2,288,955
------------
33,102,095
------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.9%
172,950 AMETEK, Inc............................. 6,338,618
------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.5%
563,635 Aeroflex, Inc.*......................... 4,362,535
101,705 Coherent, Inc.*......................... 2,433,800
125,385 FLIR Systems, Inc.*..................... 3,780,358
------------
10,576,693
------------
ENVIRONMENTAL SERVICES-2.4%
375,275 Stericycle, Inc.*....................... 14,440,582
56,225 Waste Connections, Inc.*................ 1,970,686
------------
16,411,268
------------
FOOD DISTRIBUTORS-0.4%
90,950 United Natural Foods, Inc.*............. 2,559,333
------------
FOOD RETAIL-0.2%
31,365 Whole Foods Market, Inc.*............... 1,490,778
------------
GENERAL MERCHANDISE STORES-0.8%
209,285 Tuesday Morning Corporation*............ 5,504,196
------------
HEALTHCARE DISTRIBUTORS-5.1%
394,750 Fisher Scientific
International, Inc.*.................... 13,776,775
153,411 Henry Schein, Inc.*..................... 8,029,532
287,900 Omnicare, Inc........................... 9,728,141
71,135 Patterson Dental Company*............... 3,228,106
------------
34,762,554
------------
HEALTHCARE EQUIPMENT-3.1%
562,970 Alaris Medical Systems, Inc.*........... 7,290,462
92,200 Bio-Rad Laboratories, Inc.*............. 5,103,270
333,355 Integra LifeSciences Holdings*.......... 8,793,905
------------
21,187,637
------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
-------------------------------------------------------------------
HEALTHCARE FACILITIES-1.7%
103,030 Community Health Systems, Inc.*......... $ 1,987,449
382,825 Select Medical Corporation*............. 9,505,545
------------
11,492,994
------------
HEALTHCARE SERVICES-1.2%
217,275 Odyssey Healthcare, Inc.*............... 8,039,175
------------
HEALTHCARE SUPPLIES-0.5%
104,725 Cooper Companies, Inc................... 3,641,288
------------
HOME ENTERTAINMENT SOFTWARE-0.6%
474,355 Sonic Solutions*........................ 4,088,940
------------
HOME FURNISHINGS-0.7%
191,400 Furniture Brands
International, Inc.*.................... 4,995,540
------------
HOTELS, RESORTS & CRUISE LINES-0.5%
127,125 Choice Hotels International, Inc.*...... 3,471,784
------------
HOUSEHOLD PRODUCTS-1.0%
339,700 Dial Corporation........................ 6,607,165
------------
INTERNET SOFTWARE & SERVICES-0.7%
185,830 United Online, Inc.*.................... 4,708,932
------------
LEISURE PRODUCTS-3.1%
364,825 Leapfrog Enterprises, Inc.*............. 11,605,083
159,350 Polaris Industries, Inc................. 9,784,090
------------
21,389,173
------------
MANAGED HEALTHCARE-2.1%
295,150 Amerigroup Corporation*................. 10,979,580
65,725 PacifiCare Health Systems, Inc.*........ 3,242,214
------------
14,221,794
------------
OIL & GAS DRILLING-0.5%
173,725 Pride International, Inc.*.............. 3,269,505
------------
OIL & GAS EQUIPMENT & SERVICES-3.7%
91,250 Carbo Ceramics, Inc..................... 3,399,063
552,670 National-Oilwell, Inc.*................. 12,158,740
588,050 Superior Energy Services, Inc.*......... 5,574,714
145,000 Tidewater, Inc.......................... 4,258,650
------------
25,391,167
------------
OIL & GAS EXPLORATION & PRODUCTION-0.9%
157,235 Pioneer Natural Resources Company*...... 4,103,834
91,925 Quicksilver Resources, Inc.*............ 2,201,604
------------
6,305,438
------------
PACKAGED FOODS & MEATS-1.1%
176,875 American Italian Pasta Company*......... 7,366,844
------------
</Table>
12
<Page>
<Table>
-------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
PHARMACEUTICALS-5.4%
403,275 Andrx Group*............................ $ 8,025,173
90,125 K-V Pharmaceuticals Company*............ 2,505,475
247,421 Medicis Pharmaceutical Corporation
Class A*................................ 14,028,771
88,950 MGI Pharma, Inc.*....................... 2,279,789
85,250 Pharmaceutical Resources, Inc.*......... 4,148,265
302,967 SICOR, Inc.*............................ 6,162,349
------------
37,149,822
------------
PUBLISHING-0.7%
116,050 Getty Images, Inc.*..................... 4,792,865
------------
REGIONAL BANKS-0.7%
148,940 Southwest Bancorporation of
Texas, Inc.*............................ 4,842,039
------------
RESTAURANTS-3.5%
138,590 Krispy Kreme Doughnuts, Inc.*........... 5,707,136
177,275 Rare Hospitality
International, Inc.*.................... 5,793,347
505,610 Ruby Tuesday, Inc....................... 12,503,735
------------
24,004,218
------------
SEMICONDUCTOR EQUIPMENT-2.3%
424,395 Brooks Automation, Inc.*................ 4,812,639
414,115 Entegris, Inc.*......................... 5,565,705
267,290 FEI Company*............................ 5,014,360
------------
15,392,704
------------
SEMICONDUCTORS-0.9%
109,850 Cree, Inc.*............................. 1,788,358
154,425 Fairchild Semiconductor Corporation
Class A*................................ 1,975,095
152,800 Semtech Corporation*.................... 2,175,872
------------
5,939,325
------------
SPECIALTY CHEMICALS-0.5%
77,575 Valspar Corporation..................... 3,275,217
------------
SPECIALTY STORES-8.5%
219,015 Advance Auto Parts, Inc.*............... 13,338,014
206,420 Cost Plus, Inc.*........................ 7,360,937
175,075 Finish Line, Inc.*...................... 3,888,416
557,050 Hollywood Entertainment Corporation*.... 9,581,260
449,948 Movie Gallery, Inc.*.................... 8,301,541
167,350 PETCO Animal Supplies, Inc.*............ 3,638,189
50,395 Rent-A-Center, Inc.*.................... 3,820,445
170,950 Tractor Supply Company*................. 8,162,863
------------
58,091,665
------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
-------------------------------------------------------------------
SYSTEMS SOFTWARE-2.1%
291,215 Macrovision Corporation*................ $ 5,801,003
356,275 NetIQ Corporation*...................... 5,508,012
320,135 Secure Computing Corporation*........... 2,794,779
------------
14,103,794
------------
TECHNOLOGY DISTRIBUTORS-0.5%
320,221 Insight Enterprises, Inc.*.............. 3,221,423
------------
TRADING COMPANIES & DISTRIBUTORS-0.8%
156,245 Fastenal Company........................ 5,302,955
------------
TRUCKING-2.9%
91,575 J.B. Hunt Transport Services, Inc.*..... 3,456,956
283,281 Werner Enterprises, Inc................. 6,005,557
442,680 Yellow Corporation*..................... 10,248,042
------------
19,710,555
------------
WIRELESS TELECOMMUNICATION SERVICES-0.7%
283,800 Boston Communications Group, Inc.*...... 4,861,494
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$549,880,186).................................. 596,516,566
------------
COMMON STOCKS (FOREIGN)-5.4%
AIR FREIGHT & LOGISTICS-0.6%
127,475 UTI Worldwide, Inc. (VI)................ 3,975,945
------------
HEALTHCARE EQUIPMENT-1.6%
110,650 Mettler-Toledo International, Inc.
(SZ)*................................... 4,055,323
169,650 ResMed, Inc. (AU)*...................... 6,650,280
------------
10,705,603
------------
HOTELS, RESORTS & CRUISE LINES-0.6%
183,580 Fairmont Hotels & Resorts, Inc. (CA).... 4,295,772
------------
INSURANCE BROKERS-1.2%
305,960 Platinum Underwriters Holdings Limited
(BD).................................... 8,303,754
------------
PHARMACEUTICALS-1.4%
170,500 Taro Pharmaceutical Industries Limited
(IS)*................................... 9,357,035
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$31,499,811)................................... 36,638,109
------------
RIGHTS AND WARRANTS (DOMESTIC)-0.0%
COMMERCIAL PRINTING-0.0%
4,736 American Banknote Corporation
Warrants*............................... 4
------------
TOTAL RIGHTS AND WARRANTS (DOMESTIC)
(COST-$0)............................................ 4
------------
</Table>
14
<Page>
<Table>
---------------------------------------------------------------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
CORPORATE SHORT-TERM NOTES-8.3%
CONSUMER FINANCE-3.1%
$21,300,000 Household Finance Company
1.03% 7/1/03............................ $ 21,300,000
------------
OTHER DIVERSIFIED FINANCIAL SERVICES-5.2%
17,100,000 Merrill Lynch & Company
1.08% 7/3/03............................ 17,098,974
18,600,000 Verizon Network Funding
1.05% 7/2/03............................ 18,599,458
------------
35,698,432
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$56,998,432)......................... 56,998,432
------------
TOTAL INVESTMENTS-101.1%
(TOTAL COST-$638,378,429)............................ 690,153,111
OTHER ASSETS AND LIABILITIES-(1.1%).................. (7,309,968)
------------
NET ASSETS-100.0%.................................... $682,843,143
============
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $ 638,378,429
---------------
Investment securities, at market.................. 690,153,111
Cash.............................................. 6,622,740
Receivables:
Investment securities sold...................... 9,231,780
Capital shares sold............................. 758,717
Dividends....................................... 40,041
Other assets...................................... 28,260
---------------
Total Assets.................................. 706,834,649
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 20,186,833
Capital shares redeemed......................... 3,008,477
Advisory fees................................... 475,416
Shareholder servicing fees...................... 49,849
Accounting fees................................. 30,689
Distribution fees............................... 85,559
Custodian fees.................................. 1,556
Other........................................... 153,127
---------------
Total Liabilities............................. 23,991,506
---------------
Net Assets........................................ $ 682,843,143
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $ 1,184,430,933
Accumulated net investment loss................... (4,015,896)
Accumulated net realized loss from security
transactions.................................... (549,346,576)
Net unrealized appreciation on investments........ 51,774,682
---------------
Total......................................... $ 682,843,143
===============
</Table>
16
<Page>
<Table>
Net Assets--Class A............................... $ 67,340,389
Shares Outstanding--Class A....................... 3,157,396
Net Asset Value, Redemption Price Per Share....... $ 21.33
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 22.63
Net Assets--Class B............................... $ 19,016,316
Shares Outstanding--Class B....................... 919,160
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 20.69
Net Assets--Class C............................... $ 7,785,587
Shares Outstanding--Class C....................... 376,171
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 20.70
Net Assets--Class F............................... $ 538,589,874
Shares Outstanding--Class F....................... 25,301,943
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 21.29
Net Assets--Class R............................... $ 48,781,363
Shares Outstanding--Class R....................... 2,265,520
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 21.53
Net Assets--Class T............................... $ 1,329,614
Shares Outstanding--Class T....................... 63,408
Net Asset Value, Redemption Price Per Share....... $ 20.97
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 21.96
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 454,350
Interest........................................ 424,333
Foreign taxes withheld.......................... (826)
---------------
Total Investment Income....................... 877,857
---------------
EXPENSES:
Advisory fees--Note 2........................... 2,662,602
Shareholder servicing fees--Note 2.............. 297,695
Accounting fees--Note 2......................... 173,401
Distribution fees--Note 2....................... 703,820
Transfer agency fees--Note 2.................... 597,975
Registration fees............................... 45,639
Postage and mailing expenses.................... 73,569
Custodian fees and expenses--Note 2............. 9,337
Printing expenses............................... 62,036
Legal and audit fees............................ 71,870
Directors' fees and expenses--Note 2............ 74,571
Other expenses.................................. 131,055
---------------
Total Expenses................................ 4,903,570
Earnings Credits.............................. (4,256)
Reimbursed/Waived Expenses.................... (1,561)
Expense Offset to Broker Commissions.......... (4,000)
---------------
Net Expenses.................................. 4,893,753
---------------
Net Investment Loss............................. (4,015,896)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY
TRANSACTIONS
Net Realized Loss on Security Transactions........ (70,773,745)
Net Change in Unrealized Appreciation/Depreciation
on Investments.................................... 147,157,998
---------------
Net Realized and Unrealized Gain.............. 76,384,253
---------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 72,368,357
===============
Purchases of long-term securities................. $ 405,363,302
Proceeds from sales of long-term securities....... $ 434,878,930
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ --------------
OPERATIONS
Net Investment Loss..................... $ (4,015,896) $ (9,642,274)
Net Realized Loss on Security
Transactions.......................... (70,773,745) (254,766,071)
Net Change in Unrealized Appreciation /
Depreciation.......................... 147,157,998 (84,564,881)
------------ --------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 72,368,357 (348,973,226)
------------ --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... (7,142,760) (13,346,442)
Class B............................... (1,657,362) (5,807,035)
Class C............................... (791,629) (4,278,012)
Class F............................... (17,378,266) (73,946,291)
Class R............................... 625,526 2,113,647
Class T............................... (96,088) (329,325)
------------ --------------
Net Decrease from Capital Share
Transactions.......................... (26,440,579) (95,593,458)
------------ --------------
Net Increase (Decrease) in Net Assets... 45,927,778 (444,566,684)
NET ASSETS
Beginning of period................... $636,915,365 $1,081,482,049
------------ --------------
End of period......................... $682,843,143 $ 636,915,365
============ ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 19.09 $ 28.50 $ 34.79 $ 40.88
Income from investment
operations:
Net investment loss....... (0.18) (0.31) (0.17) (0.03)
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.42 (9.10) (6.02) (3.45)
------- ------- -------- --------
Total from investment
operations.......... 2.24 (9.41) (6.19) (3.48)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------- ------- -------- --------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $ 21.33 $ 19.09 $ 28.50 $ 34.79
======= ======= ======== ========
Total Return/Ratios
Total return*............. 11.73% (33.02%) (17.78%) (8.18%)
Net assets, end of period
(000s).................. $67,340 $67,184 $117,773 $131,298
Net expenses to average
net assets#............. 1.51%** 1.35% 1.18% 1.20%
Gross expenses to average
net assets#............. 1.51%** 1.35% 1.19% 1.24%
Net investment loss to
average net assets...... (1.23%)** (1.08%) (0.58%) (0.21%)
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of
period...................... $ 18.60 $ 28.03 $ 34.49 $ 40.88
Income from investment
operations:
Net investment loss....... (0.35) (0.69) (0.45) (0.21)
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.44 (8.74) (5.91) (3.57)
------- ------- ------- -------
Total from investment
operations.......... 2.09 (9.43) (6.36) (3.78)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------- ------- ------- -------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $ 20.69 $ 18.60 $ 28.03 $ 34.49
======= ======= ======= =======
Total Return/Ratios
Total return*............. 11.24% (33.64%) (18.43%) (8.92%)
Net assets, end of period
(000s).................. $19,016 $18,804 $35,845 $50,883
Net expenses to average
net assets#............. 2.55%** 2.26% 1.96% 1.94%
Gross expenses to average
net assets#............. 2.56%** 2.26% 1.97% 1.97%
Net investment loss to
average net assets...... (2.27%)** (1.98%) (1.35%) (1.02%)
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of
period...................... $18.60 $ 28.05 $ 34.51 $ 40.88
Income from investment
operations:
Net investment loss....... (0.39) (0.86) (0.48) (0.19)
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.49 (8.59) (5.88) (3.57)
------ ------- ------- -------
Total from investment
operations.......... 2.10 (9.45) (6.36) (3.76)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------ ------- ------- -------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $20.70 $ 18.60 $ 28.05 $ 34.51
====== ======= ======= =======
Total Return/Ratios
Total return*............. 11.29% (33.69%) (18.42%) (8.87%)
Net assets, end of period
(000s).................. $7,786 $ 7,794 $17,031 $25,275
Net expenses to average
net assets#............. 2.53%** 2.26% 1.96% 1.94%
Gross expenses to average
net assets#............. 2.53%** 2.27% 1.98% 1.97%
Net investment loss to
average net assets...... (2.24%)** (1.99%) (1.36%) (1.01%)
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- --------- --------- ---------- --------- ---------
CLASS F SHARES
Net Asset Value,
beginning of period.... $ 19.04 $ 28.45 $ 34.74 $ 40.86 $ 24.37 $ 23.45
Income from investment
operations:
Net investment
loss............... (0.16) (0.36) (0.20) (0.07) (0.08) (0.07)
Net gains (losses) on
securities (both
realized and
unrealized)........ 2.41 (9.05) (5.99) (3.44) 22.72 3.15
-------- -------- -------- ---------- -------- --------
Total from
investment
operations..... 2.25 (9.41) (6.19) (3.51) 22.64 3.08
Less distributions:
From net investment
income............. 0.00 0.00 0.00 0.00 0.00 0.00
From net realized
gains.............. 0.00 0.00 (0.10) (2.61) (6.15) (2.16)
-------- -------- -------- ---------- -------- --------
Total
distributions... 0.00 0.00 (0.10) (2.61) (6.15) (2.16)
Net Asset Value, end of
period................. $ 21.29 $ 19.04 $ 28.45 $ 34.74 $ 40.86 $ 24.37
======== ======== ======== ========== ======== ========
Total Return/Ratios
Total return......... 11.82% (33.08%) (17.81%) (8.26%) 94.59% 14.19%
Net assets, end of
period (000s)...... $538,590 $498,970 $847,330 $1,066,003 $806,152 $241,124
Net expenses to
average net
assets#............ 1.57%** 1.40% 1.24% 1.25% 1.45% 1.55%
Gross expenses to
average net
assets#............ 1.57%** 1.41% 1.25% 1.28% 1.46% 1.57%
Net investment loss
to average net
assets............. (1.29%)** (1.13%) (0.64%) (0.46%) (0.96%) (0.91%)
Portfolio turnover
rate@.............. 132% 128% 110% 108% 157% 121%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of
period...................... $ 19.23 $ 28.64 $ 34.87 $40.88
Income from investment
operations:
Net investment income
(loss).................. (0.09) (0.18) (0.08) 0.00+
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.39 (9.23) (6.05) (3.40)
------- ------- ------- ------
Total from investment
operations.......... 2.30 (9.41) (6.13) (3.40)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------- ------- ------- ------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $ 21.53 $ 19.23 $ 28.64 $34.87
======= ======= ======= ======
Total Return/Ratios
Total return.............. 11.96% (32.86%) (17.57%) (7.98%)
Net assets, end of period
(000s).................. $48,781 $42,872 $61,163 $4,693
Net expenses to average
net assets#............. 1.23%** 1.10% 0.94% 0.93%
Gross expenses to average
net assets#............. 1.23%** 1.10% 0.95% 0.96%
Net investment income
(loss) to average net
assets.................. (0.94%)** (0.82%) (0.38%) 0.01%
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
+ Net investment income (loss) for the year ended December 31, 2000
aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of
period...................... $18.79 $28.24 $34.69 $40.88
Income from investment
operations:
Net investment loss....... (0.24) (0.54) (0.33) (0.09)
Net gains (losses) on
securities (both
realized and
unrealized)............. 2.42 (8.91) (6.02) (3.49)
------ ------ ------ ------
Total from investment
operations.......... 2.18 (9.45) (6.35) (3.58)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 (0.10) (2.61)
------ ------ ------ ------
Total distributions... 0.00 0.00 (0.10) (2.61)
Net Asset Value, end of
period...................... $20.97 $18.79 $28.24 $34.69
====== ====== ====== ======
Total Return/Ratios
Total return*............. 11.60% (33.46%) (18.30%) (8.43%)
Net assets, end of period
(000s).................. $1,330 $1,291 $2,341 $1,908
Net expenses to average
net assets#............. 1.93%** 2.06% 1.82% 1.44%
Gross expenses to average
net assets#............. 1.93%** 2.06% 1.83% 1.48%
Net investment loss to
average net assets...... (1.64%)** (1.79%) (1.24%) (0.50%)
Portfolio turnover
rate@................... 132% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Discovery Fund (the "Fund"). The Fund offers Class A,
Class B, Class C, Class F, Class R, and Class T shares. Class A and Class T
shares are subject to a sales charge imposed at the time of purchase, Class B
shares are subject to a contingent deferred sales charge ("CDSC") imposed on
Class B share redemptions made within six years of purchase, Class C shares are
subject to a CDSC imposed on Class C shares redeemed within one year of
purchase, and Class F and Class R shares are sold at net asset value per share
(with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
26
<Page>
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
28
<Page>
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$58,190 and $128,423, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-
pocket charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors
Trust Company ("ITC") was the transfer and dividend disbursing agent for the
Class F shares of the Fund. With the exception of out-of-pocket charges, the
fees charged by ITC were paid by Founders. The out-of-pocket charges from ITC
were paid by the Fund. During the six months ended June 30, 2003, Class F shares
paid DTI and ITC $49,780 and $62,925, respectively, for out-of-pocket transfer
agent charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $22,203
Class B..................................................... $31,975
Class C..................................................... $12,256
Class R..................................................... $ 7,336
Class T..................................................... $ 1,424
</Table>
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 applicable to its Class F shares. Under
the plan, the Fund is authorized to reimburse DSC for expenses paid for
distributing its Class F shares at an annual rate of up to 0.25% of the value of
the average daily net assets of the Fund's Class F shares. During the six months
ended June 30, 2003, Class F shares were charged $608,854 pursuant to this
Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A..................................................... N/A $78,422
Class B..................................................... $66,130 $22,044
Class C..................................................... $27,330 $ 9,110
Class T..................................................... $ 1,506 $ 1,506
</Table>
During the six months ended June 30, 2003, DSC retained $56,716 and $4 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $101,861 and $1,092 of contingent deferred sales charges
relating to redemptions of Class B and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the
30
<Page>
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $1,561. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2009
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $441,601,561
Post-October Capital Loss Deferral.......................... $16,478,920
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $644,226,833
Gross Tax Appreciation of Investments....................... $93,533,168
Gross Tax Depreciation of Investments....................... $(47,606,890)
Net Tax Appreciation........................................ $45,926,278
</Table>
32
<Page>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------------- --------------- -------------
CLASS A
Sold.................................................. 398,740 $ 7,691,612 914,819 $ 21,923,140
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (760,905) $ (14,834,372) (1,527,408) $ (35,269,582)
NET DECREASE.......................................... (362,165) $ (7,142,760) (612,589) $ (13,346,442)
CLASS B
Sold.................................................. 5,361 $ 100,783 26,778 $ 651,636
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (97,192) $ (1,758,145) (294,496) $ (6,458,671)
NET DECREASE.......................................... (91,831) $ (1,657,362) (267,718) $ (5,807,035)
CLASS C
Sold.................................................. 14,727 $ 272,061 27,424 $ 641,512
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (57,472) $ (1,063,690) (215,764) $ (4,919,524)
NET DECREASE.......................................... (42,745) $ (791,629) (188,340) $ (4,278,012)
CLASS F
Sold.................................................. 2,297,102 $ 43,699,099 5,520,185 $ 130,099,247
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (3,196,265) $ (61,077,365) (9,099,776) $(204,045,538)
NET DECREASE.......................................... (899,163) $ (17,378,266) (3,579,591) $ (73,946,291)
CLASS R
Sold.................................................. 191,473 $ 3,639,395 438,891 $ 10,145,622
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (155,373) $ (3,013,869) (344,725) $ (8,031,975)
NET INCREASE.......................................... 36,100 $ 625,526 94,166 $ 2,113,647
CLASS T
Sold.................................................. 5,156 $ 98,146 14,612 $ 336,876
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (10,464) $ (194,234) (28,799) $ (666,201)
NET DECREASE.......................................... (5,308) $ (96,088) (14,187) $ (329,325)
</Table>
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
34
<Page>
FOR MORE INFORMATION
DREYFUS FOUNDERS
DISCOVERY FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
2930 East Third Avenue
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
To obtain information:
- --------------------------------- Dreyfus Transfer, Inc.
BY TELEPHONE | 200 Park Avenue
Call your financial | New York, NY 10166
representative or |
1-800-554-4611 |
| DISTRIBUTOR
BY MAIL Write to: |
Dreyfus Founders Funds | Dreyfus Service Corporation
144 Glenn Curtiss Boulevard | 200 Park Avenue
Uniondale, NY 11556-0144 | New York, NY 10166
Dreyfus Founders Funds are managed by Founders Asset Management LLC.
Founders and Founders Funds are registered trademarks of Founders Asset
Management LLC.
(C)2003 Dreyfus Service Corporation 182SA0603
<Page>
DREYFUS FOUNDERS
GROWTH FUND
SEMIANNUAL REPORT JUNE 30, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(sm)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 15
Statement of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Notes to Financial Statements 25
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-8
were owned by the Fund on June 30, 2003. The amounts of these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO
MANAGER JOHN B. JARES, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS GROWTH BENCHMARK IN THE SIX MONTHS
ENDED JUNE 30?
The first six months of 2003 presented mixed results on both the economic and
broad market levels. However, the Dreyfus Founders Growth Fund posted a
competitive return(1) versus its growth benchmark, the Russell 1000 Growth
Index, which posted a 13.09% return.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
The reporting period began in a market slump. Uncertainty over a war
in Iraq, high fear of more corporate misdeeds and dampened economic growth rates
led to investors searching for lower-risk, more defensive securities in which to
invest.
However, by the mid-point of the reporting period, the market experienced
an upswing, spurred by a stabilization of the geopolitical uncertainty that had
been blanketing the market for quite some time. Investors began the shift back
to equities as renewed confidence in
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"INVESTORS BEGAN THE SHIFT BACK TO EQUITIES AS RENEWED CONFIDENCE IN THE PACE OF
ECONOMIC GROWTH AND FALLING INTEREST RATES DREW ATTENTION TOWARD LESS-DEFENSIVE
INVESTMENTS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Amid mixed economic results, the period saw equity markets again becoming
attractive as investor confidence began to solidify.
- - A mid-March rally, spurred by investors' increased optimism that the Iraqi
conflict was moving toward some resolution, renewed interest in equity
markets.
- - The Fund's holdings in the consumer discretionary sector benefited greatly
from strong consumer spending.
- - Sluggish demand caused some technology and basic materials holdings to lose
ground for the Fund.
- - We continue to search one-by-one for investment opportunities in large-cap
companies that we believe have the potential to exhibit superior growth rates
and that we feel have sensible valuations.
the pace of economic growth and falling interest rates drew attention toward
less-defensive vehicles.
On a purely economic level, results were not as clear cut. Weekly jobless
claims hovered in the 430,000 range, indicating a soft job market. By the end of
June, the unemployment rate reached 6.4%, a nine-year high. Additionally, the
Institute for Supply Management (ISM) index posted readings in the high 40s,
signaling contraction. However, this reading was better than it appeared. The
index actually improved from the mid-40s level, indicating only a modest amount
of contraction. Additionally, low interest rates continued to have a positive
impact on the housing and mortgage industries and auto sales still remained at
relatively high levels.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED THE FUND'S PERFORMANCE?
During the period, many of the Fund's large-cap holdings in the healthcare and
consumer discretionary sectors posted solid performance. The healthcare sector
provided the most significant opportunities during the period, as the Fund
capitalized on holdings focused on the improvement
4
<Page>
of cardiovascular health and the production of affordable drugs. BOSTON
SCIENTIFIC CORPORATION was a strong performer due to the success of its
pioneering approach to interventional cardiology. This approach improves upon
existing technology by applying a drug to cardiovascular stents to help control
coronary artery disease. TEVA PHARMACEUTICAL INDUSTRIES LIMITED also contributed
to the Fund's overall performance as it continued to capitalize on market shifts
toward less expensive drugs in the generic drug marketplace.
The infusion of consumer capital into the marketplace helped boost
consumer-related stocks. A relative overweight position and strong stock
selection in the consumer discretionary sector helped drive the Fund's
performance during the period. Primary among these was ROYAL CARIBBEAN CRUISES
LIMITED, one of the Fund's largest holdings throughout the period, which
benefited from consumers' return to leisure travel. BEST BUY COMPANY, INC., the
leading retailer of consumer electronics, took advantage of consumers' continued
capital spending on electronics and was a top performer in the Fund during the
period.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 5.07%
2. Microsoft Corporation (MSFT) 4.36%
3. General Electric Company (GE) 3.76%
4. Estee Lauder Companies, Inc. (EL) 2.95%
5. Best Buy Company, Inc. (BBY) 2.28%
6. Pfizer, Inc. (PFE) 2.05%
7. Bank of America Corporation (BAC) 1.98%
8. Royal Caribbean Cruises Limited (RCL) 1.97%
9. MBNA Corporation (KRB) 1.92%
10. International Business Machines Corporation (IBM) 1.80%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
WHAT MANAGEMENT DECISIONS HINDERED PERFORMANCE DURING THE HALF?
Inadequate performance of holdings in the basic materials sector hampered the
Fund's returns. Lackluster results came from holdings such as AIR PRODUCTS AND
CHEMICALS, INC., a supplier of industrial gases, which experienced sluggish
demand from end-users.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Growth Fund on
6/30/93 to a $10,000 investment made in unmanaged securities indexes on that
date. The Fund's performance assumes the reinvestment of dividends and capital
gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Standard & Poor's (S&P) 500 Index is a market-value-weighted, unmanaged
index of common stocks considered representative of the broad market. The
Russell 1000 Growth Index is an unmanaged index that measures the performance of
those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values. The total return figures cited for these indexes
assume change in security prices and reinvestment of dividends, but do not
reflect the costs of managing a mutual fund. Further information related to Fund
performance is contained elsewhere in this report.
6
<Page>
Fund performance was also hindered by not only a relative underweight
position in the technology sector, but also by negative results from stock
selections such as holding BMC SOFTWARE, INC., a manufacturer of computer
hardware and software systems. Already saddled with a difficult environment in
which to sell, BMC Software underperformed due to missed revenue growth
estimates.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 8.96% (4.64%) -- -- (21.86%)
Without sales charge 15.68% 1.17% -- -- (20.53%)
CLASS B SHARES (12/31/99)
With redemption* 11.21% (3.64%) -- -- (21.63%)
Without redemption 15.21% 0.36% -- -- (21.08%)
CLASS C SHARES (12/31/99)
With redemption** 14.09% (0.76%) -- -- (21.13%)
Without redemption 15.09% 0.24% -- -- (21.13%)
CLASS F SHARES (1/5/62) 15.64% 1.29% (8.18%) 5.86% N/A
CLASS R SHARES (12/31/99) 16.00% 1.52% -- -- (20.35%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 10.12% (4.12%) -- -- (22.22%)
Without sales charge 15.27% 0.36% -- -- (21.18%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions and adjustments for
financial statement purposes. Part of the Fund's year-to-date performance is due
to amounts received from class action settlements regarding prior Fund holdings.
There is no guarantee that these settlement distributions will occur in the
future or have a similar impact on performance.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION
<Table>
22.78% Information Technology
15.00% Consumer Discretionary
11.54% Financials
11.31% Healthcare
10.27% Consumer Staples
9.46% Industrials
2.83% Energy
1.31% Materials
1.11% Utilities
0.50% Telecommunications Services
5.07% Other
8.82% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
Additionally, the Fund's cash position, which averaged 8% during the
period, hampered returns the Fund might have otherwise seen in the strong market
environment.
However, as we move forward, our strategy remains unchanged. We will continue to
rely upon on our bottom-up approach to seeking companies we believe are capable
of posting strong future revenue and earnings growth at valuations that make
sense.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-87.6%
AIRLINES-2.0%
154,517 Delta Air Lines, Inc.............................. $ 2,268,310
249,189 Northwest Airlines Corporation Class A*........... 2,813,344
309,825 Southwest Airlines Company........................ 5,328,990
-----------
10,410,644
-----------
APPLICATION SOFTWARE-0.4%
112,375 PeopleSoft, Inc.*................................. 1,976,676
-----------
ASSET MANAGEMENT & CUSTODY BANKS-2.4%
56,050 Bank of New York Company, Inc..................... 1,611,438
395,900 Janus Capital Group, Inc.......................... 6,492,760
133,700 SEI Investments Company........................... 4,278,400
-----------
12,382,598
-----------
BIOTECHNOLOGY-1.7%
75,135 Amgen, Inc.*...................................... 4,991,969
66,475 Gilead Sciences, Inc.*............................ 3,694,681
-----------
8,686,650
-----------
BROADCASTING & CABLE TV-2.4%
65,950 Clear Channel Communications, Inc.*............... 2,795,621
219,858 Comcast Corporation Special Class A*.............. 6,338,506
92,350 Cox Communications, Inc.*......................... 2,945,965
-----------
12,080,092
-----------
CASINOS & GAMING-0.4%
54,575 MGM Mirage, Inc.*................................. 1,865,374
-----------
COMMUNICATIONS EQUIPMENT-1.0%
292,380 Cisco Systems, Inc.*.............................. 4,879,822
-----------
COMPUTER & ELECTRONICS RETAIL-2.3%
263,850 Best Buy Company, Inc.*........................... 11,588,292
-----------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------
COMPUTER HARDWARE-1.8%
111,075 International Business Machines Corporation....... $ 9,163,688
-----------
CONSUMER FINANCE-1.9%
469,200 MBNA Corporation.................................. 9,778,128
-----------
DATA PROCESSING & OUTSOURCED SERVICES-2.7%
175,550 First Data Corporation............................ 7,274,792
183,225 Fiserv, Inc.*..................................... 6,524,643
-----------
13,799,435
-----------
DIVERSIFIED BANKS-3.6%
127,425 Bank of America Corporation....................... 10,070,398
163,150 Wells Fargo & Company............................. 8,222,760
-----------
18,293,158
-----------
DIVERSIFIED COMMERCIAL SERVICES-1.1%
310,175 Cendant Corporation*.............................. 5,682,406
-----------
DRUG RETAIL-0.2%
35,525 Walgreen Company.................................. 1,069,303
-----------
EXCHANGE TRADED FUNDS-5.1%
264,225 SPDR Trust Series 1............................... 25,796,288
-----------
FOOD RETAIL-1.0%
261,900 Safeway, Inc.*.................................... 5,358,474
-----------
GAS UTILITIES-1.1%
102,950 Kinder Morgan, Inc................................ 5,626,218
-----------
HEALTHCARE EQUIPMENT-1.3%
105,550 Boston Scientific Corporation*.................... 6,449,105
-----------
HEALTHCARE SERVICES-1.9%
161,325 Caremark Rx, Inc.*................................ 4,142,826
79,375 Express Scripts, Inc. Class A*.................... 5,422,900
-----------
9,565,726
-----------
HOME IMPROVEMENT RETAIL-1.3%
191,675 Home Depot, Inc................................... 6,348,276
-----------
HOTELS, RESORTS & CRUISE LINES-0.2%
36,425 Carnival Corporation Class A...................... 1,184,177
-----------
HOUSEHOLD PRODUCTS-2.6%
129,350 Colgate-Palmolive Company......................... 7,495,833
64,650 Procter & Gamble Company.......................... 5,765,487
-----------
13,261,320
-----------
HYPERMARKETS & SUPER CENTERS-1.6%
151,896 Wal-Mart Stores, Inc.............................. 8,152,258
-----------
</Table>
* NON-INCOME PRODUCING.
SPDR-STANDARD AND POOR'S DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-4.6%
19,125 3M Company........................................ $ 2,466,743
667,659 General Electric Company.......................... 19,148,460
32,725 Ingersoll-Rand Company Class A.................... 1,548,547
-----------
23,163,750
-----------
INDUSTRIAL GASES-1.3%
32,050 Air Products and Chemicals, Inc................... 1,333,280
88,650 Praxair, Inc...................................... 5,327,865
-----------
6,661,145
-----------
INDUSTRIAL MACHINERY-0.7%
57,525 Illinois Tool Works, Inc.......................... 3,788,021
-----------
INTEGRATED OIL & GAS-0.5%
66,375 Exxon Mobil Corporation........................... 2,383,526
-----------
INTEGRATED TELECOMMUNICATION SERVICES-0.5%
99,875 SBC Communications, Inc........................... 2,551,806
-----------
INVESTMENT BANKING & BROKERAGE-1.7%
52,150 Goldman Sachs Group, Inc.......................... 4,367,563
95,075 Morgan Stanley.................................... 4,064,456
-----------
8,432,019
-----------
LEISURE FACILITIES-2.0%
433,855 Royal Caribbean Cruises Limited................... 10,048,082
-----------
MOVIES & ENTERTAINMENT-3.9%
213,950 AOL Time Warner, Inc.*............................ 3,442,456
194,871 Viacom, Inc. Class B*............................. 8,508,068
391,360 Walt Disney Company............................... 7,729,360
-----------
19,679,884
-----------
MULTI-LINE INSURANCE-0.7%
68,074 American International Group, Inc................. 3,756,323
-----------
OIL & GAS DRILLING-0.2%
49,800 GlobalSantaFe Corporation......................... 1,162,332
-----------
OIL & GAS EQUIPMENT & SERVICES-1.9%
36,025 BJ Services Company*.............................. 1,345,894
225,825 Smith International, Inc.*........................ 8,296,811
-----------
9,642,705
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.2%
141,717 Citigroup, Inc.................................... 6,065,488
-----------
PERSONAL PRODUCTS-2.9%
447,603 Estee Lauder Companies, Inc. Class A.............. 15,008,129
-----------
</Table>
12
<Page>
<Table>
- ---------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
PHARMACEUTICALS-5.3%
31,337 Forest Laboratories, Inc.*........................ $ 1,715,701
109,875 Johnson & Johnson................................. 5,680,538
107,125 Merck & Company, Inc.............................. 6,486,419
305,363 Pfizer, Inc....................................... 10,428,146
55,175 Wyeth............................................. 2,513,221
-----------
26,824,025
-----------
PUBLISHING-1.2%
129,812 Tribune Company................................... 6,269,920
-----------
RAILROADS-0.5%
44,275 Union Pacific Corporation......................... 2,568,836
-----------
SEMICONDUCTOR EQUIPMENT-1.9%
79,650 KLA-Tencor Corporation*........................... 3,702,929
163,300 Novellus Systems, Inc.*........................... 5,980,209
-----------
9,683,138
-----------
SEMICONDUCTORS-3.9%
84,400 Altera Corporation*............................... 1,384,160
37,125 Broadcom Corporation*............................. 924,784
341,776 Intel Corporation................................. 7,103,472
192,050 Linear Technology Corporation..................... 6,185,931
73,000 Maxim Integrated Products, Inc.*.................. 2,495,870
59,275 Xilinx, Inc.*..................................... 1,500,250
-----------
19,594,467
-----------
SOFT DRINKS-1.9%
156,075 Coca-Cola Company................................. 7,243,441
118,975 Coca-Cola Enterprises, Inc........................ 2,159,396
-----------
9,402,837
-----------
SPECIALTY STORES-1.4%
222,838 Tiffany & Company................................. 7,282,346
-----------
SYSTEMS SOFTWARE-9.4%
202,275 Adobe Systems, Inc................................ 6,486,959
386,400 BMC Software, Inc.*............................... 6,309,912
865,901 Microsoft Corporation............................. 22,175,725
535,050 Oracle Corporation*............................... 6,431,301
231,635 VERITAS Software Corporation*..................... 6,640,975
-----------
48,044,872
-----------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$419,465,272)................................................. 445,411,759
-----------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-3.6%
IT CONSULTING & OTHER SERVICES-1.4%
402,150 Accenture Limited Class A ADR (BD)*............... $ 7,274,894
-----------
OIL & GAS DRILLING-0.2%
30,350 Nabors Industries Limited (BA)*................... 1,200,343
-----------
PHARMACEUTICALS-1.2%
105,900 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS).......................................... 6,028,887
-----------
RAILROADS-0.5%
52,225 Canadian National Railway Company (CA)............ 2,520,379
-----------
SEMICONDUCTORS-0.3%
42,375 Marvell Technology Group Limited (BD)*............ 1,456,419
-----------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$15,448,754).................................................. 18,480,922
-----------
<Caption>
PRINCIPAL
AMOUNT AMORTIZED COST
- -----------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-8.8%
OTHER DIVERSIFIED FINANCIAL SERVICES-4.9%
$ 25,100,000 Merrill Lynch & Company
1.12% 7/2/03...................................... $25,099,219
-----------
SPECIAL PURPOSE ENTITY-3.9%
19,800,000 Corporate Asset Funding Corporation
1.10% 7/1/03...................................... 19,800,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$44,899,219)........................................ 44,899,219
-----------
TOTAL INVESTMENTS-100.0%
(TOTAL COST-$479,813,245)........................................... 508,791,900
OTHER ASSETS AND LIABILITIES-(0.0%)................................. (23,005)
-----------
NET ASSETS-100.0%................................................... $508,768,895
===========
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $479,813,245
------------
Investment securities, at market.................. 508,791,900
Cash.............................................. 1,408,726
Receivables:
Investment securities sold...................... 4,815,839
Capital shares sold............................. 405,687
Dividends....................................... 410,306
Other assets...................................... 5,151
------------
Total Assets.................................. 515,837,609
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 2,397,189
Capital shares redeemed......................... 3,716,892
Advisory fees................................... 315,815
Shareholder servicing fees...................... 43,172
Accounting fees................................. 25,251
Distribution fees............................... 152,735
Custodian fees.................................. 1,204
Other........................................... 416,456
------------
Total Liabilities............................. 7,068,714
------------
Net Assets........................................ $508,768,895
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $1,293,787,499
Accumulated net investment loss................... (1,264,709)
Accumulated net realized loss from security
transactions.................................... (812,732,550)
Net unrealized appreciation on investments........ 28,978,655
------------
Total......................................... $508,768,895
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A............................... $ 5,895,236
Shares Outstanding--Class A....................... 683,413
Net Asset Value, Redemption Price Per Share....... $ 8.63
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 9.16
Net Assets--Class B............................... $ 12,652,585
Shares Outstanding--Class B....................... 1,505,139
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 8.41
Net Assets--Class C............................... $ 1,583,399
Shares Outstanding--Class C....................... 188,715
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 8.39
Net Assets--Class F............................... $482,232,108
Shares Outstanding--Class F....................... 55,756,781
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 8.65
Net Assets--Class R............................... $ 6,207,372
Shares Outstanding--Class R....................... 713,814
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 8.70
Net Assets--Class T............................... $ 198,195
Shares Outstanding--Class T....................... 23,644
Net Asset Value, Redemption Price Per Share....... $ 8.38
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 8.77
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 2,153,128
Interest........................................ 237,268
Foreign taxes withheld.......................... (6,207)
-----------
Total Investment Income....................... 2,384,189
-----------
EXPENSES:
Advisory fees--Note 2........................... 1,764,100
Shareholder servicing fees--Note 2.............. 270,507
Accounting fees--Note 2......................... 141,412
Distribution fees--Note 2....................... 610,658
Transfer agency fees--Note 2.................... 485,935
Registration fees............................... 31,456
Postage and mailing expenses.................... 69,764
Custodian fees and expenses--Note 2............. 7,221
Printing expenses............................... 60,758
Legal and audit fees............................ 48,807
Directors' fees and expenses--Note 2............ 53,318
Other expenses.................................. 109,500
-----------
Total Expenses................................ 3,653,436
Earnings Credits.............................. (3,272)
Reimbursed/Waived Expenses.................... (1,266)
-----------
Net Expenses.................................. 3,648,898
-----------
Net Investment Loss............................. (1,264,709)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Loss on Security Transactions........ (11,307,284)
Net Change in Unrealized Appreciation/Depreciation
of Investments.................................. 82,491,280
-----------
Net Realized and Unrealized Gain................ 71,183,996
-----------
Net Increase in Net Assets Resulting from
Operations...................................... $69,919,287
===========
Purchases of long-term securities................. $255,626,631
Proceeds from sales of long-term securities....... $282,082,623
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Loss..................... $ (1,264,709) $ (3,186,435)
Net Realized Loss on Security
Transactions.......................... (11,307,284) (161,500,402)
Net Realized Gain from Foreign Currency
Transactions.......................... 0 219
Net Change in Unrealized
Appreciation/Depreciation............. 82,491,280 (56,838,030)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 69,919,287 (221,524,648)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... (34,416) (439,145)
Class B............................... (620,206) (2,574,883)
Class C............................... (151,481) (656,249)
Class F............................... (27,548,447) (210,452,943)
Class R............................... 1,112,815 3,376,685
Class T............................... (37,183) (271,640)
------------ ------------
Net Decrease from Capital Share
Transactions.......................... (27,278,918) (211,018,175)
------------ ------------
Net Increase (Decrease) in Net Assets... 42,640,369 (432,542,823)
NET ASSETS
Beginning of period................... $466,128,526 $898,671,349
------------ ------------
End of period......................... $508,768,895 $466,128,526
============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -------------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ----------- ----------- -----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 7.46 $10.53 $14.02 $23.88
Income from investment
operations:
Net investment loss....... (0.03) (0.06) (0.05) (0.05)
Net gains (losses) on
securities
(both realized and
unrealized)............. 1.20 (3.01) (3.44) (6.39)
------ ------ ------ ------
Total from investment
operations.......... 1.17 (3.07) (3.49) (6.44)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------ ------ ------ ------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period...................... $ 8.63 $ 7.46 $10.53 $14.02
====== ====== ====== ======
Total Return/Ratios
Total return*............. 15.68% (29.15%) (24.89%) (27.30%)
Net assets, end of period
(000s).................. $5,895 $5,149 $7,795 $8,655
Net expenses to average
net assets#............. 1.68%** 1.48% 1.20% 1.05%
Gross expenses to average
net assets#............. 1.68%** 1.48% 1.21% 1.08%
Net investment loss to
average net assets...... (0.66%)** (0.56%) (0.47%) (0.54%)
Portfolio turnover
rate@................... 152% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS B SHARES
Net Asset Value, beginning of
period...................... $ 7.30 $ 10.38 $ 13.91 $ 23.88
Income from investment
operations:
Net investment loss....... (0.08) (0.18) (0.13) (0.11)
Net gains (losses) on
securities
(both realized and
unrealized)............. 1.19 (2.90) (3.40) (6.44)
------- ------- ------- -------
Total from investment
operations.......... 1.11 (3.08) (3.53) (6.55)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------- ------- ------- -------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period...................... $ 8.41 $ 7.30 $ 10.38 $ 13.91
======= ======= ======= =======
Total Return/Ratios
Total return*............. 15.21% (29.67%) (25.38%) (27.77%)
Net assets, end of period
(000s).................. $12,653 $11,603 $19,829 $25,359
Net expenses to average
net assets#............. 2.49%** 2.22% 1.92% 1.80%
Gross expenses to average
net assets#............. 2.49%** 2.22% 1.93% 1.82%
Net investment loss to
average net assets...... (1.48%)** (1.30%) (1.20%) (1.29%)
Portfolio turnover
rate@................... 152% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS C SHARES
Net Asset Value, beginning of
period...................... $ 7.29 $10.36 $13.92 $23.88
Income from investment
operations:
Net investment loss....... (0.12) (0.26) (0.18) (0.10)
Net gains (losses) on
securities
(both realized and
unrealized)............. 1.22 (2.81) (3.38) (6.44)
------ ------ ------ ------
Total from investment
operations.......... 1.10 (3.07) (3.56) (6.54)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------ ------ ------ ------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period...................... $ 8.39 $ 7.29 $10.36 $13.92
====== ====== ====== ======
Total Return/Ratios
Total return*............. 15.09% (29.63%) (25.58%) (27.72%)
Net assets, end of period
(000s).................. $1,584 $1,528 $2,979 $4,384
Net expenses to average
net assets#............. 2.49%** 2.37% 2.10% 1.80%
Gross expenses to average
net assets#............. 2.49%** 2.37% 2.11% 1.82%
Net investment loss to
average net assets...... (1.48%)** (1.46%) (1.38%) (1.28%)
Portfolio turnover
rate@................... 152% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value,
beginning of period.... $ 7.48 $ 10.53 $ 14.03 $ 23.87 $ 20.41 $ 17.28
Income from investment
operations:
Net investment income
(loss)............. (0.06) (0.22) (0.15) (0.21) (0.09) 0.01
Net gains (losses) on
securities (both
realized and
unrealized)........ 1.23 (2.83) (3.35) (6.21) 7.73 4.26
-------- -------- -------- ---------- ---------- ----------
Total from
investment
operations..... 1.17 (3.05) (3.50) (6.42) 7.64 4.27
Less distributions:
From net investment
income............. 0.00 0.00 0.00 0.00 0.00^ (0.01)
From net realized
gains.............. 0.00 0.00 0.00 (3.42) (4.18) (1.13)
-------- -------- -------- ---------- ---------- ----------
Total
distributions... 0.00 0.00 0.00 (3.42) (4.18) (1.14)
Net Asset Value, end of
period................. $ 8.65 $ 7.48 $ 10.53 $ 14.03 $ 23.87 $ 20.41
======== ======== ======== ========== ========== ==========
Total Return/Ratios
Total return......... 15.64% (28.96%) (24.95%) (27.23%) 39.06% 25.04%
Net assets, end of
period (000s)...... $482,232 $443,307 $865,425 $1,441,466 $3,323,606 $2,360,180
Net expenses to
average net
assets#............ 1.52%** 1.37% 1.30% 1.06% 1.08% 1.08%
Gross expenses to
average net
assets#............ 1.52%** 1.38% 1.31% 1.07% 1.09% 1.10%
Net investment income
(loss) to average
net assets......... (0.51%)** (0.46%) (0.58%) (0.58%) (0.47%) 0.05%
Portfolio turnover
rate@.............. 152% 139% 152% 182% 117% 143%
</Table>
^ Distributions from net investment income for the year ended December 31,
1999 aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS R SHARES
Net Asset Value, beginning of
period....................... $ 7.50 $10.57 $14.07 $23.88
Income from investment
operations:
Net investment income
(loss)................... 0.00+ 0.01 (0.02) (0.02)
Net gains (losses) on
securities
(both realized and
unrealized).............. 1.20 (3.08) (3.48) (6.37)
------ ------ ------ ------
Total from investment
operations........... 1.20 (3.07) (3.50) (6.39)
Less distributions:
From net investment
income................... 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------ ------ ------ ------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period....................... $ 8.70 $ 7.50 $10.57 $14.07
====== ====== ====== ======
Total Return/Ratios
Total return.............. 16.00% (29.04%) (24.88%) (27.08%)
Net assets, end of period
(000s)................... $6,207 $4,333 $2,023 $ 9
Net expenses to average
net assets#.............. 1.17%** 1.30% 1.46% 0.79%
Gross expenses to average
net assets#.............. 1.18%** 1.30% 1.46% 0.82%
Net investment loss to
average net assets....... (0.15%)** (0.34%) (0.72%) (0.29%)
Portfolio turnover
rate@.................... 152% 139% 152% 182%
</Table>
+ Net investment income (loss) for the six months ended June 30, 2003
aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS T SHARES
Net Asset Value, beginning of
period...................... $ 7.27 $10.38 $14.00 $23.88
Income from investment
operations:
Net investment loss....... (0.22) (0.56) (0.19) (0.09)
Net gains (losses) on
securities
(both realized and
unrealized)............. 1.33 (2.55) (3.43) (6.37)
------ ------ ------ ------
Total from investment
operations.......... 1.11 (3.11) (3.62) (6.46)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (3.42)
------ ------ ------ ------
Total distributions... 0.00 0.00 0.00 (3.42)
Net Asset Value, end of
period...................... $ 8.38 $ 7.27 $10.38 $14.00
====== ====== ====== ======
Total Return/Ratios
Total return*............. 15.27% (29.96%) (25.86%) (27.38%)
Net assets, end of period
(000s).................. $ 198 $ 208 $ 621 $ 802
Net expenses to average
net assets#............. 2.20%** 2.78% 2.55% 1.29%
Gross expenses to average
net assets#............. 2.20%** 2.78% 2.56% 1.32%
Net investment loss to
average net assets...... (1.20%)** (1.89%) (1.83%) (0.80%)
Portfolio turnover
rate@................... 152% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Growth Fund (the "Fund"). The Fund offers Class A, Class B,
Class C, Class F, Class R, and Class T shares. Class A and Class T shares are
subject to a sales charge imposed at the time of purchase, Class B shares are
subject to a contingent deferred sales charge ("CDSC") imposed on Class B share
redemptions made within six years of purchase, Class C shares are subject to a
CDSC imposed on Class C shares redeemed within one year of purchase, and Class F
and Class R shares are sold at net asset value per share (with Class R shares
sold only to eligible institutional investors). Other differences between the
classes include services offered to and the expenses borne by each Class. The
following significant accounting policies have been consistently followed by the
Fund in the preparation of its financial statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make
26
<Page>
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $30 million of net assets, 0.75% of the next $270 million of net
assets, 0.70% of the next $200 million of net assets, and 0.65% of net assets in
excess of $500 million.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$77,218 and $169,884, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-
pocket charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors
Trust Company ("ITC") was the transfer and dividend disbursing agent for the
Class F shares of the Fund. With the exception of out-of-pocket charges, the
fees charged by ITC were paid by Founders. The out-of-pocket charges from ITC
were paid by the Fund. During the six months ended June 30, 2003, Class F shares
paid DTI and ITC $50,897 and $67,909, respectively, for out-of-pocket transfer
agent charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A........................................... $ 8,842
Class B........................................... $23,108
Class C........................................... $ 2,934
Class R........................................... $ 1,867
Class T........................................... $ 568
</Table>
28
<Page>
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 applicable to its Class F shares. Under
the plan, the Fund is authorized to reimburse DSC for expenses paid for
distributing its Class F shares at an annual rate of up to 0.25% of the value of
the average daily net assets of the Fund's Class F shares. During the six months
ended June 30, 2003, Class F shares were charged $560,887 pursuant to this
Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $ 6,660
Class B................................. $43,984 $14,661
Class C................................. $ 5,555 $ 1,852
Class T................................. $ 232 $ 232
</Table>
During the six months ended June 30, 2003, DSC retained $1,253 in sales
commissions from the sales of Class A shares. DSC also retained $55,446 of
contingent deferred sales charges relating to redemptions of Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.06% of the average daily net assets of the Fund on the first $500 million,
0.04% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03................................. $100,000
9/1/03 to 8/31/04................................. $150,000
9/1/04 to 8/31/05................................. $200,000
9/1/05 to 8/31/06................................. $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $1,266. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
30
<Page>
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2007
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses........................ $785,319,022
Post-October Capital Loss Deferral................ $ 3,865,188
Post-October Currency Loss Deferral............... $ 0
Federal Tax Cost.................................. $496,660,337
Gross Tax Appreciation of Investments............. $35,393,523
Gross Tax Depreciation of Investments............. $(23,261,960)
Net Tax Appreciation.............................. $12,131,563
</Table>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- ------------------
CLASS A
Sold...................... 58,472 $ 464,060 176,909 $ 1,575,474
Issued in Connection with
Acquisition............. 0 $ 0 8,437 $ 83,443
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (65,054) $ (498,476) (235,763) $ (2,098,062)
NET DECREASE.............. (6,582) $ (34,416) (50,417) $ (439,145)
</Table>
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- ------------------
CLASS B
Sold...................... 46,764 $ 375,570 117,855 $ 1,071,298
Issued in Connection with
Acquisition............. 0 $ 0 30,576 $ 297,814
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (130,684) $ (995,776) (469,578) $ (3,943,995)
NET DECREASE.............. (83,920) $ (620,206) (321,147) $ (2,574,883)
CLASS C
Sold...................... 5,140 $ 40,059 19,428 $ 176,384
Issued in Connection with
Acquisition............. 0 $ 0 3,774 $ 36,681
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (26,113) $ (191,540) (100,964) $ (869,314)
NET DECREASE.............. (20,973) $ (151,481) (77,762) $ (656,249)
CLASS F
Sold...................... 3,337,083 $ 26,297,429 6,324,146 $ 57,283,483
Issued in Connection with
Acquisition............. 0 $ 0 162,005 $ 1,602,235
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (6,874,893) $ (53,845,876) (29,363,216) $ (269,338,661)
NET DECREASE.............. (3,537,810) $ (27,548,447) (22,877,065) $ (210,452,943)
CLASS R
Sold...................... 163,548 $ 1,322,843 440,296 $ 3,853,596
Issued in Connection with
Acquisition............. 0 $ 0 48 $ 475
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (27,152) $ (210,028) (54,408) $ (477,386)
NET INCREASE.............. 136,396 $ 1,112,815 385,936 $ 3,376,685
CLASS T
Sold...................... 363 $ 2,745 1,782 $ 16,192
Issued in Connection with
Acquisition............. 0 $ 0 791 $ 7,690
Dividends or Distributions
Reinvested.............. 0 $ 0 0 $ 0
Redeemed.................. (5,342) $ (39,928) (33,797) $ (295,522)
NET DECREASE.............. (4,979) $ (37,183) (31,224) $ (271,640)
</Table>
32
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
6. ACQUISITION OF DREYFUS FOUNDERS FOCUS FUND
On February 22, 2002, the Fund acquired all the net assets of Dreyfus Founders
Focus Fund ("Focus") pursuant to a plan of reorganization approved by Focus
shareholders on February 15, 2002. The acquisition was accomplished by a tax-
free exchange of Class A, Class B, Class C, Class F, Class R, and Class T shares
of the Fund in the amount of 8,437, 30,576, 3,774, 162,005, 48, and 791 shares,
respectively, (valued at $83,443, $297,814, $36,681, $1,602,235, $475, and
$7,690, respectively) for the 14,562, 52,804, 6,515, 279,701, 80, and 1,328
Focus Class A, Class B, Class C, Class F, Class R, and Class T shares
outstanding, respectively, on February 22, 2002. Focus' net assets on that date,
$2,028,338, including $145,042 of unrealized depreciation, were combined with
those of the Fund. The aggregate net assets of the Fund and Focus immediately
before the acquisition were $808,857,376 and $2,028,338, respectively.
33
<Page>
This page intentionally left blank.
34
<Page>
FOR MORE INFORMATION
DREYFUS FOUNDERS
GROWTH FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
2930 East Third Avenue
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
To obtain information:
- --------------------------------- Dreyfus Transfer, Inc.
BY TELEPHONE | 200 Park Avenue
Call your financial | New York, NY 10166
representative or |
1-800-554-4611 |
| DISTRIBUTOR
BY MAIL Write to: |
Dreyfus Founders Funds | Dreyfus Service Corporation
144 Glenn Curtiss Boulevard | 200 Park Avenue
Uniondale, NY 11556-0144 | New York, NY 10166
Dreyfus Founders Funds are managed by Founders Asset Management LLC.
Founders and Founders Funds are registered trademarks of Founders Asset
Management LLC.
(C)2003 Dreyfus Service Corporation 213SA0603
<Page>
DREYFUS FOUNDERS
GROWTH AND
INCOME FUND
SEMIANNUAL REPORT JUNE 30, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(sm)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 15
Statement of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Notes to Financial Statements 25
</Table>
The views expressed herein are current to the date of this report. The views
and the composition of the Fund's portfolio are subject to change at any time
based on market and other conditions. Companies appearing in bold print on
pages 3-8 were owned by the Fund on June 30, 2003. The amounts of these
holdings are included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF JOHN B. JARES]
A DISCUSSION WITH PORTFOLIO
MANAGER JOHN B. JARES, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30?
The first six months of 2003 presented mixed results on both the economic and
broad market levels. However, the Dreyfus Founders Growth and Income Fund
performed well and posted a return(1) that compared favorably to the 11.76%
return posted by its benchmark, the broad market Standard & Poor's 500 Index.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
Looking back, the broader market activity for first six months of 2003 can be
easily separated into two distinct periods. The first period is that which led
up to the war in Iraq and was characterized by falling equity prices. The second
period, which began with the onset of the war and extended through the end of
June, saw a powerful rally in equity prices. The defining point that separates
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"THE INFUSION OF CONSUMER CAPITAL INTO THE ECONOMY BOOSTED THE PERFORMANCE OF
THE FUND'S CONSUMER-RELATED STOCKS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Investors' mindset began to shift due to a stabilization of the Iraqi
conflict, the lowering of interest rates and renewed confidence in economic
growth.
- - Holdings in the healthcare sectors solidified the Fund's positive returns.
- - Technology companies continued to show sub-par performance, hampering the
Fund's returns in this sector.
- - We continue to use a bottom-up, fundamentals-based research strategy to seek
companies exhibiting signs of growth potential.
these two periods is easy to identify: an easing in the uncertainty surrounding
the war motivated the market upswing. This, coupled with confidence that the
economy could soon exhibit an improving pace of growth, provided a positive
foundation for the market's rebound.
On the purely economic front, the first half of 2003 exhibited mixed
results. Weekly jobless claims hovered at relatively high levels. By June, the
unemployment rate moved above 6%, a nine-year high. The Institute for Supply
Management (ISM) index posted readings below 50, the level considered to be the
demarcation line between expansion and contraction. However, this ISM reading
was better than it appeared, relatively speaking. The index actually improved
during the period, moving from the mid-40s to the upper-40s, indicating only a
modest amount of contraction. Lowered interest rates continued to have a
positive impact on the housing and mortgage industries. And, although slowing
over the six-month period, auto sales still remained at relatively high levels.
4
<Page>
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
The Fund's performance was primarily driven by strong performing stock
selections in the consumer discretionary and healthcare sectors. The infusion
of consumer capital into the economy boosted many of the Fund's
consumer-related stocks such as BEST BUY COMPANY, INC., the leading retailer
of consumer electronics, and ESTEE LAUDER COMPANIES, INC., the manufacturer
and distributor of cosmetics and fragrances.
The healthcare sector also provided positive opportunities during the
period as the Fund capitalized on holdings focused on the improvement of
cardiovascular health as well as the production of affordable drugs. BOSTON
SCIENTIFIC CORPORATION strongly contributed to the Fund's performance as it
benefited from the success of its pioneering approach to interventional
cardiology. This approach improves upon existing technology by applying
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 5.11%
2. General Electric Company (GE) 3.61%
3. Exxon Mobil Corporation (XOM) 3.55%
4. Microsoft Corporation (MSFT) 3.38%
5. Estee Lauder Companies, Inc. (EL) 2.94%
6. Best Buy Company, Inc. (BBY) 2.24%
7. Pfizer, Inc. (PFE) 2.03%
8. Royal Caribbean Cruises Limited (RCL) 1.97%
9. MBNA Corporation (KRB) 1.89%
10. Bank of America Corporation (BAC) 1.82%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
a drug to cardiovascular stents to help control coronary artery disease. We also
saw strong returns from TEVA PHARMACEUTICAL INDUSTRIES LIMITED, which continued
to capitalize on market shifts toward less expensive drugs in the generic drug
marketplace.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Growth and Income
Fund on 6/30/93 to a $10,000 investment made in an unmanaged securities index on
that date. The Fund's performance assumes the reinvestment of dividends and
capital gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Standard & Poor's (S&P) 500 Index is a market-value-weighted, unmanaged
index of common stocks considered representative of the broad market. The total
return figures cited for this index assume change in security prices and
reinvestment of dividends, but do not reflect the costs of managing a mutual
fund. Further information related to Fund performance is contained elsewhere in
this report.
6
<Page>
WHAT MANAGEMENT DECISIONS HINDERED PERFORMANCE DURING THE HALF?
Fund performance was hampered by negative results from stock selection
in the technology sector, such as BMC SOFTWARE, INC., a manufacturer of computer
hardware and software systems. Already saddled with a weakened environment in
which to sell, BMC Software underperformed due to missed revenue growth
estimates.
The Fund's lack of holdings in the strong-performing utilities sector
hampered the Fund's relative performance. Inadequate performance in the basic
materials sector also hindered the Fund's relative returns due
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 7.67% (5.76%) -- -- (16.87%)
Without sales charge 14.24% 0.00% -- -- (15.46%)
CLASS B SHARES (12/31/99)
With redemption* 9.82% (4.49%) -- -- (16.49%)
Without redemption 13.82% (0.51%) -- -- (15.81%)
CLASS C SHARES (12/31/99)
With redemption** 12.77% (1.52%) -- -- (16.25%)
Without redemption 13.77% (0.52%) -- -- (16.25%)
CLASS F SHARES (7/5/38) 14.29% 0.56% (7.60%) 4.88% N/A
CLASS R SHARES (12/31/99) 14.12% 0.00% -- -- (15.28%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 8.45% (4.94%) -- -- (17.04%)
Without sales charge 13.57% (0.52%) -- -- (15.94%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total return does not reflect the deduction of taxes that a shareholder would
pay on Fund distributions or redemption of Fund shares, but does reflect the
reinvestment of dividends and capital gain distributions, expense limits for
certain share classes, and adjustments for financial statement purposes.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION
<Table>
19.30% Information Technology
15.91% Consumer Discretionary
11.25% Healthcare
10.41% Financials
10.22% Consumer Staples
8.82% Industrials
7.29% Energy
2.01% Telecommunications Services
0.26% Materials
5.11% Other
9.42% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
to lackluster results from holdings such as AIR PRODUCTS AND CHEMICALS, INC., a
supplier of industrial gases, which experienced sluggish demand from end-users.
In addition, the Funds cash position, which averaged 8% during the period,
hampered returns the Fund might have otherwise seen in the strong market
environment.
As we move into the second half of 2003, our investment strategy remains
unchanged. We continue to use a bottom-up, fundamentals-based research approach
to seek companies that have the potential to exhibit revenue and earnings growth
that exceed Wall Street expectations.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-86.5%
AIRLINES-1.6%
102,925 Northwest Airlines Corporation Class A*........... $ 1,162,023
127,950 Southwest Airlines Company........................ 2,200,740
-------------
3,362,763
-------------
APPLICATION SOFTWARE-0.4%
46,582 PeopleSoft, Inc.*................................. 819,377
-------------
ASSET MANAGEMENT & CUSTODY BANKS-2.4%
22,975 Bank of New York Company, Inc..................... 660,531
162,100 Janus Capital Group, Inc.......................... 2,658,440
55,350 SEI Investments Company........................... 1,771,200
-------------
5,090,171
-------------
BIOTECHNOLOGY-1.7%
31,010 Amgen, Inc.*...................................... 2,060,305
27,750 Gilead Sciences, Inc.*............................ 1,542,345
-------------
3,602,650
-------------
BROADCASTING & CABLE TV-2.4%
27,300 Clear Channel Communications, Inc.*............... 1,157,247
91,050 Comcast Corporation Special Class A*.............. 2,624,972
37,750 Cox Communications, Inc.*......................... 1,204,225
-------------
4,986,444
-------------
CASINOS & GAMING-0.4%
22,575 MGM Mirage, Inc.*................................. 771,614
-------------
COMMUNICATIONS EQUIPMENT-0.9%
119,188 Cisco Systems, Inc.*.............................. 1,989,248
-------------
COMPUTER & ELECTRONICS RETAIL-2.2%
108,124 Best Buy Company, Inc.*........................... 4,748,806
-------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMPUTER HARDWARE-1.6%
40,800 International Business Machines Corporation....... $ 3,366,000
-------------
CONSUMER FINANCE-1.9%
192,562 MBNA Corporation.................................. 4,012,992
-------------
DATA PROCESSING & OUTSOURCED SERVICES-2.4%
59,150 First Data Corporation............................ 2,451,176
75,900 Fiserv, Inc.*..................................... 2,702,799
-------------
5,153,975
-------------
DEPARTMENT STORES-0.6%
62,691 Nordstrom, Inc.................................... 1,223,728
-------------
DIVERSIFIED BANKS-3.4%
48,875 Bank of America Corporation....................... 3,862,591
66,800 Wells Fargo & Company............................. 3,366,720
-------------
7,229,311
-------------
DIVERSIFIED COMMERCIAL SERVICES-1.1%
128,450 Cendant Corporation*.............................. 2,353,204
-------------
DRUG RETAIL-0.2%
14,275 Walgreen Company.................................. 429,678
-------------
EXCHANGE TRADED FUNDS-5.1%
110,950 SPDR Trust Series 1............................... 10,832,048
-------------
FOOD RETAIL-1.0%
108,150 Safeway, Inc.*.................................... 2,212,749
-------------
HEALTHCARE EQUIPMENT-1.3%
43,750 Boston Scientific Corporation*.................... 2,673,125
-------------
HEALTHCARE SERVICES-1.9%
66,225 Caremark Rx, Inc.*................................ 1,700,658
32,775 Express Scripts, Inc. Class A*.................... 2,239,188
-------------
3,939,846
-------------
HOME IMPROVEMENT RETAIL-1.2%
78,525 Home Depot, Inc................................... 2,600,748
-------------
HOTELS, RESORTS & CRUISE LINES-0.8%
15,150 Carnival Corporation Class A...................... 492,527
44,175 Starwood Hotels & Resorts Worldwide, Inc.......... 1,262,964
-------------
1,755,491
-------------
HOUSEHOLD PRODUCTS-2.6%
54,208 Colgate-Palmolive Company......................... 3,141,354
26,550 Procter & Gamble Company.......................... 2,367,729
-------------
5,509,083
-------------
</Table>
* NON-INCOME PRODUCING.
SPDR--STANDARD AND POOR'S DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-1.6%
COMMON STOCKS (DOMESTIC)-Continued
HYPERMARKETS & SUPER CENTERS-Continued
62,950 Wal-Mart Stores, Inc.............................. $ 3,378,527
-------------
INDUSTRIAL CONGLOMERATES-4.4%
7,950 3M Company........................................ 1,025,391
266,350 General Electric Company.......................... 7,638,918
13,275 Ingersoll-Rand Company Class A.................... 628,173
-------------
9,292,482
-------------
INDUSTRIAL GASES-0.3%
13,000 Air Products and Chemicals, Inc................... 540,800
-------------
INDUSTRIAL MACHINERY-0.7%
23,850 Illinois Tool Works, Inc.......................... 1,570,523
-------------
INTEGRATED OIL & GAS-3.6%
209,216 Exxon Mobil Corporation........................... 7,512,947
-------------
INTEGRATED TELECOMMUNICATION SERVICES-2.0%
41,250 SBC Communications, Inc........................... 1,053,938
81,350 Verizon Communications, Inc....................... 3,209,258
-------------
4,263,196
-------------
INVESTMENT BANKING & BROKERAGE-0.8%
39,025 Morgan Stanley.................................... 1,668,319
-------------
LEISURE FACILITIES-2.0%
180,158 Royal Caribbean Cruises Limited................... 4,172,459
-------------
MOVIES & ENTERTAINMENT-3.7%
88,850 AOL Time Warner, Inc.*............................ 1,429,597
79,800 Viacom, Inc. Class B*............................. 3,484,068
150,050 Walt Disney Company............................... 2,963,488
-------------
7,877,153
-------------
MULTI-LINE INSURANCE-0.8%
28,275 American International Group, Inc................. 1,560,215
-------------
OIL & GAS DRILLING-0.2%
20,625 GlobalSantaFe Corporation......................... 481,388
-------------
OIL & GAS EQUIPMENT & SERVICES-1.9%
14,875 BJ Services Company*.............................. 555,730
92,925 Smith International, Inc.*........................ 3,414,065
-------------
3,969,795
-------------
OIL & GAS EXPLORATION & PRODUCTION-0.9%
27,688 Apache Corporation................................ 1,801,381
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.2%
58,099 Citigroup, Inc.................................... 2,486,637
-------------
PERSONAL PRODUCTS-2.9%
185,900 Estee Lauder Companies, Inc. Class A.............. 6,233,227
-------------
</Table>
12
<Page>
<Table>
- -----------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
PHARMACEUTICALS-5.2%
13,100 Forest Laboratories, Inc.*........................ $ 717,225
45,625 Johnson & Johnson................................. 2,358,813
44,275 Merck & Company, Inc.............................. 2,680,851
126,234 Pfizer, Inc....................................... 4,310,891
22,875 Wyeth............................................. 1,041,956
-------------
11,109,736
-------------
PUBLISHING-1.2%
53,300 Tribune Company................................... 2,574,390
-------------
RAILROADS-0.5%
18,300 Union Pacific Corporation......................... 1,061,766
-------------
SEMICONDUCTOR EQUIPMENT-0.9%
16,150 KLA-Tencor Corporation*........................... 750,814
32,175 Novellus Systems, Inc.*........................... 1,178,281
-------------
1,929,095
-------------
SEMICONDUCTORS-3.3%
34,950 Altera Corporation*............................... 573,180
15,350 Broadcom Corporation*............................. 382,369
90,303 Intel Corporation................................. 1,876,858
79,400 Linear Technology Corporation..................... 2,557,474
30,175 Maxim Integrated Products, Inc.*.................. 1,031,683
24,500 Xilinx, Inc.*..................................... 620,095
-------------
7,041,659
-------------
SOFT DRINKS-1.8%
64,675 Coca-Cola Company................................. 3,001,567
49,650 Coca-Cola Enterprises, Inc........................ 901,148
-------------
3,902,715
-------------
SPECIALTY STORES-1.4%
92,125 Tiffany & Company................................. 3,010,645
-------------
SYSTEMS SOFTWARE-8.1%
83,375 Adobe Systems, Inc................................ 2,673,836
160,450 BMC Software, Inc.*............................... 2,620,149
279,916 Microsoft Corporation............................. 7,168,649
163,975 Oracle Corporation*............................... 1,970,980
93,454 VERITAS Software Corporation*..................... 2,679,326
-------------
17,112,940
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$172,825,813)................................................. 183,215,046
-------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-4.1%
INTEGRATED OIL & GAS-0.6%
25,400 Royal Dutch Petroleum Company NY Shares (NE)...... $ 1,184,148
-------------
IT CONSULTING & OTHER SERVICES-1.3%
159,225 Accenture Limited Class A ADR (BD)*............... 2,880,380
-------------
OIL & GAS DRILLING-0.2%
12,550 Nabors Industries Limited (BA)*................... 496,353
-------------
PHARMACEUTICALS-1.2%
44,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS).......................................... 2,504,920
-------------
RAILROADS-0.5%
21,600 Canadian National Railway Company (CA)............ 1,042,416
-------------
SEMICONDUCTORS-0.3%
17,500 Marvell Technology Group Limited (BD)*............ 601,468
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$7,444,963)................................................... 8,709,685
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-8.2%
OTHER DIVERSIFIED FINANCIAL SERVICES-4.5%
$ 9,600,000 Merrill Lynch & Company
1.12% 7/2/03...................................... $ 9,599,701
-------------
SPECIAL PURPOSE ENTITY-3.7%
7,900,000 Corporate Asset Funding Corporation
1.10% 7/1/03...................................... 7,900,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$17,499,701)........................................ 17,499,701
-------------
TOTAL INVESTMENTS-98.8%
(TOTAL COST-$197,770,477)........................................... 209,424,432
OTHER ASSETS AND LIABILITIES-1.2%................................... 2,468,573
-------------
NET ASSETS-100.0%................................................... $ 211,893,005
=============
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $197,770,477
------------
Investment securities, at market.................. 209,424,432
Cash.............................................. 634,139
Receivables:
Investment securities sold...................... 2,963,610
Capital shares sold............................. 33,492
Dividends....................................... 168,023
From adviser.................................... 39,319
From transfer agent............................. 35
------------
Total Assets.................................. 213,263,050
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 993,661
Capital shares redeemed......................... 58,565
Advisory fees................................... 114,384
Shareholder servicing fees...................... 24,341
Accounting fees................................. 10,558
Distribution fees............................... 46,068
Custodian fees.................................. 859
Other........................................... 121,609
------------
Total Liabilities............................. 1,370,045
------------
Net Assets........................................ $211,893,005
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $337,657,544
Undistributed net investment income............... 77,771
Accumulated net realized loss from security
transactions.................................... (137,496,265)
Net unrealized appreciation on investments........ 11,653,955
------------
Total......................................... $211,893,005
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A............................... $ 546,205
Shares Outstanding--Class A....................... 139,059
Net Asset Value, Redemption Price Per Share....... $ 3.93
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 4.17
Net Assets--Class B............................... $ 1,006,539
Shares Outstanding--Class B....................... 260,095
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 3.87
Net Assets--Class C............................... $ 154,456
Shares Outstanding--Class C....................... 40,674
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 3.80
Net Assets--Class F............................... $210,059,347
Shares Outstanding--Class F....................... 52,484,349
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 4.00
Net Assets--Class R............................... $ 89,376
Shares Outstanding--Class R....................... 22,547
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 3.96
Net Assets--Class T............................... $ 37,082
Shares Outstanding--Class T....................... 9,623
Net Asset Value, Redemption Price Per Share....... $ 3.85
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 4.03
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 1,008,372
Interest........................................ 100,601
Foreign taxes withheld.......................... (6,683)
------------
Total Investment Income....................... 1,102,290
------------
EXPENSES:
Advisory fees--Note 2........................... 638,894
Shareholder servicing fees--Note 2.............. 157,205
Accounting fees--Note 2......................... 58,975
Distribution fees--Note 2....................... 84,493
Transfer agency fees--Note 2.................... 69,069
Registration fees............................... 28,012
Postage and mailing expenses.................... 25,520
Custodian fees and expenses--Note 2............. 5,156
Printing expenses............................... 24,750
Legal and audit fees............................ 19,224
Directors' fees and expenses--Note 2............ 21,508
Other expenses.................................. 58,067
------------
Total Expenses................................ 1,190,873
Earnings Credits.............................. (1,986)
Reimbursed/Waived Expenses.................... (868)
Expense Offset to Broker Commissions.......... (3,146)
------------
Net Expenses.................................. 1,184,873
------------
Net Investment Loss............................. (82,583)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Loss on Security Transactions........ (3,617,568)
Net Change in Unrealized Appreciation/Depreciation
of Investments.................................... 30,576,074
------------
Net Realized and Unrealized Gain................ 26,958,506
------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 26,875,923
============
Purchases of long-term securities................. $101,511,219
Proceeds from sales of long-term securities....... $108,066,522
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Income (Loss)............ $ (82,583) $ 243,717
Net Realized Loss on Security
Transactions.......................... (3,617,568) (45,255,731)
Net Change in Unrealized
Appreciation/Depreciation............. 30,576,074 (25,124,429)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 26,875,923 (70,136,443)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
From Net Investment Income
Class F............................... 0 (109,803)
------------ ------------
Net Decrease from Dividends and
Distributions......................... 0 (109,803)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... 109,442 74,186
Class B............................... (124,548) (173,941)
Class C............................... (49,835) (19,371)
Class F............................... (8,306,950) (27,489,605)
Class R............................... 22,192 42,140
Class T............................... (309) (60,858)
------------ ------------
Net Decrease from Capital Share
Transactions.......................... (8,350,008) (27,627,449)
------------ ------------
Net Increase (Decrease) in Net Assets... 18,525,915 (97,873,695)
NET ASSETS
Beginning of period................... $193,367,090 $291,240,785
------------ ------------
End of period......................... $211,893,005 $193,367,090
============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 3.44 $ 4.66 $ 5.73 $ 7.61
Income from investment
operations:
Net investment income
(loss).................. 0.01 (0.02) (0.07) 0.00+
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.48 (1.20) (1.00) (1.45)
------ ------- ------- -------
Total from investment
operations.......... 0.49 (1.22) (1.07) (1.45)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (0.43)
Net Asset Value, end of
period...................... $ 3.93 $ 3.44 $ 4.66 $ 5.73
====== ======= ======= =======
Total Return/Ratios
Total return*............. 14.24% (26.18%) (18.65%) (19.04%)
Net assets, end of period
(000s).................. $ 546 $ 378 $ 442 $ 318
Net expenses to average
net assets#............. 1.52%** 1.87% 2.98% 1.01%
Gross expenses to average
net assets#............. 1.52%** 1.87% 2.98% 1.06%
Net investment loss to
average net assets...... (0.38%)** (0.67%) (1.82%) (0.03%)
Portfolio turnover
rate@................... 153% 152% 144% 165%
</Table>
+ Net investment loss for the year ended December 31, 2000 aggregated less
than $0.01 on a per share basis.
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of period....... $ 3.40 $ 4.61 $ 5.65 $ 7.61
Income from investment operations:
Net investment loss.................... (0.04) (0.05) (0.04) (0.02)
Net gains (losses) on securities (both
realized and unrealized)............. 0.51 (1.16) (1.00) (1.51)
------ ------- ------- -------
Total from investment operations... 0.47 (1.21) (1.04) (1.53)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (0.43)
Net Asset Value, end of period............. $ 3.87 $ 3.40 $ 4.61 $ 5.65
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 13.82% (26.25%) (18.38%) (20.09%)
Net assets, end of period (000s)....... $1,007 $ 1,013 $ 1,599 $ 1,170
Net expenses to average net assets#.... 2.29%** 2.14% 2.19% 1.76%
Gross expenses to average net
assets#.............................. 2.29%** 2.14% 2.20% 1.80%
Net investment loss to average net
assets............................... (1.16%)** (0.95%) (1.03%) (0.88%)
Portfolio turnover rate@............... 153% 152% 144% 165%
</Table>
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of period....... $ 3.34 $ 4.55 $ 5.66 $ 7.61
Income from investment operations:
Net investment loss.................... (0.10) (0.07) (0.13) (0.01)
Net gains (losses) on securities (both
realized and unrealized)............. 0.56 (1.14) (0.98) (1.51)
------ ------- ------- -------
Total from investment operations... 0.46 (1.21) (1.11) (1.52)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (0.43)
Net Asset Value, end of period............. $ 3.80 $ 3.34 $ 4.55 $ 5.66
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 13.77% (26.59%) (19.58%) (19.96%)
Net assets, end of period (000s)....... $ 154 $ 186 $ 270 $ 343
Net expenses to average net
assets#,+............................ 2.30%** 2.76% 3.16% 1.75%
Gross expenses to average net
assets#,+............................ 2.30%** 2.77% 3.17% 1.84%
Net investment loss to average net
assets+.............................. (1.17%)** (1.55%) (2.01%) (0.83%)
Portfolio turnover rate@............... 153% 152% 144% 165%
</Table>
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.01% (2002) and 3.55% (2001). The gross
expense ratios would have been 3.02% (2002) and 3.56% (2001). The net
investment loss ratios would have been (1.80%) (2002) and (2.40%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 3.50 $ 4.69 $ 5.69 $ 7.61 $ 7.32 $ 6.92
Income from investment operations:
Net investment income (loss)........... 0.00+ 0.00+ 0.00+ (0.02) 0.00+ 0.71
Net gains (losses) on securities (both
realized and unrealized)............. 0.50 (1.19) (1.00) (1.47) 1.06 0.51
-------- -------- -------- -------- -------- --------
Total from investment operations... 0.50 (1.19) (1.00) (1.49) 1.06 1.22
Less distributions:
From net investment income............. 0.00 0.00^ 0.00 0.00 0.00 (0.11)
From net realized gains................ 0.00 0.00 0.00^ (0.43) (0.77) (0.71)
-------- -------- -------- -------- -------- --------
Total distributions................ 0.00 0.00 0.00 (0.43) (0.77) (0.82)
Net Asset Value, end of period............. $ 4.00 $ 3.50 $ 4.69 $ 5.69 $ 7.61 $ 7.32
======== ======== ======== ======== ======== ========
Total Return/Ratios
Total return........................... 14.29% (25.33%) (17.55%) (19.57%) 15.03% 17.78%
Net assets, end of period (000s)....... $210,059 $191,701 $288,752 $385,816 $535,035 $542,307
Net expenses to average net assets#.... 1.20%** 1.08% 1.14% 1.10% 1.12% 1.08%
Gross expenses to average net
assets#.............................. 1.20%** 1.08% 1.14% 1.12% 1.13% 1.10%
Net investment income (loss) to average
net assets........................... (0.08%)** 0.11% 0.02% (0.24%) (0.05%) 1.38%
Portfolio turnover rate@............... 153% 152% 144% 165% 165% 259%
</Table>
+ Net investment income (loss) for the six months ended June 30, 2003 and the
years ended December 31, 2002, 2001 and 1999 aggregated less than $0.01 on
a per share basis.
^ Distributions from net investment income for the year ended December 31,
2002 and distributions from net realized gains for the year ended
December 31, 2001 aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of period....... $ 3.47 $ 4.74 $ 5.74 $ 7.61
Income from investment operations:
Net investment income (loss)........... 0.02 (0.08) (0.01) 0.00+
Net gains (losses) on securities (both
realized and unrealized)............. 0.47 (1.19) (0.99) (1.44)
------ ------- ------- -------
Total from investment operations... 0.49 (1.27) (1.00) (1.44)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (0.43)
Net Asset Value, end of period............. $ 3.96 $ 3.47 $ 4.74 $ 5.74
====== ======= ======= =======
Total Return/Ratios
Total return........................... 14.12% (26.79%) (17.39%) (18.91%)
Net assets, end of period (000s)....... $ 89 $ 57 $ 51 $ 1
Net expenses to average net
assets#,+............................ 1.44%** 2.95% 2.72% 0.76%
Gross expenses to average net
assets#,+............................ 1.45%** 2.95% 2.73% 0.79%
Net investment income (loss) to average
net assets+.......................... (0.35%)** (1.78%) (1.68%) 0.01%
Portfolio turnover rate@............... 153% 152% 144% 165%
</Table>
+ Net investment income (loss) for the year ended December 31, 2000
aggregated less than $0.01 on a per share basis.
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company during the years
ended December 31, 2002 and 2001. Had these fees not been reimbursed, the
net expense ratios would have been 4.68% (2002) and 82.22% (2001). The
gross expense ratios would have been 4.68% (2002) and 82.23% (2001). The
net investment loss ratios would have been (3.51%) (2002) and (81.18)%
(2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of period....... $ 3.39 $ 4.60 $ 5.68 $ 7.61
Income from investment operations:
Net investment loss.................... (0.02) (0.30) (0.09) (0.01)
Net gains (losses) on securities (both
realized and unrealized)............. 0.48 (0.91) (0.99) (1.49)
------ ------- ------- -------
Total from investment operations... 0.46 (1.21) (1.08) (1.50)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00^ (0.43)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (0.43)
Net Asset Value, end of period............. $ 3.85 $ 3.39 $ 4.60 $ 5.68
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 13.57% (26.30%) (18.99%) (19.69%)
Net assets, end of period (000s)....... $ 37 $ 33 $ 127 $ 82
Net expenses to average net
assets#,+............................ 2.25%** 2.46% 3.13% 1.25%
Gross expenses to average net
assets#,+............................ 2.25%** 2.47% 3.14% 1.28%
Net investment loss to average net
assets+.............................. (1.13%)** (1.29%) (1.96%) (0.40%)
Portfolio turnover rate@............... 153% 152% 144% 165%
</Table>
^ Distributions from net realized gains for the year ended December 31, 2001
aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.70% (2002) and 6.31% (2001). The gross
expense ratios would have been 3.71% (2002) and 6.32% (2001). The net
investment loss ratios would have been (2.53%) (2002) and (5.14%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Growth and Income Fund (the "Fund"). The Fund offers
Class A, Class B, Class C, Class F, Class R, and Class T shares. Class A and
Class T shares are subject to a sales charge imposed at the time of purchase,
Class B shares are subject to a contingent deferred sales charge ("CDSC")
imposed on Class B share redemptions made within six years of purchase, Class C
shares are subject to a CDSC imposed on Class C shares redeemed within one year
of purchase, and Class F and Class R shares are sold at net asset value per
share (with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make
26
<Page>
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
0.65% of the first $250 million of net assets, 0.60% of the next $250
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
million of net assets, 0.55% of the next $250 million of net assets, and 0.50%
of net assets in excess of $750 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$48,158 and $107,055, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $21,807 and $34,527, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Transfer agency fees paid to DTI during the six months ended June 30, 2003 were
as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $ 829
Class B..................................................... $ 1,939
Class C..................................................... $ 356
Class R..................................................... $ 196
Class T..................................................... $ 152
</Table>
28
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $80,236 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's Class A,
B, C, and T shares for the six months ended June 30, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $ 545
Class B................................. $3,574 $1,191
Class C................................. $ 640 $ 213
Class T................................. $ 43 $ 43
</Table>
During the six months ended June 30, 2003, DSC retained $1,183 and $8 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $9,628 of contingent deferred sales charges relating to redemptions of
Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities,
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
equipment and clerical help. The fee is computed at the annual rate of 0.06% of
the average daily net assets of the Fund on the first $500 million, 0.04% of the
average daily net assets of the Fund on the next $500 million, and 0.02% of the
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $868. The amount paid to Mellon was reduced
by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to
30
<Page>
differing treatments for items such as deferral of wash sale losses, foreign
currency transactions, net operating losses, and capital loss carryovers.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2002, represent capital loss carryovers that may be
available to offset future realized capital gains and thereby reduce future
taxable gains distributions. Post-October 31 foreign currency losses noted
below, if any, may be used to offset future net investment income and thereby
reduce future ordinary income distributions. These carryovers expire between
December 31, 2009 and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income............................... $ 160,354
Accumulated Capital Losses.................................. $129,641,572
Post-October Capital Loss Deferral.......................... $ 0
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $203,468,272
Gross Tax Appreciation of Investments....................... $ 14,934,129
Gross Tax Depreciation of Investments....................... $ (8,977,969)
Net Tax Appreciation........................................ $ 5,956,160
</Table>
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 750 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- -----------------
CLASS A
Sold.................... 37,145 $ 140,503 71,858 $ 288,084
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (8,049) $ (31,061) (56,813) $ (213,898)
NET INCREASE............ 29,096 $ 109,442 15,045 $ 74,186
CLASS B
Sold.................... 22,342 $ 81,289 42,856 $ 174,005
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (59,970) $ (205,837) (92,065) $ (347,946)
NET DECREASE............ (37,628) $ (124,548) (49,209) $ (173,941)
CLASS C
Sold.................... 8,909 $ 33,097 29,530 $ 112,098
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (23,810) $ (82,932) (33,351) $ (131,469)
NET DECREASE............ (14,901) $ (49,835) (3,821) $ (19,371)
CLASS F
Sold.................... 541,846 $ 1,992,208 1,166,742 $ 4,906,800
Dividends or
Distributions
Reinvested............ 0 $ 0 27,018 $ 94,563
Redeemed................ (2,825,116) $ (10,299,158) (7,977,540) $ (32,490,968)
NET DECREASE............ (2,283,270) $ (8,306,950) (6,783,780) $ (27,489,605)
CLASS R
Sold.................... 21,704 $ 78,664 26,221 $ 110,661
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (15,432) $ (56,472) (20,676) $ (68,521)
NET INCREASE............ 6,272 $ 22,192 5,545 $ 42,140
CLASS T
Sold.................... 443 $ 1,580 1,045 $ 4,157
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (489) $ (1,889) (18,930) $ (65,015)
NET DECREASE............ (46) $ (309) (17,885) $ (60,858)
</Table>
32
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
33
<Page>
This page intentionally left blank.
34
<Page>
FOR MORE INFORMATION
DREYFUS FOUNDERS
GROWTH AND INCOME FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
2930 East Third Avenue
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
To obtain information:
- --------------------------------- Dreyfus Transfer, Inc.
BY TELEPHONE | 200 Park Avenue
Call your financial | New York, NY 10166
representative or |
1-800-554-4611 |
| DISTRIBUTOR
BY MAIL Write to: |
Dreyfus Founders Funds | Dreyfus Service Corporation
144 Glenn Curtiss Boulevard | 200 Park Avenue
Uniondale, NY 11556-0144 | New York, NY 10166
Dreyfus Founders Funds are managed by Founders Asset Management LLC.
Founders and Founders Funds are registered trademarks of Founders Asset
Management LLC.
(C)2003 Dreyfus Service Corporation 275SA0603
<Page>
DREYFUS FOUNDERS
INTERNATIONAL
EQUITY FUND
SEMIANNUAL REPORT JUNE 30, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(sm)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 16
Statement of Operations 18
Statements of Changes in Net Assets 19
Financial Highlights 20
Notes to Financial Statements 26
</Table>
The views expressed herein are current to the date of this report. The views
and the composition of the Fund's portfolio are subject to change at any time
based on market and other conditions. Companies appearing in bold print on
pages 3-8 were owned by the Fund on June 30, 2003. The amounts of these
holdings are included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF DANIEL B. LEVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, AND DANIEL B.
LEVAN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE SIX MONTHS ENDED JUNE
30?
The markets have seen a strong rebound during the first half of 2003. During the
period, the Dreyfus Founders International Equity Fund underperformed the 10.25%
return posted by its benchmark, the Morgan Stanley Capital International (MSCI)
World ex U.S. Index. The Fund, due to its focus on companies with sustainable
and quality earnings growth, was not exposed to the lower quality, weaker credit
companies which performed remarkably well during the period.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUNDS PERFORMANCE DURING THE PERIOD?
The market experienced two distinct environments during the half, which
separated neatly into calendar quarters. The first quarter was plagued by the
uncertainty over a potential war in Iraq as well as the onset of Severe Acute
Respiratory Syndrome (SARS) in Asia. Both factors weighed heavily upon already
stressed domestic and foreign equity markets. However, by the opening of the
second quarter, expectations for an economic
[SIDENOTE]
"UPON OUR MOVE INTO THE FUND'S MANAGEMENT POSITION, CHANGES THAT WE
IMPLEMENTED HAD A POSITIVE EFFECT ON THE FUND'S PERFORMANCE FOR THE REPORTING
PERIOD."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Markets worldwide experienced a mid-period boom for the half-year ended June
30, 2003 despite initial war and international health concerns.
- - Compelling growth opportunities were found in the healthcare and consumer
staples sectors.
- - Falling returns for French, Japanese and Swiss holdings dampened overall
performance.
- - Despite future economic uncertainty, the Fund continues to search for
companies capable of delivering both revenue and earnings growth at reasonable
valuations.
recovery and improving investor confidence helped advance performance, more than
offsetting the declines experienced in the first quarter. The market remained,
at the end of the period, on solid ground, posting substantial year-to-date
returns.
WHAT CHANGES WERE MADE TO THE FUND AFTER YOU TOOK THE HELM IN MARCH?
Upon our move into the Fund's management position, three major changes in
particular were perhaps the most influential. First, we sold sixty-five percent
of previously-held companies, while at the same time increased the number of
holdings in the Fund from 56 to 117 by the end of March. Second, we reduced the
weighted average price-to-earnings ratio from 14 to 12 times, and increased the
weighted average earnings growth from 9% to 13%. Finally, the weighted average
market capitalization decreased from $38.8 billion to $25.3 billion. These
adjustments proved to have a positive effect on Fund performance.
4
<Page>
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUNDS PERFORMANCE DURING THE
SIX-MONTH PERIOD?
Fund performance was driven by strong stock selection in the healthcare and
consumer staples sectors. In addition, good stock selection in the United
Kingdom and Italy boosted the Fund's performance relative to the benchmark.
One of the largest positive contributors to the Fund's performance was
from Canadian-based BIOVAIL CORPORATION, which posted a 78% return for the
first half of the year. Biovail's strong performance was due in part to
positive development news the company released concerning several drugs
currently in their pipeline.
Another global leader, which was a major positive contributor to the
Fund, was German software company SAP AG. A multinational company with a
leading position in the enterprise software business, SAP reported strong
first quarter numbers in the beginning of April. This increase in performance
was attributable to its license business exceeding expectations, as well as
positive growth in U.S. markets. The company was also able to reduce costs
significantly, which helped expand its operating margins.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Vodafone Group PLC (United Kingdom; VOD) 3.14%
2. SAP AG (Germany; SAP) 2.31%
3. BP PLC (United Kingdom; BP) 2.28%
4. HBOS PLC (United Kingdom; HBOS) 2.14%
5. Novartis AG (Switzerland; NOV) 1.94%
6. Royal Bank of Scotland Group PLC (United Kingdom; RBS) 1.94%
7. Canon, Inc. (Japan; 7751) 1.58%
8. Orange SA (France; OGE) 1.52%
9. Takeda Chemical Industries Limited (Japan; 4502) 1.50%
10. GlaxoSmithKline PLC (United Kingdom; GSK) 1.47%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
WHAT WERE THE LARGEST HINDRANCES TO THE FUNDS PERFORMANCE?
Disappointments in a few major holdings and weak stock selection in
underperforming markets hampered Fund performance. For example,
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares
a $10,000 investment made in Class F shares of Dreyfus Founders International
Equity Fund on its inception date of 12/29/95 to a $10,000 investment made in
an unmanaged securities index on that date. The Fund's performance assumes
the reinvestment of dividends and capital gain distributions, but does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or redemption of Fund shares. The Fund offers multiple classes
of shares. Performance shown is for Class F, which is open only to
grandfathered investors. The Fund's performance in the graph takes into
account all applicable Class F fees and expenses, subject to fee waivers and
expense limitations. These figures do not reflect the maximum sales charges
applicable to Class A, B, C, or T shares of the Fund. For these share
classes, applying these charges will result in lower returns for investors.
The MSCI World ex U.S. Index is an average of the performance of selected
securities listed on the stock exchanges of Europe, Canada, Australia, New
Zealand, and the Far East. The performance data for the MSCI World ex U.S. Index
is from December 31, 1995 through June 30, 2003. Total return figures for this
index assume change in share price and reinvestment of dividends after the
deduction of local taxes, but do not reflect the costs of managing a mutual
fund. Further information related to Fund performance is contained elsewhere in
this report.
6
<Page>
some of our positions in the information technology and financials sectors,
including India's Satyam Computer Services Limited and Britain's Amvescap PLC,
were detrimental to the Fund. Both of these holdings were sold once our tenure
began.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 0.66% (16.91%) -- -- (22.25%)
Without sales charge 6.82% (11.87%) -- -- (20.93%)
CLASS B SHARES (12/31/99)
With redemption* 2.54% (16.00%) -- -- (22.11%)
Without redemption 6.54% (12.50%) -- -- (21.51%)
CLASS C SHARES (12/31/99)
With redemption** 5.41% (13.40%) -- -- (21.57%)
Without redemption 6.41% (12.53%) -- -- (21.57%)
CLASS F SHARES (12/29/95) 7.10% (11.67%) (7.75%) N/A 1.60%
CLASS R SHARES (12/31/99) 7.06% (11.52%) -- -- (20.74%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 2.01% (15.88%) -- -- (22.14%)
Without sales charge 6.86% (11.89%) -- -- (21.11%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but does reflect the
reinvestment of dividends and capital gain distributions, expense limitations,
and adjustments for financial statement purposes. Part of the Fund's historical
performance is due to the purchase of securities sold in initial public
offerings (IPOs). There is no guarantee that the Fund's investments in IPOs, if
any, will continue to have a similar impact on performance. Investments in
foreign securities may entail unique risks, including political, market, and
currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
[CHART]
PORTFOLIO COMPOSITION
<Table>
25.03% United Kingdom
18.55% Japan
7.23% Germany
7.02% France
6.34% Switzerland
5.17% Canada
4.30% Spain
3.41% Australia
3.40% Cash & Equivalents
19.55% Other Countries
</Table>
The Fund's portfolio composition is subject to change, and there is no
assurance the Fund will continue to hold any particular security. Opinions
regarding sectors, industries, companies, and/or themes are those of the
portfolio managers and are subject to change at any time, based on market and
other conditions, and should not be construed as a recommendation of any
specific security.
Additionally, weak stock selection in three major foreign markets in
particular--France, Japan and Switzerland--curtailed the efforts of the Fund.
In conclusion, we will remain consistent in our approach to the Fund,
relying on our bottom-up research process to seek companies we believe are
capable of posting strong future revenue and earnings growth at valuations that
make sense. We will continue to look for companies with increasing business
momentum and strong underlying growth relative to their valuation.
/s/ Remi J. Browne /s/ Daniel B. LeVan
Remi J. Browne, CFA Daniel B. LeVan, CFA
Co-Portfolio Manager Co-Portfolio Manager
8
<Page>
This page intentionally left blank.
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-96.6%
AIRLINES-0.5%
64,600 British Airways (UK)*............................. $ 161,500
----------------
APPLICATION SOFTWARE-2.9%
7,400 Cognos, Inc. (CA)*................................ 198,615
6,300 SAP AG (GE)....................................... 737,942
----------------
936,557
----------------
AUTO PARTS & EQUIPMENT-1.2%
8,000 Canadian Tire Corporation Limited Class A (CA).... 191,345
11,000 NOK Corporation (JA).............................. 182,669
----------------
374,014
----------------
AUTOMOBILE MANUFACTURERS-2.4%
49,000 Nissan Motor Company Limited (JA)................. 468,474
6,700 PSA Peugeot Citroen (FR).......................... 325,459
----------------
793,933
----------------
BIOTECHNOLOGY-0.9%
2,400 Actelion Limited (SZ)*............................ 159,823
239 Serono SA (SZ).................................... 140,453
----------------
300,276
----------------
BREWERS-1.8%
30,000 Fraser & Neave Limited (SG)....................... 146,508
23,000 Kirin Brewery Company Limited (JA)................ 161,666
73,100 Lion Nathan Limited (AU).......................... 262,770
----------------
570,944
----------------
BROADCASTING & CABLE TV-0.6%
64,700 Seven Network Limited (AU)........................ 206,106
----------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMERCIAL PRINTING-0.6%
18,000 Dai Nippon Printing Company Limited (JA).......... $ 190,381
----------------
COMMUNICATIONS EQUIPMENT-1.1%
12,000 Nokia Oyj (FI).................................... 197,611
57,300 Nortel Networks Corporation (CA)*................. 153,497
----------------
351,108
----------------
COMPUTER STORAGE & PERIPHERALS-1.1%
9,100 Logitech International SA (SZ)*................... 341,292
----------------
CONSTRUCTION & ENGINEERING-1.1%
8,200 ACS, Actividades de Construccion y Servicios SA
(SP).............................................. 349,828
----------------
CONSTRUCTION MATERIALS-0.5%
51,300 Boral Limited (AU)*............................... 174,085
----------------
CONSUMER ELECTRONICS-2.1%
10,500 Pioneer Corporation (JA).......................... 236,102
34,000 Sharp Corporation (JA)............................ 436,344
----------------
672,446
----------------
CONSUMER FINANCE-0.6%
36,900 Bradford & Bingley PLC (UK)....................... 191,350
----------------
DIVERSIFIED BANKS-14.4%
8,800 ABN AMRO Holding NV (NE).......................... 168,259
11,400 Alliance & Leicester PLC (UK)..................... 156,139
26,700 Alpha Bank AE (GR)................................ 465,441
42,000 Anglo Irish Bank Corporation PLC (IE)............. 371,383
95,107 Banca Intesa SPA (IT)............................. 304,172
31,419 Barclays PLC (UK)................................. 233,309
8,807 BNP Paribas SA (FR)............................... 447,531
52,700 HBOS PLC (UK)..................................... 682,230
5,300 Jyske Bank SA (DE)*............................... 213,799
52 Mitsubishi Tokyo Financial Group, Inc. (JA)....... 235,153
22,034 Royal Bank of Scotland Group PLC (UK)............. 618,116
14,200 Skandinaviska Enskilda Banken (SW)................ 144,574
2,800 Societe Generale (FR)............................. 177,492
37,083 Standard Chartered PLC (UK)....................... 450,381
----------------
4,667,979
----------------
DIVERSIFIED CAPITAL MARKETS-0.6%
3,770 UBS AG (SZ)....................................... 209,723
----------------
DIVERSIFIED CHEMICALS-1.0%
7,500 BASF AG (GE)...................................... 319,103
----------------
DIVERSIFIED METALS & MINING-0.5%
29,200 BHP Billiton PLC (UK)............................. 153,710
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
ELECTRIC UTILITIES-2.7%
5,000 E.ON AG (GE)...................................... $ 256,373
25,938 Endesa SA (SP).................................... 434,286
4,500 Fortis, Inc. (CA)................................. 195,393
----------------
886,052
----------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.5%
23,000 Sumitomo Electric Industries Limited (JA)......... 167,987
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.0%
1,700 Keyence Corporation (JA).......................... 311,472
----------------
FOOD RETAIL-1.9%
6,600 Delhaize Group (BE)............................... 200,850
37,600 J Sainsbury PLC (UK).............................. 157,597
16,900 Metro, Inc. (CA).................................. 244,396
----------------
602,843
----------------
HEALTHCARE DISTRIBUTORS-0.5%
7,100 Suzuken Company Limited (JA)...................... 168,520
----------------
HEALTHCARE EQUIPMENT-0.7%
8,100 Getinge AB Class B (SW)........................... 215,025
----------------
HOME FURNISHINGS-0.5%
5,200 Hunter Douglas NV (NE)............................ 173,174
----------------
HOMEBUILDING-0.7%
33,400 Barratt Developments PLC (UK)..................... 238,099
----------------
HOUSEHOLD PRODUCTS-1.1%
19,550 Reckitt Benckiser PLC (UK)........................ 358,739
----------------
HOUSEWARES & SPECIALTIES-0.8%
6,200 Citizen Electronics Company Limited (JA).......... 270,564
----------------
HYPERMARKETS & SUPER CENTERS-0.5%
5,600 Metro AG (GE)..................................... 178,199
----------------
INDUSTRIAL CONGLOMERATES-2.0%
16,300 DCC PLC (IE)...................................... 219,006
37,000 Hutchison Whampoa Limited (HK).................... 225,375
71,000 Keppel Corporation Limited (SG)................... 197,558
----------------
641,939
----------------
INDUSTRIAL MACHINERY-0.5%
6,100 Saurer AG (SZ)*................................... 166,630
----------------
INTEGRATED OIL & GAS-5.3%
104,819 BP PLC (UK)....................................... 726,901
1,260 OMV AG (AT)....................................... 151,379
21,800 Repsol YPF SA (SP)................................ 353,486
50,450 Shell Transport & Trading Company PLC (UK)........ 333,003
978 Total SA (FR)..................................... 147,801
----------------
1,712,570
----------------
</Table>
12
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
INTEGRATED TELECOMMUNICATION SERVICES-6.8%
117,800 BT Group PLC (UK)................................. $ 396,068
11,100 Deutsche Telekom AG (GE)*......................... 169,024
41,700 Koninklijke NV (NE)*.............................. 295,463
9,600 NetCom AB Class B (SW)*........................... 356,781
74 Nippon Telegraph & Telephone Corporation (JA)..... 290,269
11,200 TDC AS Class B (DE)............................... 334,956
84,000 TeliaSonera AB (SW)............................... 348,387
----------------
2,190,948
----------------
IT CONSULTING & OTHER SERVICES-1.1%
10,300 Cap Gemini SA (FR)................................ 365,728
----------------
LEISURE PRODUCTS-0.5%
4,400 Bandai Company Limited (JA)....................... 167,828
----------------
OFFICE ELECTRONICS-1.6%
11,000 Canon, Inc. (JA).................................. 504,768
----------------
OIL & GAS DRILLING-0.7%
30,000 Saipem SPA (IT)................................... 224,621
----------------
OIL & GAS EQUIPMENT & SERVICES-0.7%
13,400 ProSafe ASA (NW)*................................. 243,184
----------------
OIL & GAS EXPLORATION & PRODUCTION-1.4%
34,800 Cairn Energy PLC (UK)*............................ 175,723
8,600 Penn West Petroleum Limited (CA)*................. 275,316
----------------
451,039
----------------
PACKAGED FOODS & MEATS-1.8%
19,000 Nisshin Seifun Group, Inc. (JA)................... 134,974
117,900 Parmalat Finaziaria SPA (IT)...................... 370,976
11,100 Viscofan SA (SP).................................. 86,424
----------------
592,374
----------------
PHARMACEUTICALS-10.7%
4,520 Altana AG (GE).................................... 282,889
7,750 AstraZeneca Group PLC (UK)........................ 310,767
4,368 Biovail Corporation (CA)*......................... 205,558
38,100 Galen Holdings PLC (UK)........................... 327,245
23,218 GlaxoSmithKline PLC (UK).......................... 468,574
15,659 Novartis AG (SZ).................................. 619,655
10,000 Ono Pharmaceuticals Company Limited (JA).......... 309,806
5,575 Sanofi-Synthelabo SA (FR)......................... 326,510
23,000 Shire Pharmaceuticals Group PLC (UK)*............. 151,815
13,000 Takeda Chemical Industries Limited (JA)........... 479,617
----------------
3,482,436
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
PRECIOUS METALS & MINERALS-0.6%
17,600 ThyssenKrupp AG (GE).............................. $ 201,709
----------------
PROPERTY & CASUALTY INSURANCE-2.1%
17,700 Kingsway Financial Services, Inc. (CA)*........... 212,978
74,000 QBE Insurance Group Limited (AU).................. 462,531
----------------
675,509
----------------
PUBLISHING-0.6%
26,200 Johnston Press PLC (UK)........................... 187,261
----------------
REAL ESTATE INVESTMENT TRUSTS-0.7%
100 Sumitomo Mitsui Financial Group, Inc. (JA)........ 218,197
----------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-4.0%
54,600 Cheung Kong (Holdings) Limited (CN)............... 328,380
196,000 Henderson Investment Limited (HK)................. 188,507
22,119 Inmobiliaria Urbis SA (SP)........................ 170,439
14,800 Land Securities PLC (UK).......................... 190,861
26,000 Mitsui Fudosan Company Limited (JA)............... 166,080
4,000 Wereldhave NV (NE)................................ 251,493
----------------
1,295,760
----------------
SEMICONDUCTORS-0.8%
13,300 Micronas Semiconductor Holding AG (SZ)*........... 268,062
----------------
SOFT DRINKS-0.5%
10,800 Kirin Beverage Corporation (JA)................... 162,259
----------------
SPECIALTY CHEMICALS-0.5%
2,500 Ciba Specialty Chemicals AG (SZ)*................. 151,347
----------------
THRIFTS & MORTGAGE FINANCE-1.4%
37,700 Northern Rock PLC (UK)............................ 443,566
----------------
TIRES & RUBBER-0.6%
9,400 Continental AG (GE)............................... 197,327
----------------
TRADING COMPANIES & DISTRIBUTORS-1.0%
45,000 Mitsubishi Corporation (JA)....................... 312,180
----------------
TRUCKING-0.5%
28,000 Seino Transportation Company Limited (JA)......... 160,200
----------------
WIRELESS TELECOMMUNICATION SERVICES-5.4%
72 KDDI Corporation (JA)............................. 278,826
54,600 Orange SA (FR)*................................... 484,678
511,775 Vodafone Group PLC (UK)........................... 1,000,750
----------------
1,764,254
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$27,143,355).................................................. 31,316,705
----------------
</Table>
14
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
AMORTIZED
PRINCIPAL AMOUNT COST
CORPORATE SHORT-TERM NOTES-1.2%
OTHER DIVERSIFIED FINANCIAL SERVICES-1.2%
$ 400,000 Merrill Lynch & Company
1.30% 7/1/03...................................... $ 400,000
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$400,000)........................................... 400,000
----------------
TOTAL INVESTMENTS-97.8%
(TOTAL COST-$27,543,355)............................................ 31,716,705
OTHER ASSETS AND LIABILITIES-2.2%................................... 702,534
----------------
NET ASSETS-100.0%................................................... $ 32,419,239
================
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $ 27,543,355
------------
Investment securities, at market.................. 31,716,705
Cash.............................................. 180,164
Foreign currency (cost $216,826).................. 216,830
Receivables:
Investment securities sold...................... 549,662
Capital shares sold............................. 191,187
Dividends....................................... 34,469
From adviser.................................... 46,098
From transfer agent............................. 536
Other assets...................................... 45,436
------------
Total Assets.................................. 32,981,087
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 454,099
Capital shares redeemed......................... 22,532
Advisory fees................................... 20,697
Shareholder servicing fees...................... 7,000
Accounting fees................................. 2,760
Distribution fees............................... 3,928
Custodian fees.................................. 7,654
Other........................................... 43,178
------------
Total Liabilities............................. 561,848
------------
Net Assets........................................ $ 32,419,239
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $ 70,032,858
Undistributed net investment income............... 308,062
Accumulated net realized loss from security
transactions (net of foreign taxes on Indian
investments of $59,078)......................... (42,099,998)
Net unrealized appreciation on investments and
foreign currency translation.................... 4,178,317
------------
Total......................................... $ 32,419,239
============
</Table>
16
<Page>
<Table>
Net Assets--Class A............................... $ 18,287,338
Shares Outstanding--Class A....................... 2,379,764
Net Asset Value, Redemption Price Per Share....... $ 7.68
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 8.15
Net Assets--Class B............................... $ 1,936,884
Shares Outstanding--Class B....................... 258,617
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 7.49
Net Assets--Class C............................... $ 473,309
Shares Outstanding--Class C....................... 63,323
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 7.47
Net Assets--Class F............................... $ 8,787,567
Shares Outstanding--Class F....................... 1,143,192
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 7.69
Net Assets--Class R............................... $ 2,791,266
Shares Outstanding--Class R....................... 361,028
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 7.73
Net Assets--Class T............................... $ 142,875
Shares Outstanding--Class T....................... 18,726
Net Asset Value, Redemption Price Per Share....... $ 7.63
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 7.99
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 594,834
Interest........................................ 11,119
Foreign taxes withheld.......................... (64,720)
------------
Total Investment Income....................... 541,233
------------
EXPENSES:
Advisory fees--Note 2........................... 156,510
Shareholder servicing fees--Note 2.............. 40,752
Accounting fees--Note 2......................... 15,651
Distribution fees--Note 2....................... 19,956
Transfer agency fees--Note 2.................... 57,732
Registration fees............................... 29,736
Postage and mailing expenses.................... 2,397
Custodian fees and expenses--Note 2............. 45,923
Printing expenses............................... 17,634
Legal and audit fees............................ 3,410
Directors' fees and expenses--Note 2............ 3,898
Other expenses.................................. 12,047
------------
Total Expenses................................ 405,646
Earnings Credits.............................. (788)
Reimbursed/Waived Expenses.................... (179,449)
Expense Offset to Broker Commissions.......... (70)
------------
Net Expenses.................................. 225,339
------------
Net Investment Income........................... 315,894
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security transactions (net of foreign taxes on
Indian investments of $59,078).................. (7,630,570)
Foreign currency transactions................... 2,604
------------
Net Realized Loss............................. (7,627,966)
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation... 9,561,006
------------
Net Realized and Unrealized Gain.................. 1,933,040
------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 2,248,934
============
Purchases of long-term securities................. $ 32,918,506
Proceeds from sales of long-term securities....... $ 35,137,920
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Income................... $ 315,894 $ 32,165
Net Realized Loss....................... (7,627,966) (5,583,604)
Net Change in Unrealized
Appreciation/Depreciation............. 9,561,006 (8,376,964)
----------- ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 2,248,934 (13,928,403)
----------- ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
From Net Investment Income
Class A............................... 0 (32,238)
Class F............................... 0 (15,146)
Class R............................... 0 (9,276)
----------- ------------
Net Decrease from Dividends and
Distributions......................... 0 (56,660)
----------- ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... (1,232,448) (3,344,747)
Class B............................... (375,373) (592,334)
Class C............................... (78,193) (629,053)
Class F............................... (1,133,871) (3,309,006)
Class R............................... 140,294 (2,588,838)
Class T............................... (49,748) (102,473)
----------- ------------
Net Decrease from Capital Share
Transactions.......................... (2,729,339) (10,566,451)
----------- ------------
Net Decrease in Net Assets.............. (480,405) (24,551,514)
NET ASSETS
Beginning of period................... $32,899,644 $ 57,451,158
----------- ------------
End of period......................... $32,419,239 $ 32,899,644
=========== ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 7.19 $ 10.03 $ 14.42 $ 19.88
Income from investment
operations:
Net investment income
(loss).................. 0.08 0.01 0.00+ (0.03)
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.41 (2.84) (4.39) (3.53)
------- ------- ------- -------
Total from investment
operations.......... 0.49 (2.83) (4.39) (3.56)
Less distributions:
From net investment
income.................. 0.00 (0.01) 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.90)
------- ------- ------- -------
Total distributions... 0.00 (0.01) 0.00 (1.90)
Net Asset Value, end of
period...................... $ 7.68 $ 7.19 $ 10.03 $ 14.42
======= ======= ======= =======
Total Return/Ratios
Total return*............. 6.82% (28.19%) (30.44%) (17.60%)
Net assets, end of period
(000s).................. $18,287 $18,217 $29,151 $ 4,434
Net expenses to average
net assets#,+........... 1.40%** 1.40% 1.44% 1.77%
Gross expenses to average
net assets#,+........... 1.41%** 1.40% 1.46% 1.82%
Net investment income
(loss) to average net
assets+................. 2.07%** 0.13% (0.74%) (0.36%)
Portfolio turnover
rate@................... 133% 220% 213% 184%
</Table>
+ Net investment loss for the year ended December 31, 2001 aggregated less
than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 2.55% (2003), 2.18% (2002) and 1.76% (2001).
The gross expense ratios would have been 2.56% (2003), 2.18% (2002) and
1.78% (2001). The net investment income (loss) ratios would have been 0.92%
(2003), (0.65%) (2002) and (1.06%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of period....... $ 7.03 $ 9.87 $ 14.29 $ 19.88
Income from investment operations:
Net investment (loss).................. (0.02) (0.11) (0.12) (0.09)
Net gains (losses) on securities (both
realized and unrealized)............. 0.48 (2.73) (4.30) (3.60)
------ ------- ------- -------
Total from investment operations... 0.46 (2.84) (4.42) (3.69)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (1.90)
Net Asset Value, end of period............. $ 7.49 $ 7.03 $ 9.87 $ 14.29
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 6.54% (28.77%) (30.93%) (18.27%)
Net assets, end of period (000s)....... $1,937 $ 2,201 $ 3,786 $ 5,129
Net expenses to average net
assets#,+............................ 2.15%** 2.15% 2.26% 2.52%
Gross expenses to average net
assets#,+............................ 2.16%** 2.16% 2.28% 2.57%
Net investment income (loss) to average
net assets+.......................... 1.29%** (0.61%) (1.03%) (1.18%)
Portfolio turnover rate@............... 133% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.33% (2003), 2.90% (2002) and 2.65%.
(2001). The gross expense ratios would have been 3.34% (2003), 2.91% (2002)
and 2.67% (2001). The net investment income (loss) ratios would have been
0.11% (2003), (1.36%) (2002) and (1.42%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of period....... $ 7.02 $ 9.86 $ 14.27 $ 19.88
Income from investment operations:
Net investment (loss).................. (0.06) (0.29) (0.16) (0.07)
Net gains (losses) on securities (both
realized and unrealized)............. 0.51 (2.55) (4.25) (3.64)
------ ------- ------- -------
Total from investment operations... 0.45 (2.84) (4.41) (3.71)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (1.90)
Net Asset Value, end of period............. $ 7.47 $ 7.02 $ 9.86 $ 14.27
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 6.41% (28.80%) (30.90%) (18.37%)
Net assets, end of period (000s)....... $ 473 $ 532 $ 1,429 $ 2,635
Net expenses to average net
assets#,+............................ 2.15%** 2.15% 2.26% 2.50%
Gross expenses to average net
assets#,+............................ 2.16%** 2.16% 2.29% 2.55%
Net investment income (loss) to average
net assets+.......................... 1.30%** (0.63%) (0.99%) (1.18%)
Portfolio turnover rate@............... 133% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.31% (2003), 3.10% (2002) and 2.83% (2001).
The gross expense ratios would have been 3.32% (2003), 3.11% (2002) and
2.85% (2001). The net investment income (loss) ratios would have been 0.14%
(2003), (1.58%) (2002) and (1.56%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 7.18 $ 10.03 $ 14.40 $ 19.87 $ 14.03 $ 12.05
Income from investment operations:
Net investment income (loss)........... 0.04 (0.05) (0.07) (0.08) (0.05) 0.03
Net gains (losses) on securities (both
realized and unrealized)............. 0.47 (2.79) (4.30) (3.49) 8.07 2.02
------ ------- -------- -------- ------- -------
Total from investment operations... 0.51 (2.84) (4.37) (3.57) 8.02 2.05
Less distributions:
From net investment income............. 0.00 (0.01) 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90) (2.18) (0.07)
------ ------- -------- -------- ------- -------
Total distributions................ 0.00 (0.01) 0.00 (1.90) (2.18) (0.07)
Net Asset Value, end of period............. $ 7.69 $ 7.18 $ 10.03 $ 14.40 $ 19.87 $ 14.03
====== ======= ======== ======== ======= =======
Total Return/Ratios
Total return........................... 7.10% (28.30%) (30.35%) (17.65%) 58.71% 17.01%
Net assets, end of period (000s)....... $8,788 $ 9,321 $ 16,640 $ 30,040 $35,607 $18,938
Net expenses to average net
assets#,+............................ 1.40%** 1.40% 1.52% 1.80% 1.80% 1.80%
Gross expenses to average net
assets#,+............................ 1.41%** 1.40% 1.55% 1.84% 1.82% 1.83%
Net investment income (loss) to average
net assets+.......................... 2.03%** 0.12% (0.26%) (0.55%) (0.36%) 0.02%
Portfolio turnover rate@............... 133% 220% 213% 184% 205% 148%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates.
Had these fees not been reimbursed, the net expense ratios would have been
2.59% (2003), 2.13% (2002), 1.96% (2001), 1.91% (2000), 1.97% (1999), and
1.89% (1998). The gross expense ratios would have been 2.60% (2003), 2.13%
(2002), 1.99% (2001), 1.95% (2000), 1.99% (1999), and 1.92% (1998). The net
investment income (loss) ratios would have been 0.84% (2003), (0.61%)
(2002), (0.70%) (2001), (0.66%) (2000), (0.53%) (1999), and (0.07%) (1998).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of period....... $ 7.22 $ 10.08 $ 14.45 $ 19.88
Income from investment operations:
Net investment income (loss)........... 0.08 0.02 0.00+ (0.01)
Net gains (losses) on securities (both
realized and unrealized)............. 0.43 (2.85) (4.37) (3.52)
------ ------- ------- -------
Total from investment operations... 0.51 (2.83) (4.37) (3.53)
Less distributions:
From net investment income............. 0.00 (0.03) 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90)
------ ------- ------- -------
Total distributions................ 0.00 (0.03) 0.00 (1.90)
Net Asset Value, end of period............. $ 7.73 $ 7.22 $ 10.08 $ 14.45
====== ======= ======= =======
Total Return/Ratios
Total return........................... 7.06% (28.10%) (30.24%) (17.45%)
Net assets, end of period (000s)....... $2,791 $ 2,470 $ 6,102 $ 2,716
Net expenses to average net
assets#,+............................ 1.15%** 1.15% 1.26% 1.53%
Gross expenses to average net
assets#,+............................ 1.15%** 1.16% 1.28% 1.63%
Net investment income (loss) to average
net assets+.......................... 2.31%** 0.27% (0.04%) (0.40%)
Portfolio turnover rate@............... 133% 220% 213% 184%
</Table>
+ Net investment loss for the year ended December 31, 2001 aggregated less
than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 2.02% (2003), 1.70% (2002) and 1.55% (2001).
The gross expense ratios would have been 2.02% (2003), 1.71% (2002) and
1.57% (2001). The net investment income (loss) ratios would have been 1.44%
(2003), (0.28%) (2002) and (0.33%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of period....... $ 7.14 $ 9.97 $ 14.37 $ 19.88
Income from investment operations:
Net investment income (loss)........... 0.04 (0.10) (0.09) (0.06)
Net gains (losses) on securities (both
realized and unrealized)............. 0.45 (2.73) (4.31) (3.55)
------ ------- ------- -------
Total from investment operations... 0.49 (2.83) (4.40) (3.61)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (1.90)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (1.90)
Net Asset Value, end of period............. $ 7.63 $ 7.14 $ 9.97 $ 14.37
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 6.86% (28.39%) (30.62%) (17.85%)
Net assets, end of period (000s)....... $ 143 $ 158 $ 343 $ 654
Net expenses to average net
assets#,+............................ 1.65%** 1.65% 1.77% 1.98%
Gross expenses to average net
assets#,+............................ 1.66%** 1.65% 1.80% 2.03%
Net investment income (loss) to average
net assets+.......................... 1.72%** (0.12%) (0.53%) (0.70%)
Portfolio turnover rate@............... 133% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company and its affiliates
for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.21% (2003), 4.00% (2002) and 2.83% (2001).
The gross expense ratios would have been 3.22% (2003), 4.00% (2002) and
2.86% (2001). The net investment income (loss) ratios would have been 0.16%
(2003), (2.47%) (2002) and (1.59%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders International Equity Fund (the "Fund"). The Fund offers
Class A, Class B, Class C, Class F, Class R, and Class T shares. Class A and
Class T shares are subject to a sales charge imposed at the time of purchase,
Class B shares are subject to a contingent deferred sales charge ("CDSC")
imposed on Class B share redemptions made within six years of purchase, Class C
shares are subject to a CDSC imposed on Class C shares redeemed within one year
of purchase, and Class F and Class R shares are sold at net asset value per
share (with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
26
<Page>
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
normally invests a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2003 for settling foreign trades is listed on
the Statement of Assets and Liabilities.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The
28
<Page>
fee is 1.00% of the first $250 million of net assets, 0.80% of the next $250
million of net assets, and 0.70% of net assets in excess of $500 million.
Founders has agreed to waive a portion of its management fee and to limit the
total expenses of the Fund. Founders agreed to waive that portion of its
management fee that exceeds 0.75% of the Fund's average net assets and to limit
the annual expenses of the Fund (net of credits received from the Fund's
custodian) to 1.40% for Class A and Class F shares, 2.15% for Class B and
Class C shares, 1.15% for Class R shares, and 1.65% for Class T shares. These
reductions are made pursuant to a permanent contractual commitment. For the six
months ended June 30, 2003, $172,177 was reimbursed to the Fund by Founders
pursuant to this provision.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$4,772 and $10,586, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $1,694 and $3,228, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $ 38,346
Class B..................................................... $ 4,634
Class C..................................................... $ 1,030
Class R..................................................... $ 1,760
Class T..................................................... $ 674
</Table>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $10,659 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
30
<Page>
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $22,140
Class B................................. $7,319 $ 2,440
Class C................................. $1,746 $ 582
Class T................................. $ 232 $ 232
</Table>
During the six months ended June 30, 2003, DSC retained $16,358 and $6 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $13,847 and $189 of contingent deferred sales charges relating
to redemptions of Class B and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the average daily net assets of the Fund on the first $500 million,
0.065% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the average daily net assets of the Fund in excess of $1 billion, plus
reasonable out-of-pocket expenses. Founders has agreed to waive any fees
received for these services to the extent they exceed Founders' costs in
providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $7,272. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
offset future realized capital gains and thereby reduce future taxable gains
distributions. The utilization of acquired losses may be limited under federal
tax laws. Post-October 31 foreign currency losses noted below, if any, may be
used to offset future net investment income and thereby reduce future ordinary
income distributions. These carryovers expire between December 31, 2007 and
December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income............................... $ 51,376
Accumulated Capital Losses.................................. $ 32,278,870
Post-October Capital Loss Deferral.......................... $ 1,940,686
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $ 27,650,900
Gross Tax Appreciation of Investments....................... $ 4,511,981
Gross Tax Depreciation of Investments....................... $ (446,176)
Net Tax Appreciation........................................ $ 4,065,805
</Table>
32
<Page>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------------- ---------- ------------
CLASS A
Sold.................... 582,061 $ 4,176,010 4,149,772 $ 34,712,760
Dividends or
Distributions
Reinvested............ 0 $ 0 4,234 $ 30,237
Redeemed................ (737,546) $ (5,408,458) (4,523,803) $(38,087,744)
NET DECREASE............ (155,485) $ (1,232,448) (369,797) $ (3,344,747)
CLASS B
Sold.................... 59,952 $ 405,324 144,790 $ 1,041,200
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (114,438) $ (780,697) (215,227) $ (1,633,534)
NET DECREASE............ (54,486) $ (375,373) (70,437) $ (592,334)
CLASS C
Sold.................... 145,298 $ 967,094 27,418 $ 241,026
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (157,841) $ (1,045,287) (96,541) $ (870,079)
NET DECREASE............ (12,543) $ (78,193) (69,123) $ (629,053)
CLASS F
Sold.................... 1,111,552 $ 7,908,835 1,879,837 $ 15,539,534
Dividends or
Distributions
Reinvested............ 0 $ 0 1,997 $ 14,235
Redeemed................ (1,266,578) $ (9,042,706) (2,242,842) $(18,862,775)
NET DECREASE............ (155,026) $ (1,133,871) (361,008) $ (3,309,006)
CLASS R
Sold.................... 85,542 $ 602,075 280,113 $ 2,397,887
Dividends or
Distributions
Reinvested............ 0 $ 0 1,130 $ 8,099
Redeemed................ (66,477) $ (461,781) (544,644) $ (4,994,824)
NET INCREASE
(DECREASE)............ 19,065 $ 140,294 (263,401) $ (2,588,838)
CLASS T
Sold.................... 97,416 $ 651,194 291 $ 2,419
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (100,835) $ (700,942) (12,536) $ (104,892)
NET DECREASE............ (3,419) $ (49,748) (12,245) $ (102,473)
</Table>
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
34
<Page>
FOR MORE INFORMATION
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
2930 East Third Avenue
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
To obtain information:
- --------------------------------- Dreyfus Transfer, Inc.
BY TELEPHONE | 200 Park Avenue
Call your financial | New York, NY 10166
representative or |
1-800-554-4611 |
| DISTRIBUTOR
BY MAIL Write to: |
Dreyfus Founders Funds | Dreyfus Service Corporation
144 Glenn Curtiss Boulevard | 200 Park Avenue
Uniondale, NY 11556-0144 | New York, NY 10166
Dreyfus Founders Funds are managed by Founders Asset Management LLC.
Founders and Founders Funds are registered trademarks of Founders Asset
Management LLC.
(C)2003 Dreyfus Service Corporation 360SA0603
<Page>
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
SEMIANNUAL REPORT JUNE 30, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(sm)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 15
Statement of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Notes to Financial Statements 25
</Table>
The views expressed herein are current to the date of this report. The views
and the composition of the Funds portfolio are subject to change at any time
based on market and other conditions. Companies appearing in bold print on
pages 3-9 were owned by the Fund on June 30, 2003. The amounts of these
holdings are included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF KEVIN SONNETT]
A DISCUSSION WITH PORTFOLIO
MANAGER KEVIN SONNETT, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS
BENCHMARK IN THE SIX MONTHS ENDED JUNE 30?
Equities faced a difficult market environment during the first part of the
period, as a weaker-than-expected economy, coupled with geopolitical
uncertainty, resulted in a stall for both consumer and business discretionary
spending. However, by mid-March the situation in Iraq began to stabilize, which
contributed to a rally in the equity markets that continued throughout the
period. In the first six months of the year, the Mid-Cap Growth Fund
underperformed its benchmark, the Russell Midcap Growth Index, which posted an
18.74% return in the first half.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE?
While it is always difficult to pinpoint the precise drivers of market
performance, we can speculate on some contributing factors. The first half of
2003 saw geopolitical uncertainty in Iraq subside, and the market respond with a
rally that lasted through the period. Further, after years of disappointing
investors, public companies finally began to set realistic revenue and profit
expectations. Generally-stable business conditions, aggressive
[SIDENOTE]
"WHILE MUCH OF THE FUND'S GAIN WAS MARKET-DRIVEN, MANY INDIVIDUAL
INVESTMENT DECISIONS CONTRIBUTED TO OVERALL PERFORMANCE."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - An improving economic environment proved a strong foundation for stocks
during the first half of the year.
- - The Fund underperformed its benchmark, the Russell Midcap Growth Index,
during the first six months of 2003.
- - The Fund's weighting in healthcare stocks was roughly comparable to the
Index, but many individual holdings performed significantly better than
those in the benchmark.
- - While most of the Fund's technology holdings performed well during the
period, an underweight position, as well as poor performance from a few
stocks in this sector, dampened the Funds relative performance.
cost-cutting measures, a weak U.S. dollar and lower interest rates also allowed
many companies to meet or beat earnings forecasts. More attractive valuations
began to appear, with higher profits and lower stock prices. And, after numerous
rate cuts, the Federal Open Market Committee encouraged consumers to borrow and
spend, and businesses to invest in new capital equipment, enhancing the case for
strong future profits. Moreover, poorly yielding savings alternatives led
investors to equities. Lower income tax, capital gain and dividend tax rates
also served to make stocks more attractive to investors, compared to other asset
classes.
WHAT WERE THE PRIMARY DRIVERS BEHIND
THE FUND'S PERFORMANCE DURING THE PERIOD?
While much of the Fund's gain was market-driven, many individual investment
decisions contributed to overall performance. Favorable stock selection in the
Fund's healthcare investments, the Fund's largest sector during the period,
boosted performance.
Rising healthcare costs are currently forcing businesses, governments and
consumers to grapple with these sometimes double-digit increases. The Fund holds
stocks in many companies that provide solutions to rising healthcare costs by
developing less expensive systems and products, and providing cheaper yet
high-quality health services. Pharmacy Benefit
4
<Page>
Managers CAREMARK RX, INC. and EXPRESS SCRIPTS, INC., two such holdings,
implement services such as formularies to improve the effectiveness and safety
of prescription drug use, while reducing the costs of the overall plan. During
the six-month period, Caremark rose 58%, while Express Scripts saw an increase
of 42%, both heavily contributing to the Fund's overall performance in this
sector.
Other examples of positive contributors to Fund performance in the
healthcare sector include BARR LABORATORIES, INC., and TEVA PHARMACEUTICAL
INDUSTRIES LIMITED, which both specialize in the development and marketing of
generic drugs. Sales and earnings results and future expectations continued to
rise for these companies as many types of pharmaceutical buyers begin choosing
less costly but equally effective generic drugs over their branded counterparts.
Note should also be made to the performance of INTERNATIONAL GAME
TECHNOLOGY. The developer and marketer of electronic casino games benefited from
the cashless trend in gaming that allows casino operators to create a higher
profit from each game played, through reduced downtime and faster play.
A final notable positive contributor to Fund performance was LENNAR
CORPORATION, a homebuilder that is reaping the benefits of record-low mortgage
rates and an increase in demand for new housing.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Barr Laboratories, Inc. (BRL) 2.45%
2. International Game Technology (IGT) 2.31%
3. Ross Stores, Inc. (ROST) 2.30%
4. CDW Corporation (CDWC) 2.29%
5. Caremark Rx, Inc. (CMX) 2.23%
6. AutoZone, Inc. (AZO) 2.23%
7. Brinker International, Inc. (EAT) 2.14%
8. DENTSPLY International, Inc. (XRAY) 2.12%
9. Affiliated Computer Services, Inc. (ACS) 2.12%
10. Teva Pharmaceutical Industries Limited (TEVA) 2.11%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
WHAT FACTORS HINDERED THE FUND'S PERFORMANCE?
Despite the recent market rally, the Fund's investment style faced a significant
headwind in the first half of 2003. Many of the strongest performing equities
during the period were companies we consider to be relatively low quality. By
low quality, we are referring to companies that, for example, are not profitable
or have demonstrated very inconsistent historical results. Companies that
produce strong earnings but poor cash flow, or those that have a history of
repeated "non-recurring" write-offs,
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Mid-Cap Growth
Fund on 6/30/93 to a $10,000 investment made in an unmanaged securities index on
that date. The Fund's performance assumes the reinvestment of dividends and
capital gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Russell Midcap Growth Index measures the performance of the 800
smallest companies in the Russell 1000 Index with higher price-to-book ratios
and higher forecasted growth values. The Russell 1000 Index measures the
performance of the largest 1,000 publicly traded U.S. companies. The total
return figures cited for this index assume change in security prices and
reinvestment of dividends, but do not reflect the costs of managing a mutual
fund. Further information related to Fund performance is contained elsewhere in
this report.
6
<Page>
also fall into this category. Despite these characteristics, stocks of these
firms generally performed better than the consistent, truly profitable growth
companies we favored during the period. Since the market lows in October of
2002, these lower quality companies enjoyed dramatic rebounds in their stock
price and led the market. In some cases, these rebounds were a result of
unfairly depressed valuations. In others, increased market confidence in the
company's financial viability, or simply investors returning to the big winners
of the late 1990s, hoping for another round of out-sized gains, were the impetus
for the stock's pricing.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 8.03% (7.21%) -- -- (18.54%)
Without sales charge 14.73% (1.66%) -- -- (17.15%)
CLASS B SHARES (12/31/99)
With redemption* 10.17% (5.95%) -- -- (18.00%)
Without redemption 14.17% (2.03%) -- -- (17.54%)
CLASS C SHARES (12/31/99)
With redemption** 13.40% (3.03%) -- -- (17.86%)
Without redemption 14.40% (2.05%) -- -- (17.86%)
CLASS F SHARES (9/8/61) 14.89% (1.31%) (8.30%) 2.76% N/A
CLASS R SHARES (12/31/99) 14.94% (0.99%) -- -- (16.85%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 9.13% (7.12%) -- -- (18.91%)
Without sales charge 14.34% (2.71%) -- -- (17.84%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions, expense limits for
certain share classes, and adjustments for financial statement purposes. Part of
the Fund's year-to-date performance is due to amounts received from class action
settlements regarding prior Fund holdings. There is no guarantee that these
settlement distributions will occur in the future or have a similar impact on
performance. Part of the Fund's historical performance is due to the purchase of
securities sold in initial public offerings (IPOs). There is no guarantee that
the Fund's investments in IPOs, if any, will continue to have a similar impact
on performance. There are risks associated with mid-cap investing, such as
limited product lines, less liquidity, and small market share.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
Many of these lower quality companies are in the technology and
telecommunications sectors, as well as biotechnology and internet retail areas,
and accounted for more than half of the Index's return during the six-month
timeframe. While almost 20% of the Fund was invested in technology during the
period, our tendency to invest in high-quality companies with strong cash flows
and high returns on investments often steers us away from the lower quality
companies in these industries. In addition, we believe many of these lower
quality stocks are pricing in unrealistic expectations, and we remain
disciplined to our bottom-up investment strategy of searching for companies with
the strongest secular profit growth potential at reasonable valuations.
Although several of the Fund's technology holdings performed well on an
absolute basis, an underweight position in technology and telecommunications, as
well as poor performance from some stock selections in these areas, dampened the
Fund's performance relative to the Index. For example, Tech Data Corporation, a
distributor of technology-related products, faced aggressive pricing among its
main competitors, as well as vendors who are attempting to sell directly to end
PORTFOLIO COMPOSITION
<Table>
23.49% Healthcare
22.79% Consumer Discretionary
19.42% Information Technology
13.23% Industrials
8.83% Financials
4.54% Energy
2.24% Consumer Staples
2.15% Materials
0.37% Telecommunications Services
2.94% Cash & Equivalents
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
8
<Page>
customers. Due to these factors, Tech Data posted disappointing financial
performance and the stock suffered as a result, posting a 1% loss during the
period.
Our investment in Cephalon, Inc., a biotech company with products that
treat narcolepsy and reduce pain, was also a hindrance to Fund performance,
falling 15.7% over the period. Sales of the company's leading daytime sleepiness
drug, Provigal, fell short of expectations leading to weaker-than-expected
profits.
The Fund's cash position, which averaged around 3% during the period,
created an additional impediment to increased performance as compared to the
fully invested Index.
Stock performance in the Fund's consumer discretionary sector also lagged
the benchmark. Darden Restaurants, Inc., one such weak performing holding in the
sector, was forced to lower its full-year forecast after sub-par performance by
its key concept restaurants, Red Lobster and Olive Garden.
Finally, the Fund was overweight the industrials sector during the period,
as many attractive companies had been identified and added to this area.
Unfortunately, the holdings did not perform well compared to the strong gains of
other sectors during first six months of the year, as investors instead
displayed their preference for riskier beneficiaries of a better economy.
As we prepare for the next six-month period, our strategy for the Fund remains
consistent. We will continue to search one-by-one for great mid-cap companies
with strong, secular profit opportunities. We will also place an emphasis on
management quality, businesses with high returns and significant competitive
advantages, strong free cash flow and reasonable valuations.
/s/ Kevin Sonnett
Kevin Sonnett, CFA
Portfolio Manager
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-92.2%
AEROSPACE & DEFENSE-0.6%
10,875 General Dynamics Corporation...................... $ 788,438
-------------
AIR FREIGHT & LOGISTICS-1.5%
21,750 C.H. Robinson Worldwide, Inc...................... 773,430
36,043 Expeditors International of Washington, Inc....... 1,248,530
-------------
2,021,960
-------------
APPAREL RETAIL-2.3%
72,547 Ross Stores, Inc.................................. 3,100,659
-------------
APPAREL, ACCESSORIES & LUXURY GOODS-0.3%
8,000 Coach, Inc.*...................................... 397,920
-------------
APPLICATION SOFTWARE-3.8%
91,300 BEA Systems, Inc.*................................ 991,518
167,400 Cadence Design Systems, Inc.*..................... 2,018,844
22,675 Mercury Interactive Corporation*.................. 875,482
43,365 Reynolds and Reynolds Company..................... 1,238,504
-------------
5,124,348
-------------
ASSET MANAGEMENT & CUSTODY BANKS-3.2%
59,300 Federated Investors, Inc. Class B................. 1,626,006
85,800 SEI Investments Company........................... 2,745,600
-------------
4,371,606
-------------
BIOTECHNOLOGY-0.9%
21,075 Gilead Sciences, Inc.*............................ 1,171,349
-------------
BROADCASTING & CABLE TV-1.3%
74,525 Cox Radio, Inc. Class A*.......................... 1,722,273
-------------
BUILDING PRODUCTS-1.5%
81,875 Masco Corporation................................. 1,952,719
-------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
CASINOS & GAMING-2.3%
30,500 International Game Technology*.................... $ 3,121,065
-------------
COMMUNICATIONS EQUIPMENT-1.4%
62,975 NetScreen Technologies, Inc.*..................... 1,420,086
36,450 Polycom, Inc.*.................................... 505,197
-------------
1,925,283
-------------
COMPUTER & ELECTRONICS RETAIL-0.5%
15,650 Best Buy Company, Inc.*........................... 687,348
-------------
COMPUTER STORAGE & PERIPHERALS-1.3%
37,200 QLogic Corporation*............................... 1,797,876
-------------
CONSUMER ELECTRONICS-1.1%
19,175 Harman International Industries, Inc.............. 1,517,510
-------------
DATA PROCESSING & OUTSOURCED SERVICES-5.1%
62,660 Affiliated Computer Services, Inc. Class A*....... 2,865,442
72,050 BISYS Group, Inc.*................................ 1,323,559
76,750 Fiserv, Inc.*..................................... 2,733,068
-------------
6,922,069
-------------
DIVERSIFIED BANKS-0.6%
19,975 TCF Financial Corporation......................... 795,804
-------------
DIVERSIFIED COMMERCIAL SERVICES-2.2%
88,589 ARAMARK Corporation Class B*...................... 1,986,165
26,600 Cintas Corporation................................ 942,704
-------------
2,928,869
-------------
ELECTRONIC EQUIPMENT MANUFACTURERS-0.8%
18,175 National Instruments*............................. 686,652
14,500 Waters Corporation*............................... 422,385
-------------
1,109,037
-------------
ELECTRONIC MANUFACTURING SERVICES-0.5%
23,650 Molex, Inc........................................ 638,314
-------------
ENVIRONMENTAL SERVICES-0.9%
52,925 Republic Services, Inc.*.......................... 1,199,810
-------------
FOOD DISTRIBUTORS-1.7%
77,925 Sysco Corporation................................. 2,340,867
-------------
FOOD RETAIL-0.5%
33,650 Safeway, Inc.*.................................... 688,479
-------------
GENERAL MERCHANDISE STORES-1.7%
73,625 Dollar Tree Stores, Inc.*......................... 2,336,121
-------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
HEALTHCARE DISTRIBUTORS-2.8%
24,275 AmerisourceBergen Corporation..................... $ 1,683,471
44,825 Patterson Dental Company*......................... 2,034,159
-------------
3,717,630
-------------
HEALTHCARE EQUIPMENT-5.7%
49,875 Biomet, Inc....................................... 1,429,418
36,775 Boston Scientific Corporation*.................... 2,246,953
70,112 DENTSPLY International, Inc....................... 2,867,581
18,825 St. Jude Medical, Inc.*........................... 1,082,438
-------------
7,626,390
-------------
HEALTHCARE SERVICES-4.1%
117,375 Caremark Rx, Inc.*................................ 3,014,190
37,800 Express Scripts, Inc. Class A*.................... 2,582,496
-------------
5,596,686
-------------
HOME FURNISHINGS-1.5%
50,025 Leggett & Platt, Inc.............................. 1,025,513
18,275 Mohawk Industries, Inc.*.......................... 1,014,811
-------------
2,040,324
-------------
HOMEBUILDING-1.0%
18,450 Lennar Corporation................................ 1,319,175
-------------
HOTELS, RESORTS & CRUISE LINES-0.8%
86,450 Hilton Hotels Corporation......................... 1,105,696
-------------
INDUSTRIAL CONGLOMERATES-1.8%
35,830 Danaher Corporation............................... 2,438,232
-------------
INDUSTRIAL GASES-1.0%
21,350 Praxair, Inc...................................... 1,283,135
-------------
INDUSTRIAL MACHINERY-1.6%
33,095 ITT Industries, Inc............................... 2,166,399
-------------
LEISURE FACILITIES-1.0%
58,975 Royal Caribbean Cruises Limited................... 1,365,861
-------------
LEISURE PRODUCTS-0.6%
12,125 Polaris Industries, Inc........................... 744,475
-------------
MANAGED HEALTHCARE-3.8%
27,125 Anthem, Inc.*..................................... 2,092,694
13,050 PacifiCare Health Systems, Inc.*.................. 643,757
27,575 WellPoint Health Networks, Inc.*.................. 2,324,573
-------------
5,061,024
-------------
METAL & GLASS CONTAINERS-1.2%
35,600 Ball Corporation.................................. 1,620,156
-------------
</Table>
12
<Page>
<Table>
- -----------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
OIL & GAS EQUIPMENT & SERVICES-3.0%
55,700 BJ Services Company*.............................. $ 2,080,952
54,600 Smith International, Inc.*........................ 2,006,004
-------------
4,086,956
-------------
OIL & GAS EXPLORATION & PRODUCTION-1.5%
31,426 Apache Corporation................................ 2,044,576
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES-2.6%
40,250 Ambac Financial Group, Inc........................ 2,666,563
64,500 Friedman, Billings, Ramsey Group, Inc............. 864,300
-------------
3,530,863
-------------
PHARMACEUTICALS-4.2%
50,450 Barr Laboratories, Inc.*.......................... 3,304,475
43,600 Forest Laboratories, Inc.*........................ 2,387,100
-------------
5,691,575
-------------
PUBLISHING-4.0%
7,800 E.W. Scripps Company.............................. 692,016
52,625 Getty Images, Inc.*............................... 2,173,413
21,925 McClatchy Company................................. 1,263,319
27,975 New York Times Company............................ 1,272,863
-------------
5,401,611
-------------
RESTAURANTS-2.1%
80,200 Brinker International, Inc.*...................... 2,888,804
-------------
SEMICONDUCTORS-0.8%
33,350 National Semiconductor Corporation*............... 657,662
30,650 Semtech Corporation*.............................. 436,456
-------------
1,094,118
-------------
SPECIALIZED FINANCE-1.0%
25,350 Moody's Corporation............................... 1,336,199
-------------
SPECIALTY STORES-2.2%
39,675 AutoZone, Inc.*................................... 3,014,110
-------------
SYSTEMS SOFTWARE-1.0%
20,600 Adobe Systems, Inc................................ 660,642
32,100 Macrovision Corporation*.......................... 639,432
-------------
1,300,074
-------------
TECHNOLOGY DISTRIBUTORS-2.3%
67,375 CDW Corporation*.................................. 3,085,775
-------------
THRIFTS & MORTGAGE FINANCE-1.0%
48,031 New York Community Bancorp, Inc................... 1,397,222
-------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -----------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS-1.7%
38,775 Fastenal Company.................................. $ 1,316,024
21,660 W.W. Grainger, Inc................................ 1,012,822
-------------
2,328,846
-------------
TRUCKING-1.5%
53,650 J.B. Hunt Transport Services, Inc.*............... 2,025,288
-------------
WIRELESS TELECOMMUNICATION SERVICES-0.4%
27,425 Nextel Communications, Inc.*...................... 495,844
-------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$108,349,456)................................................. 124,466,768
-------------
COMMON STOCKS (FOREIGN)-4.9%
APPLICATION SOFTWARE-0.5%
29,800 Amdocs Limited (CI)*.............................. 715,200
-------------
IT CONSULTING & OTHER SERVICES-1.4%
101,750 Accenture Limited Class A ADR (BD)*............... 1,840,658
-------------
PHARMACEUTICALS-2.1%
50,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS).......................................... 2,846,500
-------------
SYSTEMS SOFTWARE-0.5%
33,700 Check Point Software Technologies Limited (IS)*... 658,820
-------------
THRIFTS & MORTGAGE FINANCE-0.4%
10,800 Doral Financial Corporation (PU).................. 482,220
-------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$4,815,654)................................................... 6,543,398
-------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-7.6%
OTHER DIVERSIFIED FINANCIAL SERVICES-2.2%
$ 3,000,000 Merrill Lynch & Company
1.30% 7/1/03...................................... $ 3,000,000
-------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$3,000,000)......................................... 3,000,000
-------------
TOTAL INVESTMENTS-99.3%
(TOTAL COST-$116,165,110)........................................... 134,010,166
OTHER ASSETS AND LIABILITIES-0.7%................................... 962,634
-------------
NET ASSETS-100.0%................................................... $ 134,972,800
=============
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $ 116,165,110
-------------
Investment securities, at market.................. 134,010,166
Cash.............................................. 419,521
Receivables:
Investment securities sold...................... 3,004,594
Capital shares sold............................. 14,066
Dividends....................................... 49,883
From transfer agent............................. 131
Other assets...................................... 11,095
-------------
Total Assets.................................. 137,509,456
-------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 2,204,839
Capital shares redeemed......................... 23,295
Advisory fees................................... 89,409
Shareholder servicing fees...................... 15,078
Accounting fees................................. 6,660
Distribution fees............................... 22,568
Custodian fees.................................. 1,083
Other........................................... 173,724
-------------
Total Liabilities............................. 2,536,656
-------------
Net Assets........................................ $ 134,972,800
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $ 217,697,660
Accumulated net investment loss................... (630,031)
Accumulated net realized loss from security
transactions.................................... (99,939,885)
Net unrealized appreciation on investments........ 17,845,056
-------------
Total......................................... $ 134,972,800
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A............................... $ 518,024
Shares Outstanding--Class A....................... 174,779
Net Asset Value, Redemption Price Per Share....... $ 2.96
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 3.14
Net Assets--Class B............................... $ 1,134,677
Shares Outstanding--Class B....................... 391,454
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 2.90
Net Assets--Class C............................... $ 319,544
Shares Outstanding--Class C....................... 111,871
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 2.86
Net Assets--Class F............................... $132,865,970
Shares Outstanding--Class F....................... 44,103,890
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 3.01
Net Assets--Class R............................... $ 104,639
Shares Outstanding--Class R....................... 34,931
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 3.00
Net Assets--Class T............................... $ 29,946
Shares Outstanding--Class T....................... 10,441
Net Asset Value, Redemption Price Per Share....... $ 2.87
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 3.01
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 267,283
Interest........................................ 23,083
Foreign taxes withheld.......................... (1,325)
------------
Total Investment Income....................... 289,041
------------
EXPENSES:
Advisory fees--Note 2........................... 457,385
Shareholder servicing fees--Note 2.............. 97,036
Accounting fees--Note 2......................... 33,615
Distribution fees--Note 2....................... 142,488
Transfer agency fees--Note 2.................... 61,266
Registration fees............................... 37,485
Postage and mailing expenses.................... 14,396
Custodian fees and expenses--Note 2............. 6,498
Printing expenses............................... 21,266
Legal and audit fees............................ 13,028
Directors' fees and expenses--Note 2............ 13,820
Other expenses.................................. 27,007
------------
Total Expenses................................ 925,290
Earnings Credits.............................. (1,062)
Reimbursed/Waived Expenses.................... (1,161)
Expense Offset to Broker Commissions.......... (3,995)
------------
Net Expenses.................................. 919,072
------------
Net Investment Loss............................. (630,031)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions........ 3,442,901
Net Change in Unrealized Appreciation of
Investments....................................... 16,785,289
------------
Net Realized and Unrealized Gain................ 20,228,190
------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 19,598,159
============
Purchases of long-term securities................. $117,395,730
Proceeds from sales of long-term securities....... $ 95,837,901
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Loss..................... $ (630,031) $ (1,349,450)
Net Realized Gain (Loss) on Security
Transactions.......................... 3,442,901 (27,913,342)
Net Realized Gain from Foreign Currency
Transactions.......................... 0 264
Net Change in Unrealized
Appreciation/Depreciation............. 16,785,289 (1,680,486)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 19,598,159 (30,943,014)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A............................... (24,964) 66,609
Class B............................... 31,260 150,527
Class C............................... 5,051 (6,389)
Class F............................... 23,555,986 620,840
Class R............................... 13,949 57,755
Class T............................... 6,710 6,135
------------ ------------
Net Increase from Capital Share
Transactions.......................... 23,587,992 895,477
------------ ------------
Net Increase (Decrease) in Net Assets... 43,186,151 (30,047,537)
NET ASSETS
Beginning of period................... $ 91,786,649 $121,834,186
------------ ------------
End of period......................... $134,972,800 $ 91,786,649
============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 2.58 $ 3.44 $ 4.38 $ 8.68
Income from investment
operations:
Net investment loss....... (0.03) (0.04) (0.06) (0.02)
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.41 (0.82) (0.88) (2.05)
------ ------- ------- -------
Total from investment
operations.......... 0.38 (0.86) (0.94) (2.07)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (2.23)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (2.23)
Net Asset Value, end of
period...................... $ 2.96 $ 2.58 $ 3.44 $ 4.38
====== ======= ======= =======
Total Return/Ratios
Total return*............. 14.73% (25.00%) (21.46%) (23.40%)
Net assets, end of period
(000s).................. $ 518 $ 476 $ 538 $ 625
Net expenses to average
net assets#............. 2.01%** 2.15% 2.46% 1.25%
Gross expenses to average
net assets#............. 2.01%** 2.15% 2.47% 1.29%
Net investment loss to
average net assets...... (1.50%)** (1.81%) (1.93%) (0.74%)
Portfolio turnover
rate@................... 227% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of
period...................... $ 2.54 $ 3.39 $ 4.32 $ 8.68
Income from investment
operations:
Net investment loss....... (0.02) (0.05) (0.05) (0.04)
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.38 (0.80) (0.88) (2.09)
------ ------- ------- -------
Total from investment
operations.......... 0.36 (0.85) (0.93) (2.13)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (2.23)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (2.23)
Net Asset Value, end of
period...................... $ 2.90 $ 2.54 $ 3.39 $ 4.32
====== ======= ======= =======
Total Return/Ratios
Total return*............. 14.17% (25.07%) (21.53%) (24.14%)
Net assets, end of period
(000s).................. $1,135 $ 969 $ 1,138 $ 1,047
Net expenses to average
net assets#............. 2.79%** 2.67% 2.58% 1.99%
Gross expenses to average
net assets#............. 2.80%** 2.68% 2.59% 2.04%
Net investment loss to
average net assets...... (2.29%)** (2.33%) (2.06%) (1.47%)
Portfolio turnover
rate@................... 227% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
20
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of period....... $ 2.50 $ 3.36 $ 4.32 $ 8.68
Income from investment operations:
Net investment loss.................... (0.02) (0.08) (0.08) (0.04)
Net gains (losses) on securities (both
realized and unrealized)............. 0.38 (0.78) (0.88) (2.09)
------ ------- ------- -------
Total from investment operations... 0.36 (0.86) (0.96) (2.13)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (2.23)
------ ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (2.23)
Net Asset Value, end of period............. $ 2.86 $ 2.50 $ 3.36 $ 4.32
====== ======= ======= =======
Total Return/Ratios
Total return*.......................... 14.40% (25.60%) (22.22%) (24.14%)
Net assets, end of period (000s)....... $ 320 $ 274 $ 380 $ 422
Net expenses to average net
assets#,+............................ 2.67%** 2.98% 3.93% 2.00%
Gross expenses to average net
assets#,+............................ 2.68%** 2.99% 3.94% 2.04%
Net investment loss to average net
assets+.............................. (2.17%)** (2.65%) (3.41%) (1.46%)
Portfolio turnover rate@............... 227% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.03% (2002) and 4.24% (2001). The gross
expense ratios would have been 3.04% (2002) and 4.25% (2001). The net
investment loss ratios would have been (2.70%) (2002) and (3.72%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of period....... $ 2.62 $ 3.47 $ 4.36 $ 8.68 $ 7.44 $ 7.72
Income from investment operations:
Net investment income (loss)........... 0.04 (0.04) (0.05) (0.03) (0.08) (0.03)
Net gains (losses) on securities (both
realized and unrealized)............. 0.35 (0.81) (0.84) (2.06) 3.12 (0.11)
-------- ------- -------- -------- -------- --------
Total from investment operations... 0.39 (0.85) (0.89) (2.09) 3.04 (0.14)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00 0.00^ 0.00^
From net realized gains................ 0.00 0.00 0.00 (2.23) (1.80) (0.14)
-------- ------- -------- -------- -------- --------
Total distributions................ 0.00 0.00 0.00 (2.23) (1.80) (0.14)
Net Asset Value, end of period............. $ 3.01 $ 2.62 $ 3.47 $ 4.36 $ 8.68 $ 7.44
======== ======= ======== ======== ======== ========
Total Return/Ratios
Total return........................... 14.89% (24.50%) (20.41%) (23.69%) 42.27% (1.73%)
Net assets, end of period (000s)....... $132,866 $89,970 $119,708 $166,365 $253,385 $252,855
Net expenses to average net assets#.... 1.63%** 1.56% 1.37% 1.36% 1.40% 1.33%
Gross expenses to average net
assets#.............................. 1.63%** 1.56% 1.39% 1.39% 1.42% 1.35%
Net investment loss to average net
assets............................... (1.11%)** (1.22%) (0.84%) (0.92%) (0.98%) (0.39%)
Portfolio turnover rate@............... 227% 216% 214% 226% 186% 152%
</Table>
^ Distributions from net investment income for the years ended December 31,
1999 and 1998 aggregated less than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
22
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of period....... $ 2.61 $ 3.48 $ 4.39 $ 8.68
Income from investment operations:
Net investment income (loss)........... (0.01) (0.04) 0.01 (0.03)
Net gains (losses) on securities (both
realized and unrealized)............. 0.40 (0.83) (0.92) (2.03)
------- ------- ------- -------
Total from investment operations... 0.39 (0.87) (0.91) (2.06)
Less distributions:
From net investment income............. 0.00 0.00 0.00 0.00
From net realized gains................ 0.00 0.00 0.00 (2.23)
------- ------- ------- -------
Total distributions................ 0.00 0.00 0.00 (2.23)
Net Asset Value, end of period............. $ 3.00 $ 2.61 $ 3.48 $ 4.39
======= ======= ======= =======
Total Return/Ratios
Total return........................... 14.94% (25.00%) (20.73%) (23.28%)
Net assets, end of period (000s)....... $ 105 $ 77 $ 49 $ 7
Net expenses to average net
assets#,+............................ 1.73%** 1.97% 2.89% 1.00%
Gross expenses to average net
assets#,+............................ 1.73%** 1.97% 2.91% 1.03%
Net investment loss to average net
assets+.............................. (1.22%)** (1.63%) (2.40%) (0.55%)
Portfolio turnover rate@............... 227% 216% 214% 226%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 3.49% (2002) and 57.53% (2001). The gross
expense ratios would have been 3.49% (2002) and 57.54% (2001). The net
investment loss ratios would have been (3.15%) (2002) and (57.04%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of
period...................... $ 2.51 $ 3.39 $ 4.35 $ 8.68
Income from investment
operations:
Net investment income
(loss).................. 0.02 (0.06) (0.11) (0.02)
Net gains (losses) on
securities (both
realized and
unrealized)............. 0.34 (0.82) (0.85) (2.08)
------ ------- ------- -------
Total from investment
operations.......... 0.36 (0.88) (0.96) (2.10)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (2.23)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (2.23)
Net Asset Value, end of
period...................... $ 2.87 $ 2.51 $ 3.39 $ 4.35
====== ======= ======= =======
Total Return/Ratios
Total return*............. 14.34% (25.96%) (22.07%) (23.80%)
Net assets, end of period
(000s).................. $ 30 $ 20 $ 20 $ 29
Net expenses to average
net assets#,+........... 2.88%** 3.63% 3.11% 1.50%
Gross expenses to average
net assets#,+........... 2.89%** 3.64% 3.13% 1.55%
Net investment loss to
average net assets+..... (2.37%)** (3.29%) (2.57%) (0.98%)
Portfolio turnover
rate@................... 227% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were reimbursed by the management company for the years ended
December 31, 2002 and 2001. Had these fees not been reimbursed, the net
expense ratios would have been 10.29% (2002) and 28.89% (2001). The gross
expense ratios would have been 10.30% (2002) and 28.91% (2001). The net
investment loss ratios would have been (9.95%) (2002) and (28.35%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Mid-Cap Growth Fund (the "Fund"). The Fund offers Class A,
Class B, Class C, Class F, Class R, and Class T shares. Class A and Class T
shares are subject to a sales charge imposed at the time of purchase, Class B
shares are subject to a contingent deferred sales charge ("CDSC") imposed on
Class B share redemptions made within six years of purchase, Class C shares are
subject to a CDSC imposed on Class C shares redeemed within one year of
purchase, and Class F and Class R shares are sold at net asset value per share
(with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
25
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions areaccounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
may invest at least a portion of its assets in foreign securities. In the event
the Fund executes a foreign security transaction, the Fund may enter into a
foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to make
26
<Page>
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions of Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $30 million of net assets, 0.75% of the next $270 million
27
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
of net assets, 0.70% of the next $200 million of net assets, and 0.65% of net
assets in excess of $500 million.
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$29,442 and $65,407, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $11,652 and $23,773, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $ 1,495
Class B..................................................... $ 3,195
Class C..................................................... $ 766
Class R..................................................... $ 251
Class T..................................................... $ 137
</Table>
28
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $137,773 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C, shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $ 597
Class B................................. $3,624 $1,208
Class C................................. $1,064 $ 355
Class T................................. $ 27 $ 27
</Table>
During the six months ended June 30, 2003, DSC retained $203 and $341 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,864 of contingent deferred sales charges relating to redemptions of
Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
monitoring, regulatory and shareholder reporting, as well as related facilities,
equipment and clerical help. The fee is computed at the annual rate of 0.06% of
the average daily net assets of the Fund on the first $500 million, 0.04% of the
average daily net assets of the Fund on the next $500 million, and 0.02% of the
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $1,161. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
For the six months ended June 30, 2003, Founders reimbursed the Fund for
certain trading errors, the amounts of which were insignificant.
30
<Page>
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below, if
any, as of December 31, 2002, represent capital loss carryovers that may be
available to offset future realized capital gains and thereby reduce future
taxable gains distributions. Post-October 31 foreign currency losses noted
below, if any, may be used to offset future net investment income and thereby
reduce future ordinary income distributions. These carryovers expire between
December 31, 2009 and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $ 99,490,663
Post-October Capital Loss Deferral.......................... $ 0
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $117,109,994
Gross Tax Appreciation of Investments....................... $ 17,183,567
Gross Tax Depreciation of Investments....................... $ (283,395)
Net Tax Appreciation........................................ $ 16,900,172
</Table>
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 500 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- -----------------
CLASS A
Sold.................... 19,786 $ 52,019 282,153 $ 757,701
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (29,382) $ (76,983) (254,287) $ (691,092)
NET INCREASE
(DECREASE)............ (9,596) $ (24,964) 27,866 $ 66,609
CLASS B
Sold.................... 40,400 $ 111,473 156,797 $ 474,952
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (30,946) $ (80,213) (110,190) $ (324,425)
NET INCREASE............ 9,454 $ 31,260 46,607 $ 150,527
CLASS C
Sold.................... 21,990 $ 58,231 29,342 $ 92,484
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (19,664) $ (53,180) (32,951) $ (98,873)
NET INCREASE
(DECREASE)............ 2,326 $ 5,051 (3,609) $ (6,389)
CLASS F
Sold.................... 14,690,270 $ 36,283,172 15,890,407 $ 45,272,617
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (4,910,975) $ (12,727,186) (16,090,739) $ (44,651,777)
NET INCREASE
(DECREASE)............ 9,779,295 $ 23,555,986 (200,332) $ 620,840
CLASS R
Sold.................... 8,633 $ 23,507 41,636 $ 135,210
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (3,403) $ (9,558) (26,128) $ (77,455)
NET INCREASE............ 5,230 $ 13,949 15,508 $ 57,755
CLASS T
Sold.................... 2,448 $ 6,710 4,300 $ 13,887
Dividends or
Distributions
Reinvested............ 0 $ 0 0 $ 0
Redeemed................ (0) $ (0) (2,324) $ (7,752)
NET INCREASE............ 2,448 $ 6,710 1,976 $ 6,135
</Table>
32
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
33
<Page>
FOR MORE INFORMATION
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
2930 East Third Avenue
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
To obtain information:
- --------------------------------- Dreyfus Transfer, Inc.
BY TELEPHONE | 200 Park Avenue
Call your financial | New York, NY 10166
representative or |
1-800-554-4611 |
| DISTRIBUTOR
BY MAIL Write to: |
Dreyfus Founders Funds | Dreyfus Service Corporation
144 Glenn Curtiss Boulevard | 200 Park Avenue
Uniondale, NY 11556-0144 | New York, NY 10166
Dreyfus Founders Funds are managed by Founders Asset Management LLC.
Founders and Founders Funds are registered trademarks of Founders Asset
Management LLC.
(C)2003 Dreyfus Service Corporation 291SA0603
<Page>
DREYFUS FOUNDERS
PASSPORT FUND
SEMIANNUAL REPORT JUNE 30, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(sm)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 19
Statement of Operations 21
Statements of Changes in Net Assets 22
Financial Highlights 23
Notes to Financial Statements 29
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2003. The amounts of these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF TRACY STOUFFER, CFA]
A DISCUSSION WITH PORTFOLIO
MANAGER TRACY STOUFFER, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARKS FOR THE SIX MONTHS ENDED
JUNE 30?
The global markets had their best performance in four and a half years.
In an environment of diminishing geopolitical uncertainty and accelerating
global liquidity, many industries were able to aggressively cut costs,
restructure and consolidate. This paved the way for an earnings recovery and
higher equity valuations for many small-cap stocks worldwide.
The Dreyfus Founders Passport Fund was able to capitalize on these
convalescing markets. The Fund's performance(1) was competitive with its
small-cap benchmark, the Morgan Stanley Capital International (MSCI) World ex
U.S. Small Cap Index, which returned 21.57% during the period. The Fund
outperformed the MSCI World ex U.S. Index, which returned 10.25%. This relative
outperformance of the latter benchmark was due mostly to the benchmark's
constituents of larger capitalization stocks, which as a whole did not produce
the returns international small-cap stocks saw during the period.
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"WE INCREASED THE FUND'S WEIGHTING IN JAPAN TO THE LEVEL OF OUR SMALL-CAP
BENCHMARK TO TAKE ADVANTAGE OF BOTH THE MACRO AND MICRO VIRTUES OF THE JAPANESE
MARKET."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - Despite continued volatility and lackluster economic conditions leading up to
the war in Iraq, stocks began to rally as the fighting subsided and investors
turned their attention back to the prospects for the global economy.
- - Small-capitalization stocks generally outperformed large-cap stocks in many
international markets.
- - The Fund benefited from strong performing stock selections in the consumer
staples sector.
- - The outbreak of SARS hindered returns in Asian markets.
- - Our strategy remains the same. We will continue to seek opportunities outside
the U.S. for new technologies, restructuring companies and unit volume growth
stocks.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
A cloud of uncertainty hovered over the international stock markets during the
first quarter of 2003 while the United States and the United Kingdom prepared
for war in Iraq. Corporate spending remained sluggish, and several industries
continued to struggle with excess inventories and high debt burdens. Consumer
spending fared slightly better.
However, as the conflict in Iraq moved toward resolution, investors worldwide
began to regain confidence and to anticipate a much hoped for second-half
recovery. By mid-March, markets were recovering in North America, Europe and
Latin America. Many Asian markets initially lagged due to the outbreak of Severe
Acute Respiratory Syndrome (SARS), but rebounded by the end of April.
On a more specific level, many investors were reassured that a series of
tax cuts implemented by President Bush would help boost chances of a domestic
recovery, which they believed could, in turn, benefit the global economic
picture. The implementation of a further domestic interest rate
4
<Page>
cut in June was aimed at encouraging borrowing and providing insurance against
deflationary pressure. Additionally, the European Central Bank eased rates by
another 50 basis points to encourage its economic jumpstart as well. All of
these factors helped contribute to a significant second quarter gain in most
world equity markets, the largest quarterly gain since 1998.
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE DURING THE PERIOD?
Our research approach led us to uncover many strong performers across various
countries and market sectors. For instance, we saw a compelling global theme
emerge during the period. A number of Internet companies began exhibiting signs
of both strong growth and profitability due to either the filling of a niche
market, or performing what are fast becoming necessary public services. The Fund
purchased shares in several Internet service companies in Europe and Asia, which
performed well during the period. We were perhaps most pleased with the Fund's
second largest holding, lastminute.com PLC, a website in the United Kingdom that
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Puma AG Rudolf Dassler Sport (Germany; PUM) 1.97%
2. lastminute.com PLC (United Kingdom; LMC) 1.52%
3. Kenwood Corporation (Japan; 6765) 1.49%
4. Italian-Thai Development PCL (Thailand; ITD.F) 1.31%
5. Golar LNG Limited (United Kingdom; GOL) 1.20%
6. First Engineering Limited (Singapore; FEN) 1.13%
7. SSL International PLC (United Kingdom; SSL) 1.11%
8. CoolBrands International, Inc. (Canada; COB.A) 1.11%
9. Nachi-Fujikoshi Corporation (Japan; 6474) 1.10%
10. Ayala Land, Inc. (Philippines; ALI) 1.09%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
offers consumers last minute opportunities for travel and entertainment. In its
short existence, lastminute.com has established a powerful brand name and
created a niche market. Last year the stock was the best performing stock on the
FTSE 350 Index, climbing 240%. This year, the stock continued to climb by an
additional 69% as of June 30, 2003.
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Passport Fund on
its inception date of 11/16/93 to a $10,000 investment made in an unmanaged
securities index. The Fund's performance assumes the reinvestment of dividends
and capital gain distributions, but does not reflect the deduction of taxes that
a shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The MSCI World ex U.S. Index is an average of the performance of selected
securities listed on the stock exchanges of Europe, Canada, Australia, New
Zealand, and the Far East. The performance data for the MSCI World ex U.S. Index
is from November 30, 1993 through June 30, 2003. Total return figures for this
index assume change in share price and reinvestment of dividends after the
deduction of local taxes, but do not reflect the costs of managing a mutual
fund. Further information related to Fund performance is contained elsewhere in
this report.
6
<Page>
In the consumer discretionary sector, PUMA AG RUDOLF DASSLER SPORT, the
German-based footwear and apparel manufacturer, contributed favorable results
to the Fund due to its continued strong performance. Puma has remained a very
popular brand among trendsetters for quite some time. It was also the Fund's
largest holding at the end of the period.
The Fund also took advantage of opportunities in the telecommunications
service sector, an industry that appears to be stabilizing due to a tremendous
amount of cost cutting and consolidation.
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 15.51% (6.64%) -- -- (19.56%)
Without sales charge 22.60% (0.99%) -- -- (18.18%)
CLASS B SHARES (12/31/99)
With redemption* 18.01% (5.84%) -- -- (19.44%)
Without redemption 22.01% (1.92%) -- -- (18.83%)
CLASS C SHARES (12/31/99)
With redemption** 21.07% (2.81%) -- -- (18.87%)
Without redemption 22.07% (1.83%) -- -- (18.87%)
CLASS F SHARES (11/16/93) 22.63% (0.89%) (3.22%) N/A 4.27%
CLASS R SHARES (12/31/99) 22.74% (2.52%) -- -- (18.95%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 16.75% (6.15%) -- -- (20.09%)
Without sales charge 22.24% (1.74%) -- -- (19.03%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions, expense limitations,
and adjustments for financial statement purposes. Part of the Fund's historical
performance is due to the purchase of securities sold in initial public
offerings (IPOs). There is no guarantee that the Fund's investments in IPOs, if
any, will continue to have a similar impact on performance. There are risks
associated with small-cap investments such as limited product lines, less
liquidity, and small market share. Investments in foreign securities may entail
unique risks, including political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
The Fund was also positively impacted by its exposure to emerging markets.
As of June 30, 2003, about 20% of the Fund's holdings were in emerging markets.
Our ability to invest in such markets boosted the Fund's overall performance, as
these markets experienced an exceptional first half.
Changes in currency exchange rates also contributed positively to the
Fund's performance during the reporting period, with most major world currencies
gaining against the dollar.
On a relative basis, the Fund's holdings in the United Kingdom were the
largest contributor to the Funds performance versus the MSCI World ex U.S. Small
Cap Index.
Finally, we increased the Fund's weighting in Japan to the level of our
small-cap benchmark to take advantage of both the macro and micro virtues of the
Japanese market. On the macro front, Japan is exiting a 13-year period of
deflation. Unemployment is falling, jobs are being
[CHART]
PORTFOLIO COMPOSITION
<Table>
28.27% Japan
15.80% United Kingdom
8.21% Thailand
6.25% Germany
6.10% Canada
4.73% France
4.37% South Korea
3.41% Singapore
3.11% Cash & Equivalents
19.75% Other Countries
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio manager
and are subject to change at any time, based on market and other conditions, and
should not be construed as a recommendation of any specific security.
The Morgan Stanley Capital International (MSCI) World ex U.S. Small Cap Index is
an average of the performance of selected foreign small-capitalization
securities. Total return figures assume change in share price and reinvestment
of dividends after the deduction of local taxes, but do not reflect the costs of
managing a mutual fund.
8
<Page>
created, and households are spending. On a micro level, companies have
restructured, paid down debt and moved production to low-cost countries. Much of
the media focus has been on the large-cap sector in Japan, which still faces
many challenges because many of its constituents are distressed banks and large
companies involved in the onerous task of unwinding cross-share holdings.
Meanwhile, their small-cap counterparts have few of these ills and outperformed
during the period.
WHAT FACTORS NEGATIVELY IMPACTED THE FUND'S PERFORMANCE?
A slight detractor to the Fund's performance was the SARS epidemic in Asia. The
Fund avoided industries and regions most likely to be affected by the outbreak.
However, some stocks in Hong Kong and Taiwan were still portfolio holdings at
the onset of the SARS outbreak. Sectors sensitive to the effects of a travel
advisory to the Asian region, such as airlines, sold off at the onset.
Additionally, bad timing on some technology purchases hindered performance.
As we prepare for the final six months of 2003, we remain consistent
in our investment strategy and process. We will continue to use our
growth-focused investment research process in seeking out small-capitalization
international companies with strong growth potential.
/s/ Tracy Stouffer
Tracy Stouffer, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-96.8%
ADVERTISING-1.9%
1,462,150 Incepta Group PLC (UK)............................ $ 373,982
6,850 Ipsos (FR)*....................................... 425,175
281,575 Taylor Nelson Sofres PLC (UK)..................... 780,604
----------------
1,579,761
----------------
ALTERNATIVE CARRIERS-0.7%
32,825 Genesys (FR)*..................................... 162,089
226,050 QSC AG (GE)*...................................... 438,705
----------------
600,794
----------------
ALUMINUM-1.5%
144,000 Daiki Aluminum Industry Company Limited (JA)...... 428,132
540,000 Nippon Light Metal Company Limited (JA)........... 796,002
----------------
1,224,134
----------------
APPAREL RETAIL-0.5%
7,175 Camaieu (FR)...................................... 407,034
----------------
APPAREL, ACCESSORIES & LUXURY GOODS-1.6%
66,725 Burberry Group PLC (UK)........................... 273,066
51,925 Hockey Company Holdings, Inc. 144A (CA)*+......... 616,390
8,500 Marzotto SPA (IT)................................. 57,102
68,000 Sanyo Shokai Limited (JA)......................... 411,143
----------------
1,357,701
----------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
APPLICATION SOFTWARE-2.7%
76,700 Aldata Solution Oyj (FI)*......................... $ 133,881
25,825 Exact Holding NV (NE)*............................ 414,303
1,211,175 Intec Telecom Systems PLC (UK)*................... 499,660
75,871 Merant PLC (UK)*.................................. 165,264
37,825 NDS Group PLC Sponsored ADR (UK)*................. 585,909
1,214,500 Symphony House Berhad (MA)*....................... 393,134
----------------
2,192,151
----------------
ASSET MANAGEMENT & CUSTODY BANKS-0.8%
55,925 Liontrust Asset Management PLC (UK)............... 389,306
47 Sparx Asset Management Company Limited (JA)....... 293,958
----------------
683,264
----------------
AUTO PARTS & EQUIPMENT-1.3%
144,900 Aapico Hitech Public Company Limited NVDR Shares
(TH).............................................. 236,100
265,000 Press Kogyo Company Limited (JA)*................. 403,873
96,075 Thai Stanley Electric Public Company Limited NVDR
Shares (TH)*...................................... 457,065
----------------
1,097,038
----------------
AUTOMOBILE MANUFACTURERS-0.6%
305,000 Isuzu Motors Limited (JA)*........................ 449,594
----------------
BIOTECHNOLOGY-1.1%
79,500 Acambis PLC (UK)*................................. 484,084
527,125 Antisoma PLC (UK)*................................ 390,908
----------------
874,992
----------------
BUILDING PRODUCTS-2.2%
3,602,000 Asia Aluminum Holdings Limited (CN)............... 475,765
673,500 Dynasty Ceramic Public Company Limited Foreign
Shares (TH)....................................... 211,470
95,000 Nippon Sheet Glass Company Limited (JA)........... 284,820
85,000 Okura Industrial Company Limited (JA)............. 397,835
2,068,200 Vanachai Group Public Company Limited Foreign
Shares (TH)....................................... 435,385
----------------
1,805,275
----------------
CASINOS & GAMING-0.8%
36,075 Lottomatica SPA (IT)*............................. 635,497
----------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
NVDR - NON-VOTING DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.3%
94,725 ADVA AG Optical Networking (GE)*.................. $ 321,987
95,050 Bookham Technology PLC (UK)*...................... 130,184
227,000 Denki Kogyo Company Limited (JA).................. 606,846
288,450 Digital Chosun Company Limited (KR)*.............. 350,149
151,000 Oki Electric Industry Company Limited (JA)*....... 432,596
102,850 Sierra Wireless, Inc. (CA)*....................... 632,026
124,650 Wi-LAN, Inc. (CA)*................................ 229,338
----------------
2,703,126
----------------
COMPUTER & ELECTRONICS RETAIL-0.4%
17,120 Germanos SA (GR).................................. 286,644
----------------
COMPUTER HARDWARE-0.5%
1,608,000 MFS Technology Limited (SG)*...................... 438,296
----------------
COMPUTER STORAGE & PERIPHERALS-1.6%
2,502,000 First Engineering Limited (SG).................... 930,613
271,650 Gemplus International SA (LU)*.................... 371,226
----------------
1,301,839
----------------
CONSTRUCTION & ENGINEERING-4.9%
49,340 Daewoo Shipbuilding & Marine Engineering Company
Limited (KR)*..................................... 417,190
30 EPCO Corporation (JA)............................. 154,903
11,325 Imtech NV (NE).................................... 209,775
1,346,500 Italian-Thai Development Public Company Limited
Foreign Shares (TH)*.............................. 1,072,972
61,000 JGC Corporation (JA).............................. 410,477
140,000 Kyowa Exeo Corporation (JA)....................... 494,359
305,000 Meisei Industrial Company Limited (JA)*........... 640,100
4,014,200 Sino Thai Engineering & Development Public Company
Limited NVDR Shares (TH)*......................... 630,203
----------------
4,029,979
----------------
CONSTRUCTION MATERIALS-0.7%
6,770 Hanil Cement Manufacturing Company Limited (KR)... 271,480
396,500 Tipco Asphalt Public Company Limited NVDR Shares
(TH)*............................................. 332,460
----------------
603,940
----------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.5%
6,866,500 PT United Tractors Tbk (ID)*...................... 395,344
----------------
CONSUMER ELECTRONICS-1.5%
436,000 Kenwood Corporation (JA)*......................... 1,227,300
----------------
CONSUMER FINANCE-1.5%
233,500 AEON Thana Sinsap Public Company Limited NVDR
Shares (TH)....................................... 777,593
138,000 Daiei OMC, Inc. (JA)*............................. 421,786
----------------
1,199,379
----------------
DEPARTMENT STORES-0.6%
506,075 David Jones Limited (AU).......................... 448,004
----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
DISTRIBUTORS-0.3%
9,800 Kuroda Electric Company Limited (JA).............. $ 221,995
----------------
DIVERSIFIED CHEMICALS-0.3%
167,000 Ishihara Sangyo Kaisha Limited (JA)............... 282,332
----------------
DIVERSIFIED COMMERCIAL SERVICES-1.7%
64,370 Autohellas SA (GR)................................ 416,912
54,050 ebookers PLC (UK)*................................ 398,686
46,725 Techem AG (GE)*................................... 574,136
----------------
1,389,734
----------------
DIVERSIFIED METALS & MINING-1.0%
299,600 Banpu Public Company Limited NVDR Shares (TH)..... 322,476
4,900 Sumitomo Titanium Corporation (JA)................ 57,743
301,000 Toho Zinc Company Limited (JA).................... 428,657
----------------
808,876
----------------
ELECTRIC UTILITIES-0.6%
295,450 Electricity Generating Public Company Limited
Foreign Shares (TH)............................... 397,072
49,125 Electricity Generating Public Company Limited NVDR
Shares (TH)....................................... 64,853
----------------
461,925
----------------
ELECTRICAL COMPONENTS & EQUIPMENT-3.4%
91,000 Dainippon Screen Manufacturing Company Limited
(JA)*............................................. 445,621
26,080 HiSmarTech Company Limited (KR)*.................. 202,396
6,740 KH Vatec Company Limited (KR)*.................... 615,036
8,850 Leoni AG (GE)..................................... 438,028
1,635,000 Magnecomp International Limited (SG)*............. 459,583
81,000 Shibaura Mechatronic (JA)*........................ 422,286
10 Wacom Company Limited (JA)........................ 201,541
----------------
2,784,491
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.4%
16,270 Kumho Electric, Inc. (KR)*........................ 422,244
149,000 Kyosan Electric Manufacturing Company Limited
(JA).............................................. 438,035
99,000 Tamura Corporation (JA)........................... 325,671
----------------
1,185,950
----------------
EMPLOYMENT SERVICES-0.8%
70 en-japan, inc. (JA)*.............................. 320,633
70 en-japan, inc. New Shares (JA)*................... 320,633
----------------
641,266
----------------
</Table>
* NON-INCOME PRODUCING.
NVDR - NON-VOTING DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
FOOTWEAR-2.0%
11,200 Puma AG Rudolf Dassler Sport (GE)................. $ 1,102,251
5,200 Puma AG Rudolf Dassler Sport 144A (GE)+........... 511,759
----------------
1,614,010
----------------
GENERAL MERCHANDISE STORES-0.9%
9,000 Gifi (FR)......................................... 427,882
500 Plant Company Limited (JA)........................ 6,454
10,300 Ryohin Keikaku Company Limited (JA)............... 264,202
----------------
698,538
----------------
GOLD-0.5%
194,977 Kingsgate Consolidated Limited (AU)............... 384,436
----------------
HEALTHCARE EQUIPMENT-1.0%
21,825 Amplifon SPA (IT)................................. 410,785
12,000 Nakanishi, Inc. (JA).............................. 397,751
----------------
808,536
----------------
HEALTHCARE SUPPLIES-1.1%
188,400 SSL International PLC (UK)........................ 910,911
----------------
HEAVY ELECTRICAL EQUIPMENT-0.4%
1,846,000 Dongfang Electrical Machinery Company Limited
(CN)*............................................. 338,516
----------------
HIGHWAYS & RAILTRACKS-0.6%
487,950 Eurotunnel SA (FR)*............................... 358,622
798,000 GZI Transport Limited (CN)........................ 156,569
----------------
515,191
----------------
HOMEBUILDING-1.6%
85,025 George Wimpey PLC (UK)............................ 413,901
67,200 Joint Corporation (JA)............................ 456,675
138,150 Wilson Connolly Holdings PLC (UK)................. 424,025
----------------
1,294,601
----------------
HOTELS, RESORTS & CRUISE LINES-0.5%
72,000 De Vere Group PLC (UK)............................ 423,564
----------------
HOUSEHOLD PRODUCTS-0.3%
45 Dr. Ci:Labo Company Limited (JA).................. 228,607
----------------
INDUSTRIAL CONGLOMERATES-0.7%
10,453 Financiere Marc de Lacharriere SA (FR)............ 288,094
189,400 Palmco Holdings Berhad (MA)....................... 296,563
----------------
584,657
----------------
INDUSTRIAL MACHINERY-3.4%
97,100 ATS Automation Tooling Systems, Inc. (CA)*........ 850,375
60,100 Fuji Machine Manufacturing Company Limited (JA)... 695,724
492,000 Nachi-Fujikoshi Corporation (JA).................. 905,534
130 Sodick Plustech Company Limited (JA).............. 313,970
----------------
2,765,603
----------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-0.9%
144 G-mode Company Limited (JA)....................... $ 365,771
196 Invoice, Inc. (JA)................................ 412,975
----------------
778,746
----------------
INTERNET SOFTWARE & SERVICES-2.9%
22 Access Company Limited (JA)*...................... 439,725
61,025 Easynet Group PLC (UK)*........................... 126,501
395,675 Emblaze Systems Limited (IS)*..................... 701,899
66,500 Global Media Online, Inc. (JA).................... 357,768
4,220,000 Hongkong.com Corporation (CN)*.................... 351,752
35 Index Corporation (JA)............................ 203,748
52,200 Internet Initiative Japan, Inc. Sponsored ADR
(JA)*............................................. 227,592
----------------
2,408,985
----------------
INVESTMENT BANKING & BROKERAGE-1.5%
1,090,000 CIMB Berhad (MA).................................. 872,000
54,375 Collins Stewart Tullett PLC (UK).................. 376,856
----------------
1,248,856
----------------
IT CONSULTING & OTHER SERVICES-2.0%
1,229,300 BATM Advanced Communications Limited (IS)*........ 410,781
1,770,000 CSE Global Limited (SG)........................... 482,453
195 Gigno System Japan, Inc. (JA)..................... 394,628
146 Netmarks, Inc. (JA)............................... 383,011
----------------
1,670,873
----------------
LEISURE FACILITIES-0.5%
588,775 Euro Disney SCA (FR)*............................. 398,917
----------------
LEISURE PRODUCTS-3.5%
128,075 Hip Interactive Corporation (CA)*................. 152,695
429,950 lastminute.com PLC (UK)*.......................... 1,248,700
43,100 Mega Bloks, Inc. 144A (CA)*+...................... 666,102
63,900 Sanrio Company Limited (JA)....................... 394,868
64,000 Takara Company Limited (JA)....................... 405,613
----------------
2,867,978
----------------
MARINE-1.1%
49,290 Hanjin Shipping Company Limited (KR)*............. 405,214
964,000 Jaya Holdings Limited (SG)........................ 205,281
1,674,300 Thoresen Thai Agencies NVDR Shares (TH)........... 304,672
----------------
915,167
----------------
MOVIES & ENTERTAINMENT-0.8%
160,675 HIT Entertainment PLC (UK)........................ 655,480
----------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
NVDR - NON-VOTING DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE-0.9%
280,250 Hiscox PLC (UK)................................... $ 753,808
----------------
MULTI-UTILITIES & UNREGULATED POWER-1.0%
121 Japan Wind Development Company Limited (JA)*...... 852,517
----------------
OFFICE SERVICES & SUPPLIES-0.2%
8,800 Glory Limited (JA)................................ 194,945
----------------
OIL & GAS EQUIPMENT & SERVICES-2.9%
1,203,000 Federal International (2000) Limited (SG)......... 283,501
186,475 John Wood Group PLC 144A (UK)+.................... 553,886
35,300 Schoeller-Bleckmann Oilfield Equipment AG (AT).... 356,729
227,000 Scomi Group Berhad (MA)*.......................... 296,303
201,950 Total Energy Services Limited (CA)*............... 401,284
388,000 Toyo Kanetsu KK (JA)*............................. 465,309
----------------
2,357,012
----------------
OIL & GAS EXPLORATION & PRODUCTION-0.2%
43,025 Great Northern Exploration Limited (CA)*.......... 126,656
----------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION-1.7%
11,175 Exmar NV (BE)*.................................... 381,911
95,000 Golar LNG Limited (UK)*........................... 987,061
----------------
1,368,972
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-2.5%
57,625 Comdirect Bank AG (GE)*........................... 436,754
15,507 Grenkeleasing AG (GE)*............................ 297,390
28,075 Home Capital Group, Inc. (CA)..................... 423,563
2,403,350 National Finance Public Company Limited Foreign
Shares (TH)*...................................... 863,239
----------------
2,020,946
----------------
PACKAGED FOODS & MEATS-1.7%
91,950 CoolBrands International, Inc. (CA)*.............. 910,162
15,850 Dongwon F&B Company Limited (KR).................. 457,786
----------------
1,367,948
----------------
PHARMACEUTICALS-0.7%
516,800 SykePharma PLC (UK)*.............................. 592,700
----------------
PHOTOGRAPHIC PRODUCTS-0.7%
15,700 Nidec Copal Corporation (JA)...................... 247,121
16,100 Studio Alice Company Limited (JA)................. 348,615
----------------
595,736
----------------
PUBLISHING-1.0%
111,400 Bloomsbury Publishing PLC (UK).................... 431,997
30,375 Schibsted ASA (NW)................................ 420,800
----------------
852,797
----------------
REAL ESTATE INVESTMENT TRUSTS-0.5%
75 Japan Retail Fund Investment Corporation (JA)..... 392,255
----------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-2.4%
7,974,000 Ayala Land, Inc. (PH)............................. $ 895,201
21,810,900 Filinvest Land, Inc. (PH)*........................ 416,262
962,300 Glomac Berhad (MA)................................ 425,438
220,575 Marylebone Warwick Balfour Group PLC (UK)*........ 222,031
----------------
1,958,932
----------------
REGIONAL BANKS-0.6%
6,417,500 PT Bank Mandiri 144A (ID)*+....................... 525,068
----------------
RESTAURANTS-0.2%
619,450 Leon de Bruxelles (FR)*........................... 163,612
----------------
SEMICONDUCTOR EQUIPMENT-0.8%
88,825 Silicon-On-Insulator Technologies (FR)*........... 528,380
13,000 Tosei Engineering Corporation (JA)................ 123,748
----------------
652,128
----------------
SEMICONDUCTORS-3.8%
271,425 ARM Holdings PLC (UK)*............................ 300,090
339,575 Dialog Semiconductor PLC (GE)*.................... 620,032
21,800 Disco Corporation (JA)............................ 836,960
50,600 ELMOS Semiconductor AG (GE)*...................... 388,739
123,000 Malaysian Pacific Industries Berhad (MA).......... 466,105
69,000 New Japan Radio Company Limited (JA).............. 519,475
----------------
3,131,401
----------------
SPECIALIZED FINANCE-0.5%
100 Banque Nationale de Belgique (BE)................. 428,227
----------------
SPECIALTY CHEMICALS-0.5%
116,000 Chugoku Marine Paints Limited (JA)................ 396,086
----------------
SPECIALTY STORES-0.5%
2,000 Valora Holding AG (SZ)............................ 409,007
----------------
STEEL-1.6%
1,816,000 Angang New Steel Company Limited Class H (CN)..... 402,878
2,666,000 Maanshan Iron and Steel Company Limited (CN) *.... 451,279
326,500 Nippon Yakin Kogyo Company Limited (JA)*.......... 497,601
----------------
1,351,758
----------------
SYSTEMS SOFTWARE-0.4%
44,000 ILOG SA (FR)*..................................... 362,793
----------------
THRIFTS & MORTGAGE FINANCE-0.4%
8,650 Entenial (FR)..................................... 358,596
----------------
TIRES & RUBBER-0.5%
91,140 Hankook Tire Company Limited (KR)................. 449,405
----------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITIES WERE ACQUIRED PURSUANT TO RULE 144A AND MAY BE DEEMED TO BE
RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS-0.6%
417,000 Sumikin Bussan Corporation (JA)*.................. $ 472,305
----------------
WATER UTILITIES-0.6%
93,625 Athens Water Supply and Sewage Company (GR)....... 458,018
----------------
WIRELESS TELECOMMUNICATION SERVICES-2.5%
31,100 Millicom International Cellular SA (LU)*.......... 815,131
200 Okinawa Cellular Telephone Company (JA)........... 597,960
480,400 Total Access Communication Public Company Limited
(TH)*............................................. 638,939
----------------
2,052,030
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$76,642,537).................................................. 79,475,485
----------------
RIGHTS AND WARRANTS (FOREIGN)-0.1%
COMMUNICATIONS EQUIPMENT-0.1%
292,431 Marconi PLC Warrants (UK)*........................ 82,083
----------------
TOTAL RIGHTS AND WARRANTS (FOREIGN)
(COST-$175,517)..................................................... 82,083
----------------
<Caption>
PRINCIPAL AMORTIZED
AMOUNT COST
- -------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-3.6%
OTHER DIVERSIFIED FINANCIAL SERVICES-3.6%
$ 3,000,000 Merrill Lynch & Company
1.30% 7/1/03...................................... $ 3,000,000
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$3,000,000)......................................... 3,000,000
----------------
TOTAL INVESTMENTS-100.5%
(TOTAL COST-$79,818,054)............................................ 82,557,568
OTHER ASSETS AND LIABILITIES-(0.5%)................................. (441,046)
----------------
NET ASSETS-100.0%................................................... $ 82,116,522
================
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.................... $ 79,818,054
---------------
Investment securities, at market.................. 82,557,568
Cash.............................................. 273,267
Foreign currency (cost $1,653,512)................ 1,637,735
Receivables:
Investment securities sold...................... 6,097,890
Capital shares sold............................. 76,127
Dividends....................................... 121,042
Other assets...................................... 58,992
---------------
Total Assets.................................. 90,822,621
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased................. 8,248,101
Capital shares redeemed......................... 92,307
Advisory fees................................... 68,820
Shareholder servicing fees...................... 12,714
Accounting fees................................. 6,882
Distribution fees............................... 26,471
Custodian fees.................................. 31,538
Thailand taxes.................................. 111,719
Other........................................... 107,547
---------------
Total Liabilities............................. 8,706,099
---------------
Net Assets........................................ $ 82,116,522
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)........... $ 270,351,933
Undistributed net investment income............... 149,494
Accumulated net realized loss from security
transactions (net of foreign taxes on Thailand
investments of $252,282)........................ (191,132,519)
Net unrealized appreciation on investments and
foreign currency translation.................... 2,747,614
---------------
Total......................................... $ 82,116,522
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A............................... $ 10,718,094
Shares Outstanding--Class A....................... 1,074,037
Net Asset Value, Redemption Price Per Share....... $ 9.98
Maximum offering price per share
(net asset value plus sales charge of 5.75% of
offering price)................................. $ 10.59
Net Assets--Class B............................... $ 13,586,120
Shares Outstanding--Class B....................... 1,400,622
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 9.70
Net Assets--Class C............................... $ 5,524,669
Shares Outstanding--Class C....................... 570,661
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share............................... $ 9.68
Net Assets--Class F............................... $ 51,895,495
Shares Outstanding--Class F....................... 5,205,841
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 9.97
Net Assets--Class R............................... $ 45,696
Shares Outstanding--Class R....................... 4,730
Net Asset Value, Offering and Redemption Price Per
Share........................................... $ 9.66
Net Assets--Class T............................... $ 346,448
Shares Outstanding--Class T....................... 36,003
Net Asset Value, Redemption Price Per Share....... $ 9.62
Maximum offering price per share
(net asset value plus sales charge of 4.50% of
offering price)................................. $ 10.07
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends....................................... $ 1,203,135
Interest........................................ 25,947
Foreign taxes withheld.......................... (95,260)
---------------
Total Investment Income....................... 1,133,822
---------------
EXPENSES:
Advisory fees--Note 2........................... 382,385
Shareholder servicing fees--Note 2.............. 73,423
Accounting fees--Note 2......................... 38,239
Distribution fees--Note 2....................... 127,387
Transfer agency fees--Note 2.................... 98,601
Registration fees............................... 30,944
Postage and mailing expenses.................... 9,652
Custodian fees and expenses--Note 2............. 189,230
Printing expenses............................... 25,099
Legal and audit fees............................ 13,613
Directors' fees and expenses--Note 2............ 9,922
Other expenses.................................. 21,357
---------------
Total Expenses................................ 1,019,852
Earnings Credits.............................. (2,201)
Reimbursed/Waived Expenses.................... (33,699)
Expense Offset to Broker Commissions.......... (1,460)
---------------
Net Expenses.................................. 982,492
---------------
Net Investment Income........................... 151,330
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security transactions (net of foreign taxes on
Thailand investments of $252,282)............... 10,310,704
Foreign currency transactions................... (73,878)
---------------
Net Realized Gain............................. 10,236,826
Net Change in Unrealized Appreciation/Depreciation
of Investments and Foreign Currency Translation... 5,564,266
---------------
Net Realized and Unrealized Gain.................. 15,801,092
---------------
Net Increase in Net Assets Resulting from
Operations........................................ $ 15,952,422
===============
Purchases of long-term securities................. $ 257,173,777
Proceeds from sales of long-term securities....... $ 268,017,575
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Income (Loss)............ $ 151,330 $ (1,023,871)
Net Realized Gain (Loss)................ 10,236,826 (12,388,968)
Net Change in Unrealized
Appreciation/Depreciation............. 5,564,266 (2,075,681)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........... 15,952,422 (15,488,520)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A............................... (753,924) (2,916,773)
Class B............................... (1,716,491) (4,098,985)
Class C............................... (789,080) (2,563,176)
Class F............................... (9,059,300) (17,949,856)
Class R............................... (36,271) (21,426)
Class T............................... (104,311) (148,171)
------------ ------------
Net Decrease from Capital Share
Transactions.......................... (12,459,377) (27,698,387)
------------ ------------
Net Increase (Decrease) in Net Assets... 3,493,045 (43,186,907)
NET ASSETS
Beginning of period................... $ 78,623,477 $121,810,384
------------ ------------
End of period......................... $ 82,116,522 $ 78,623,477
============ ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -------------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ----------- ----------- -----------
CLASS A SHARES
Net Asset Value, beginning of
period...................... $ 8.14 $ 9.68 $ 14.18 $ 22.93
Income from investment
operations:
Net investment loss....... (0.01) (0.16) (0.14) (0.13)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.85 (1.38) (4.36) (6.65)
------- ------- ------- -------
Total from investment
operations.......... 1.84 (1.54) (4.50) (6.78)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------- ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.98 $ 8.14 $ 9.68 $ 14.18
======= ======= ======= =======
Total Return/Ratios
Total return*............. 22.60% (15.91%) (31.74%) (29.61%)
Net assets, end of period
(000s).................. $10,718 $ 9,422 $14,033 $36,353
Net expenses to average
net assets#,+........... 2.46%** 2.24% 1.87% 1.59%
Gross expenses to average
net assets#,+........... 2.46%** 2.24% 1.88% 1.61%
Net investment income
(loss) to average net
assets+................. 0.49%** (0.80%) (0.26%) (0.80%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 2.55% (2003) and 2.27% (2002). The gross
expense ratios would have been 2.55% (2003) and 2.27% (2002). The net
investment income (loss) ratios would have been 0.40% (2003) and (0.83%)
(2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -------------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ----------- ----------- -----------
CLASS B SHARES
Net Asset Value, beginning of
period...................... $ 7.95 $ 9.54 $ 14.08 $ 22.93
Income from investment
operations:
Net investment loss....... (0.12) (0.29) (0.18) (0.23)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.87 (1.30) (4.36) (6.65)
------- ------- ------- -------
Total from investment
operations.......... 1.75 (1.59) (4.54) (6.88)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------- ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.70 $ 7.95 $ 9.54 $ 14.08
======= ======= ======= =======
Total Return/Ratios
Total return*............. 22.01% (16.67%) (32.24%) (30.05%)
Net assets, end of period
(000s).................. $13,586 $12,810 $19,661 $35,000
Net expenses to average
net assets#,+........... 3.31%** 3.09% 2.64% 2.35%
Gross expenses to average
net assets#,+........... 3.32%** 3.09% 2.66% 2.38%
Net investment loss to
average net assets+..... (0.36%)** (1.64%) (1.06%) (1.50%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 3.40% (2003) and 3.12% (2002). The gross
expense ratios would have been 3.41% (2003) and 3.12% (2002). The net
investment loss ratios would have been (0.45%) (2003) and (1.67%) (2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS C SHARES
Net Asset Value, beginning of
period...................... $ 7.93 $ 9.52 $ 14.06 $ 22.93
Income from investment
operations:
Net investment loss....... (0.14) (0.35) (0.22) (0.21)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.89 (1.24) (4.32) (6.69)
------ ------- ------- -------
Total from investment
operations.......... 1.75 (1.59) (4.54) (6.90)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.68 $ 7.93 $ 9.52 $ 14.06
====== ======= ======= =======
Total Return/Ratios
Total return*............. 22.07% (16.70%) (32.29%) (30.13%)
Net assets, end of period
(000s).................. $5,525 $ 5,268 $ 8,928 $17,925
Net expenses to average
net assets#,+........... 3.26%** 3.05% 2.65% 2.35%
Gross expenses to average
net assets#,+........... 3.26%** 3.06% 2.67% 2.38%
Net investment loss to
average net assets+..... (0.31%)** (1.58%) (1.08%) (1.50%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 3.35% (2003) and 3.07% (2002). The gross
expense ratios would have been 3.35% (2003) and 3.08% (2002). The net
investment loss ratios would have been (0.40%) (2003) and (1.60%) (2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- -----------
CLASS F SHARES
Net Asset Value,
beginning of period.... $ 8.13 $ 9.67 $ 14.17 $ 22.93 $ 14.93 $ 13.64
Income from investment
operations:
Net investment
loss............... (0.12) (0.23) (0.22) (0.19) (0.11) 0.00
Net gains (losses) on
securities (both
realized and
unrealized)........ 1.96 (1.31) (4.28) (6.60) 12.94 1.68
------- ------- ------- -------- -------- --------
Total from
investment
operations..... 1.84 (1.54) (4.50) (6.79) 12.83 1.68
Less distributions:
From net investment
income............. 0.00 0.00 0.00 0.00 0.00 (0.01)
From net realized
gains.............. 0.00 0.00 0.00 (1.97) (4.83) (0.38)
------- ------- ------- -------- -------- --------
Total
distributions... 0.00 0.00 0.00 (1.97) (4.83) (0.39)
Net Asset Value, end of
period................. $ 9.97 $ 8.13 $ 9.67 $ 14.17 $ 22.93 $ 14.93
======= ======= ======= ======== ======== ========
Total Return/Ratios
Total return......... 22.63% (15.93%) (31.76%) (29.65%) 87.44% 12.50%
Net assets, end of
period (000s)...... $51,895 $50,742 $78,574 $182,036 $261,437 $124,572
Net expenses to
average net
assets#,+.......... 2.33%** 2.18% 1.90% 1.59% 1.63% 1.52%
Gross expenses to
average net
assets#,+.......... 2.33%** 2.18% 1.92% 1.61% 1.64% 1.54%
Net investment income
(loss) to average
net assets+........ 0.64%** (0.74%) (0.30%) (0.88%) (0.91%) 0.09%
Portfolio turnover
rate@.............. 583% 495% 704% 535% 330% 34%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 2.42% (2003) and 2.21% (2002). The gross
expense ratios would have been 2.42% (2003) and 2.21% (2002). The net
investment income (loss) ratios would have been 0.55% (2003) and (0.77%)
(2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
26
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS R SHARES
Net Asset Value, beginning of
period...................... $ 7.87 $ 9.56 $ 14.22 $ 22.93
Income from investment
operations:
Net investment income
(loss).................. 0.08 (0.81) (0.17) (0.09)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.71 (0.88) (4.49) (6.65)
------ ------- ------- -------
Total from investment
operations.......... 1.79 (1.69) (4.66) (6.74)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.66 $ 7.87 $ 9.56 $ 14.22
====== ======= ======= =======
Total Return/Ratios
Total return.............. 22.74% (17.68%) (32.77%) (29.44%)
Net assets, end of period
(000s).................. $ 46 $ 37 $ 76 $ 241
Net expenses to average
net assets#,+........... 2.38%** 3.91% 1.84% 1.31%
Gross expenses to average
net assets#,+........... 2.39%** 3.94% 1.86% 1.33%
Net investment income
(loss) to average net
assets+................. 0.88%** (2.20%) (0.08%) (0.55%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian or reimbursed by the management
company for the six months ended June 30, 2003 and the years ended December
31, 2002 and 2001. Had these fees not been waived or reimbursed, the net
expense ratios would have been 2.48% (2003), 4.62% (2002), and 2.76%
(2001). The gross expense ratios would have been 2.49% (2003), 4.65%
(2002), and 2.78% (2001). The net investment income (loss) ratios would
have been 0.78% (2003), (2.91%) (2002), and (1.00%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -----------------------------------
JUNE 30, 2003 2002 2001 2000
-------------- ---------- ---------- -----------
CLASS T SHARES
Net Asset Value, beginning of
period...................... $ 7.87 $ 9.50 $ 14.14 $ 22.93
Income from investment
operations:
Net investment loss....... (0.17) (0.45) (0.22) (0.16)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.92 (1.18) (4.42) (6.66)
------ ------- ------- -------
Total from investment
operations.......... 1.75 (1.63) (4.64) (6.82)
Less distributions:
From net investment
income.................. 0.00 0.00 0.00 0.00
From net realized gains... 0.00 0.00 0.00 (1.97)
------ ------- ------- -------
Total distributions... 0.00 0.00 0.00 (1.97)
Net Asset Value, end of
period...................... $ 9.62 $ 7.87 $ 9.50 $ 14.14
====== ======= ======= =======
Total Return/Ratios
Total return*............. 22.24% (17.16%) (32.82%) (29.79%)
Net assets, end of period
(000s).................. $ 346 $ 345 $ 538 $ 869
Net expenses to average
net assets#,+........... 3.12%** 4.03% 3.14% 1.84%
Gross expenses to average
net assets#,+........... 3.13%** 4.03% 3.16% 1.87%
Net investment income
(loss) to average net
assets+................. 0.07%** (2.69%) (1.60%) (1.00%)
Portfolio turnover
rate@................... 583% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003 and year ended December 31, 2002. Had these fees not been waived, the
net expense ratios would have been 3.21% (2003) and 4.05% (2002). The gross
expense ratios would have been 3.22% (2003) and 4.05% (2002). The net
investment loss ratios would have been (0.02%) (2003) and (2.71%) (2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Passport Fund (the "Fund"). The Fund offers Class A,
Class B, Class C, Class F, Class R, and Class T shares. Class A and Class T
shares are subject to a sales charge imposed at the time of purchase, Class B
shares are subject to a contingent deferred sales charge ("CDSC") imposed on
Class B share redemptions made within six years of purchase, Class C shares are
subject to a CDSC imposed on Class C shares redeemed within one year of
purchase, and Class F and Class R shares are sold at net asset value per share
(with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATIONS--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
normally will invest a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2003 for settling foreign trades is listed on
the Statement of Assets and Liabilities.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal
30
<Page>
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$12,278 and $26,862, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $5,644 and $9,893, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A..................................................... $17,372
Class B..................................................... $29,342
Class C..................................................... $10,739
Class R..................................................... $ 270
Class T..................................................... $ 1,442
</Table>
32
<Page>
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of the
Fund's shares. The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 applicable to its Class F shares. Under
the plan, the Fund is authorized to reimburse DSC for expenses paid for
distributing its Class F shares at an annual rate of up to 0.25% of the value of
the average daily net assets of the Fund's Class F shares. During the six months
ended June 30, 2003, Class F shares were charged $61,200 pursuant to this
Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A..................................................... N/A $11,918
Class B..................................................... $46,453 $15,484
Class C..................................................... $19,281 $ 6,428
Class T..................................................... $ 453 $ 453
</Table>
During the six months ended June 30, 2003, DSC retained $4,828 and $37 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $79,895 and $493 of contingent deferred sales charges relating
to redemptions of Class B and Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES FEES--The Funds have agreed to
compensate Founders for providing accounting services, administration,
compliance monitoring, regulatory and shareholder reporting, as well as related
facilities, equipment and clerical help. The fee is computed at the annual rate
of 0.10% of the average daily net assets of the Fund on the first $500 million,
0.065% of the average daily net assets of the Fund on the next $500 million, and
0.02% of the
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
average daily net assets of the Fund in excess of $1 billion, plus reasonable
out-of-pocket expenses. Founders has agreed to waive any fees received for these
services to the extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $33,699. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
34
<Page>
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2008
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $199,680,397
Post-October Capital Loss Deferral.......................... $1,210,495
Post-October Currency Loss Deferral......................... $ 1,893
Federal Tax Cost............................................ $79,957,211
Gross Tax Appreciation of Investments....................... $5,384,679
Gross Tax Depreciation of Investments....................... $(2,784,322)
Net Tax Appreciation........................................ $2,600,357
</Table>
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 400 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- -------------
CLASS A
Sold.................................................. 1,470,573 $ 12,236,435 5,383,012 $ 50,430,851
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (1,554,686) $ (12,990,359) (5,673,919) $ (53,347,624)
NET DECREASE.......................................... (84,113) $ (753,924) (290,907) $ (2,916,773)
CLASS B
Sold.................................................. 15,750 $ 135,748 41,666 $ 391,779
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (227,218) $ (1,852,239) (489,773) $ (4,490,764)
NET DECREASE.......................................... (211,468) $ (1,716,491) (448,107) $ (4,098,985)
</Table>
35
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- -------------
CLASS C
Sold.................................................. 750,180 $ 5,971,628 481,390 $ 4,684,798
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (843,855) $ (6,760,708) (754,486) $ (7,247,974)
NET DECREASE.......................................... (93,675) $ (789,080) (273,096) $ (2,563,176)
CLASS F
Sold.................................................. 2,341,034 $ 19,863,862 9,855,244 $ 92,121,343
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (3,379,560) $ (28,923,162) (11,734,716) $(110,071,199)
NET DECREASE.......................................... (1,038,526) $ (9,059,300) (1,879,472) $ (17,949,856)
CLASS R
Sold.................................................. 40,754 $ 335,000 315,313 $ 3,139,336
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (40,754) $ (371,271) (318,502) $ (3,160,762)
NET DECREASE.......................................... 0 $ (36,271) (3,189) $ (21,426)
CLASS T
Sold.................................................. 149,855 $ 1,164,172 371,045 $ 3,559,032
Dividends or Distributions Reinvested................. 0 $ 0 0 $ 0
Redeemed.............................................. (157,674) $ (1,268,483) (383,873) $ (3,707,203)
NET DECREASE.......................................... (7,819) $ (104,311) (12,828) $ (148,171)
</Table>
36
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings is subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
37
<Page>
This page intentionally left blank.
38
<Page>
FOR MORE INFORMATION
DREYFUS FOUNDERS
PASSPORT FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
2930 East Third Avenue
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
To obtain information:
- --------------------------------- Dreyfus Transfer, Inc.
BY TELEPHONE | 200 Park Avenue
Call your financial | New York, NY 10166
representative or |
1-800-554-4611 |
| DISTRIBUTOR
BY MAIL Write to: |
Dreyfus Founders Funds | Dreyfus Service Corporation
144 Glenn Curtiss Boulevard | 200 Park Avenue
Uniondale, NY 11556-0144 | New York, NY 10166
Dreyfus Founders Funds are managed by Founders Asset Management LLC.
Founders and Founders Funds are registered trademarks of Founders Asset
Management LLC.
(C)2003 Dreyfus Service Corporation 281SA0603
<Page>
DREYFUS FOUNDERS
WORLDWIDE
GROWTH FUND
SEMIANNUAL REPORT JUNE 30, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY(sm)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 19
Statement of Operations 21
Statements of Changes in Net Assets 22
Financial Highlights 23
Notes to Financial Statements 29
</Table>
The views expressed herein are current to the date of this report. The views and
the composition of the Fund's portfolio are subject to change at any time based
on market and other conditions. Companies appearing in bold print on pages 3-9
were owned by the Fund on June 30, 2003. The amounts of these holdings are
included in the Statement of Investments.
- NOT FDIC-INSURED - NOT BANK-GUARANTEED - MAY LOSE VALUE
<Page>
MANAGEMENT OVERVIEW
[PHOTO OF REMI J. BROWNE]
[PHOTO OF JOHN B. JARES]
[PHOTO OF DANIEL B. LEVAN]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, JOHN B. JARES, CFA,
AND DANIEL B. LEVAN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK IN THE SIX MONTHS ENDED JUNE
30?
It has been an interesting time period for world equity markets. After three
years of negative returns, stocks have again begun to post positive numbers. On
a Fund level, the Dreyfus Founders Worldwide Growth Fund gained ground during
the period and posted a return(1) that was competitive with its benchmark, the
Morgan Stanley Capital International (MSCI) World Index which gained 11.12%.
WHAT BROAD MARKET FACTORS MOST IMPACTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
The market experienced two distinct environments during the half, which
separated neatly into calendar quarters. The first quarter experienced
continued downshifting as geopolitical uncertainty in the Middle East and
- ----------
(1) Excluding sales charges, which result in lower returns for certain share
classes. Please see page 7 for Average Annual and Year-to-Date Total Returns for
all share classes, including and excluding sales charges.
[SIDENOTE]
"THE FUND'S PERFORMANCE WAS DRIVEN PRIMARILY BY STRONG STOCK SELECTION IN THE
HEALTHCARE AND CONSUMER DISCRETIONARY SECTORS."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - The impressive mid-period rally continued to boost the market through the end
of the June reporting period.
- - Technology and telecommunications sectors performed well for both the market
and the Fund.
- - Changes made to the Fund upon its management shift showed positive results.
- - Our strategy in the midst of economic and market changes remains constant as
we dedicate ourselves to seeking the best growth companies through our
bottom-up fundamentals-based research approach.
health concerns over the onset of Severe Acute Respiratory Syndrome (SARS) in
Asia depressed equity prices. Both factors weighed heavily upon already stressed
domestic and foreign equity markets. However, by the opening of the second
quarter, expectations for an economic recovery and improving investor confidence
helped advance performance, more than offsetting the declines experienced in the
first quarter. The market remained, at the end of the period, on solid ground,
posting substantial year-to-date returns.
MR. BROWNE AND MR. LEVAN, WHAT CHANGES WERE MADE TO THE INTERNATIONAL PORTION OF
THE FUND AFTER YOU BECAME CO-PORTFOLIO MANAGERS IN MARCH?
The international portion of the Fund was revamped upon our move into its
management position. While we were familiar with many of the international names
held in the Fund, we kept select names, but repositioned the international
portion of the Fund to reflect our focus on companies with increasing business
momentum and strong underlying growth relative to their valuation. We did
increase the number of names in the portfolio, while reducing our weighted
average price-to-earnings ratio and increasing our exposure to earnings growth.
4
<Page>
WHAT FACTORS POSITIVELY CONTRIBUTED TO THE FUND'S PERFORMANCE DURING THE
SIX-MONTH PERIOD?
Fund performance was primarily driven by strong stock selection in the
healthcare and consumer discretionary sectors. In addition, good stock selection
in the United States, Greece, the United Kingdom and Italy boosted the Fund's
relative performance.
One of the Fund's stronger healthcare holdings, Canadian-based
pharmaceutical company BIOVAIL CORPORATION, was up 78% for the first half of the
year, and contributed significantly to the Fund's overall performance. Biovail's
strong performance was due in part to positive news the company released
concerning several drugs in their pipeline.
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Estee Lauder Companies, Inc. (United States; EL) 2.79%
2. General Electric Company (United States; GE) 2.46%
3. Best Buy Company, Inc. (United States; BBY) 2.08%
4. Pfizer, Inc. (United States; PFE) 2.06%
5. Royal Caribbean Cruises Limited (United States; RCL) 1.87%
6. MBNA Corporation (United States; KRB) 1.79%
7. Smith International, Inc. (United States; SII) 1.51%
8. Tiffany & Company (United States; TIF) 1.43%
9. Wal-Mart Stores, Inc. (United States; WMT) 1.31%
10. Vodafone Group PLC (United Kingdom; VOD) 1.30%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
Another global leader that was a major positive contributor to the Fund was
German software company SAP AG. A multinational company with a leading position
in the enterprise software business, SAP reported strong first quarter numbers
in the beginning of April. This increase in
[CHART]
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The above graph compares a
$10,000 investment made in Class F shares of Dreyfus Founders Worldwide Growth
Fund on 6/30/93 to a $10,000 investment made in an unmanaged securities index on
that date. The Fund's performance assumes the reinvestment of dividends and
capital gain distributions, but does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares. The
Fund offers multiple classes of shares. Performance shown is for Class F, which
is open only to grandfathered investors. The Fund's performance in the graph
takes into account all applicable Class F fees and expenses. These figures do
not reflect the maximum sales charges applicable to Class A, B, C, or T shares
of the Fund. For these share classes, applying these charges will result in
lower returns for investors.
The Morgan Stanley Capital International (MSCI) World Index is an
arithmetical average of the performance of selected securities listed on the
stock exchanges of the United States, Europe, Canada, Australia, New Zealand,
and the Far East. Total return figures for this index assume change in share
price and reinvestment of dividends after the deduction of local taxes, but do
not reflect the costs of managing a mutual fund. Further information related to
Fund performance is contained elsewhere in this report.
6
<Page>
performance was attributable to its license business exceeding expectations, as
well as positive growth in U.S. markets. The company was also able to reduce
costs significantly, which helped expand its operating margins.
In the Fund's domestic holdings, we saw excellent returns in the
consumer-related sectors. Holdings such as BEST BUY COMPANY, INC., the leading
retailer of consumer electronics, and ESTEE LAUDER COMPANIES, INC.,
AVERAGE ANNUAL AND YEAR-TO-DATE TOTAL RETURN AS OF 6/30/03
<Table>
<Caption>
YEAR-TO- 1 5 10 SINCE
DATE+ YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 6.00% (10.09%) -- -- (21.06%)
Without sales charge 12.50% (4.59%) -- -- (19.71%)
CLASS B SHARES (12/31/99)
With redemption* 8.07% (9.09%) -- -- (20.85%)
Without redemption 12.07% (5.31%) -- -- (20.30%)
CLASS C SHARES (12/31/99)
With redemption** 11.19% (6.15%) -- -- (20.72%)
Without redemption 12.19% (5.20%) -- -- (20.72%)
CLASS F SHARES (12/31/89) 12.61% (4.58%) (7.99%) 3.56% 5.80%
CLASS R SHARES (12/31/99) 12.80% (4.03%) -- -- (19.31%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 6.78% (11.18%) -- -- (22.06%)
Without sales charge 11.79% (6.96%) -- -- (21.03%)
</Table>
Due to market volatility, current performance may differ from the figures shown.
Please call us or visit www.founders.com for the most recent returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual and year-to-date
total returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares, but do reflect the
reinvestment of dividends and capital gain distributions, expense limits for
certain share classes, and adjustments for financial statement purposes. Part of
the Fund's historical performance is due to the purchase of securities sold in
initial public offerings (IPOs). There is no guarantee that the Fund's
investments in IPOs, if any, will continue to have a similar impact on
performance. Investments in foreign securities may entail unique risks,
including political, market, and currency risks.
*The maximum contingent deferred sales charge for Class B shares is 4% and
is reduced to 0% after six years, at which time the Class B shares convert to
Class A shares.
**The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of the date of purchase.
+Total return is not annualized.
7
<Page>
the manufacturer and distributor of cosmetics and fragrances, benefited from an
increase in consumer spending during the period and posted strong gains. Another
standout performer that benefited from this spending trend was credit-card
issuer, MBNA CORPORATION.
WHAT WERE THE LARGEST HINDRANCES TO THE FUND'S PERFORMANCE?
Disappointments in a few major holdings and weak stock selection in France,
Japan and Switzerland hampered Fund performance. For example, some of our
positions in the information technology and financials sectors, including
India's Satyam Computer Services Limited and Britain's Amvescap PLC, were
detrimental to the Fund. Both of these international holdings were sold once our
combined tenure began.
[CHART]
PORTFOLIO COMPOSITION
<Table>
53.51% United States
10.57% United Kingdom
8.33% Japan
3.14% Germany
2.99% France
2.72% Canada
2.71% Switzerland
1.70% Spain
2.83% Cash & Equivalents
11.50% Other Countries
</Table>
The Fund's portfolio composition is subject to change, and there is no assurance
the Fund will continue to hold any particular security. Opinions regarding
sectors, industries, companies, and/or themes are those of the portfolio
managers and are subject to change at any time, based on market and other
conditions, and should not be construed as a recommendation of any specific
security.
8
<Page>
On the domestic front, JOHNSON & JOHNSON was a notable underperformer
during the period as the company grappled with competition in some of its
larger, more profitable products. Soft drink bottler Coca-Cola Enterprises, Inc.
also posted poor results, which put an additional drag on the Fund's
performance.
As we move into the second half of 2003, our strategy remains consistent. We
will continue to rely on our bottom-up research process to seek companies
throughout the world that we believe are capable of posting strong future
revenue and earnings growth at valuations that make sense.
/s/ Remi J. Browne
Remi J. Browne, CFA
Co-Portfolio Manager
/s/ John B. Jares
John B. Jares, CFA
Co-Portfolio Manager
/s/ Daniel B. LeVan
Daniel B. LeVan, CFA
Co-Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-53.5%
AIRLINES-2.0%
23,050 Delta Air Lines, Inc.............................. $ 338,374
39,300 Northwest Airlines Corporation Class A*........... 443,697
48,875 Southwest Airlines Company........................ 840,650
----------------
1,622,721
----------------
APPLICATION SOFTWARE-0.4%
17,875 PeopleSoft, Inc.*................................. 314,421
----------------
ASSET MANAGEMENT & CUSTODY BANKS-1.5%
8,325 Bank of New York Company, Inc..................... 239,344
58,200 Janus Capital Group, Inc.......................... 954,480
----------------
1,193,824
----------------
BIOTECHNOLOGY-0.7%
10,125 Gilead Sciences, Inc.*............................ 562,748
----------------
BROADCASTING & CABLE TV-2.3%
10,000 Clear Channel Communications, Inc.*............... 423,900
35,075 Comcast Corporation Special Class A*.............. 1,011,212
13,875 Cox Communications, Inc.*......................... 442,613
----------------
1,877,725
----------------
COMMUNICATIONS EQUIPMENT-0.7%
35,375 Cisco Systems, Inc.*.............................. 590,409
----------------
COMPUTER & ELECTRONICS RETAIL-2.1%
38,237 Best Buy Company, Inc.*........................... 1,679,369
----------------
COMPUTER HARDWARE-1.2%
11,525 International Business Machines Corporation....... 950,813
----------------
CONSUMER FINANCE-1.8%
69,525 MBNA Corporation.................................. 1,448,901
----------------
</Table>
GUIDE TO UNDERSTANDING FOREIGN HOLDINGS
The following abbreviations are used throughout the Statement of Investments
to indicate the country of origin of non-U.S. holdings:
<Table>
AU Australia
AT Austria
BA Barbados
BD Bermuda
BE Belgium
CA Canada
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PH Philippines
PU Puerto Rico
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
UK United Kingdom
VI Virgin Islands
</Table>
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-2.2%
17,750 First Data Corporation............................ $ 735,560
29,000 Fiserv, Inc.*..................................... 1,032,690
----------------
1,768,250
----------------
DIVERSIFIED BANKS-2.2%
12,500 Bank of America Corporation....................... 987,875
15,125 Wells Fargo & Company............................. 762,300
----------------
1,750,175
----------------
FOOD RETAIL-1.1%
41,550 Safeway, Inc.*.................................... 850,113
----------------
GAS UTILITIES-1.1%
16,325 Kinder Morgan, Inc................................ 892,161
----------------
HEALTHCARE EQUIPMENT-1.3%
16,500 Boston Scientific Corporation*.................... 1,008,150
----------------
HEALTHCARE SERVICES-0.7%
22,900 Caremark Rx, Inc.*................................ 588,072
----------------
HOME IMPROVEMENT RETAIL-1.2%
28,300 Home Depot, Inc................................... 937,296
----------------
HOUSEHOLD PRODUCTS-0.9%
13,000 Colgate-Palmolive Company......................... 753,350
----------------
HYPERMARKETS & SUPER CENTERS-1.3%
19,750 Wal-Mart Stores, Inc.............................. 1,059,983
----------------
INDUSTRIAL CONGLOMERATES-2.7%
69,325 General Electric Company.......................... 1,988,241
4,650 Ingersoll-Rand Company Class A.................... 220,038
----------------
2,208,279
----------------
INDUSTRIAL GASES-0.6%
8,000 Praxair, Inc...................................... 480,800
----------------
INDUSTRIAL MACHINERY-0.7%
8,825 Illinois Tool Works, Inc.......................... 581,126
----------------
INVESTMENT BANKING & BROKERAGE-0.6%
6,125 Goldman Sachs Group, Inc.......................... 512,969
----------------
LEISURE FACILITIES-1.9%
65,100 Royal Caribbean Cruises Limited................... 1,507,716
----------------
MOVIES & ENTERTAINMENT-0.3%
6,325 Viacom, Inc. Class B*............................. 276,150
----------------
OIL & GAS DRILLING-0.2%
7,900 GlobalSantaFe Corporation......................... 184,386
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.5%
33,275 Smith International, Inc.*........................ $ 1,222,524
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.1%
21,583 Citigroup, Inc.................................... 923,752
----------------
PERSONAL PRODUCTS-2.8%
67,175 Estee Lauder Companies, Inc. Class A.............. 2,252,378
----------------
PHARMACEUTICALS-3.5%
4,775 Forest Laboratories, Inc.*........................ 261,431
16,475 Johnson & Johnson................................. 851,758
48,612 Pfizer, Inc....................................... 1,660,100
----------------
2,773,289
----------------
RAILROADS-0.5%
7,025 Union Pacific Corporation......................... 407,591
----------------
SEMICONDUCTOR EQUIPMENT-1.2%
11,300 KLA-Tencor Corporation*........................... 525,337
12,525 Novellus Systems, Inc.*........................... 458,678
----------------
984,015
----------------
SEMICONDUCTORS-3.1%
13,375 Altera Corporation*............................... 219,350
32,050 Intel Corporation................................. 666,127
30,350 Linear Technology Corporation..................... 977,574
11,575 Maxim Integrated Products, Inc.*.................. 395,749
9,450 Xilinx, Inc.*..................................... 239,180
----------------
2,497,980
----------------
SOFT DRINKS-1.0%
17,275 Coca-Cola Company................................. 801,733
----------------
SPECIALTY STORES-1.4%
35,225 Tiffany & Company................................. 1,151,153
----------------
SYSTEMS SOFTWARE-5.7%
28,875 Adobe Systems, Inc................................ 926,021
57,975 BMC Software, Inc.*............................... 946,732
34,400 Microsoft Corporation............................. 880,984
84,600 Oracle Corporation*............................... 1,016,892
28,125 VERITAS Software Corporation*..................... 806,344
----------------
4,576,973
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST- $37,359,358)................................................. 43,191,295
----------------
</Table>
12
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
COMMON STOCKS (FOREIGN)-43.7%
APPLICATION SOFTWARE-1.2%
7,800 Cognos, Inc. (CA)*................................ $ 209,351
6,600 SAP AG (GE)....................................... 773,082
----------------
982,433
----------------
AUTO PARTS & EQUIPMENT-0.5%
8,400 Canadian Tire Corporation Limited Class A (CA).... 200,913
11,000 Nok Corporation (JA).............................. 182,669
----------------
383,582
----------------
AUTOMOBILE MANUFACTURERS-1.0%
51,600 Nissan Motor Company Limited (JA)................. 493,332
7,100 PSA Peugeot Citroen (FR).......................... 344,890
----------------
838,222
----------------
BIOTECHNOLOGY-0.2%
2,900 Actelion Limited (SZ)*............................ 193,119
----------------
BREWERS-0.7%
30,000 Fraser & Neave Limited (SG)....................... 146,508
20,000 Kirin Brewery Company Limited (JA)................ 140,579
65,100 Lion Nathan Limited (AU).......................... 234,012
----------------
521,099
----------------
BROADCASTING & CABLE TV-0.2%
57,500 Seven Network Limited (AU)........................ 183,170
----------------
COMMERCIAL PRINTING-0.3%
19,000 Dai Nippon Printing Company Limited (JA).......... 200,958
----------------
COMMUNICATIONS EQUIPMENT-0.6%
16,300 Nokia Oyj (FI).................................... 268,422
82,100 Nortel Networks Corporation (CA)*................. 219,932
----------------
488,354
----------------
COMPUTER STORAGE & PERIPHERALS-0.4%
9,100 Logitech International SA (SZ)*................... 341,292
----------------
CONSTRUCTION & ENGINEERING-0.5%
8,600 ACS, Actividades de Construccion y Servicios SA
(SP).............................................. 366,893
----------------
CONSTRUCTION MATERIALS-0.2%
50,500 Boral Limited (AU)*............................... 171,370
----------------
CONSUMER ELECTRONICS-0.7%
7,700 Pioneer Corporation (JA).......................... 173,142
30,000 Sharp Corporation (JA)............................ 385,009
----------------
558,151
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
CONSUMER FINANCE-0.2%
37,200 Bradford & Bingley PLC (UK)....................... $ 192,906
----------------
DIVERSIFIED BANKS-7.0%
10,700 ABN AMRO Holding NV (NE).......................... 204,588
14,100 Alliance & Leicester PLC (UK)..................... 193,119
38,000 Alpha Bank AE (GR)................................ 662,425
42,400 Anglo Irish Bank Corporation PLC (IE)............. 374,920
90,302 Banca Intesa SPA (IT)............................. 288,805
51,071 Barclays PLC (UK)................................. 379,240
10,589 BNP Paribas SA (FR)............................... 538,084
52,500 HBOS PLC (UK)..................................... 679,641
7,600 Jyske Bank SA (DE)*............................... 306,579
69 Mitsubishi Tokyo Financial Group, Inc. (JA)....... 312,030
25,088 Royal Bank of Scotland Group PLC (UK)............. 703,789
17,400 Skandinaviska Enskilda Banken (SW)................ 177,154
2,800 Societe Generale (FR)............................. 177,492
50,632 Standard Chartered PLC (UK)....................... 614,937
----------------
5,612,803
----------------
DIVERSIFIED CAPITAL MARKETS-0.3%
3,744 UBS AG (SZ)....................................... 208,276
----------------
DIVERSIFIED CHEMICALS-0.4%
6,600 BASF AG (GE)...................................... 280,811
----------------
DIVERSIFIED METALS & MINING-0.2%
33,800 BHP Billiton PLC (UK)............................. 177,924
----------------
ELECTRIC UTILITIES-1.0%
6,900 E.ON AG (GE)...................................... 353,795
15,973 Endesa SA (SP).................................... 267,440
4,700 Fortis, Inc. (CA)................................. 204,077
----------------
825,312
----------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.3%
29,000 Sumitomo Electric Industries Limited (JA)......... 211,809
----------------
ELECTRONIC EQUIPMENT MANUFACTURERS-0.4%
1,700 Keyence Corporation (JA).......................... 311,472
----------------
FOOD RETAIL-0.5%
6,900 Delhaize Group (BE)............................... 209,979
16,100 Metro, Inc. (CA).................................. 232,827
----------------
442,806
----------------
HEALTHCARE DISTRIBUTORS-0.2%
8,100 Suzuken Company Limited (JA)...................... 192,255
----------------
HEALTHCARE EQUIPMENT-0.3%
8,200 Getinge AB Class B (SW)........................... 217,679
----------------
HOME FURNISHINGS-0.3%
6,300 Hunter Douglas NV (NE)............................ 209,807
----------------
</Table>
14
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
HOMEBUILDING-0.2%
26,600 Barratt Developments PLC (UK)..................... $ 189,624
----------------
HOUSEHOLD PRODUCTS-0.5%
21,350 Reckitt Benckiser PLC (UK)........................ 391,769
----------------
HOUSEWARES & SPECIALTIES-0.4%
7,600 Citizen Electronics Company Limited (JA).......... 331,659
----------------
HYPERMARKETS & SUPER CENTERS-0.3%
6,800 Metro AG (GE)..................................... 216,385
----------------
INDUSTRIAL CONGLOMERATES-0.8%
17,200 DCC PLC (IE)...................................... 231,098
39,000 Hutchison Whampoa Limited (HK).................... 237,558
71,700 Keppel Corporation Limited (SG)................... 199,506
----------------
668,162
----------------
INDUSTRIAL MACHINERY-0.3%
7,400 Saurer AG (SZ)*................................... 202,141
----------------
INTEGRATED OIL & GAS-2.0%
94,942 BP PLC (UK)....................................... 658,406
1,300 OMV AG (AT)....................................... 156,185
22,000 Repsol YPF SA (SP)................................ 356,729
51,300 Shell Transport & Trading Company PLC (UK)........ 338,614
601 Total SA (FR)..................................... 90,826
----------------
1,600,760
----------------
INTEGRATED TELECOMMUNICATION SERVICES-2.7%
116,000 BT Group PLC (UK)................................. 390,017
14,100 Deutsche Telekom AG (GE)*......................... 214,706
35,700 Koninklijke NV (NE)*.............................. 252,950
9,500 NetCom AB Class B (SW)*........................... 353,065
75 Nippon Telegraph & Telephone Corporation (JA)..... 294,191
11,000 TDC AS Class B (DE)............................... 328,975
83,000 TeliaSonera AB (SW)............................... 344,239
----------------
2,178,143
----------------
IT CONSULTING & OTHER SERVICES-1.6%
46,400 Accenture Limited Class A ADR (BD)*............... 839,376
12,300 Cap Gemini SA (FR)................................ 436,743
----------------
1,276,119
----------------
LEISURE PRODUCTS-0.5%
10,600 Bandai Company Limited (JA)....................... 404,314
----------------
OFFICE ELECTRONICS-0.7%
13,000 Canon, Inc. (JA).................................. 596,544
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------
OIL & GAS DRILLING-0.4%
46,300 Saipem SPA (IT)................................... $ 346,665
4,825 Nabors Industries Limited (BA)*................... 190,829
----------------
537,494
----------------
OIL & GAS EQUIPMENT & SERVICES-0.3%
11,400 ProSafe ASA (NW)*................................. 206,888
----------------
OIL & GAS EXPLORATION & PRODUCTION-0.7%
40,200 Cairn Energy PLC (UK)*............................ 202,990
10,100 Eni SPA (IT)...................................... 152,753
7,600 Penn West Petroleum Limited (CA)*................. 243,303
----------------
599,046
----------------
PACKAGED FOODS & MEATS-0.8%
20,000 Nisshin Seifun Group, Inc. (JA)................... 142,078
94,300 Parmalat Finaziaria SPA (IT)...................... 296,718
26,900 Viscofan SA (SP).................................. 209,442
----------------
648,238
----------------
PHARMACEUTICALS-4.9%
4,600 Altana AG (GE).................................... 287,896
7,100 AstraZeneca Group PLC (UK)........................ 284,703
5,763 Biovail Corporation (CA)*......................... 271,207
47,900 Galen Holdings PLC (UK)........................... 411,418
23,452 GlaxoSmithKline PLC (UK).......................... 473,297
19,188 Novartis AG (SZ).................................. 759,304
13,000 Ono Pharmaceuticals Company Limited (JA).......... 402,748
5,975 Sanofi-Synthelabo SA (FR)......................... 349,937
27,000 Shire Pharmaceuticals Group PLC (UK)*............. 178,218
14,000 Takeda Chemical Industries Limited (JA)........... 516,511
----------------
3,935,239
----------------
PRECIOUS METALS & MINERALS-0.3%
17,300 ThyssenKrupp AG (GE).............................. 198,271
----------------
PROPERTY & CASUALTY INSURANCE-0.8%
17,900 Kingsway Financial Services, Inc. (CA)*........... 215,385
68,000 QBE Insurance Group Limited (AU).................. 425,029
----------------
640,414
----------------
PUBLISHING-0.3%
27,700 Johnston Press PLC (UK)........................... 197,982
----------------
RAILROADS-0.5%
8,300 Canadian National Railway Company (CA)............ 400,558
----------------
REAL ESTATE INVESTMENT TRUSTS-0.3%
110 Sumitomo Mitsui Financial Group, Inc. (JA)........ 240,017
----------------
</Table>
16
<Page>
<Table>
- -------------------------------------------------------------------------------------------
<Caption>
SHARES MARKET VALUE
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.8%
55,300 Cheung Kong (Holdings) Limited (CN)............... $ 332,590
197,000 Henderson Investment Limited (HK)................. 189,469
22,302 Inmobiliaria Urbis SA (SP)........................ 171,849
15,000 Land Securities PLC (UK).......................... 193,441
41,000 Mitsui Fudosan Company Limited (JA)............... 261,895
4,900 Wereldhave NV (NE)................................ 308,079
----------------
1,457,323
----------------
SEMICONDUCTORS-0.7%
6,775 Marvell Technology Group Limited (BD)*............ 232,857
15,400 Micronas Semiconductor Holding AG (SZ)*........... 310,388
----------------
543,245
----------------
SOFT DRINKS-0.1%
8,000 Kirin Beverage Corporation (JA)................... 120,192
----------------
SPECIALTY CHEMICALS-0.2%
2,900 Ciba Specialty Chemicals AG (SZ)*................. 175,563
----------------
THRIFTS & MORTGAGE FINANCE-0.5%
38,000 Northern Rock PLC (UK)............................ 447,096
----------------
TIRES & RUBBER-0.3%
9,900 Continental AG (GE)............................... 207,823
----------------
TRADING COMPANIES & DISTRIBUTORS-0.4%
42,000 Mitsubishi Corporation (JA)....................... 291,368
----------------
TRUCKING-0.3%
37,000 Seino Transportation Company Limited (JA)......... 211,693
----------------
WATER UTILITIES-0.2%
26,700 Kelda Group PLC (UK).............................. 188,354
----------------
WIRELESS TELECOMMUNICATION SERVICES-2.3%
79 KDDI Corporation (JA)............................. 305,934
53,800 Orange SA (FR)*................................... 477,577
535,475 Vodafone Group PLC (UK)........................... 1,047,081
----------------
1,830,592
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$30,737,052).................................................. 35,245,519
----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF INVESTMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
<Caption>
PRINCIPAL
AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES-3.2%
OTHER DIVERSIFIED FINANCIAL SERVICES-3.2%
$ 2,600,000 Merrill Lynch & Company
1.30% 7/1/03...................................... $ 2,600,000
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$2,600,000)......................................... 2,600,000
----------------
TOTAL INVESTMENTS-100.4%
(TOTAL COST-$70,696,410)............................................ 81,036,814
----------------
OTHER ASSETS AND LIABILITIES-(0.4%)................................. (317,842)
----------------
NET ASSETS-100.0%................................................... $ 80,718,972
================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED)
<Table>
ASSETS
Investment securities, at cost.............................. $ 70,696,410
------------
Investment securities, at market............................ 81,036,814
Cash........................................................ 156,246
Foreign currency (cost $242,802)............................ 241,919
Receivables:
Investment securities sold................................ 1,124,773
Capital shares sold....................................... 3,696
Dividends................................................. 58,517
From transfer agent....................................... 1,644
Other assets................................................ 71,349
------------
Total Assets............................................ 82,694,958
------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased........................... 1,745,533
Capital shares redeemed................................... 32,919
Advisory fees............................................. 67,711
Shareholder servicing fees................................ 9,648
Accounting fees........................................... 5,180
Distribution fees......................................... 16,891
Custodian fees............................................ 6,568
Other..................................................... 91,536
------------
Total Liabilities....................................... 1,975,986
------------
Net Assets.................................................. $ 80,718,972
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus)..................... $161,938,727
Undistributed net investment income......................... 16,175
Accumulated net realized loss from security transactions
(net of foreign taxes on Indian investments of $59,092)... (91,581,201)
Net unrealized appreciation on investments and foreign
currency translation...................................... 10,345,271
------------
Total................................................... $ 80,718,972
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (UNAUDITED) (CONTINUED)
<Table>
Net Assets--Class A......................................... $ 511,674
Shares Outstanding--Class A................................. 54,666
Net Asset Value, Redemption Price Per Share................. $ 9.36
Maximum offering price per share
(net asset value plus sales charge of 5.75% of offering
price).................................................... $ 9.93
Net Assets--Class B......................................... $ 1,548,657
Shares Outstanding--Class B................................. 170,088
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge)
Per Share................................................. $ 9.10
Net Assets--Class C......................................... $ 232,560
Shares Outstanding--Class C................................. 26,051
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales charge)
Per Share................................................. $ 8.93
Net Assets--Class F......................................... $ 61,966,520
Shares Outstanding--Class F................................. 6,604,310
Net Asset Value, Offering and Redemption Price Per Share.... $ 9.38
Net Assets--Class R......................................... $ 16,408,825
Shares Outstanding--Class R................................. 1,723,585
Net Asset Value, Offering and Redemption Price Per Share.... $ 9.52
Net Assets--Class T......................................... $ 50,736
Shares Outstanding--Class T................................. 5,750
Net Asset Value, Redemption Price Per Share................. $ 8.82
Maximum offering price per share
(net asset value plus sales charge of 4.50% of offering
price).................................................... $ 9.24
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2003 (UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends................................................. $ 793,094
Interest.................................................. 15,975
Foreign taxes withheld.................................... (66,394)
------------
Total Investment Income................................. 742,675
------------
EXPENSES:
Advisory fees--Note 2..................................... 373,950
Shareholder servicing fees--Note 2........................ 61,221
Accounting fees--Note 2................................... 28,674
Distribution fees--Note 2................................. 78,756
Transfer agency fees--Note 2.............................. 54,077
Registration fees......................................... 29,893
Postage and mailing expenses.............................. 11,896
Custodian fees and expenses--Note 2....................... 39,409
Printing expenses......................................... 22,160
Legal and audit fees...................................... 7,934
Directors' fees and expenses--Note 2...................... 8,718
Other expenses............................................ 20,330
------------
Total Expenses.......................................... 737,018
Earnings Credits........................................ (1,013)
Reimbursed/Waived Expenses.............................. (6,501)
Expense Offset to Broker Commissions.................... (3,004)
------------
Net Expenses............................................ 726,500
------------
Net Investment Income..................................... 16,175
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Security transactions (net of foreign taxes on Indian
investments of $59,092)................................... (7,371,859)
Foreign currency transactions............................. 3,286
------------
Net Realized Loss....................................... (7,368,573)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation................ 16,390,671
------------
Net Realized and Unrealized Gain........................ 9,022,098
------------
Net Increase in Net Assets Resulting from Operations........ $ 9,038,273
============
Purchases of long-term securities........................... $ 59,647,602
Proceeds from sales of long-term securities................. $ 62,661,515
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
------------ ------------
OPERATIONS
Net Investment Income (Loss)................................ $ 16,175 $ (493,713)
Net Realized Loss........................................... (7,368,573) (21,248,091)
Net Change in Unrealized Appreciation/Depreciation.......... 16,390,671 (11,501,638)
----------- ------------
Net Increase (Decrease) in Net Assets Resulting from
Operations.............................................. 9,038,273 (33,243,442)
----------- ------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A................................................... (110,347) (185,979)
Class B................................................... (80,441) (3,433)
Class C................................................... (15,459) (61,045)
Class F................................................... (4,815,878) (14,839,943)
Class R................................................... 486,547 225,695
Class T................................................... (1,835) (19,951)
----------- ------------
Net Decrease from Capital Share Transactions................ (4,537,413) (14,884,656)
----------- ------------
Net Increase (Decrease) in Net Assets....................... 4,500,860 (48,128,098)
NET ASSETS
Beginning of period....................................... $76,218,112 $124,346,210
----------- ------------
End of period............................................. $80,718,972 $ 76,218,112
=========== ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS A SHARES
Net Asset Value, beginning of period........................ $ 8.32 $ 11.71 $ 15.78 $ 25.18
Income from investment operations:
Net investment loss..................................... (0.07) (0.15) (0.09) (0.09)
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.11 (3.24) (3.98) (5.44)
------- ------- ------- -------
Total from investment operations.................... 1.04 (3.39) (4.07) (5.53)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 9.36 $ 8.32 $ 11.71 $ 15.78
======= ======= ======= =======
Total Return/Ratios
Total return*........................................... 12.50% (28.95%) (25.79%) (21.82%)
Net assets, end of period (000s)........................ $ 512 $ 543 $ 1,003 $ 800
Net expenses to average net assets#,+................... 2.02%** 2.06% 2.09% 1.41%
Gross expenses to average net assets#,+................. 2.02%** 2.06% 2.10% 1.43%
Net investment loss to average net assets+.............. (0.03%)** (0.77%) (0.96%) (0.35%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003. Had these fees not been waived, the net expense ratio would have been
2.03%. The gross expense ratio would have been 2.03%. The net investment
loss ratio would have been (0.04%).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS B SHARES
Net Asset Value, beginning of period........................ $ 8.12 $ 11.52 $ 15.57 $ 25.18
Income from investment operations:
Net investment loss..................................... (0.06) (0.14) (0.15) (0.11)
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.04 (3.26) (3.90) (5.63)
------- ------- ------- -------
Total from investment operations.................... 0.98 (3.40) (4.05) (5.74)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 9.10 $ 8.12 $ 11.52 $ 15.57
======= ======= ======= =======
Total Return/Ratios
Total return*........................................... 12.07% (29.51%) (26.01%) (22.67%)
Net assets, end of period (000s)........................ $ 1,549 $ 1,459 $ 2,089 $ 2,329
Net expenses to average net assets#,+................... 2.81%** 2.70% 2.53% 2.21%
Gross expenses to average net assets#,+................. 2.81%** 2.71% 2.54% 2.25%
Net investment loss to average net assets+.............. (0.82%)** (1.41%) (1.43%) (1.40%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003. Had these fees not been waived, the net expense ratio would have been
2.83%. The gross expense ratio would have been 2.83%. The net investment
loss ratio would have been (0.84%).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
24
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS C SHARES
Net Asset Value, beginning of period........................ $ 7.96 $ 11.34 $ 15.56 $ 25.18
Income from investment operations:
Net investment loss..................................... (0.08) (0.30) (0.30) (0.11)
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.05 (3.08) (3.92) (5.64)
------- ------- ------- -------
Total from investment operations.................... 0.97 (3.38) (4.22) (5.75)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 8.93 $ 7.96 $ 11.34 $ 15.56
======= ======= ======= =======
Total Return/Ratios
Total return*........................................... 12.19% (29.81%) (27.12%) (22.70%)
Net assets, end of period (000s)........................ $ 233 $ 218 $ 380 $ 375
Net expenses to average net assets#,+................... 2.86%** 3.33% 4.17% 2.21%
Gross expenses to average net assets#,+................. 2.87%** 3.33% 4.18% 2.25%
Net investment loss to average net assets,+............. (0.97%)** (2.05%) (3.07%) (1.31%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian or reimbursed by the management
company for the six months ended June 30, 2003 and year ended December 31,
2002. Had these fees not been waived or reimbursed, the net expense ratios
would have been 2.88% (2003) and 3.40% (2002). The gross expense ratios
would have been 2.89% (2003) and 3.40% (2002). The net investment loss
ratios would have been (0.99%) (2003) and (2.12%) (2002).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- ------- -------- -------- -------- --------
CLASS F SHARES
Net Asset Value, beginning of period.............. $ 8.33 $ 11.72 $ 15.69 $ 25.17 $ 22.06 $ 21.11
Income from investment operations:
Net investment income (loss).................. (0.04) (0.13) (0.14) (0.16) (0.06) 0.08
Net gains (losses) on securities (both
realized and unrealized).................... 1.09 (3.26) (3.83) (5.45) 10.11 1.90
------- ------- -------- -------- -------- --------
Total from investment operations.......... 1.05 (3.39) (3.97) (5.61) 10.05 1.98
Less distributions:
From net investment income.................... 0.00 0.00 0.00 0.00 0.00 (0.09)
From net realized gains....................... 0.00 0.00 0.00 (3.87) (6.94) (0.94)
------- ------- -------- -------- -------- --------
Total distributions....................... 0.00 0.00 0.00 (3.87) (6.94) (1.03)
Net Asset Value, end of period.................... $ 9.38 $ 8.33 $ 11.72 $ 15.69 $ 25.17 $ 22.06
======= ======= ======== ======== ======== ========
Total Return/Ratios
Total return.................................. 12.61% (28.92%) (25.30%) (22.14%) 48.78% 9.63%
Net assets, end of period (000s).............. $61,967 $59,890 $101,592 $176,405 $284,839 $272,053
Net expenses to average net assets#,+......... 2.02%** 1.84% 1.60% 1.52% 1.53% 1.47%
Gross expenses to average net assets#,+....... 2.02%** 1.84% 1.61% 1.54% 1.55% 1.49%
Net investment income (loss) to average net
assets+..................................... (0.03%)** (0.55%) (0.50%) (0.67%) (0.27%) 0.33%
Portfolio turnover rate@...................... 172% 211% 145% 210% 157% 86%
</Table>
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003. Had these fees not been waived, the net expense ratio would have been
2.04%. The gross expense ratio would have been 2.04%. The net investment
loss ratio would have been (0.05%).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
26
<Page>
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS R SHARES
Net Asset Value, beginning of period........................ $ 8.44 $ 11.81 $ 15.75 $ 25.18
Income from investment operations:
Net investment income (loss)............................ 0.02 (0.01) (0.02) 0.00+
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.06 (3.36) (3.92) (5.56)
------- ------- ------- -------
Total from investment operations.................... 1.08 (3.37) (3.94) (5.56)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 9.52 $ 8.44 $ 11.81 $ 15.75
======= ======= ======= =======
Total Return/Ratios
Total return............................................ 12.80% (28.54%) (25.02%) (21.94%)
Net assets, end of period (000s)........................ $16,409 $14,060 $19,193 $27,611
Net expenses to average net assets#,+................... 1.53%** 1.41% 1.24% 1.22%
Gross expenses to average net assets#,+................. 1.53%** 1.41% 1.25% 1.26%
Net investment income (loss) to average net assets+..... 0.46%** (0.13%) (0.14%) (0.49%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
+ Net investment loss for the year ended December 31, 2000 aggregated less
than $0.01 on a per share basis.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian for the six months ended June 30,
2003. Had these fees not been waived, the net expense ratio would have been
1.55%. The gross expense ratio would have been 1.55%. The net investment
income ratio would have been 0.44%.
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<Page>
FINANCIAL HIGHLIGHTS
(UNAUDITED) (CONTINUED)
Per Share Income and Capital Changes
Selected data for each share of capital
stock outstanding throughout each period.
<Table>
<Caption>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 2003 2002 2001 2000
------------- --------- --------- --------
CLASS T SHARES
Net Asset Value, beginning of period........................ $ 7.89 $ 11.46 $ 15.65 $ 25.18
Income from investment operations:
Net investment loss..................................... (0.09) (0.59) (0.26) (0.06)
Net gains (losses) on securities (both realized and
unrealized)........................................... 1.02 (2.98) (3.93) (5.60)
------- ------- ------- -------
Total from investment operations.................... 0.93 (3.57) (4.19) (5.66)
Less distributions:
From net investment income.............................. 0.00 0.00 0.00 0.00
From net realized gains................................. 0.00 0.00 0.00 (3.87)
------- ------- ------- -------
Total distributions................................. 0.00 0.00 0.00 (3.87)
Net Asset Value, end of period.............................. $ 8.82 $ 7.89 $ 11.46 $ 15.65
======= ======= ======= =======
Total Return/Ratios
Total return*........................................... 11.79% (31.15%) (26.77%) (22.34%)
Net assets, end of period (000s)........................ $ 51 $ 47 $ 90 $ 48
Net expenses to average net assets#,+................... 3.24%** 4.60% 3.74% 1.72%
Gross expenses to average net assets#,+................. 3.24%** 4.60% 3.75% 1.76%
Net investment loss to average net assets+.............. (1.26%)** (2.88%) (2.72%) (0.76%)
Portfolio turnover rate@................................ 172% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
** Annualized.
# Ratio of 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. Ratio of Gross Expenses to Average Net Assets is
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.
+ Certain fees were waived by the custodian or reimbursed by the management
company for the six months ended June 30, 2003 and the years ended December
31, 2002 and 2001. Had these fees not been waived or reimbursed, the net
expense ratios would have been 3.26% (2003), 5.48% (2002), and 10.01%
(2001). The gross expense ratios would have been 3.26% (2003), 5.48%
(2002), and 10.02% (2001). The net investment loss ratios would have been
(1.28%) (2003), (3.76%) (2002), and (8.99%) (2001).
@ Portfolio Turnover Rate is a measure of portfolio activity that is
calculated by dividing the lesser of purchases or sales of securities,
excluding securities having maturity dates at acquisition of one year or
less, by the average value of the portfolio securities held during the
period, which is a rolling 12-month period.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dreyfus Founders Funds, Inc. (the "Company") is an open-end management
investment company registered under the Investment Company Act of 1940. Ten
series of shares are currently issued: Balanced, Discovery, Government
Securities, Growth, Growth and Income, International Equity, Mid-Cap Growth,
Money Market, Passport, and Worldwide Growth Funds (the "Funds"). All of the
Company's series Funds are diversified portfolios. The following notes pertain
to Dreyfus Founders Worldwide Growth Fund (the "Fund"). The Fund offers
Class A, Class B, Class C, Class F, Class R, and Class T shares. Class A and
Class T shares are subject to a sales charge imposed at the time of purchase,
Class B shares are subject to a contingent deferred sales charge ("CDSC")
imposed on Class B share redemptions made within six years of purchase, Class C
shares are subject to a CDSC imposed on Class C shares redeemed within one year
of purchase, and Class F and Class R shares are sold at net asset value per
share (with Class R shares sold only to eligible institutional investors). Other
differences between the classes include services offered to and the expenses
borne by each Class. The following significant accounting policies have been
consistently followed by the Fund in the preparation of its financial
statements.
SECURITIES VALUATION--An equity security listed or traded on a securities
exchange or in the over-the-counter market is valued at its last sale price on
the exchange or market where it is principally traded or, in the case of NASDAQ
and foreign securities for which an official closing price is provided, at the
official closing price. Lacking any sales on that day, the security is valued at
the current closing bid price or based on quotes from dealers making a market
for the security if the closing bid price is not available. In the event that
the closing price of a foreign security is not available in time to calculate
the 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. London closing quotes for
exchange rates are used to convert foreign security values into U.S. dollars.
Debt securities are valued in accordance with the evaluated bid price supplied
by a pricing service approved by the Company's board of directors or, if such
prices are not available, at the mean of the bid and asked quotations obtained
from securities dealers. Debt securities with remaining maturities of 60 days or
less at the time of purchase are valued at amortized cost, which approximates
market value. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific country or region. The Fund amortizes premiums and discounts on all
fixed-income securities.
29
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
If market quotations are not readily available, securities will be valued at
their fair value as determined in good faith by the Company's board of directors
or pursuant to procedures approved by the board of directors. These situations
may include instances where an event occurs after the close of the market on
which a security is traded, and it is determined that the event has materially
affected the value of the security.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the date
the securities are purchased or sold (trade date). Net realized gains and losses
are determined on the basis of identified cost, which is also used for federal
income tax purposes.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS--Foreign securities may carry
more risk than U.S. securities, such as political and currency risks. The Fund
normally will invest a large portion of its assets in foreign securities. In the
event the Fund executes a foreign security transaction, the Fund may enter into
a foreign currency contract to settle the foreign security transaction. The
resultant foreign currency gain or loss from the contract is recorded as foreign
currency gain or loss and is presented as such in the Statement of Operations.
Foreign currency held at June 30, 2003 for settling foreign trades is listed on
the Statement of Assets and Liabilities.
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on investments and foreign
currency translation arise from changes in the values of assets and liabilities,
including investments in securities held at the date of the financial
statements, resulting from changes in the exchange rates and changes in market
prices of securities held.
FEDERAL INCOME TAXES--No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the requirements of the
Internal
30
<Page>
Revenue Code that are applicable to regulated investment companies and to make
distributions of income and capital gains sufficient to relieve it from all
income taxes. The Fund is treated as a separate tax entity for federal income
tax purposes.
INVESTMENT INCOME--Dividend income is recognized on the ex-dividend date.
Certain dividends from foreign securities are recorded as soon as the Fund is
informed of the dividend, if such information is obtained subsequent to the
ex-dividend date. Interest income is accrued daily and includes the accretion of
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the applicable country's tax rules and rates.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares and distributes dividends and
capital gains (if any) annually. Dividends and distributions, which are
determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
EXPENSES--Each Class of the Fund bears expenses incurred specifically on its
behalf and, in addition, each Class bears a portion of general expenses based on
the relative net assets or the number of shareholder accounts of the Class. The
type of expense determines the allocation method.
The Company's board of directors has authorized the payment of certain Fund
expenses with commissions on Fund portfolio transactions. These commissions
reduce Other Expenses and are included in the Expense Offset to Broker
Commissions in the Statement of Operations.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is a wholly-owned subsidiary of Mellon Bank N.A.,
which is a wholly-owned subsidiary of Mellon Financial Corporation, a
publicly-owned financial services company which provides a comprehensive range
of financial products and services in domestic and selected international
markets.
In accordance with an investment advisory agreement between the Company and
Founders, the Fund compensates Founders for its services as investment adviser
by the payment of fees computed daily and paid monthly at the annual rate equal
to a percentage of the average daily value of the Fund's net assets. The fee is
1% of the first $250 million of net assets, 0.80% of the next $250 million of
net assets, and 0.70% of net assets in excess of $500 million.
31
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
SHAREHOLDER SERVICING AND TRANSFER AGENCY FEES FOR CLASS F SHARES--The Company
has a shareholder services agreement with Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of The Dreyfus Corporation (an affiliate of Founders),
whereby the Funds have agreed to compensate DSC for providing certain
shareholder servicing functions to holders of Class F shares. During the period
from May 1, 2003 through June 30, 2003, the Fund paid DSC a monthly fee equal,
on an annual basis, to $24.00 per Class F shareholder account considered to be
an open account at any time during a given month. Prior to May 1, 2003, the
Company had a shareholder services agreement with Founders whereby the Fund paid
Founders a monthly fee equal, on an annual basis, to $26.00 per Class F
shareholder account considered to be an open account at any time during a given
month. During the six months ended June 30, 2003, Class F shares were charged
$18,122 and $40,250, respectively, pursuant to these shareholder services
agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of The Dreyfus
Corporation, is the transfer and dividend disbursing agent for all of the Fund's
share classes. With the exception of out-of-pocket charges, the fees charged by
DTI with respect to the Fund's Class F shares are paid by DSC. The out-of-pocket
charges from DTI are paid by the Fund. Prior to May 1, 2003, Investors Trust
Company ("ITC") was the transfer and dividend disbursing agent for the Class F
shares of the Fund. With the exception of out-of-pocket charges, the fees
charged by ITC were paid by Founders. The out-of-pocket charges from ITC were
paid by the Fund. During the six months ended June 30, 2003, Class F shares paid
DTI and ITC $7,586 and $12,628, respectively, for out-of-pocket transfer agent
charges.
TRANSFER AGENCY FEES FOR CLASS A, CLASS B, CLASS C, CLASS R, AND CLASS T
SHARES--The fees charged by DTI with respect to the Fund's Class A, B, C, R, and
T shares are paid by the Fund. The Fund paid DTI a monthly fee ranging, on an
annual basis, from $12.23 to $12.64, per shareholder account considered to be an
open account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the six months ended
June 30, 2003 were as follows:
<Table>
<Caption>
TRANSFER AGENCY
FEES PAID
---------------
Class A........................................... $ 816
Class B........................................... $2,279
Class C........................................... $ 396
Class R........................................... $2,868
Class T........................................... $ 293
</Table>
32
<Page>
Certain as-of shareholder transactions may result in gains or losses to the
Fund. Depending on the circumstances, these gains may be payable to, or
reimbursable from, the transfer agent; such gains and losses are presented on
the Statement of Assets and Liabilities.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS--DSC also is the distributor of
the Fund's shares. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 applicable to its Class F
shares. Under the plan, the Fund is authorized to reimburse DSC for expenses
paid for distributing its Class F shares at an annual rate of up to 0.25% of the
value of the average daily net assets of the Fund's Class F shares. During the
six months ended June 30, 2003, Class F shares were charged $72,373 pursuant to
this Distribution Plan.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 applicable to its Class B, Class C, and Class T
shares. Under this plan, the Fund pays DSC a fee for distributing its Class B
and C shares at the annual rate of 0.75% of the value of the average daily net
assets of its Class B and C shares, respectively, and pays DSC a fee for
distributing its Class T shares at the annual rate of 0.25% of the average daily
net assets of its Class T shares.
In addition, the Fund has adopted a Shareholder Services Plan applicable to
its Class A, Class B, Class C, and Class T shares. Under the Shareholder
Services Plan, Class A, Class B, Class C, and Class T shares pay DSC an annual
fee of 0.25% of the value of their average daily net assets for the provision of
certain services.
Distribution and Shareholder Servicing fees paid to DSC by the Fund's
Class A, B, C, and T shares for the six months ended June 30, 2003, were as
follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER SERVICING
FEES PAID FEES PAID
------------ ---------------------
Class A................................. N/A $ 682
Class B................................. $5,414 $1,805
Class C................................. $ 911 $ 304
Class T................................. $ 58 $ 58
</Table>
During the six months ended June 30, 2003, DSC retained $1,497 and $18 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $7,130 of contingent deferred sales charges relating to
redemptions of Class B shares.
FUND ACCOUNTING AND ADMINISTRATIVE FEES--The Funds have agreed to compensate
Founders for providing accounting services, administration, compliance
33
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
monitoring, regulatory and shareholder reporting, as well as related facilities,
equipment and clerical help. The fee is computed by applying the following
rates, as applicable, to the domestic assets and foreign assets, with the
proportions of domestic and foreign assets recalculated monthly, plus reasonable
out-of-pocket expenses.
<Table>
<Caption>
ON ASSETS IN EXCESS OF BUT NOT EXCEEDING DOMESTIC FEE FOREIGN FEE
- ---------------------- ----------------- ------------ -----------
$0............... $500 million 0.06% 0.10%
$500 million..... $1 billion 0.04% 0.065%
$1 billion....... 0.02% 0.02%
</Table>
Founders has agreed to waive any fees received for these services to the
extent they exceed Founders' costs in providing the services.
CUSTODIAN FEES--Mellon Bank N.A. serves as custodian for the Fund. The fees
for the custody services are subject to reduction by credits earned on the cash
balances of the Fund held by the custodian. The custodian has also agreed to a
fee waiver for the Funds during the time periods and in the amounts set forth
below:
<Table>
<Caption>
TIME PERIOD AMOUNT OF WAIVER
----------- ----------------
9/1/02 to 8/31/03 $100,000
9/1/03 to 8/31/04 $150,000
9/1/04 to 8/31/05 $200,000
9/1/05 to 8/31/06 $200,000
</Table>
The fee waiver is allocated among the Funds in proportion to their respective
shares of the total custodian fee. For the six months ended June 30, 2003, the
Fund's portion of the fee waiver was $6,501. The amount paid to Mellon was
reduced by this fee waiver amount.
DIRECTORS COMPENSATION--The Company's board of directors has adopted a
deferred compensation plan for Company directors that enables directors to elect
to defer receipt of all or a portion of the annual compensation that they are
entitled to receive from the Company. Under the plan, the compensation deferred
is periodically adjusted as though an equivalent amount had been invested for
the director in shares of one or more of the Funds. The amount paid to the
director under the plan will be determined based upon the performance of the
selected Funds. The current value of these amounts is included in Other Assets
and Other Liabilities on the Statement of Assets and Liabilities. Deferral of
directors' fees under the plan does not affect the net assets of the Fund.
34
<Page>
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Fund, including services provided by Founders, are
subject to the supervision and general oversight of the Company's board of
directors.
3. FEDERAL TAX INFORMATION
Net investment income and capital gains distributions are determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. These differences
are due to differing treatments for items such as deferral of wash sale losses,
foreign currency transactions, net operating losses, and capital loss
carryovers.
Accumulated capital losses and post-October 31 capital losses noted below as
of December 31, 2002, represent capital loss carryovers that may be available to
offset future realized capital gains and thereby reduce future taxable gains
distributions. Post-October 31 foreign currency losses noted below, if any, may
be used to offset future net investment income and thereby reduce future
ordinary income distributions. These carryovers expire between December 31, 2009
and December 31, 2010.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of June 30, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses.................................. $ 80,131,891
Post-October Capital Loss Deferral.......................... $ 1,926,432
Post-October Currency Loss Deferral......................... $ 0
Federal Tax Cost............................................ $ 72,202,583
Gross Tax Appreciation of Investments....................... $ 10,129,484
Gross Tax Depreciation of Investments....................... $ (1,295,253)
Net Tax Appreciation........................................ $ 8,834,231
</Table>
35
<Page>
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (UNAUDITED) (CONTINUED)
4. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 450 million shares of $0.01 par value capital
stock. Transactions in shares of the Fund for the periods indicated were as
follows:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/03 12/31/02
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- -----------------
CLASS A
Sold..................................................... 117,847 $ 1,090,513 431,081 $ 4,390,277
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (128,488) $ (1,200,860) (451,369) $ (4,576,256)
NET DECREASE............................................. (10,641) $ (110,347) (20,288) $ (185,979)
CLASS B
Sold..................................................... 3,011 $ 25,092 40,977 $ 409,634
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (12,549) $ (105,533) (42,643) $ (413,067)
NET DECREASE............................................. (9,538) $ (80,441) (1,666) $ (3,433)
CLASS C
Sold..................................................... 49,191 $ 387,675 12,934 $ 110,508
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (50,577) $ (403,134) (19,036) $ (171,553)
NET DECREASE............................................. (1,386) $ (15,459) (6,102) $ (61,045)
CLASS F
Sold..................................................... 1,383,462 $ 11,480,913 4,440,187 $ 42,616,720
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (1,965,714) $ (16,296,791) (5,924,226) $ (57,456,663)
NET DECREASE............................................. (582,252) $ (4,815,878) (1,484,039) $ (14,839,943)
CLASS R
Sold..................................................... 129,377 $ 1,113,981 427,695 $ 4,393,330
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (71,993) $ (627,434) (386,843) $ (4,167,635)
NET INCREASE............................................. 57,384 $ 486,547 40,852 $ 225,695
CLASS T
Sold..................................................... 0 $ 0 142,397 $ 1,559,000
Dividends or Distributions Reinvested.................... 0 $ 0 0 $ 0
Redeemed................................................. (231) $ (1,835) (144,278) $ (1,578,951)
NET DECREASE............................................. (231) $ (1,835) (1,881) $ (19,951)
</Table>
36
<Page>
5. LINE OF CREDIT
The Company has a line of credit arrangement ("LOC") with State Street Bank and
Trust Company, to be used for extraordinary or emergency purposes, primarily for
financing redemption payments. Each Fund's borrowings are limited to the lesser
of (a) $75 million, or (b) the lesser of 25% of the Fund's total net assets or
the maximum amount which the Fund is permitted to borrow pursuant to the
prospectus, any law or any other agreement. Combined borrowings are subject to
the $75 million cap on the total LOC. Each Fund agrees to pay annual fees and
interest on the unpaid balance based on prevailing market rates as defined in
the LOC. At June 30, 2003, there were no such borrowings.
37
<Page>
This page intentionally left blank.
38
<Page>
FOR MORE INFORMATION
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
2930 East Third Avenue
Denver, CO 80206
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
To obtain information:
- --------------------------------- Dreyfus Transfer, Inc.
BY TELEPHONE | 200 Park Avenue
Call your financial | New York, NY 10166
representative or |
1-800-554-4611 |
| DISTRIBUTOR
BY MAIL Write to: |
Dreyfus Founders Funds | Dreyfus Service Corporation
144 Glenn Curtiss Boulevard | 200 Park Avenue
Uniondale, NY 11556-0144 | New York, NY 10166
Dreyfus Founders Funds are managed by Founders Asset Management LLC.
Founders and Founders Funds are registered trademarks of Founders Asset
Management LLC.
(C)2003 Dreyfus Service Corporation 351SA0603
ITEM 2. CODE OF ETHICS
Not Applicable to semiannual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not Applicable to semiannual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not Applicable to semiannual reports.
ITEM 5. [RESERVED]
ITEM 6. [RESERVED]
ITEM 7. NOT APPLICABLE
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES
(a) Based on an evaluation of the effectiveness of Dreyfus Founders Funds,
Inc.'s (the "Funds") Disclosure Controls and Procedures as of a date
within 90 days of the filing date of this report, the Disclosure
Controls and Procedures are effectively designed to ensure that
information required to be disclosed by the Funds in the report is
recorded, processed, summarized, and reported within required time
periods, and to ensure that material information required to be
disclosed in the report is accumulated and communicated to the Funds'
management, including the Funds' Principal Executive Officer and
Principal Financial Officer, or persons performing similar functions,
as appropriate to allow timely decisions regarding required
disclosure.
(b) During the Funds' most recent fiscal half-year, there have not been
any changes in Funds' internal control over financial reporting that
have materially affected, or that are reasonably likely to materially
affect, the Funds' internal control over financial reporting.
ITEM 10. EXHIBITS
(a)(1) Not Applicable to semiannual reports.
(a)(2) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Attached
hereto as Exhibit EX-99.906CERT.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule
30a-2 under the Act. Attached hereto as Exhibit EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DREYFUS FOUNDERS FUNDS, INC.
By: /s/ Richard W. Sabo
--------------------------------------------
Richard W. Sabo, Principal Executive Officer
Date: August 28, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Richard W. Sabo
--------------------------------------------
Richard W. Sabo, Principal Executive Officer
By: /s/ Francis P. Gaffney
--------------------------------------------
Francis P. Gaffney, Principal Financial Officer
Date: August 28, 2003