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)
210 University Boulevard, Suite 800, Denver, Colorado 80206
---------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Kenneth R. Christoffersen, Esq.
210 University Boulevard, Suite 800, 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: December 31, 2003
ITEM 1. REPORTS TO SHAREHOLDERS
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
BALANCED FUND
INVESTMENT UPDATE
DECEMBER 31, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
THE GROWTH SPECIALISTS
<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
Report of Independent Auditors 37
Other Tax Information 38
Your Board Representatives 39
</Table>
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[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 December 31, 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] [PHOTO]
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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
During the first few months of 2003, our defensive equity position and
the fixed-income component of the Fund helped cushion returns during the
sluggish equity-investing environment. However, with the mid-March market rally,
our equity holdings took the limelight, as increased confidence and a shift
toward less-defensive investment alternatives helped infuse the market's
recovery.
While we were pleased with the Fund's performance during the period, our
annual return trailed that of our all-equity benchmark, the Standard & Poor's
500 Index, which returned 28.68% for the year.
WHAT WERE THE BROAD ECONOMIC AND MARKET FACTORS DURING THE PERIOD?
Earlier in the year, a sedentary market backdrop was laid by the potential war
in Iraq. Continuing corporate scandals, static corporate spending and high
unemployment also weighed on equities, moving investors toward more defensive
investments.
However, as we entered the second quarter, the end of the Iraqi conflict and
continued economic improvements brought optimism back to the equity market.
Additionally, the low
[SIDENOTE]
"FROM A BROAD PERSPECTIVE, THE FUND'S SOLID PERFORMANCE THIS YEAR WAS
DRIVEN BY OUR RESEARCH PROCESS, BY FUNDAMENTALLY AND INDIVIDUALLY EVALUATING
COMPANIES ACROSS ALL SECTORS."
3
<Page>
interest rate environment kept consumer confidence high and prompted a shift
away from low-yielding alternative investments.
The market's rise can be attributed to various economic improvements during
the course of the year. Better-than-expected corporate revenue growth, improved
earnings across nearly all sectors, the easing of geopolitical uncertainty, the
Federal Reserve's accommodative monetary policy and President Bush's fiscal
stimulus plan were major factors in the recuperation of market and economic
trends. Consumer spending was high. Capital spending also appeared to
strengthen. Productivity beat expectations during the year, and real gross
domestic product (GDP) increased at an annual rate of 8.2% in the third quarter.
Although some domestic economic concerns still existed, expectations that the
economy may continue to recover in the coming year remained strong.
These stronger equity markets impacted fixed-income issues as well, pushing
bond prices lower. As the year continued, interest rates rose across the
majority of the yield curves with the aggregate yield curve steepening.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE DURING THE YEAR?
From a broad perspective, the Fund's solid performance this year was driven by
our research process, by fundamentally and individually evaluating companies
across all sectors. For example, the Fund was less exposed to technology earlier
in the year. However, as we identified improving
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - The Fund migrated from a fairly defensive position in the first part of the
year to a more fully-invested structure later in the year.
- - Strong stock selection in the consumer discretionary sector was the largest
boon to Fund performance throughout the year.
- - Weak stock selection in the information technology and industrials sectors
impeded Fund performance.
- - The concentration of the Fund's fixed-income assets in the short- and
intermediate-maturity sector of the yield curve assisted the Fund's return
during the second half of the year.
- - An overweight position in the government sector of the fixed-income portion
of the Fund's portfolio hampered performance, as did the Fund's quality bias
toward higher-grade instruments.
4
<Page>
fundamentals, we began to selectively add stocks within this sector to the
portfolio. Additionally, we maintained and adjusted our consumer discretionary
sector holdings to those more sensitive to an economic upturn, as these
companies demonstrated strong earnings data that was again captured by our
research process. Finally, the Fund was underweight the large-capitalization
pharmaceutical industry as these companies continued to struggle with slowing
revenue growth and bottom lines, as well as products meeting generic
substitution. Finally, the Fund migrated from a fairly defensive position in the
first part of the year to a more fully invested structure later in 2003 through
the addition of such names as ALCOA, INC. and LAM RESEARCH CORPORATION.
Strong stock selection in the consumer discretionary sector was the largest
boon to Fund performance throughout the year. Improving fundamentals within the
technology, materials, financials and consumer discretionary sectors prompted us
to select holdings that we believed were most likely to exhibit strong
earnings-per-share growth. The most compelling growth was ultimately found in
these sectors, with select holdings in the technology, consumer discretionary
and financials sectors offering the largest individual contributions to
performance. Fund positions in ROYAL CARIBBEAN CRUISES LIMITED, BEST BUY
COMPANY, INC., SAP AG and WELLS FARGO & COMPANY all exhibited strong growth and
boosted overall performance of the Fund. Providing the largest contribution to
the Fund's return for the period of any single stock, Royal Caribbean's
performance was promoted by improving outlooks and increased consumer spending
in the leisure travel market. Best Buy, the second largest contributor, reaped
the benefits of continued consumer
[SIDENOTE]
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. General Electric Company (GE) 3.20%
2. Wells Fargo & Company (WFC) 3.11%
3. Union Pacific Corporation (UNP) 2.96%
4. Pfizer, Inc. (PFE) 2.91%
5. Maxim Integrated Products, Inc. (MXIM) 2.78%
6. Royal Caribbean Cruises Limited (RCL) 2.71%
7. Goldman Sachs Group, Inc. (GS) 2.56%
8. Nordstrom, Inc. (JWN) 2.53%
9. Oracle Corporation (ORCL) 2.31%
10. Wyeth (WYE) 2.31%
</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>
spending during an improving economic environment. Desirable new product cycles
such as digital photography and HDTV, as well as solid execution resulting in
increased market share, boosted the stock's price. SAP was another standout
performer during the period, as it benefited from an improved environment for
software spending as well as from a general improvement in the business pace of
the software industry.
WHAT FACTORS HINDERED FUND PERFORMANCE DURING THE YEAR?
The oil service industry within the energy sector proved troublesome throughout
the year as it suffered from changing market sentiment over
[SIDENOTE]
[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
12/31/93 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>
oil and gas prices following the Iraqi conflict. Although the industry continued
to exhibit solid fundamentals during the period, companies gyrated and
ultimately underperformed.
While select holdings in the information technology sector performed well,
poor stock selection in this sector proved an impediment to the Fund's relative
return. One specific holding, BMC Software, Inc., which provides e-business
systems management software, exhibited sluggish sales trends for their software
products during most of 2003, and revised earnings expectations lower.
Underachieving individual issues also impacted Fund performance, such as
biotechnology holding Medimmune, Inc., which underperformed late in the year as
its launch of the first-ever inhaled flu vaccine, FluMist, failed to generate
enough market activity to meet the investment community's expectations. High
price, rigid handling requirements and limited distribution also impeded the
vaccine's success in the marketplace.
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 11.94% -- -- (7.27%)
Without sales charge 18.81% -- -- (5.88%)
CLASS B SHARES (12/31/99)
With redemption* 13.76% -- -- (7.28%)
Without redemption 17.76% -- -- (6.59%)
CLASS C SHARES (12/31/99)
With redemption** 16.59% -- -- (7.01%)
Without redemption 17.59% -- -- (7.01%)
CLASS F SHARES (2/19/63) 18.96% (4.98%) 4.51% N/A
CLASS R SHARES (12/31/99) 18.12% -- -- (6.05%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 12.42% -- -- (6.72%)
Without sales charge 17.65% -- -- (5.65%)
</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 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.
7
<Page>
While the infusion of consumer capital into the marketplace helped boost the
consumer-related sectors, two of the Fund's retail holdings, KOHL'S CORPORATION
and SEARS ROEBUCK & COMPANY, were hit with weaker-than-expected sales late in
the year, significantly underperforming, thus hampering relative Fund
performance for the year.
Finally, Delta Air Lines, Inc. was the Fund's worst performer in the
industrials sector, placing a drag on overall Fund performance due to the
company's annual net earnings decline and loss per share.
HOW DID THE FIXED-INCOME PORTION OF THE FUND FARE IN 2003?
The fixed-income portion of the Fund fared well during the first half of the
year as many economic fundamentals remained stagnant during the first six
months, adding to the positive contribution the Fund's fixed-income holdings
made to its overall performance during that period.
However, by mid-June, market expectations that the Federal Reserve would take
action to defeat deflation were not fulfilled. Worries over Government Sponsored
Enterprises (GSE) accounting issues, larger deficits and financing needs, as
well as stronger equity markets and improving economic fundamentals, led the
bond market lower in July. The rise in bond yields prompted mortgage-related
selling due to the extended portfolio durations, which exacerbated the situation
further. The market, however, regained its composure in August and September
after July's massive sell-off.
[SIDENOTE]
[CHART]
COMPOSITION OF EQUITY ASSETS
<Table>
Consumer Discretionary 21.48%
Information Technology 20.52%
Financials 15.41%
Healthcare 12.36%
Industrials 11.17%
Consumer Staples 7.92%
Energy 4.09%
Materials 3.97%
Telecommunications Services 3.08%
</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>
The Fund sold its position in Freddie Mac securities in June due to an
investigation into the mortgage financier's accounting practices. We continued
to monitor the Freddie Mac situation as well as GSEs in general, and viewed any
efforts to increase regulatory oversight, disclosure and capital requirements
positively for debt holders.
Interest rates continued to rise across the majority of the yield curves
during the second half of the year, with the aggregate yield curve continuing to
steepen at year's end. 2003 ended with investors' risk appetite increasing,
favoring investments such as equities and high-yield debt.
The concentration of the Fund's fixed-income assets in the short- and
intermediate-maturity sector of the yield curve during the second half of the
year helped performance as these areas outperformed longer-dated securities. The
Fund ended the period overweight in its corporate bond exposure, which likewise
boosted performance. The Fund's position in PROVINCE OF QUEBEC bonds also proved
beneficial to Fund performance as the Canadian dollar climbed against the U.S.
dollar.
On the negative side, the Fund's overweight position in the government sector
as well as the Fund's quality bias toward higher-grade instruments hampered
performance. The Fund's underweight mortgage exposure also impeded the Fund's
annual return.
In general, the Fund's fixed-income holdings provided a defensive position
and a strong foundation for investors as the market began its recovery in 2003,
but were outshone by the Fund's equity component later in the year.
We will continue to apply our intensive research process and growth-stock
investment strategy to seek out companies that continue to take advantage of the
economic uplift. We will also continue to seek companies that are exhibiting
strong growth potential.
/s/ John B. Jares /s/ John Johnson
John B. Jares, CFA John Johnson, CFA
Portfolio Manager Assistant Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-55.4%
AEROSPACE & DEFENSE-1.1%
27,200 Lockheed Martin Corporation $ 1,398,046
---------------
AIRLINES-0.9%
44,700 AMR Corporation* 578,865
38,700 Northwest Airlines Corporation Class A* 488,394
---------------
1,067,259
---------------
ALUMINUM-1.1%
34,200 Alcoa, Inc. 1,299,600
---------------
APPAREL RETAIL-0.4%
21,000 Gap, Inc. 487,410
---------------
ASSET MANAGEMENT & CUSTODY BANKS-0.7%
27,600 Bank of New York Company, Inc. 914,112
---------------
BIOTECHNOLOGY-1.6%
8,000 Amgen, Inc.* 494,400
25,000 Gilead Sciences, Inc.* 1,453,500
---------------
1,947,900
---------------
BROADCASTING & CABLE TV-1.8%
8,000 Clear Channel Communications, Inc. 374,640
35,000 Comcast Corporation Special Class A* 1,094,800
23,200 Cox Communications, Inc. Class A* 799,240
---------------
2,268,680
---------------
CASINOS & GAMING-0.9%
24,000 Mandalay Resort Group 1,073,280
---------------
COMMUNICATIONS EQUIPMENT-1.3%
36,200 Cisco Systems, Inc.* 879,298
24,900 Foundry Networks, Inc.* 681,264
---------------
1,560,562
---------------
COMPUTER & ELECTRONICS RETAIL-0.4%
9,050 Best Buy Company, Inc. 472,772
---------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE-1.0%
13,500 International Business Machines Corporation $ 1,251,180
---------------
COMPUTER STORAGE & PERIPHERALS-0.4%
34,600 EMC Corporation* 447,032
---------------
CONSUMER FINANCE-1.0%
52,250 MBNA Corporation 1,298,413
---------------
DATA PROCESSING & OUTSOURCED SERVICES-1.0%
29,950 Fiserv, Inc.* 1,183,325
---------------
DEPARTMENT STORES-2.3%
5,500 Kohl's Corporation* 247,170
54,300 Nordstrom, Inc. 1,862,490
17,200 Sears Roebuck & Company 782,428
---------------
2,892,088
---------------
DIVERSIFIED BANKS-3.1%
1,900 Bank of America Corporation 152,817
30,800 Bank One Corporation 1,404,172
38,800 Wells Fargo & Company 2,284,932
---------------
3,841,921
---------------
DIVERSIFIED COMMERCIAL SERVICES-0.4%
24,700 Cendant Corporation* 550,069
---------------
DRUG RETAIL-0.9%
32,200 Walgreen Company 1,171,436
---------------
FOOD RETAIL-0.3%
19,901 Safeway, Inc.* 436,031
---------------
GOLD-0.4%
10,600 Newmont Mining Corporation 515,266
---------------
HEALTHCARE EQUIPMENT-0.7%
22,000 Boston Scientific Corporation* 808,720
---------------
HOME IMPROVEMENT RETAIL-1.2%
40,800 Home Depot, Inc. 1,447,992
---------------
HOTELS, RESORTS & CRUISE LINES-0.5%
16,200 Carnival Corporation 643,626
---------------
HOUSEHOLD PRODUCTS-0.8%
9,800 Procter & Gamble Company 978,824
---------------
HYPERMARKETS & SUPER CENTERS-0.3%
6,000 Wal-Mart Stores, Inc. 318,300
---------------
INDUSTRIAL CONGLOMERATES-1.9%
76,100 General Electric Company 2,357,578
---------------
INDUSTRIAL GASES-0.9%
29,000 Praxair, Inc. 1,107,800
---------------
INTEGRATED TELECOMMUNICATION SERVICES-1.0%
36,900 Verizon Communications, Inc. 1,294,452
---------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-2.0%
19,100 Goldman Sachs Group, Inc. $ 1,885,743
9,500 Morgan Stanley 549,765
---------------
2,435,508
---------------
LEISURE FACILITIES-1.6%
57,400 Royal Caribbean Cruises Limited 1,996,946
---------------
MOVIES & ENTERTAINMENT-1.7%
23,500 Viacom, Inc. Class B 1,042,930
47,800 Walt Disney Company 1,115,174
---------------
2,158,104
---------------
MULTI-LINE INSURANCE-1.2%
21,600 American International Group, Inc. 1,431,648
---------------
OIL & GAS DRILLING-0.7%
32,700 GlobalSantaFe Corporation 811,941
---------------
OIL & GAS EQUIPMENT & SERVICES-0.9%
26,900 Smith International, Inc.* 1,116,888
---------------
OIL & GAS EXPLORATION & PRODUCTION-0.9%
13,335 Apache Corporation 1,081,469
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.1%
29,066 Citigroup, Inc. 1,410,864
---------------
PERSONAL PRODUCTS-1.3%
39,500 Estee Lauder Companies, Inc. Class A 1,550,770
---------------
PHARMACEUTICALS-3.6%
11,600 Johnson & Johnson 599,256
60,550 Pfizer, Inc. 2,139,232
40,000 Wyeth 1,698,000
---------------
4,436,488
---------------
PUBLISHING-0.8%
19,700 Tribune Company 1,016,520
---------------
RAILROADS-1.8%
31,300 Union Pacific Corporation 2,174,724
---------------
SEMICONDUCTOR EQUIPMENT-0.3%
12,100 Lam Research Corporation* 390,830
---------------
SEMICONDUCTORS-3.5%
37,900 Altera Corporation* 860,330
20,000 Intel Corporation 644,000
41,000 Maxim Integrated Products, Inc. 2,041,800
20,500 Xilinx, Inc.* 794,170
---------------
4,340,300
---------------
SOFT DRINKS-1.1%
27,000 Coca-Cola Company 1,370,250
---------------
SPECIALTY STORES-1.1%
29,700 Tiffany & Company 1,342,440
---------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE-2.7%
4,700 Adobe Systems, Inc. $ 184,710
53,600 Microsoft Corporation 1,476,144
128,800 Oracle Corporation* 1,700,160
---------------
3,361,014
---------------
WIRELESS TELECOMMUNICATION SERVICES-0.8%
34,600 Nextel Communications, Inc.* 970,876
---------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$57,705,169) 68,431,254
---------------
COMMON STOCKS (FOREIGN)-4.2%
APPLICATION SOFTWARE-1.2%
34,550 SAP AG Sponsored ADR (GE) 1,435,898
---------------
HEALTHCARE SUPPLIES-0.3%
5,200 Alcon, Inc. (SZ) 314,808
---------------
IT CONSULTING & OTHER SERVICES-0.5%
24,125 Accenture Limited Class A ADR (BD)* 634,970
---------------
PHARMACEUTICALS-1.3%
28,000 Teva Pharmaceutical Industries Limited Sponsored ADR (IS) 1,587,880
---------------
RAILROADS-0.5%
10,625 Canadian National Railway Company (CA) 672,350
---------------
SEMICONDUCTORS-0.4%
12,925 Marvell Technology Group Limited (BD)* 490,245
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$3,584,610) 5,136,151
---------------
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)-11.2%
AUTOMOBILE MANUFACTURERS-2.7%
$3,000,000 Toyota Motor Credit Corporation Series MTN
5.65% 1/15/07 $ 3,306,450
---------------
DIVERSIFIED BANKS-2.8%
1,500,000 Bank One Corporation
6.50% 2/1/06 1,628,235
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,851,742
---------------
3,479,977
---------------
HOUSEHOLD PRODUCTS-1.3%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,645,740
---------------
MOVIES & ENTERTAINMENT-1.8%
2,000,000 Viacom, Inc.
7.75% 6/1/05 2,162,540
---------------
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
PHARMACEUTICALS-2.6%
$3,000,000 Abbott Laboratories
5.625% 7/1/06 $ 3,235,920
---------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST-$12,796,648) 13,830,627
---------------
U.S. GOVERNMENT SECURITIES-16.9%
AGENCY PASS THROUGH-3.5%
4,042,981 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 4,289,522
---------------
U.S. AGENCIES-8.1%
3,500,000 Federal Home Loan Bank
6.50% 11/15/05 3,797,080
Federal National Mortgage Association:
1,000,000 4.25% 7/15/07 1,044,390
1,500,000 4.375% 10/15/06 1,575,660
2,000,000 Private Export Funding Corporation
3.40% 2/15/08 2,009,480
1,500,000 Tennessee Valley Authority
6.375% 6/15/05 1,598,520
---------------
10,025,130
---------------
U.S. TREASURY NOTES-5.3%
U.S. Treasury Inflation Index Note:
1,167,710 3.375% 1/15/07 1,264,810
1,128,090 3.875% 1/15/09 1,273,700
U.S. Treasury Note:
1,000,000 3.50% 11/15/06 1,033,630
1,250,000 4.375% 5/15/07 1,323,688
1,500,000 6.875% 5/15/06 1,667,520
---------------
6,563,348
---------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST-$20,202,409) 20,878,000
---------------
GOVERNMENT BONDS (FOREIGN)-2.4%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA) 2,907,245
---------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST-$2,374,657) 2,907,245
---------------
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-10.8%
$13,400,000 Federal National Mortgage Association
0.75% 1/2/04 $ 13,399,721
---------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$13,399,721) 13,399,721
---------------
TOTAL INVESTMENTS-100.9%
(TOTAL COST-$110,063,214) $ 124,582,998
OTHER ASSETS AND LIABILITIES-(0.9%) (1,127,154)
---------------
NET ASSETS-100.0% $ 123,455,844
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 110,063,214
---------------
Investment securities, at market 124,582,998
Cash 385,995
Receivables:
Investment securities sold 1,423,166
Capital shares sold 75,702
Dividends and interest 543,599
Other 49,577
---------------
Total Assets 127,061,037
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 2,950,773
Capital shares redeemed 301,325
Advisory fees 68,392
Shareholder servicing fees 6,849
Accounting fees 6,313
Distribution fees 46,121
Transfer agency fees 43,183
Custodian fees 260
Other 181,977
---------------
Total Liabilities 3,605,193
---------------
Net Assets $ 123,455,844
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 312,200,100
Undistributed net investment loss (35,022)
Accumulated net realized loss from security transactions (203,229,268)
Net unrealized appreciation on investments and
foreign currency translation 14,520,034
---------------
Total $ 123,455,844
===============
</Table>
16
<Page>
<Table>
Net Assets--Class A $ 1,571,748
Shares Outstanding--Class A 199,541
Net Asset Value, Redemption Price Per Share $ 7.88
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $ 8.36
Net Assets--Class B $ 1,646,934
Shares Outstanding--Class B 211,081
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 7.80
Net Assets--Class C $ 294,513
Shares Outstanding--Class C 38,308
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 7.69
Net Assets--Class F $ 119,835,077
Shares Outstanding--Class F 15,201,042
Net Asset Value, Offering and Redemption Price Per Share $ 7.88
Net Assets--Class R $ 71,615
Shares Outstanding--Class R 9,115
Net Asset Value, Offering and Redemption Price Per Share $ 7.86
Net Assets--Class T $ 35,957
Shares Outstanding--Class T 4,446
Net Asset Value, Redemption Price Per Share $ 8.09
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 8.47
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 876,954
Interest 2,325,705
Foreign taxes withheld (7,145)
---------------
Total Investment Income 3,195,514
---------------
EXPENSES:
Advisory fees--Note 2 842,158
Shareholder servicing fees--Note 2 84,585
Accounting fees--Note 2 77,736
Distribution fees--Note 2 328,330
Transfer agency fees--Note 2 376,665
Registration fees 58,343
Postage and mailing expenses 74,121
Custodian fees and expenses--Note 2 6,801
Printing expenses 52,393
Legal and audit fees 31,222
Directors' fees and expenses--Note 2 32,730
Other expenses 54,472
---------------
Total Expenses 2,019,556
Earnings Credits (2,209)
Reimbursed/Waived Expenses (1,645)
Expense Offset to Broker Commissions (5,005)
---------------
Net Expenses 2,010,697
---------------
Net Investment Income 1,184,817
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on :
Security transactions (including premiums on options exercised) 7,033,551
Closing and expiration of option contracts written (89,109)
Foreign currency transactions 12,226
---------------
Net Realized Gain 6,956,668
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation 14,224,484
---------------
Net Realized and Unrealized Gain 21,181,152
---------------
Net Increase in Net Assets Resulting from Operations $ 22,365,969
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
--------------- ---------------
OPERATIONS
Net Investment Income $ 1,184,817 $ 2,058,852
Net Realized Gain (Loss) 6,956,668 (35,873,999)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 14,224,484 (8,107,493)
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 22,365,969 (41,922,640)
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (10,100) (7,719)
Class B (1,222) (558)
Class C (17) 0
Class F (1,240,046) (2,156,959)
Class R (159) 0
Class T (12) 0
--------------- ---------------
Net Decrease from Dividends and Distributions (1,251,556) (2,165,236)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 98,293 304,988
Class B 244,827 (28,551)
Class C (6,310) (151,251)
Class F (31,079,380) (123,330,214)
Class R 55,114 294
Class T 19,668 (219,113)
--------------- ---------------
Net Decrease from Capital Share Transactions (30,667,788) (123,423,847)
--------------- ---------------
Net Decrease in Net Assets (9,553,375) (167,511,723)
NET ASSETS
Beginning of year $ 133,009,219 $ 300,520,942
--------------- ---------------
End of year (including undistributed net investment
loss of $35,022 and $0, respectively) $ 123,455,844 $ 133,009,219
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS A SHARES
Net Asset Value, beginning of year $ 6.68 $ 8.18 $ 9.24 $ 10.47
Income from investment operations:
Net investment income 0.05 0.05 0.06 0.13
Net realized and unrealized gains
(losses) on securities 1.20 (1.51) (1.03) (1.18)
--------- --------- --------- ---------
Total from investment
operations 1.25 (1.46) (0.97) (1.05)
Less dividends and distributions:
From net investment income (0.05) (0.04) (0.09) (0.16)
From net realized gains 0.00 0.00 0.00 (0.02)
--------- --------- --------- ---------
Total distributions (0.05) (0.04) (0.09) (0.18)
Net Asset Value, end of year $ 7.88 $ 6.68 $ 8.18 $ 9.24
========= ========= ========= =========
Total return* 18.81% (17.85%) (10.46%) (10.21%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,572 $ 1,243 $ 1,227 $ 699
Net expenses to average net assets# 1.83% 1.89% 1.87% 1.20%
Gross expenses to average net assets# 1.83% 1.89% 1.87% 1.23%
Net investment income to average
net assets 0.63% 0.56% 0.51% 1.48%
Portfolio turnover rate@ 108% 122% 111% 126%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS B SHARES
Net Asset Value, beginning of year $ 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 realized and unrealized gains
(losses) on securities 1.17 (1.47) (1.03) (1.24)
--------- --------- --------- ---------
Total from investment
operations 1.18 (1.48) (1.02) (1.14)
Less dividends and 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 year $ 7.80 $ 6.63 $ 8.11 $ 9.18
========= ========= ========= =========
Total return* 17.76% (18.21%) (11.13%) (11.06%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,647 $ 1,181 $ 1,484 $ 1,008
Net expenses to average net assets# 2.53% 2.54% 2.49% 1.93%
Gross expenses to average net assets# 2.53% 2.54% 2.50% 1.96%
Net investment income (loss) to
average net assets (0.08%) (0.10%) (0.13%) 0.71%
Portfolio turnover rate@ 108% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS C SHARES
Net Asset Value, beginning of year $ 6.54 $ 8.04 $ 9.17 $ 10.47
Income from investment operations:
Net investment income (loss) (0.01) (0.17) (0.05) 0.10
Net realized and unrealized gains
(losses) on securities 1.16 (1.33) (1.03) (1.28)
--------- --------- --------- ---------
Total from investment
operations 1.15 (1.50) (1.08) (1.18)
Less dividends and 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 year $ 7.69 $ 6.54 $ 8.04 $ 9.17
========= ========= ========= =========
Total return* 17.59% (18.66%) (11.80%) (11.36%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 295 $ 248 $ 496 $ 174
Net expenses to average net assets#,+ 2.69% 3.48% 3.96% 1.86%
Gross expenses to average net assets#,+ 2.69% 3.48% 3.96% 1.88%
Net investment income (loss) to
average net assets+ (0.17%) (1.05%) (1.64%) 0.76%
Portfolio turnover rate@ 108% 122% 111% 126%
</Table>
^ Distributions from net investment income for the year ended December 31,
2003 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------- ------------- ------------- ------------- -------------
CLASS F SHARES
Net Asset Value, beginning of year $ 6.69 $ 8.20 $ 9.22 $ 10.47 $ 12.19
Income from investment operations:
Net investment income 0.06 0.07 0.10 0.15 0.32
Net realized and unrealized
gains (losses) on securities 1.20 (1.50) (1.02) (1.23) (0.61)
------------- ------------- ------------- ------------- -------------
Total from investment
operations 1.26 (1.43) (0.92) (1.08) (0.29)
Less dividends and distributions:
From net investment income (0.07) (0.08) (0.10) (0.15) (0.32)
From net realized gains 0.00 0.00 0.00 (0.02) (1.11)
------------- ------------- ------------- ------------- -------------
Total distributions (0.07) (0.08) (0.10) (0.17) (1.43)
Net Asset Value, end of year $ 7.88 $ 6.69 $ 8.20 $ 9.22 $ 10.47
============= ============= ============= ============= =============
Total return 18.96% (17.46%) (9.94%) (10.44%) (2.22%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 119,835 $ 130,314 $ 297,068 $ 552,675 $ 1,055,825
Net expenses to average
net assets# 1.54% 1.42% 1.22% 1.07% 0.97%
Gross expenses to average
net assets# 1.54% 1.43% 1.23% 1.08% 0.98%
Net investment income to
average net assets 0.93% 0.99% 1.20% 1.41% 2.64%
Portfolio turnover rate@ 108% 122% 111% 126% 218%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS R SHARES
Net Asset Value, beginning of year $ 6.68 $ 8.18 $ 9.22 $ 10.47
Income from investment operations:
Net investment income (loss) 0.16 (0.16) 0.09 0.18
Net realized and unrealized gains
(losses) on securities 1.05 (1.34) (1.02) (1.23)
--------- --------- --------- ---------
Total from investment
operations 1.21 (1.50) (0.93) (1.05)
Less dividends and distributions:
From net investment income (0.03) 0.00 (0.11) (0.18)
From net realized gains 0.00 0.00 0.00 (0.02)
--------- --------- --------- ---------
Total distributions (0.03) 0.00 (0.11) (0.20)
Net Asset Value, end of year $ 7.86 $ 6.68 $ 8.18 $ 9.22
========= ========= ========= =========
Total return 18.12% (18.34%) (10.09%) (10.18%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 72 $ 11 $ 14 $ 1
Net expenses to average net assets#,+ 2.37% 4.24% 3.07% 0.80%
Gross expenses to average net assets#,+ 2.37% 4.24% 3.07% 0.81%
Net investment income (loss) to
average net assets+ 0.01% (1.77%) (0.75%) 1.71%
Portfolio turnover rate@ 108% 122% 111% 126%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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 years ended December 31, 2003, 2002 and 2001. Had these fees not
been reimbursed, the net expense ratios would have been 2.62% (2003),
19.52% (2002) and 272.77% (2001). The gross expense ratios would have been
2.62% (2003), 19.52% (2002) and 272.77% (2001). The net investment income
(loss) ratios would have been (0.24%) (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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS T SHARES
Net Asset Value, beginning of year $ 6.88 $ 8.17 $ 9.21 $ 10.47
Income from investment operations:
Net investment income (loss) 0.21 (0.37) 0.08 0.12
Net realized and unrealized gains
(losses) on securities 1.00 (0.92) (1.04) (1.22)
--------- --------- --------- ---------
Total from investment
operations 1.21 (1.29) (0.96) (1.10)
Less dividends and 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 year $ 8.09 $ 6.88 $ 8.17 $ 9.21
========= ========= ========= =========
Total return* 17.65% (15.79%) (10.44%) (10.67%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 36 $ 13 $ 232 $ 9
Net expenses to average net assets#,+ 2.73% 2.59% 3.36% 1.30%
Gross expenses to average net assets#,+ 2.73% 2.60% 3.36% 1.32%
Net investment income (loss) to
average net assets+ (0.29%) (0.31%) (1.12%) 1.22%
Portfolio turnover rate@ 108% 122% 111% 126%
</Table>
^ Distributions from net investment income for the year ended December 31,
2003 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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 years ended December 31, 2003, 2002 and 2001. Had these fees not
been reimbursed, the net expense ratios would have been 3.18% (2003),
14.62% (2002) and 18.37% (2001). The gross expense ratios would have been
3.18% (2003), 14.63% (2002) and 18.37% (2001). The net investment income
(loss) ratios would have been (0.74%) (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
December 31, 2003
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 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 arises 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
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
27
<Page>
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 of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
28
<Page>
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect 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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $49,444 and $27,599, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares paid DTI and ITC $49,215 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 $13.34, per shareholder account considered to be an
open
29
<Page>
account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 5,636
Class B $ 4,910
Class C $ 1,165
Class R $ 519
Class T $ 294
</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 year ended
December 31, 2003, Class R and Class T were each reimbursed $88, which reduced
the amounts paid to DTI to $431 and $206, 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 or servicing 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 year ended December 31, 2003, Class F shares were charged $316,276 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 3,491
Class B $ 10,201 $ 3,400
Class C $ 1,804 $ 602
Class T $ 49 $ 49
</Table>
During the year ended December 31, 2003, DSC retained $303 and $41 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $6,150, and $2 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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $1,469. The amount paid to Mellon was
reduced by this fee waiver amount.
31
<Page>
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.
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 31,717 $ (12,226) $ (19,491)
</Table>
The tax character of distributions paid during 2003 and 2002 was as follows:
<Table>
<Caption>
2003 2002
---- ----
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 1,251,556 $ 2,165,236
Long-term capital gain $ 0 $ 0
------------ -------------
$ 1,251,556 $ 2,165,236
</Table>
32
<Page>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003 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, 2011.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 200,959,111
Post-October Capital Loss Deferral $ 210,281
Federal Tax Cost $ 112,123,090
Gross Tax Appreciation of Investments $ 13,814,754
Gross Tax Depreciation of Investments $ (1,354,846)
Net Tax Appreciation $ 12,459,908
</Table>
33
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- --------------- ---------------
CLASS A
Sold 42,130 $ 310,574 78,405 $ 605,345
Dividends or Distributions
Reinvested 1,330 $ 9,742 1,046 $ 7,280
Redeemed (29,893) $ (222,023) (43,543) $ (307,637)
NET INCREASE 13,567 $ 98,293 35,908 $ 304,988
CLASS B
Sold 76,899 $ 556,448 38,811 $ 277,704
Dividends or Distributions
Reinvested 138 $ 971 69 $ 461
Redeemed (44,160) $ (312,592) (43,542) $ (306,716)
NET INCREASE (DECREASE) 32,877 $ 244,827 (4,662) $ (28,551)
CLASS C
Sold 18,745 $ 122,311 24,035 $ 171,946
Dividends or Distributions
Reinvested 2 $ 10 0 $ 0
Redeemed (18,304) $ (128,631) (47,882) $ (323,197)
NET INCREASE (DECREASE) 443 $ (6,310) (23,847) $ (151,251)
CLASS F
Sold 2,774,685 $ 19,677,956 3,379,558 $ 25,710,382
Dividends or Distributions
Reinvested 164,539 $ 1,202,840 288,655 $ 2,097,722
Redeemed (7,225,827) $ (51,960,176) (20,429,796) $ (151,138,318)
NET DECREASE (4,286,603) $ (31,079,380) (16,761,583) $ (123,330,214)
CLASS R
Sold 7,391 $ 55,000 5,874 $ 40,000
Dividends or Distributions
Reinvested 15 $ 114 0 $ 0
Redeemed (0) $ (0) (5,874) $ (39,706)
NET INCREASE 7,406 $ 55,114 0 $ 294
CLASS T
Sold 2,530 $ 19,657 365 $ 2,456
Dividends or Distributions
Reinvested 1 $ 11 0 $ 0
Redeemed (0) $ (0) (26,771) $ (221,569)
NET INCREASE (DECREASE) 2,531 $ 19,668 (26,406) $ (219,113)
</Table>
34
<Page>
5. INVESTMENT TRANSACTIONS
For the year ended December 31, 2003, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $110,480,479 and $150,034,431, respectively. Purchases and sales of
long-term U.S. government obligations were $18,639,343 and $18,747,960,
respectively.
6. CALL OPTIONS WRITTEN
Transactions in options written during the year ended December 31, 2003 were as
follows:
<Table>
<Caption>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------- ------------
Options outstanding at December 31, 2002 0 $ 0
Options written 1,500 160,440
Options terminated in closing purchase transactions (1,160) (104,512)
Options expired (170) (30,939)
Options exercised (170) (24,989)
----------- ------------
Options outstanding at December 31, 2003 0 $ 0
=========== ============
</Table>
7. 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) $50 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 $50 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 December 31, 2003, the Fund did not have any borrowings under the
LOC.
35
<Page>
8. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
36
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Balanced Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
37
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the year ended December 31, 2003, 73.11% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2003, the Fund designated 67% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
38
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus
Founders Funds. The business and affairs of the Company are managed under the
direction of the Board. The directors serving on the Board perform their
responsibilities in the manner which they reasonably believe to be in the best
interests of the Funds and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
39
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
40
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
41
<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)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
Additional information about the Fund and its directors is available in the
Fund's Statement of Additional Information, which can be obtained free of charge
by contacting the Fund.
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:
February 27, 2004
Dreyfus Service Corporation, Distributor. (C) 2004 Founders Asset
Management LLC.
A-646-BAL-03
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
DISCOVERY FUND
INVESTMENT UPDATE
DECEMBER 31, 2003
DISCOVERY FUND IS CLOSED TO NEW INVESTORS.
PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION.
[DREYFUS FOUNDERS FUNDS LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 12
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Auditors 38
Your Board Representatives 39
</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 Annual 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 3-11
were owned by the Fund on December 31, 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 ROBERT AMMANN]
A DISCUSSION WITH PORTFOLIO MANAGER ROBERT AMMANN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12 MONTHS ENDED
DECEMBER 31, 2003?
For the one-year period ended December 31, 2003, the Dreyfus Founders Discovery
Fund underperformed its benchmark, the Russell 2000 Growth Index. The Index
posted a total return of 48.54% for the period.
WHAT ECONOMIC OR MARKET DYNAMICS SET THE INVESTING ENVIRONMENT DURING THE
PERIOD?
Following the market low set in March, as confidence increased that the Iraqi
conflict would move toward resolution, other market and economic dynamics took
the lead in dictating the market's direction. The favorable dynamics of strong
corporate profit growth, robust economic growth, an accommodative monetary
policy, favorable inflation picture and a favorable dividend and capital gains
tax environment helped drive the market's strong returns. However, some
potential market negatives during the year that were of concern included a
growing budget deficit, weak dollar, market valuation, continued geopolitical
instability and perhaps increasing concern that the Fed's accommodative monetary
policy could reverse in 2004.
[SIDE NOTE]
"THE 2003 MARKET BIAS FAVORED HIGHER RISK, LOWER QUALITY COMPANIES AS STOCKS OF
MONEY-LOSING COMPANIES IN THE INDEX SIGNIFICANTLY OUTPERFORMED STOCKS OF
PROFITABLE COMPANIES."
3
<Page>
The strong market returns this year had an added dynamic which dramatically
favored higher-risk asset classes. Within the small-capitalization market we saw
a continuation of the trend toward a "micro-cap bias." In fact, when analyzing
the returns of the Russell 2000 Growth Index by sorting the Index into quintiles
based on market capitalization, the largest capitalization quintile of the Index
returned 39.69%, while the smallest cap quintile returned 68.29%, or over 28
percentage points of greater relative returns.(1) However, the Fund, with its
large asset base, often finds it difficult to take positions in many of these
extremely small companies, as liquidity prevents it from building a meaningful
position.
The market bias not only favored smaller, but also lower quality, companies.
Stocks of money-losing companies in the Index significantly outperformed stocks
of profitable companies. As a group, stocks priced under $5 posted over 132% in
gains for the year. And, when analyzing
- ----------
(1)Source: Prudential Financial, "Small-Cap and Mid-Cap Perspectives,"
Steven G. DeSanctis, CFA
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - The strong market returns this year had a dynamic which dramatically favored
higher-risk asset classes. The market favored lower quality, lower priced,
money-losing companies, as well as smaller market-cap companies, as was
demonstrated in its micro-cap bias.
- - The Fund enjoyed a considerable overall benefit within the financials sector
due to a significant underweight position in this lagging sector.
- - Strong stock selection within the consumer discretionary sector offset the
Fund's overweight position in this slightly lagging sector versus the Index.
- - Fund performance was negatively impacted by a relatively high cash position.
- - The Fund suffered significant negative relative performance on an overall
basis within the healthcare sector, with the bulk of the underperformance a
result of a select few relatively poor performing stocks.
4
<Page>
the returns of the Russell 2000 Growth Index by sorting the Index into quintiles
based on volatility, the highest beta quintile of stocks posted over a 73%
return. Finally, quality, as measured by return on equity (ROE), significantly
favored the lowest ROE quintile category within the Index.(2)
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO FUND PERFORMANCE?
The Fund enjoyed a considerable overall benefit within the financials sector due
to a significant underweight position in this lagging sector. While stock
selection in the sector was relatively poor, this impact was significantly
counterbalanced by the Fund's underweight position, which was held due to the
liquidity constraints many of the small-cap financial holdings pose, and also
because of the concern that as we neared the end of an interest rate easing
cycle, financials may underperform.
Strong stock selection within the consumer discretionary sector offset the
Fund's overweight position in this slightly lagging sector versus the Index. In
fact, the Fund's largest positive contributor from an individual stock
perspective came from HARMAN INTERNATIONAL INDUSTRIES, INC. Harman is a provider
of audio and other electronics to the consumer and automobile
- ----------
(2)Source: Prudential Equity Group, Inc., "Fearless Forecast 2004," January 2004
[SIDENOTE]
<Table>
LARGEST EQUITY HOLDINGS (ticker symbol)
1. Fairmont Hotels & Resorts, Inc. (FHR) 1.85%
2. Marvel Enterprises, Inc. (MVL) 1.75%
3. Medicis Pharmaceutical Corporation (MRX) 1.72%
4. Macrovision Corporation (MVSN) 1.69%
5. Advance Auto Parts, Inc. (AAP) 1.61%
6. Brooks Automation, Inc. (BRKS) 1.59%
7. National-Oilwell, Inc. (NOI) 1.57%
8. Harman International Industries, Inc. (HAR) 1.52%
9. Advanced Neuromodulation Systems, Inc. (ANSI) 1.50%
10. Guitar Center, Inc. (GTRC) 1.44%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
original equipment manufacturer (OEM) markets, and appreciated sharply as a
result of high quality earnings results that were driven by automotive OEMs'
adoption of Harman's newer infotainment solutions. Specialty retail was another
bright spot for the Fund, as holdings such as ADVANCE AUTO PARTS, INC. and
Tractor Supply Company performed well. The Fund benefited from strong stock
selection in the restaurant industry as well,
[SIDENOTE]
[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 12/31/93 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>
due in part to the strong performance of RUBY TUESDAY, INC., a leader in the bar
and grill segment, which continued to demonstrate favorable operational results.
Fund holdings in the industrials sector saw some standout performance that
helped neutralize the negative impact of the Fund's relative overweight position
in this slightly lagging sector. Some of the strongest performance was seen
among many of the Fund's for-profit education-related companies
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- ------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 28.59% -- -- (10.20%)
Without sales charge 36.41% -- -- (8.87%)
CLASS B SHARES (12/31/99)
With redemption* 31.05% -- -- (10.30%)
Without redemption 35.05% -- -- (9.67%)
CLASS C SHARES (12/31/99)
With redemption** 34.16% -- -- (9.65%)
Without redemption 35.16% -- -- (9.65%)
CLASS F SHARES (12/29/89) 36.45% 6.03% 9.66% 13.52%
CLASS R SHARES (12/31/99) 36.87% -- -- (8.63%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 29.83% -- -- (10.33%)
Without sales charge 35.98% -- -- (9.29%)
</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 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 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 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.
7
<Page>
such as EDUCATION MANAGEMENT CORPORATION, where strong enrollment growth
translated into strong earnings growth. Stericycle, Inc., a medical waste
management company, also performed well as it continued to see steady customer
demand and new opportunities for selling more value-added service offerings. The
Fund also benefited from strong returns in many transportation-related companies
in the portfolio, namely airfreight and logistics companies UTI WORLDWIDE, INC.
and PACER INTERNATIONAL, INC., as well as from trucking companies such as J.B.
HUNT TRANSPORT SERVICES, INC. and WERNER ENTERPRISES, INC.
Aside from the few disappointments in the healthcare sector as is discussed
below, the Fund generally saw strong stock selection across many of its
healthcare holdings. Fund performance was positively impacted by the strong
performance of SELECT MEDICAL CORPORATION, a long-term acute care hospital and
outpatient rehabilitation services company, as it realized strong growth and the
added tailwind of a more favorable reimbursement environment. TARO
PHARMACEUTICAL INDUSTRIES LIMITED, INTEGRA LIFESCIENCES HOLDINGS, ODYSSEY
HEALTHCARE, INC., and ANDRX CORPORATION were also meaningful contributors during
the period.
[SIDENOTE]
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 25.15%
Consumer Discretionary 21.64%
Healthcare 21.23%
Industrials 18.16%
Energy 4.63%
Financials 2.14%
Materials 1.88%
Consumer Staples 1.77%
Telecommunications Services 1.27%
Cash & Equivalents 2.13%
</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>
Other less-significant positive impacts on performance included a zero
weighting in the utilities sector, which was the weakest performing sector of
the Index. The Fund also benefited from participation in initial public
offerings (IPOs) over the period.
WHAT FACTORS DETRACTED FROM THE FUND'S 12-MONTH PERFORMANCE?
Fund performance was negatively impacted by a relatively high cash position,
which averaged about 9.5% over the period. This had a dampening impact on Fund
performance, as the market returns were quite strong. Progress was made in
reducing the cash position during the fourth quarter of the year.
The Fund suffered significant negative relative performance on an overall
basis within the healthcare sector. While the Fund saw a modest negative impact
from being slightly overweight this sector, the bulk of the relative
underperformance was a result of a select few relatively poor performing stocks.
The most significant of these, and the Fund's largest negative contributor from
an individual stock standpoint, was Accredo Health, Inc., a contract pharmacy
services company, which fell sharply early in the year as it lowered
expectations due to both competition in specific product areas and acquisition
integration challenges. Other poor performers within the sector included AMN
Healthcare Services, Inc., a nurse staffing company, which also fell sharply as
customer demand for temporary nurse staffing slowed. The Fund's holdings within
the hospital industry, namely Lifepoint Hospitals, Inc. and Community Health
Systems, Inc. also performed poorly due to rotation into more economically
sensitive holdings as well as slowing admission trends. Charles River
Laboratories International, Inc., a research models company, lagged after
slightly lowering earnings guidance early in the year.
Despite information technology being a strong-performing sector for the
period, the Fund suffered from an underweight position in this sector, and to a
lesser extent, from stock selection as well. From a stock standpoint, Fund
performance lagged primarily due to the impact of two stocks: Tech Data
Corporation, a technology distributor, which fell early during the period after
revising downward their fiscal year 2003 earnings guidance
9
<Page>
and announcing a large acquisition; and Cree, Inc., a light emitting diode (LED)
company, which exhibited weakness related to a lawsuit filed by the former
founder and brother of the company's current chairman.
The energy sector was another poor relative performer for the Fund primarily
due to weak stock selection and, to a lesser extent, the timing of our
overweight position. The primary detractor within the sector was Tidewater,
Inc., which despite strong commodity prices, did not see this translate into a
significant business recovery for its supply boat services. The Fund also
maintained a slight underweight within the strong-performing exploration and
production industry versus the Index.
Poor stock selection and an underweight position within the telecommunication
services sector, the best performing sector in the Index for the period, also
impeded overall Fund performance. The primary impact came from the performance
of Boston Communications Group, Inc., a provider of billing and processing
services for wireless carriers, which fell after revealing its largest customer,
Verizon Wireless, was considering bringing in-house some services historically
provided by Boston Communications.
While the Fund was underweight the somewhat more defensive and slower growth
materials and consumer staples sectors, weak stock selection more than offset
this potential positive. Within the materials sector, RPM International, Inc.,
an industrial coating and sealant company, performed poorly as a result of
potential asbestos liability concerns. Consumer staples stock selection was
negatively impacted by the performance of Duane Reade, Inc. and American Italian
Pasta Company.
Additional detractors to performance were other stock-specific
disappointments including Alloy, Inc., which proved to be the second-largest
negative contributor from an individual stock perspective. Alloy, a teen direct
marketing and media company, fell sharply after missing earnings expectations
due to unexpected higher fulfillment costs and more promotional activity. Other
significant negative contributors to relative performance include Atlantic Coast
Airlines Holdings, Inc. and Scholastic Corporation.
10
<Page>
WHAT CHANGES WERE MADE TO FUND COMPOSITION DURING THE PERIOD?
We are pleased to have been able to continue to lower the cash position from
recent levels in excess of 10% to a year-end level around 3% of assets. This is
also reflected in the number of holdings in the portfolio having increased from
101 at the beginning of the year to 119 as we ended 2003. Many of these new
holdings were in the technology sector where we have worked hard to identify
smaller or micro-cap companies we believe are more attractively valued than some
larger counterparts.
Our strategy for the Fund remains consistent. We will continue to utilize our
bottom-up process to seek companies we believe are capable of posting strong
future earnings growth and that are valued attractively. While 2003 was not a
year that favored "higher quality" within the small-cap sector, we will continue
to maintain our discipline of remaining "concept stock" averse, preferring to
primarily own companies we can value on earnings rather than stocks that trade
on short-term news and psychology.
/s/ Robert Ammann
Robert Ammann, CFA
Portfolio Manager
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-91.5%
AEROSPACE & DEFENSE-1.5%
264,285 KVH Industries, Inc.* $ 7,259,900
191,495 ManTech International Corporation* 4,777,800
--------------
12,037,700
--------------
AIR FREIGHT & LOGISTICS-1.8%
176,000 Forward Air Corporation* 4,840,000
472,120 Pacer International, Inc.* 9,546,266
--------------
14,386,266
--------------
ALTERNATIVE CARRIERS-1.3%
1,177,825 Premiere Technologies, Inc.* 10,376,638
--------------
APPAREL, ACCESSORIES & LUXURY GOODS-1.0%
144,220 Columbia Sportswear Company* 7,859,990
--------------
APPLICATION SOFTWARE-3.1%
211,455 Altiris, Inc.* 7,713,878
104,050 Ansys, Inc.* 4,130,785
200,440 Cadence Design Systems, Inc.* 3,603,911
344,275 Concur Technologies, Inc.* 3,332,582
121,725 Hyperion Solutions Corporation* 3,668,792
110,975 Manhattan Associates, Inc.* 3,067,349
--------------
25,517,297
--------------
BROADCASTING & CABLE TV-1.4%
529,525 Cumulus Media, Inc.* 11,649,550
--------------
BUILDING PRODUCTS-0.7%
151,270 Trex Company, Inc.* 5,745,235
--------------
CASINOS & GAMING-0.3%
75,925 Shuffle Master, Inc.* 2,628,524
--------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-5.8%
942,452 Arris Group, Inc.* $ 6,823,352
246,025 Avocent Corporation* 8,984,833
225,570 Harris Corporation 8,560,382
115,980 NetScreen Technologies, Inc.* 2,870,505
294,975 Polycom, Inc.* 5,757,912
494,730 Powerwave Technologies, Inc.* 3,784,685
73,110 SafeNet, Inc.* 2,249,595
1,847,522 Stratex Networks, Inc.* 7,851,969
--------------
46,883,233
--------------
CONSTRUCTION & ENGINEERING-1.3%
179,800 Chicago Bridge & Iron Company NV NY Shares 5,196,220
111,155 Jacobs Engineering Group, Inc.* 5,336,552
--------------
10,532,772
--------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.5%
242,925 Wabtec Corporation 4,139,442
--------------
CONSUMER ELECTRONICS-1.5%
167,725 Harman International Industries, Inc. 12,408,296
--------------
DISTILLERS & VINTNERS-0.7%
160,840 Constellation Brands, Inc.* 5,296,461
--------------
DIVERSIFIED COMMERCIAL SERVICES-4.1%
86,150 Corinthian Colleges, Inc.* 4,786,494
289,760 Education Management Corporation* 8,994,150
221,390 Kroll, Inc.* 5,756,140
280,089 LECG Corporation* 6,411,237
47,685 Strayer Education, Inc. 5,189,559
71,950 Universal Technical Institute, Inc.* 2,158,500
--------------
33,296,080
--------------
ELECTRICAL COMPONENTS & EQUIPMENT-1.0%
175,050 AMETEK, Inc. 8,447,913
--------------
ELECTRONIC EQUIPMENT MANUFACTURERS-2.1%
487,560 Aeroflex, Inc.* 5,699,576
180,875 FLIR Systems, Inc.* 6,601,938
301,925 RadiSys Corporation* 5,090,456
--------------
17,391,970
--------------
ELECTRONIC MANUFACTURING SERVICES-0.2%
106,525 TTM Technologies, Inc.* 1,798,142
--------------
ENVIRONMENTAL SERVICES-2.1%
174,565 Stericycle, Inc.* 8,152,186
231,100 Waste Connections, Inc.* 8,728,647
--------------
16,880,833
--------------
FOOD RETAIL-0.3%
31,365 Whole Foods Market, Inc.* 2,105,532
--------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.6%
163,585 Tuesday Morning Corporation* $ 4,948,446
--------------
HEALTHCARE DISTRIBUTORS-2.6%
250,925 Fisher Scientific International, Inc.* 10,380,767
154,311 Henry Schein, Inc.* 10,428,337
--------------
20,809,104
--------------
HEALTHCARE EQUIPMENT-3.3%
265,725 Advanced Neuromodulation Systems, Inc.* 12,218,036
559,950 Alaris Medical Systems, Inc.* 8,516,840
117,680 Integra LifeSciences Holdings* 3,369,178
137,400 VISX, Inc.* 3,180,810
--------------
27,284,864
--------------
HEALTHCARE FACILITIES-1.3%
661,635 Select Medical Corporation 10,771,418
--------------
HEALTHCARE SERVICES-2.5%
327,287 Odyssey Healthcare, Inc.* 9,576,418
411,485 SFBC International, Inc.* 10,929,042
--------------
20,505,460
--------------
HEALTHCARE SUPPLIES-1.2%
169,800 Merit Medical Systems, Inc.* 3,779,748
320,510 Sola International, Inc.* 6,025,588
--------------
9,805,336
--------------
HOME ENTERTAINMENT SOFTWARE-0.7%
361,630 Sonic Solutions* 5,532,939
--------------
HOME FURNISHINGS-1.4%
399,800 Furniture Brands International, Inc. 11,726,134
--------------
HOTELS, RESORTS & CRUISE LINES-1.3%
310,125 Choice Hotels International, Inc.* 10,931,906
--------------
INDUSTRIAL MACHINERY-1.0%
225,300 Actuant Corporation* 8,155,860
--------------
INTERNET SOFTWARE & SERVICES-0.7%
123,040 j2 Global Communications, Inc.* 3,047,701
159,057 United Online, Inc.* 2,670,567
--------------
5,718,268
--------------
IT CONSULTING & OTHER SERVICES-1.7%
503,800 CIBER, Inc.* 4,362,908
969,465 Lionbridge Technologies, Inc.* 9,316,559
--------------
13,679,467
--------------
LEISURE PRODUCTS-3.4%
241,850 Leapfrog Enterprises, Inc.* 6,416,281
489,320 Marvel Enterprises, Inc.* 14,244,105
78,000 Polaris Industries, Inc. 6,909,240
--------------
27,569,626
--------------
MANAGED HEALTHCARE-0.9%
180,325 Amerigroup Corporation* 7,690,861
--------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
OIL & GAS DRILLING-0.4%
173,725 Pride International, Inc.* $ 3,238,234
--------------
OIL & GAS EQUIPMENT & SERVICES-2.8%
83,150 Carbo Ceramics, Inc. 4,261,438
572,395 National-Oilwell, Inc.* 12,798,752
635,225 Superior Energy Services, Inc.* 5,971,115
--------------
23,031,305
--------------
OIL & GAS EXPLORATION & PRODUCTION-1.4%
157,235 Pioneer Natural Resources Company* 5,020,514
199,600 Quicksilver Resources, Inc.* 6,447,080
--------------
11,467,594
--------------
PHARMACEUTICALS-7.9%
389,350 Andrx Corporation* 9,359,974
512,880 Impax Laboratories, Inc.* 7,380,343
169,437 K-V Pharmaceuticals Company* 4,320,644
196,876 Medicis Pharmaceutical Corporation Class A 14,037,259
163,290 MGI Pharma, Inc.* 6,719,384
68,575 Pharmaceutical Resources, Inc.* 4,467,661
136,800 Taro Pharmaceutical Industries Limited* 8,823,600
188,050 Salix Pharmaceuticals Limited* 4,263,094
205,100 Valeant Pharmaceuticals International 5,158,265
--------------
64,530,224
--------------
PUBLISHING-0.8%
126,820 Getty Images, Inc.* 6,357,487
--------------
REGIONAL BANKS-0.7%
136,990 Southwest Bancorporation of Texas, Inc. 5,322,062
--------------
RESTAURANTS-2.7%
95,615 Krispy Kreme Doughnuts, Inc.* 3,499,509
262,112 Rare Hospitality International, Inc.* 6,406,017
147,444 Red Robin Gourmet Burgers, Inc.* 4,488,195
279,235 Ruby Tuesday, Inc. 7,955,405
--------------
22,349,126
--------------
SEMICONDUCTOR EQUIPMENT-2.5%
537,620 Brooks Automation, Inc.* 12,994,275
605,030 Entegris, Inc.* 7,774,636
--------------
20,768,911
--------------
SEMICONDUCTORS-5.2%
307,400 Actel Corporation* 7,408,340
463,500 Artisan Components, Inc.* 9,501,750
396,650 Fairchild Semiconductor Corporation Class A* 9,904,351
48,110 OmniVision Technologies, Inc.* 2,658,078
366,200 Semtech Corporation* 8,323,726
180,775 Sigmatel, Inc.* 4,461,527
--------------
42,257,772
--------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
SPECIALTY CHEMICALS-0.9%
145,600 Valspar Corporation $ 7,195,552
--------------
SPECIALTY STORES-5.3%
161,320 Advance Auto Parts, Inc.* 13,131,448
182,665 Cost Plus, Inc.* 7,489,265
361,400 Guitar Center, Inc.* 11,774,412
283,298 Movie Gallery, Inc.* 5,292,007
167,350 PETCO Animal Supplies, Inc.* 5,095,808
--------------
42,782,940
--------------
STEEL-1.0%
599,200 Graftech International Limited* 8,089,200
--------------
SYSTEMS SOFTWARE-2.2%
610,840 Macrovision Corporation* 13,798,876
241,960 Secure Computing Corporation* 4,333,504
--------------
18,132,380
--------------
TECHNOLOGY DISTRIBUTORS-0.9%
384,686 Insight Enterprises, Inc.* 7,232,097
--------------
TRADING COMPANIES & DISTRIBUTORS-1.0%
156,245 Fastenal Company 7,802,875
--------------
TRUCKING-2.5%
184,450 JB Hunt Transport Services, Inc.* 4,981,995
177,150 Knight Transportation, Inc.* 4,543,898
277,945 Overnite Corporation* 6,323,249
249,863 Werner Enterprises, Inc. 4,869,830
--------------
20,718,972
--------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$627,756,535) 745,788,294
--------------
COMMON STOCKS (FOREIGN)-6.4%
AIR FREIGHT & LOGISTICS-0.7%
153,500 UTI Worldwide, Inc. (VI) 5,822,255
--------------
HEALTHCARE EQUIPMENT-0.7%
136,700 ResMed, Inc. (AU)* 5,678,518
--------------
HOTELS, RESORTS & CRUISE LINES-1.9%
556,910 Fairmont Hotels & Resorts, Inc. (CA) 15,114,537
--------------
PHARMACEUTICALS-0.7%
128,120 Angiotech Pharmaceuticals, Inc. ADR (CA)* 5,893,520
--------------
REINSURANCE-1.5%
258,510 Platinum Underwriters Holdings Limited (BD) 7,755,300
210,500 Scottish Re Group Limited (BD) 4,374,190
--------------
12,129,490
--------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
SOFT DRINKS-0.9%
251,675 Cott Corporation (CA)* $ 7,049,417
--------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$46,491,203) 51,687,737
--------------
<Caption>
UNITS MARKET VALUE
- ----------------------------------------------------------------------------------
WARRANTS-0.0%
COMMERCIAL PRINTING-0.0%
2,368 American Banknote Corporation Warrants, expire 2007* 2
2,368 American Banknote Corporation Warrants, expire 2007* 24
--------------
26
--------------
TOTAL WARRANTS
(COST-$0) 26
--------------
TOTAL INVESTMENTS-97.9%
(TOTAL COST-$674,247,738) 797,476,057
OTHER ASSETS AND LIABILITIES-2.1% 17,423,168
--------------
NET ASSETS-100.0% $ 814,899,225
==============
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 674,247,738
---------------
Investment securities, at market 797,476,057
Cash 5,723,519
Receivables:
Investment securities sold 25,333,939
Capital shares sold 1,008,813
Dividends 113,074
Other assets 39,010
---------------
Total Assets 829,694,412
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 8,750,345
Capital shares redeemed 4,719,987
Advisory fees 572,231
Shareholder servicing fees 54,187
Accounting fees 36,339
Distribution fees 87,150
Transfer agency fees 144,171
Custodian fees 380
Other 430,397
---------------
Total Liabilities 14,795,187
---------------
Net Assets $ 814,899,225
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 1,156,411,959
Accumulated net investment loss (99,180)
Accumulated net realized loss from security transactions (464,641,873)
Net unrealized appreciation on investments 123,228,319
---------------
Total $ 814,899,225
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
<Table>
Net Assets--Class A $ 79,629,612
Shares Outstanding--Class A 3,058,369
Net Asset Value, Redemption Price Per Share $ 26.04
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $ 27.63
Net Assets--Class B $ 21,009,189
Shares Outstanding--Class B 836,337
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 25.12
Net Assets--Class C $ 8,352,391
Shares Outstanding--Class C 332,294
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 25.14
Net Assets--Class F $ 638,880,464
Shares Outstanding--Class F 24,587,346
Net Asset Value, Offering and Redemption Price Per Share $ 25.98
Net Assets--Class R $ 65,239,955
Shares Outstanding--Class R 2,478,266
Net Asset Value, Offering and Redemption Price Per Share $ 26.32
Net Assets--Class T $ 1,787,614
Shares Outstanding--Class T 69,973
Net Asset Value, Redemption Price Per Share $ 25.55
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 26.75
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 1,004,000
Interest 712,422
Foreign taxes withheld (4,168)
---------------
Total Investment Income 1,712,254
---------------
EXPENSES:
Advisory fees--Note 2 5,896,047
Shareholder servicing fees--Note 2 606,704
Accounting fees--Note 2 379,728
Distribution fees--Note 2 1,525,567
Transfer agency fees--Note 2 1,317,912
Registration fees 110,464
Postage and mailing expenses 183,101
Custodian fees and expenses--Note 2 18,263
Printing expenses 154,611
Legal and audit fees 177,410
Directors' fees and expenses--Note 2 163,594
Other expenses 281,840
---------------
Total Expenses 10,815,241
Earnings Credits (9,534)
Waived Expenses (4,165)
Expense Offset to Broker Commissions (4,000)
---------------
Net Expenses 10,797,542
---------------
Net Investment Loss (9,085,288)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 13,930,958
Net Change in Unrealized Appreciation/Depreciation of Investments 218,611,635
---------------
Net Realized and Unrealized Gain 232,542,593
---------------
Net Increase in Net Assets Resulting from Operations $ 223,457,305
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
--------------- ---------------
OPERATIONS
Net Investment Loss $ (9,085,288) $ (9,642,274)
Net Realized Gain (Loss) 13,930,958 (254,766,071)
Net Change in Unrealized Appreciation / Depreciation 218,611,635 (84,564,881)
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 223,457,305 (348,973,226)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (9,822,554) (13,346,442)
Class B (3,591,234) (5,807,035)
Class C (1,821,877) (4,278,012)
Class F (36,105,693) (73,946,291)
Class R 5,799,244 2,113,647
Class T 68,669 (329,325)
--------------- ---------------
Net Decrease from Capital Share Transactions (45,473,445) (95,593,458)
--------------- ---------------
Net Increase (Decrease) in Net Assets 177,983,860 (444,566,684)
NET ASSETS
Beginning of year $ 636,915,365 $ 1,081,482,049
--------------- ---------------
End of year (including accumulated net investment
loss of $99,180 and $0, respectively) $ 814,899,225 $ 636,915,365
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS A SHARES
Net Asset Value, beginning of year $ 19.09 $ 28.50 $ 34.79 $ 40.88
Income from investment operations:
Net investment loss (0.36) (0.31) (0.17) (0.03)
Net realized and unrealized gains
(losses) on securities 7.31 (9.10) (6.02) (3.45)
------------ ------------ ------------ ------------
Total from investment
operations 6.95 (9.41) (6.19) (3.48)
Less dividends and 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 year $ 26.04 $ 19.09 $ 28.50 $ 34.79
============ ============ ============ ============
Total return* 36.41% (33.02%) (17.78%) (8.18%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 79,630 $ 67,184 $ 117,773 $ 131,298
Net expenses to average net assets# 1.50% 1.35% 1.18% 1.20%
Gross expenses to average net assets# 1.50% 1.35% 1.19% 1.24%
Net investment loss to average
net assets (1.25%) (1.08%) (0.58%) (0.21%)
Portfolio turnover rate@ 130% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS B SHARES
Net Asset Value, beginning of year $ 18.60 $ 28.03 $ 34.49 $ 40.88
Income from investment operations:
Net investment loss (0.81) (0.69) (0.45) (0.21)
Net realized and unrealized gains
(losses) on securities 7.33 (8.74) (5.91) (3.57)
------------ ------------ ------------ ------------
Total from investment
operations 6.52 (9.43) (6.36) (3.78)
Less dividends and 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 year $ 25.12 $ 18.60 $ 28.03 $ 34.49
============ ============ ============ ============
Total return* 35.05% (33.64%) (18.43%) (8.92%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 21,009 $ 18,804 $ 35,845 $ 50,883
Net expenses to average net assets# 2.56% 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 (2.31%) (1.98%) (1.35%) (1.02%)
Portfolio turnover rate@ 130% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS C SHARES
Net Asset Value, beginning of year $ 18.60 $ 28.05 $ 34.51 $ 40.88
Income from investment operations:
Net investment loss (0.94) (0.86) (0.48) (0.19)
Net realized and unrealized gains
(losses) on securities 7.48 (8.59) (5.88) (3.57)
------------ ------------ ------------ ------------
Total from investment
operations 6.54 (9.45) (6.36) (3.76)
Less dividends and 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 year $ 25.14 $ 18.60 $ 28.05 $ 34.51
============ ============ ============ ============
Total return* 35.16% (33.69%) (18.42%) (8.87%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 8,352 $ 7,794 $ 17,031 $ 25,275
Net expenses to average net assets# 2.52% 2.26% 1.96% 1.94%
Gross expenses to average net assets# 2.52% 2.27% 1.98% 1.97%
Net investment loss to
average net assets (2.28%) (1.99%) (1.36%) (1.01%)
Portfolio turnover rate@ 130% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
CLASS F SHARES
Net Asset Value, beginning of year $ 19.04 $ 28.45 $ 34.74 $ 40.86 $ 24.37
Income from investment operations:
Net investment loss (0.35) (0.36) (0.20) (0.07) (0.08)
Net realized and unrealized gains
(losses) on securities 7.29 (9.05) (5.99) (3.44) 22.72
------------ ------------ ------------ ------------ ------------
Total from investment
operations 6.94 (9.41) (6.19) (3.51) 22.64
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 (0.10) (2.61) (6.15)
------------ ------------ ------------ ------------ ------------
Total distributions 0.00 0.00 (0.10) (2.61) (6.15)
Net Asset Value, end of year $ 25.98 $ 19.04 $ 28.45 $ 34.74 $ 40.86
============ ============ ============ ============ ============
Total return 36.45% (33.08%) (17.81%) (8.26%) 94.59%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 638,880 $ 498,970 $ 847,330 $ 1,066,003 $ 806,152
Net expenses to average
net assets# 1.53% 1.40% 1.24% 1.25% 1.45%
Gross expenses to average
net assets# 1.53% 1.41% 1.25% 1.28% 1.46%
Net investment loss to
average net assets (1.29%) (1.13%) (0.64%) (0.46%) (0.96%)
Portfolio turnover rate@ 130% 128% 110% 108% 157%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS R SHARES
Net Asset Value, beginning of year $ 19.23 $ 28.64 $ 34.87 $ 40.88
Income from investment operations:
Net investment income (loss) (0.17) (0.18) (0.08) 0.00+
Net realized and unrealized gains
(losses) on securities 7.26 (9.23) (6.05) (3.40)
------------ ------------ ------------ ------------
Total from investment
operations 7.09 (9.41) (6.13) (3.40)
Less dividends and 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 year $ 26.32 $ 19.23 $ 28.64 $ 34.87
============ ============ ============ ============
Total return 36.87% (32.86%) (17.57%) (7.98%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 65,240 $ 42,872 $ 61,163 $ 4,693
Net expenses to average net assets# 1.21% 1.10% 0.94% 0.93%
Gross expenses to average net assets# 1.21% 1.10% 0.95% 0.96%
Net investment income (loss) to
average net assets (0.96%) (0.82%) (0.38%) 0.01%
Portfolio turnover rate@ 130% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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.
26
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS T SHARES
Net Asset Value, beginning of year $ 18.79 $ 28.24 $ 34.69 $ 40.88
Income from investment operations:
Net investment loss (0.31) (0.54) (0.33) (0.09)
Net realized and unrealized gains
(losses) on securities 7.07 (8.91) (6.02) (3.49)
------------ ------------ ------------ ------------
Total from investment
operations 6.76 (9.45) (6.35) (3.58)
Less dividends and 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 year $ 25.55 $ 18.79 $ 28.24 $ 34.69
============ ============ ============ ============
Total return* 35.98% (33.46%) (18.30%) (8.43%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,788 $ 1,291 $ 2,341 $ 1,908
Net expenses to average net assets# 1.90% 2.06% 1.82% 1.44%
Gross expenses to average net assets# 1.91% 2.06% 1.83% 1.48%
Net investment loss to
average net assets (1.66%) (1.79%) (1.24%) (0.50%)
Portfolio turnover rate@ 130% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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.
28
<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, if any, is recorded
as foreign currency gain or loss and would be 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 arises 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 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.
29
<Page>
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) 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 an indirect 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
1.00% 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.
30
<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 ("Dreyfus," 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $231,448 and $128,423, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $228,098 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 52,713
Class B $ 73,409
Class C $ 27,414
Class R $ 18,185
Class T $ 3,167
</Table>
31
<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 or servicing 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 year ended December 31, 2003, Class F shares were charged $1,320,188
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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 176,102
Class B $ 143,376 $ 47,792
Class C $ 58,595 $ 19,531
Class T $ 3,408 $ 3,408
</Table>
During the year ended December 31, 2003, DSC retained $2,399 and $8 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $67,480 and $139 of contingent deferred sales charges relating to
redemptions of Class B and Class C shares, respectively.
32
<Page>
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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $4,165. 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.
33
<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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 8,986,108 $ 0 $ (8,986,108)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted
below, if any, as of December 31, 2003, 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, 2011.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 455,702,028
Federal Tax Cost $ 683,187,583
Gross Tax Appreciation of Investments $ 150,381,262
Gross Tax Depreciation of Investments $ (36,092,788)
Net Tax Appreciation $ 114,288,474
</Table>
34
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
CLASS A
Sold 1,201,496 $ 27,097,339 914,819 $ 21,923,140
Redeemed (1,662,688) $ (36,919,893) (1,527,408) $ (35,269,582)
NET DECREASE (461,192) $ (9,822,554) (612,589) $ (13,346,442)
CLASS B
Sold 10,129 $ 212,967 26,778 $ 651,636
Redeemed (184,783) $ (3,804,201) (294,496) $ (6,458,671)
NET DECREASE (174,654) $ (3,591,234) (267,718) $ (5,807,035)
CLASS C
Sold 21,413 $ 428,341 27,424 $ 641,512
Redeemed (108,035) $ (2,250,218) (215,764) $ (4,919,524)
NET DECREASE (86,622) $ (1,821,877) (188,340) $ (4,278,012)
CLASS F
Sold 5,367,437 $ 117,439,063 5,520,185 $ 130,099,247
Redeemed (6,981,197) $ (153,544,756) (9,099,776) $ (204,045,538)
NET DECREASE (1,613,760) $ (36,105,693) (3,579,591) $ (73,946,291)
CLASS R
Sold 500,330 $ 11,153,199 438,891 $ 10,145,622
Redeemed (251,484) $ (5,353,955) (344,725) $ (8,031,975)
NET INCREASE 248,846 $ 5,799,244 94,166 $ 2,113,647
CLASS T
Sold 18,394 $ 420,952 14,612 $ 336,876
Redeemed (17,137) $ (352,283) (28,799) $ (666,201)
NET INCREASE (DECREASE) 1,257 $ 68,669 (14,187) $ (329,325)
</Table>
35
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$831,355,846 and $852,669,256, respectively.
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) $50 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 $50 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 December 31, 2003 the Fund did not have any borrowings under the
LOC.
36
<Page>
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
37
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Discovery Fund
(one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
38
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
39
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
40
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
41
<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)
210 University Boulevard, Suite 800
Denver, CO 80206
Distributor
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
Additional information about the Fund and its directors is available in the
Fund's Statement of Additional Information, which can be obtained free of charge
by contacting the Fund.
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:
February 27, 2004
Dreyfus Service Corporation, Distributor. (c) 2004 Founders Asset
Management LLC.
A-646-DIS-03
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
GOVERNMENT SECURITIES FUND
DREYFUS FOUNDERS
MONEY MARKET FUND
INVESTMENT UPDATE
DECEMBER 31, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Government Securities Fund Management Overview 3
Government Securities Fund Statement of Investments 7
Money Market Fund Statement of Investments* 9
Statements of Assets and Liabilities 11
Statements of Operations 12
Statements of Changes in Net Assets 13
Government Securities Fund Financial Highlights 14
Money Market Fund Financial Highlights 15
Notes to Financial Statements 16
Report of Independent Auditors 25
Other Tax Information 26
Your Board Representatives 27
</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 Annual 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
December 31, 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
December 31, 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 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
Investors' risk appetite increased in 2003, as equity markets strengthened and
improving economic fundamentals pushed bond prices lower. Higher-risk
investments, including equities and high-yield debt, were favored securities by
year's end.
During the period, Dreyfus Founders Government Securities Fund slightly
underperformed its benchmarks, delivering a positive return of 2.03%, while the
Lehman Brothers U.S. Treasury Composite Index gained 2.22% and the Lehman
Brothers U.S. Government Composite Index returned 2.37%.
WHAT BOND MARKET DYNAMICS OCCURRED DURING THE 12-MONTH PERIOD?
The buildup to the Iraqi conflict and the speculation over its outcome dominated
economic news throughout the first quarter of the period. However, as the Iraqi
conflict began winding down, economic fundamentals improved and speculation that
the Federal Reserve might begin raising interest rates dampened the demand for
Treasuries.
[SIDENOTE]
"IN THE SECOND HALF OF THE YEAR, TREASURY DEBT ENDED ITS LONGEST
RALLY SINCE WORLD WAR II, POSTING ITS FIRST ANNUAL DECLINE IN THE PAST FOUR
YEARS."
3
<Page>
In the second half of the year, Treasury debt ended its longest rally since
World War II, posting its first annual decline in the past four years. Ten-year
bond yields began 2003 at 3.82%, dropping to a 45-year low of 3.07% in June, and
ending the year slightly higher at 4.25%.
[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 12/31/93 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
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 TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
CLASS F SHARES 1 5 10 SINCE
(INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- -----------------------------------------------------------------
3/1/88 2.03% 5.06% 4.78% 6.17%
</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 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.
Additionally, corporate bond spreads shrank by almost half during the twelve
months, due perhaps to the end of major hostilities in Iraq and to the
strengthening economic recovery. High-yield issues outperformed higher-quality
debt, 27% versus 8.4%, respectively.(1) The year ended with an interest rate
rise across most of the yield curve, with the yield curve steepening.
Finally, mortgage investing experienced a tumultuous year with high
refinancing activity and the ensuing rapid prepayment rates impacting mortgages.
WHAT MANAGEMENT DECISIONS MOST IMPACTED FUND PERFORMANCE DURING THE PERIOD?
The Fund's exposure to the long-end of the yield curve assisted Fund returns
during the first half of 2003; however, the massive sell-off experienced in July
and August countered that initial positive performance as the Fund reduced
exposure and duration too late.
Also, during the period, Fund exposure to longer-dated securities was reduced
with the expectation that yields would rise in a strengthening economy. Some
exposure to Treasury Inflation-Protected Securities (TIPS) was also added to the
Fund in an effort to introduce inflation protection
- ----------
(1)Source: First Boston, "Global Performance Monitor: 2003 Scorecard," January
5, 2004
5
<Page>
for the portfolio without compromising its liquidity. Additionally, we
diversified some of the Fund's government agency exposure and eliminated Freddie
Mac debt exposure in June, except for a small pass-through position, due to a
Securities and Exchange Commission-led investigation into the mortgage
financier's accounting practices.
The Fund ended the 12-month period benefited by its weighting in
AAA-corporate and Canadian dollar-denominated provincial debt. The Canadian
dollar reached its highest level versus the dollar since 1993, rising 21% in
2003.
The Fund's lack of exposure in the mortgage sector in the fourth quarter of
the year impeded returns as the volatility in this sector seemed to have finally
abated with the increase in interest rates. Overall, the government sector
performed poorly in 2003 relative to higher risk asset classes.
In conclusion, regardless of the economic and market climate over the next
twelve months, we will continue to concentrate on our primary goal: seeking
investment opportunities among high-quality bonds all along the yield curve.
/s/Margaret 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>
GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES-71.6%
AGENCY PASS THROUGH-3.3%
$ 404,298 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 $ 428,952
------------
MORTGAGE-BACKED SECURITIES-3.5%
40,333 Federal Home Loan Mortgage Corporation
7.50% 11/1/29 Pool #C32819 43,327
Federal National Mortgage Association:
75,230 6.50% 10/1/31 Pool #596063 78,682
96,037 7.00% 3/1/12 Pool #373543 102,634
208,841 Government National Mortgage Association
6.50% 5/15/26 Pool #417388 220,821
------------
445,464
------------
U.S. AGENCIES-39.7%
Federal Home Loan Bank:
150,000 5.40% 10/25/06 161,396
495,000 5.625% 2/15/08 539,461
355,000 7.125% 2/15/05 377,376
Federal National Mortgage Association:
400,000 5.36% 11/29/11 Callable 11/29/04 409,968
150,000 5.75% 2/15/08 164,781
300,000 6.00% 5/15/08 332,550
300,000 6.625% 10/15/07 338,283
250,000 7.125% 6/15/10 293,935
500,000 Private Export Funding Corporation
3.40% 2/15/08 502,370
Tennessee Valley Authority:
500,000 4.75% 8/1/13 501,395
500,000 5.375% 11/13/08 539,285
350,000 7.125% 5/1/30 419,594
500,000 U.S. Department of Housing & Urban Development
2.97% 8/1/07 499,260
------------
5,079,654
------------
U.S. TREASURY NOTES-25.1%
U.S. Treasury Inflation Index Note:
411,584 3.00% 7/15/12 448,636
234,430 3.375% 1/15/12 262,292
425,192 3.50% 1/15/11 477,752
225,618 3.875% 1/15/09 254,740
U.S. Treasury Note:
400,000 6.00% 8/15/09 453,080
500,000 6.25% 2/15/07 557,345
500,000 6.50% 8/15/05 539,415
200,000 7.00% 7/15/06 224,024
------------
3,217,284
------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST-$8,747,490) 9,171,354
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------
GOVERNMENT BONDS (FOREIGN)-3.9%
CAD 305,000 Province of Quebec
6.50% 12/1/05 (Canada) $ 250,837
CAD 305,000 Province of Saskatchewan
6.00% 6/1/06 (Canada) 250,781
------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST-$408,648) 501,618
------------
SUPRANATIONAL OBLIGATIONS-1.6%
$ 200,000 International Bank for Reconstruction & Development
4.00% 1/10/05 205,506
------------
TOTAL SUPRANATIONAL OBLIGATIONS
(COST-$201,122) 205,506
------------
CORPORATE BONDS (DOMESTIC)-4.4%
DIVERSIFIED COMMERCIAL SERVICES-4.4%
500,000 Stanford University
6.16% 4/30/11 554,848
------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST-$499,998) 554,848
------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-17.0%
$ 400,000 Federal Home Loan Bank
1.04% 1/2/04 $ 399,989
500,000 Federal Home Loan Mortgage Corporation
1.00% 1/6/04 499,931
Federal National Mortgage Association:
700,000 1.03% 2/4/04 699,319
583,000 1.06% 2/4/04 582,417
------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$2,181,656) 2,181,656
------------
TOTAL INVESTMENTS-98.5%
(TOTAL COST-$12,038,914) 12,614,982
OTHER ASSETS AND LIABILITIES-1.5% 193,743
------------
NET ASSETS-100.0% $ 12,808,725
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<Page>
MONEY MARKET FUND
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-31.9%
$ 800,000 Federal Home Loan Bank
1.11% 4/28/04 $ 797,089
1,400,000 Federal Home Loan Mortgage Corporation
1.01% 1/8/04 1,399,725
Federal National Mortgage Association:
1,000,000 0.85% 1/2/04 999,976
700,000 0.94% 1/9/04 699,854
2,000,000 1.07% 2/18/04 1,997,147
1,400,000 1.075% 1/7/04 1,399,749
2,100,000 1.08% 1/20/04 2,098,803
1,400,000 1.08% 3/3/04 1,397,396
2,000,000 1.24% 2/6/04 1,997,520
1,600,000 Student Loan Marketing Association
0.75% 1/5/04 1,599,867
------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$14,387,126) 14,387,126
------------
CORPORATE SHORT-TERM NOTES-66.9%
AGRICULTURAL PRODUCTS-4.0%
Archer-Daniels-Midland Company:
812,000 1.09% 2/20/04+ 810,771
1,000,000 1.15% 3/8/04+ 997,859
------------
1,808,630
------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-4.0%
1,800,000 Paccar Financial Corporation
1.05% 2/3/04 1,798,268
------------
CONSUMER ELECTRONICS-4.0%
1,800,000 Sharp Electronics Corporation
1.10% 1/15/04 1,799,230
------------
CONSUMER FINANCE-4.4%
2,000,000 Household Finance Corporation
1.09% 1/29/04 1,998,305
------------
DISTILLERS & VINTNERS-2.4%
1,100,000 Diageo Capital PLC
1.07% 1/15/04+ 1,099,542
------------
DIVERSIFIED CHEMICALS-3.1%
1,400,000 E.I. de Pont de Nemours and Company
1.06% 1/27/04 1,398,928
------------
DIVERSIFIED COMMERCIAL SERVICES-3.6%
1,600,000 TransAmerica Finance Corporation
1.09% 1/16/04 1,599,273
------------
</Table>
+ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933
AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-4.4%
General Electric Capital Corporation:
400,000 1.09% 2/17/04 $ 399,431
------------
1,600,000 1.09% 4/7/04 1,595,301
------------
1,994,732
------------
INTEGRATED OIL & GAS-3.1%
$ 1,400,000 BP America, Inc.
1.05% 3/9/04 1,397,223
------------
MULTI-LINE INSURANCE-4.4%
2,000,000 American Family Financial Services
1.09% 3/17/04 1,995,398
------------
OTHER DIVERSIFIED FINANCIAL SERVICES-8.4%
1,700,000 Merrill Lynch & Company
1.02% 1/12/04 1,699,470
700,000 Morgan Stanley
1.08% 1/23/04 699,538
1,400,000 National Rural Utilities CFC
1.07% 1/21/04 1,399,168
------------
3,798,176
------------
PHARMACEUTICALS-4.0%
1,800,000 Abbott Laboratories
1.00% 1/6/04+ 1,799,750
------------
SPECIAL PURPOSE ENTITY-17.1%
1,800,000 CAFCO LLC
1.09% 2/10/04+ 1,797,820
2,200,000 Ciesco LLC
1.08% 1/21/04+ 2,198,680
Metlife Funding, Inc.:
1,100,000 1.05% 1/14/04 1,099,583
1,000,000 1.08% 1/14/04 999,610
1,600,000 Nestle Capital Corporation
1.07% 2/9/04+ 1,598,146
------------
7,693,839
------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$30,181,294) 30,181,294
------------
TOTAL INVESTMENTS-98.8%
(TOTAL AMORTIZED COST-$44,568,420) 44,568,420
OTHER ASSETS AND LIABILITIES-1.2% 525,523
------------
NET ASSETS-100.0% $ 45,093,943
============
</Table>
+ SECURITY WAS ACQUIRED PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933
AND MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES MARKET
FUND FUND
------------- -------------
ASSETS
Investment securities, at cost $ 12,038,914 $ 44,568,420
------------- -------------
Investment securities, at market 12,614,982 44,568,420
Cash 80,835 113,024
Receivables:
Capital shares sold 1,991 523,896
Interest 140,739 0
Other assets 65,011 44,925
------------- -------------
Total Assets 12,903,558 45,250,265
------------- -------------
LIABILITIES
Payables and other liabilities:
Capital shares redeemed 300 61,805
Advisory fees 3,822 17,309
Shareholder servicing fees 1,838 6,562
Accounting fees 318 1,122
Distribution fees 3,752 0
Transfer agency fees 4,073 2,557
Custodian fees 54 115
Other 79,076 66,709
Dividends 1,600 143
------------- -------------
Total Liabilities 94,833 156,322
------------- -------------
Net Assets $ 12,808,725 $ 45,093,943
============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 12,437,954 $ 45,093,711
Undistributed net investment income (loss) (1,143) 19,665
Accumulated net realized loss from security transactions (204,196) (19,433)
Net unrealized appreciation on investments and
foreign currency translation 576,110 0
------------- -------------
Total $ 12,808,725 $ 45,093,943
============= =============
Net Assets--Class F $ 12,808,725 $ 45,093,943
Shares Outstanding--Class F 1,276,108 45,093,943
Net Asset Value, Offering and Redemption Price Per Share $ 10.04 $ 1.00
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENTS OF OPERATIONS
For the year ended December 31, 2003
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES MARKET
FUND FUND
------------- -------------
INVESTMENT INCOME:
Interest $ 626,156 $ 623,284
------------- -------------
Total Investment Income 626,156 623,284
------------- -------------
EXPENSES:
Advisory fees--Note 2 94,631 265,945
Shareholder servicing fees--Note 2 25,029 88,743
Accounting fees--Note 2 8,735 31,914
Distribution fees--Note 2 36,396 0
Transfer agency fees--Note 2 7,661 24,586
Registration fees 13,854 9,386
Postage and mailing expenses 5,431 9,850
Custodian fees and expenses--Note 2 1,735 2,686
Printing expenses 11,468 15,569
Legal and audit fees 2,311 7,461
Directors' fees and expenses--Note 2 2,846 12,045
Other expenses 7,652 14,307
------------- -------------
Total Expenses 217,749 482,492
Earnings Credits (723) (598)
Waived Expenses (79,785) (43,039)
------------- -------------
Net Expenses 137,241 438,855
------------- -------------
Net Investment Income 488,915 184,429
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND
FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Security transactions 222,778 0
Foreign currency transactions 1,720 0
------------- -------------
Net Realized Gain 224,498 0
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation (401,425) 0
------------- -------------
Net Realized and Unrealized Loss (176,927) 0
------------- -------------
Net Increase in Net Assets Resulting from Operations $ 311,988 $ 184,429
============= =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
GOVERNMENT MONEY
SECURITIES MARKET
FUND FUND
----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/03 12/31/02 12/31/03 12/31/02
------------- ------------- ------------- -------------
OPERATIONS
Net Investment Income $ 488,915 $ 517,350 $ 184,429 $ 664,781
Net Realized Gain 224,498 66,187 0 0
Net Change in Unrealized
Appreciation/Depreciation (401,425) 773,401 0 0
------------- ------------- ------------- -------------
Net Increase in Net Assets
Resulting from Operations 311,988 1,356,938 184,429 664,781
------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
From Net Investment Income
Class F (493,892) (517,350) (184,429) (664,781)
------------- ------------- ------------- -------------
Net Decrease from Dividends
and Distributions (493,892) (517,350) (184,429) (664,781)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease) from
Capital Share Transactions--Note 4
Class F (2,327,336) 2,511,244 (14,992,067) (15,842,144)
------------- ------------- ------------- -------------
Net Increase (Decrease) in
Net Assets (2,509,240) 3,350,832 (14,992,067) (15,842,144)
NET ASSETS
Beginning of Year $ 15,317,965 $ 11,967,133 $ 60,086,010 $ 75,928,154
------------- ------------- ------------- -------------
End of Year $ 12,808,725 $ 15,317,965 $ 45,093,943 $ 60,086,010
============= ============= ============= =============
Undistributed net
investment income (loss) $ (1,143) $ 2,114 $ 19,665 $ 18,518
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
CLASS F SHARES
Net Asset Value, beginning of year $ 10.18 $ 9.55 $ 9.41 $ 8.96 $ 9.74
Income from investment operations:
Net investment income 0.34 0.38 0.45 0.47 0.42
Net realized and unrealized gains
(losses) on securities (0.14) 0.63 0.14 0.45 (0.78)
--------- --------- --------- --------- ---------
Total from investment
operations 0.20 1.01 0.59 0.92 (0.36)
Less dividends and distributions:
From net investment income (0.34) (0.38) (0.45) (0.47) (0.42)
From net realized gains 0.00 0.00 0.00 0.00^ 0.00
--------- --------- --------- --------- ---------
Total distributions (0.34) (0.38) (0.45) (0.47) (0.42)
Net Asset Value, end of year $ 10.04 $ 10.18 $ 9.55 $ 9.41 $ 8.96
========= ========= ========= ========= =========
Total return 2.03% 10.86% 6.37% 10.57% (3.77%)
Ratios/Supplemental Data
Net assets, end of year
(000s) $ 12,809 $ 15,318 $ 11,967 $ 10,384 $ 13,276
Net expenses to average
net assets#,+ 0.94% 0.92% 0.98% 1.29% 1.31%
Gross expenses to average
net assets#,+ 0.95% 0.93% 1.00% 1.35% 1.35%
Net investment income to
average net assets+ 3.36% 3.90% 4.67% 5.13% 4.47%
Portfolio turnover rate@ 52% 28% 73% 88% 127%
</Table>
^ Distributions from net realized gains for the year ended December 31, 2000
aggregated less than $0.01 on a per share basis.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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), and 1.49% (1999). The gross
expense ratios would have been 1.50% (2003), 1.48% (2002), 1.50% (2001),
1.55% (2000), and 1.53% (1999). The net investment income ratios would have
been 2.81% (2003), 3.35% (2002), 4.17% (2001), 4.93% (2000), and 4.29%
(1999).
@ 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.
14
<Page>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
CLASS F SHARES
Net Asset Value, beginning of year $ 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
Net realized and unrealized gains
(losses) on securities 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
Total from investment
operations 0.00 0.01 0.03 0.05 0.04
Less dividends and distributions:
From net investment income 0.00^ (0.01) (0.03) (0.05) (0.04)
From net realized gains 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
Total distributions 0.00 (0.01) (0.03) (0.05) (0.04)
Net Asset Value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total return 0.34% 0.98% 3.40% 5.62% 4.35%
Ratios/Supplemental Data
Net assets, end of year
(000s) $ 45,094 $ 60,086 $ 75,928 $ 103,953 $ 92,866
Net expenses to average
net assets#,+ 0.83% 0.80% 0.79% 0.84% 0.89%
Gross expenses to average
net assets#,+ 0.83% 0.80% 0.79% 0.87% 0.91%
Net investment income to
average net assets+ 0.35% 0.98% 3.38% 5.54% 4.30%
</Table>
+ Net investment income for the year ended December 31, 2003 aggregated less
than $0.01 on a per share basis.
^ Distribution from net investment income for the year ended December 31, 2003
aggregated less than $0.01 on a per share basis.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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
years ended December 31, 2003, 2002 and 2001. Had these fees not been waived,
the net expense ratios would have been 0.91% (2003), 0.87% (2002) and 0.84%
(2001). The gross expense ratios would have been 0.91% (2003), 0.87% (2002)
and 0.84% (2001). The net investment income ratios would have been 0.27%
(2003), 0.91% (2002) and 3.33% (2001).
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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 offer 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.
16
<Page>
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 arises 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
discounts and the amortization of premiums over the lives of the respective
securities. Withholding taxes
17
<Page>
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 an indirect 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 $250 million of average net assets, and 0.30%
18
<Page>
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 year ended December 31,
2003, Founders waived $43,676 and $26,595 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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Government
Securities Fund was charged $16,799 and $8,230, respectively, and Money Market
Fund was charged $55,552 and $33,191, respectively, pursuant to these
Shareholder Services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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. For the year ended December 31, 2003, Government Securities Fund was
charged $4,741 and $2,199, respectively, and Money Market Fund was charged
$20,706 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 for
expenses paid for distributing or servicing 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 year ended December 31, 2003, $31,439 in expenses eligible
for reimbursement under the plan were absorbed by Founders, which resulted in
the Fund paying 0.03% under this plan. The 12b-1 fees for Government Securities
Fund in excess of those needed to
19
<Page>
compensate third parties for distributing the Fund or servicing Fund
shareholders will continue to be waived through at least August 31, 2004. This
waiver 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 year ended
December 31, 2003, Founders waived $4,309 and $15,738 for Government Securities
Fund and Money Market Fund, respectively.
CUSTODIAN FEES--Mellon Bank N.A., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year
ended December 31, 2003, the fee waivers for Government Securities Fund and
Money Market Fund were $361 and $706, respectively. The amounts paid to Mellon
were reduced by these fee waiver amounts.
20
<Page>
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 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 Funds.
Certain officers of the Company are also officers and/or directors of
Founders. The affairs of the Funds, 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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED
UNDISTRIBUTED NET REALIZED
NET INVESTMENT GAINS AND PAID IN
INCOME LOSSES CAPITAL
-------------- ------------- --------
Government Securities Fund $ 1,720 $ (1,720) $ 0
Money Market Fund $ 1,147 $ 0 $ (1,147)
</Table>
The tax character of distributions paid during 2003 and 2002 was as follows:
<Table>
<Caption>
2003 2002
---- ----
GOVERNMENT SECURITIES FUND:
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 493,892 $ 517,350
Long-term capital gain $ 0 $ 0
--------- ---------
$ 493,892 $ 517,350
</Table>
21
<Page>
<Table>
MONEY MARKET FUND:
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 184,429 $ 664,781
Long-term capital gain $ 0 $ 0
--------- ---------
$ 184,429 $ 664,781
</Table>
The tax components of capital represent distribution requirements the Funds
must satisfy under the income tax regulations and losses or tax deductions the
Funds may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted
below, if any, as of December 31, 2003, 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, 2004 and December 31,
2008. Net capital loss carryovers utilized during 2003 by the Government
Securities Fund amounted to $222,778. 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 December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
<Caption>
GOVERNMENT MONEY MARKET
SECURITIES FUND FUND
--------------- -------------
Undistributed Ordinary Income $ 296 $ 27,331
Accumulated Capital Losses $ 204,196 $ 19,433
Federal Tax Cost $ 12,038,914 $ 44,568,420
Gross Tax Appreciation of Investments $ 608,269 $ 0
Gross Tax Depreciation of Investments $ (32,201) $ 0
Net Tax Appreciation $ 576,068 $ 0
</Table>
22
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
GOVERNMENT SECURITIES FUND--CLASS F:
Sold 330,747 $ 3,348,390 771,488 $ 7,564,081
Dividends or Distributions
Reinvested 45,955 $ 466,139 49,466 $ 485,777
Redeemed (605,978) $ (6,141,865) (568,897) $ (5,538,614)
NET INCREASE (DECREASE) (229,276) $ (2,327,336) 252,057 $ 2,511,244
MONEY MARKET FUND--CLASS F:
Sold 15,049,068 $ 15,049,068 32,907,034 $ 32,908,230
Dividends or Distributions
Reinvested 179,077 $ 179,077 640,894 $ 640,894
Redeemed (30,220,212) $ (30,220,212) (49,391,268) $ (49,391,268)
NET DECREASE (14,992,067) $ (14,992,067) (15,843,340) $ (15,842,144)
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of long-term U.S. government obligations for the year ended
December 31, 2003 were $6,781,818 and $7,996,860, respectively, for Government
Securities Fund.
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) $50 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 $50 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 December 31, 2003, the Funds did not have any borrowings under the
LOC.
23
<Page>
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Funds believe
they are without merit.
24
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Government
Securities Fund and Dreyfus Founders Money Market Fund (two of the portfolios
constituting Dreyfus Founders Funds, Inc., hereafter referred to as the "Funds")
at December 31, 2003, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2003 by correspondence with the custodian, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
25
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Funds from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the period ended December 31, 2003, 0.00% qualified for the dividends
received deduction available to the Funds' corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2003, the Funds designated 0% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
26
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
27
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
28
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
29
<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)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
Additional information about the Funds and their directors is available in the
Funds' Statement of Additional Information, which can be obtained free of charge
by contacting the Funds.
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.
February 27, 2004
Dreyfus Service Corporation, Distributor. (c) 2004 Founders Asset
Management LLC.
A-646-GMM-03
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS GROWTH FUND
INVESTMENT UPDATE
DECEMBER 31, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
THE GROWTH SPECIALISTS
<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
Report of Independent Auditors 35
Your Board Representatives 36
</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 Annual 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 December 31, 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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
Although the beginning of the year was shadowed by uncertainty over a war in
Iraq, investor confidence in the equity markets soon strengthened as a
conclusion to the Iraqi conflict and an improving economy increased the appetite
for less-defensive investment vehicles. Dreyfus Founders Growth Fund fared well
during the period compared to its large-capitalization growth benchmark, the
Russell 1000 Growth Index, which returned 29.75% for the period.
IN WHAT BROAD ECONOMIC AND MARKET ENVIRONMENT DID THE FUND PERFORM IN 2003?
The reporting period began in a market slump, with the uncertainty over a war in
Iraq weighing heavily on investor confidence. Falling equity prices and
continuing corporate malfeasance also goaded investors into looking for less
risky, more defensive securities in which to invest.
However, the second quarter of the year saw markets and the economy begin
their upswing, primarily driven by the conclusion to major hostilities in Iraq
and a renewed sense of confidence in the U.S.'s war on terror. Although economic
statistics supplied by government and other organizations continued to show
[SIDENOTE]
"THIS IMPROVING ECONOMIC ENVIRONMENT LAID THE BACKGROUND FOR THE POSITIVE
PERFORMANCE ACHIEVED BY THE FUND DURING THE PERIOD."
3
<Page>
mixed results, investors' renewed confidence in equity markets, the pace of
economic growth and falling interest rates drew investors' attention toward
less-defensive vehicles.
The domestic market's rise was driven by various economic improvements during
the course of the year. Better-than-expected corporate profit growth, the easing
of geopolitical uncertainty, the Federal Reserve's accommodative monetary policy
and President Bush's fiscal stimulus plan were major factors in the improving
economic trends. Consumer spending was high, especially in the housing and
automobile markets. Capital spending also appeared to strengthen. Productivity
beat expectations during the year, and real gross domestic product (GDP)
increased at an annual rate of 8.2% in the third quarter. And although some
domestic economic concerns still existed at year's end, primarily the weak U.S.
dollar and sluggish job growth numbers, expectations that these may continue to
recover in 2004 remained strong.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - Although some domestic economic concerns still existed at year's end,
primarily the weak U.S. dollar and sluggish job growth numbers, expectations
that these may continue to recover in 2004 remained strong.
- - Some of the most compelling growth and investment opportunities were found in
the consumer discretionary and consumer staples sectors, which benefited from
an increase in consumer spending.
- - While poor stock selection in the technology sector was a drag on overall
performance, a few select stocks in this sector positively contributed to
Fund performance.
- - Cash was relatively high, averaging 8.25% for the year, negatively impacting
the Fund's return in the strong market environment.
4
<Page>
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE FOR THE PERIOD?
This improving economic environment laid the background for the positive
performance achieved by the Fund during the period. Relative performance was
driven by strong stock selection in several sectors.
The healthcare sector was the largest contributor to the Fund's relative
performance, driven by its underweight position versus the benchmark. Although
specific healthcare holdings performed poorly, as discussed below, stock
selection in this sector had an overall positive effect on Fund performance for
the period.
Some of the most compelling growth and investment opportunities were found in
the consumer discretionary and consumer staples sectors. The increase in
consumer confidence, and therefore, consumer spending, drove performance in
these sectors. Strong stock selection also buoyed overall performance with names
such as BEST BUY COMPANY, INC., ROYAL CARIBBEAN CRUISES LIMITED, and ESTEE
LAUDER COMPANIES, INC. Solid execution and market share gains from primary
competitors drove Best Buys annual performance. The company also benefited from
a recovery in consumer spending, and some desirable new product cycles such as
digital
[SIDENOTE]
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 5.70%
2. General Electric Company (GE) 3.99%
3. Microsoft Corporation (MSFT) 2.75%
4. Estee Lauder Companies, Inc. (EL) 2.51%
5. Royal Caribbean Cruises Limited (RCL) 2.42%
6. Intel Corporation (INTC) 2.18%
7. MBNA Corporation (KRB) 2.10%
8. Wells Fargo & Company (WFC) 2.04%
9. Maxim Integrated Products, Inc. (MXIM) 2.02%
10. Cendant Corporation (CD) 1.98%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
photography and HDTV. Performance by Royal Caribbean Cruises, one of the Fund's
largest holdings, was spurred by an improvement in demand for leisure travel,
solid execution and excellent product positioning. Estee Lauder posted better
than expected revenue and earnings growth as the company benefited from a
rebound in high-end consumer demand in the United States and abroad.
[SIDENOTE]
[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 12/31/93 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>
While poor stock selection in the technology sector was a drag on overall
Fund performance, a few select individual stocks in this sector positively
contributed to the Fund's performance, such as INTEL CORPORATION, VERITAS
SOFTWARE CORPORATION, and CISCO SYSTEMS, INC. Intel benefited from robust demand
for personal computers driven primarily by consumers, while Cisco Systems gained
from both product introductions as well as a rebound in enterprise spending on
networking equipment.
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------
Class A Shares (12/31/99)
With sales charge (5.75%) 23.61% -- -- (16.83%)
Without sales charge 31.23% -- -- (15.59%)
Class B Shares (12/31/99)
With redemption* 26.14% -- -- (16.71%)
Without redemption 30.14% -- -- (16.19%)
Class C Shares (12/31/99)
With redemption** 29.04% -- -- (16.24%)
Without redemption 30.04% -- -- (16.24%)
Class F Shares (1/5/62) 31.42% (6.65%) 6.29% N/A
Class R Shares (12/31/99) 31.87% -- -- (15.39%)
Class T Shares (12/31/99)
With sales charge (4.50%) 24.57% -- -- (17.22%)
Without sales charge 30.40% -- -- (16.26%)
</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 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 one-year 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.
7
<Page>
The least compelling area for investment in 2003 was in the long distance and
local telephone industries within the telecommunications sector. These
industries continued to present lackluster performance during the year, so the
Fund limited exposure to this sector, reducing the potential negative impact.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE YEAR?
As mentioned above, poor stock selection in the technology sector dampened the
Fund's relative performance, with such names as BMC Software, Inc., a provider
of e-business systems management software, which exhibited sluggish sales trends
for its software products during most of 2003, and revised earnings expectations
lower.
[SIDENOTE]
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 27.76%
Consumer Discretionary 19.15%
Industrials 11.64%
Financials 11.29%
Healthcare 8.47%
Consumer Staples 7.49%
Materials 1.90%
Energy 1.67%
Utilities 0.84%
Telecommunications Services 0.78%
Other 5.70%
Cash & Equivalents 3.31%
</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>
Additional underperformers in the portfolio included Kohl's Corporation,
Medimmune, Inc., and Delta Air Lines, Inc. Kohl's, an operator of specialty
department stores, posted sluggish sales trends and lower margins as consumers
shifted spending to other retailers. Medimmune, a biotechnology company, saw its
stock price drop slightly as the launch of the company's new product, the nasal
flu vaccine FluMist, proved to be disappointing. A relatively high price
combined with restrictive handling requirements and limited distribution
resulted in poor demand for the product.
The Funds cash position, which averaged 8.25% for the year, hampered returns
the Fund might have otherwise seen in the strong market environment.
In 2004, we will continue to evaluate stocks one by one. Our research-driven
approach includes extensive financial modeling and frequent interaction with
company management. We will continue to seek out companies we believe have the
potential to grow faster than market expectations.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-90.1%
AEROSPACE & DEFENSE-1.1%
31,525 General Dynamics Corporation $ 2,849,535
58,550 Lockheed Martin Corporation 3,009,470
---------------
5,859,005
---------------
AIRLINES-0.9%
186,700 AMR Corporation* 2,417,765
183,760 Northwest Airlines Corporation Class A* 2,319,051
---------------
4,736,816
---------------
ALUMINUM-1.1%
144,950 Alcoa, Inc. 5,508,100
---------------
APPAREL RETAIL-0.7%
146,175 Gap, Inc. 3,392,722
---------------
APPLICATION SOFTWARE-0.6%
139,725 PeopleSoft, Inc.* 3,185,730
---------------
ASSET MANAGEMENT & CUSTODY BANKS-0.9%
158,050 SEI Investments Company 4,815,784
---------------
BIOTECHNOLOGY-2.6%
62,735 Amgen, Inc.* 3,877,023
161,475 Gilead Sciences, Inc.* 9,388,157
---------------
13,265,180
---------------
BROADCASTING & CABLE TV-2.4%
33,150 Clear Channel Communications, Inc. 1,552,415
161,583 Comcast Corporation Special Class A* 5,054,316
162,900 Cox Communications, Inc. Class A* 5,611,905
---------------
12,218,636
---------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
CASINOS & GAMING-0.9%
100,350 Mandalay Resort Group $ 4,487,652
---------------
COMMUNICATIONS EQUIPMENT-1.9%
391,905 Cisco Systems, Inc.* 9,519,372
---------------
COMPUTER & ELECTRONICS RETAIL-0.7%
71,625 Best Buy Company, Inc. 3,741,690
---------------
COMPUTER HARDWARE-1.8%
100,250 International Business Machines Corporation 9,291,170
---------------
COMPUTER STORAGE & PERIPHERALS-0.9%
353,075 EMC Corporation* 4,561,729
---------------
CONSUMER FINANCE-2.1%
436,713 MBNA Corporation 10,852,318
---------------
DATA PROCESSING & OUTSOURCED SERVICES-1.3%
165,370 Fiserv, Inc.* 6,533,769
---------------
DEPARTMENT STORES-1.8%
73,500 Kohl's Corporation* 3,303,090
77,650 Nordstrom, Inc. 2,663,395
71,825 Sears Roebuck & Company 3,267,319
---------------
9,233,804
---------------
DIVERSIFIED BANKS-3.5%
23,300 Bank of America Corporation 1,874,019
125,350 Bank One Corporation 5,714,707
178,275 Wells Fargo & Company 10,498,615
---------------
18,087,341
---------------
DIVERSIFIED COMMERCIAL SERVICES-2.0%
457,350 Cendant Corporation* 10,185,185
---------------
DRUG RETAIL-1.6%
225,175 Walgreen Company 8,191,867
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS-0.3%
49,450 Agilent Technologies, Inc.* 1,445,918
---------------
EXCHANGE TRADED FUNDS-5.7%
264,225 SPDR Trust Series 1 29,405,600
---------------
FOOD RETAIL-0.6%
132,850 Safeway, Inc.* 2,910,744
---------------
GAS UTILITIES-0.8%
73,575 Kinder Morgan, Inc. 4,348,283
---------------
GOLD-0.8%
88,700 Newmont Mining Corporation 4,311,707
---------------
HEALTHCARE EQUIPMENT-0.5%
67,200 Boston Scientific Corporation* 2,470,272
---------------
</Table>
* NON-INCOME PRODUCING.
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL-1.3%
191,675 Home Depot, Inc. $ 6,802,546
---------------
HOTELS, RESORTS & CRUISE LINES-1.1%
135,850 Carnival Corporation 5,397,321
---------------
HOUSEHOLD PRODUCTS-1.3%
64,650 Procter & Gamble Company 6,457,242
---------------
HYPERMARKETS & SUPER CENTERS-0.5%
50,046 Wal-Mart Stores, Inc. 2,654,940
---------------
INDUSTRIAL CONGLOMERATES-4.6%
38,250 3M Company 3,252,398
663,509 General Electric Company 20,555,509
---------------
23,807,907
---------------
INDUSTRIAL MACHINERY-0.6%
38,900 Illinois Tool Works, Inc. 3,264,099
---------------
INTEGRATED OIL & GAS-0.5%
66,375 Exxon Mobil Corporation 2,721,375
---------------
INVESTMENT BANKING & BROKERAGE-2.3%
370,425 Charles Schwab Corporation 4,385,832
52,150 Goldman Sachs Group, Inc. 5,148,770
40,825 Morgan Stanley 2,362,543
---------------
11,897,145
---------------
LEISURE FACILITIES-2.4%
358,300 Royal Caribbean Cruises Limited 12,465,257
---------------
MOVIES & ENTERTAINMENT-4.7%
497,200 Time Warner, Inc.* 8,944,628
145,971 Viacom, Inc. Class B 6,478,193
375,700 Walt Disney Company 8,765,081
---------------
24,187,902
---------------
MULTI-LINE INSURANCE-1.1%
85,424 American International Group, Inc. 5,661,903
---------------
OIL & GAS DRILLING-0.2%
49,800 GlobalSantaFe Corporation 1,236,534
---------------
OIL & GAS EQUIPMENT & SERVICES-0.9%
111,750 Smith International, Inc.* 4,639,860
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.3%
141,717 Citigroup, Inc. 6,878,943
---------------
PERSONAL PRODUCTS-2.5%
329,903 Estee Lauder Companies, Inc. Class A 12,951,992
---------------
PHARMACEUTICALS-4.2%
109,875 Johnson & Johnson 5,676,143
62,850 Merck & Company, Inc. 2,903,670
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
210,213 Pfizer, Inc. $ 7,426,825
139,125 Wyeth 5,905,856
---------------
21,912,494
---------------
PUBLISHING-1.7%
67,975 Gannett Company, Inc. 6,060,651
56,125 Tribune Company 2,896,050
---------------
8,956,701
---------------
RAILROADS-1.8%
130,375 Union Pacific Corporation 9,058,455
---------------
SEMICONDUCTOR EQUIPMENT-1.5%
79,650 KLA-Tencor Corporation* 4,673,066
73,650 Novellus Systems, Inc.* 3,096,983
---------------
7,770,049
---------------
SEMICONDUCTORS-8.2%
49,825 Broadcom Corporation* 1,698,534
349,026 Intel Corporation 11,238,637
233,450 Linear Technology Corporation 9,821,242
209,375 Maxim Integrated Products, Inc. 10,426,875
241,225 Xilinx, Inc.* 9,345,057
---------------
42,530,345
---------------
SOFT DRINKS-1.1%
107,550 Coca-Cola Company 5,458,163
---------------
SPECIALTY STORES-1.5%
107,575 Staples, Inc.* 2,936,798
109,225 Tiffany & Company 4,936,970
---------------
7,873,768
---------------
SYSTEMS SOFTWARE-6.5%
45,750 Adobe Systems, Inc. 1,797,975
515,101 Microsoft Corporation 14,185,882
657,300 Oracle Corporation* 8,676,360
231,635 VERITAS Software Corporation* 8,607,557
---------------
33,267,774
---------------
WIRELESS TELECOMMUNICATION SERVICES-0.8%
142,650 Nextel Communications, Inc.* 4,002,759
---------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$404,092,957) 464,415,868
---------------
COMMON STOCKS (FOREIGN)-6.6%
APPLICATION SOFTWARE-1.7%
214,775 SAP AG Sponsored ADR (GE) 8,926,049
---------------
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.0%
311,500 Nokia Oyj Sponsored ADR (FI) $ 5,295,500
---------------
IT CONSULTING & OTHER SERVICES-1.1%
219,550 Accenture Limited Class A ADR (BD)* 5,778,556
---------------
PHARMACEUTICALS-1.2%
105,900 Teva Pharmaceutical Industries Limited
Sponsored ADR (IS) 6,005,589
---------------
RAILROADS-0.6%
49,450 Canadian National Railway Company (CA) 3,129,196
---------------
SEMICONDUCTOR EQUIPMENT-0.7%
175,750 ASM Lithography Holding NV NY Shares (NE)* 3,523,788
---------------
SEMICONDUCTORS-0.3%
39,875 Marvell Technology Group Limited (BD)* 1,512,459
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$25,637,871) 34,171,137
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-7.2%
$ 37,300,000 Federal National Mortgage Association
0.75% 1/2/04 $ 37,299,223
---------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$37,299,223) 37,299,223
---------------
TOTAL INVESTMENTS-103.9%
(TOTAL COST-$467,030,051) 535,886,228
OTHER ASSETS AND LIABILITIES-(3.9%) (20,243,028)
---------------
NET ASSETS-100.0% $ 515,643,200
===============
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 467,030,051
---------------
Investment securities, at market 535,886,228
Cash 2,334,837
Receivables:
Investment securities sold 8,048,394
Capital shares sold 251,798
Dividends 654,801
Other assets 41,116
---------------
Total Assets 547,217,174
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 15,388,864
Capital shares redeemed 15,008,523
Advisory fees 330,906
Shareholder servicing fees 42,522
Accounting fees 26,375
Distribution fees 149,706
Transfer agency fees 157,337
Custodian fees 277
Other 469,464
---------------
Total Liabilities 31,573,974
---------------
Net Assets $ 515,643,200
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 1,231,743,673
Accumulated net investment loss (112,853)
Accumulated net realized loss from security transactions (784,843,797)
Net unrealized appreciation on investments 68,856,177
---------------
Total $ 515,643,200
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
Net Assets--Class A $ 6,451,732
Shares Outstanding--Class A 659,072
Net Asset Value, Redemption Price Per Share $ 9.79
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 10.39
Net Assets--Class B $ 13,663,686
Shares Outstanding--Class B 1,438,402
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 9.50
Net Assets--Class C $ 1,774,021
Shares Outstanding--Class C 187,106
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 9.48
Net Assets--Class F $ 484,741,916
Shares Outstanding--Class F 49,336,777
Net Asset Value, Offering and Redemption Price Per Share $ 9.83
Net Assets--Class R $ 8,792,325
Shares Outstanding--Class R 888,576
Net Asset Value, Offering and Redemption Price Per Share $ 9.89
Net Assets--Class T $ 219,520
Shares Outstanding--Class T 23,146
Net Asset Value, Redemption Price Per Share $ 9.48
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 9.93
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 4,905,554
Interest 437,534
Foreign taxes withheld (12,027)
---------------
Total Investment Income 5,331,061
---------------
EXPENSES:
Advisory fees--Note 2 3,724,570
Shareholder servicing fees--Note 2 527,087
Accounting fees--Note 2 297,719
Distribution fees--Note 2 1,293,046
Transfer agency fees--Note 2 962,560
Registration fees 69,290
Postage and mailing expenses 119,941
Custodian fees and expenses--Note 2 12,862
Printing expenses 107,734
Legal and audit fees 94,239
Directors' fees and expenses--Note 2 115,828
Other expenses 182,718
---------------
Total Expenses 7,507,594
Earnings Credits (6,482)
Waived Expenses (3,051)
Expense Offset to Broker Commissions (4,225)
---------------
Net Expenses 7,493,836
---------------
Net Investment Loss (2,162,775)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 16,581,469
Net Change in Unrealized Appreciation/Depreciation of Investments 122,368,802
---------------
Net Realized and Unrealized Gain 138,950,271
---------------
Net Increase in Net Assets Resulting from Operations $ 136,787,496
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
-------------- --------------
OPERATIONS
Net Investment Loss $ (2,162,775) $ (3,186,435)
Net Realized Gain (Loss) 16,581,469 (161,500,183)
Net Change in Unrealized Appreciation / Depreciation 122,368,802 (56,838,030)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 136,787,496 (221,524,648)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (258,678) (439,145)
Class B (1,223,196) (2,574,883)
Class C (166,651) (656,249)
Class F (88,319,324) (210,452,943)
Class R 2,736,606 3,376,685
Class T (41,579) (271,640)
-------------- --------------
Net Decrease from Capital Share Transactions (87,272,822) (211,018,175)
-------------- --------------
Net Increase (Decrease) in Net Assets 49,514,674 (432,542,823)
NET ASSETS
Beginning of year $ 466,128,526 $ 898,671,349
-------------- --------------
End of year (including accumulated net investment
loss of $112,853 and $0, respectively) $ 515,643,200 $ 466,128,526
============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of year $ 7.46 $ 10.53 $ 14.02 $ 23.88
Income from investment operations:
Net investment loss (0.06) (0.06) (0.05) (0.05)
Net realized and unrealized gains
(losses) on securities 2.39 (3.01) (3.44) (6.39)
---------- ---------- ---------- ----------
Total from investment
operations 2.33 (3.07) (3.49) (6.44)
Less dividends and 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 year $ 9.79 $ 7.46 $ 10.53 $ 14.02
========== ========== ========== ==========
Total return* 31.23% (29.15%) (24.89%) (27.30%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 6,452 $ 5,149 $ 7,795 $ 8,655
Net expenses to average net assets# 1.66% 1.48% 1.20% 1.05%
Gross expenses to average net assets# 1.66% 1.48% 1.21% 1.08%
Net investment loss to average
net assets (0.59%) (0.56%) (0.47%) (0.54%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of year $ 7.30 $ 10.38 $ 13.91 $ 23.88
Income from investment operations:
Net investment loss (0.17) (0.18) (0.13) (0.11)
Net realized and unrealized gains
(losses) on securities 2.37 (2.90) (3.40) (6.44)
---------- ---------- ---------- ----------
Total from investment
operations 2.20 (3.08) (3.53) (6.55)
Less dividends and 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 year $ 9.50 $ 7.30 $ 10.38 $ 13.91
========== ========== ========== ==========
Total return* 30.14% (29.67%) (25.38%) (27.77%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 13,664 $ 11,603 $ 19,829 $ 25,359
Net expenses to average net assets# 2.48% 2.22% 1.92% 1.80%
Gross expenses to average net assets# 2.48% 2.22% 1.93% 1.82%
Net investment loss to
average net assets (1.41%) (1.30%) (1.20%) (1.29%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of year $ 7.29 $ 10.36 $ 13.92 $ 23.88
Income from investment operations:
Net investment loss (0.19) (0.26) (0.18) (0.10)
Net realized and unrealized gains
(losses) on securities 2.38 (2.81) (3.38) (6.44)
---------- ---------- ---------- ----------
Total from investment
operations 2.19 (3.07) (3.56) (6.54)
Less dividends and 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 year $ 9.48 $ 7.29 $ 10.36 $ 13.92
========== ========== ========== ==========
Total return* 30.04% (29.63%) (25.58%) (27.72%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,774 $ 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 (1.42%) (1.46%) (1.38%) (1.28%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
CLASS F SHARES
Net Asset Value, beginning of year $ 7.48 $ 10.53 $ 14.03 $ 23.87 $ 20.41
Income from investment operations:
Net investment loss (0.17) (0.22) (0.15) (0.21) (0.09)
Net realized and unrealized
gains (losses) on securities 2.52 (2.83) (3.35) (6.21) 7.73
----------- ----------- ----------- ----------- -----------
Total from investment
operations 2.35 (3.05) (3.50) (6.42) 7.64
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00^
From net realized gains 0.00 0.00 0.00 (3.42) (4.18)
----------- ----------- ----------- ----------- -----------
Total distributions 0.00 0.00 0.00 (3.42) (4.18)
Net Asset Value, end of year $ 9.83 $ 7.48 $ 10.53 $ 14.03 $ 23.87
=========== =========== =========== =========== ===========
Total return 31.42% (28.96%) (24.95%) (27.23%) 39.06%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 484,742 $ 443,307 $ 865,425 $ 1,441,466 $ 3,323,606
Net expenses to average
net assets# 1.47% 1.37% 1.30% 1.06% 1.08%
Gross expenses to average
net assets# 1.47% 1.38% 1.31% 1.07% 1.09%
Net investment loss to
average net assets (0.41%) (0.46%) (0.58%) (0.58%) (0.47%)
Portfolio turnover rate@ 124% 139% 152% 182% 117%
</Table>
^ Distributions from net investment income for the year ended December 31, 1999
aggregated less than $0.01 on a per share basis.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of year $ 7.50 $ 10.57 $ 14.07 $ 23.88
Income from investment operations:
Net investment income (loss) 0.01 0.01 (0.02) (0.02)
Net realized and unrealized gains
(losses) on securities 2.38 (3.08) (3.48) (6.37)
---------- ---------- ---------- ----------
Total from investment
operations 2.39 (3.07) (3.50) (6.39)
Less dividends and 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 year $ 9.89 $ 7.50 $ 10.57 $ 14.07
========== ========== ========== ==========
Total return 31.87% (29.04%) (24.88%) (27.08%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 8,792 $ 4,333 $ 2,023 $ 9
Net expenses to average net assets# 1.13% 1.30% 1.46% 0.79%
Gross expenses to average net assets# 1.13% 1.30% 1.46% 0.82%
Net investment income (loss) to
average net assets (0.04%) (0.34%) (0.72%) (0.29%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of year $ 7.27 $ 10.38 $ 14.00 $ 23.88
Income from investment operations:
Net investment loss (0.30) (0.56) (0.19) (0.09)
Net realized and unrealized gains
(losses) on securities 2.51 (2.55) (3.43) (6.37)
---------- ---------- ---------- ----------
Total from investment
operations 2.21 (3.11) (3.62) (6.46)
Less dividends and 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 year $ 9.48 $ 7.27 $ 10.38 $ 14.00
========== ========== ========== ==========
Total return* 30.40% (29.96%) (25.86%) (27.38%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 220 $ 208 $ 621 $ 802
Net expenses to average net assets# 2.22% 2.78% 2.55% 1.29%
Gross expenses to average net assets# 2.22% 2.78% 2.56% 1.32%
Net investment loss to
average net assets (1.15%) (1.89%) (1.83%) (0.80%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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
December 31, 2003
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>
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, if any, is recorded
as foreign currency gain or loss and would be 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 arises 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 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.
26
<Page>
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) 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 an indirect 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
1.00% 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>
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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $306,950 and $169,884, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $212,499 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------
Class A $ 20,202
Class B $ 52,395
Class C $ 6,820
Class R $ 4,612
Class T $ 1,298
</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 or servicing 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 year ended December 31, 2003, Class F shares were charged $1,186,649
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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-------------- --------------
Class A N/A $ 14,458
Class B $ 93,926 $ 31,309
Class C $ 11,977 $ 3,992
Class T $ 494 $ 494
</Table>
During the year ended December 31, 2003, DSC retained $622 and $19 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $37,121 and $80 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.
29
<Page>
CUSTODIAN FEES--Mellon Bank N.A., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $3,051. 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.
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
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,
30
<Page>
net operating losses, and capital loss carryovers. Permanent differences
identified during the year ended December 31, 2003 have been reclassified among
the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 2,049,922 $ 0 $ (2,049,922)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003 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. Net capital loss carryovers utilized in 2003 amounted to
$19,881,060.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 766,225,012
Post-October Capital Loss Deferral $ 5,914,879
Federal Tax Cost $ 479,733,957
Gross Tax Appreciation of Investments $ 65,953,511
Gross Tax Depreciation of Investments $ (9,801,240)
Net Tax Appreciation $ 56,152,271
</Table>
31
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------- ---------------
CLASS A
Sold 102,390 $ 863,766 176,909 $ 1,575,474
Issued in Connection with
Acquisition 0 $ 0 8,437 $ 83,443
Redeemed (133,313) $ (1,122,444) (235,763) $ (2,098,062)
NET DECREASE (30,923) $ (258,678) (50,417) $ (439,145)
CLASS B
Sold 95,258 $ 810,696 117,855 $ 1,071,298
Issued in Connection with
Acquisition 0 $ 0 30,576 $ 297,814
Redeemed (245,915) $ (2,033,892) (469,578) $ (3,943,995)
NET DECREASE (150,657) $ (1,223,196) (321,147) $ (2,574,883)
CLASS C
Sold 22,136 $ 191,985 19,428 $ 176,384
Issued in Connection with
Acquisition 0 $ 0 3,774 $ 36,681
Redeemed (44,718) $ (358,636) (100,964) $ (869,314)
NET DECREASE (22,582) $ (166,651) (77,762) $ (656,249)
CLASS F
Sold 5,549,619 $ 46,590,327 6,324,146 $ 57,283,483
Issued in Connection with
Acquisition 0 $ 0 162,005 $ 1,602,235
Redeemed (15,507,433) $ (134,909,651) (29,363,216) $ (269,338,661)
NET DECREASE (9,957,814) $ (88,319,324) (22,877,065) $ (210,452,943)
CLASS R
Sold 388,827 $ 3,417,348 440,296 $ 3,853,596
Issued in Connection with
Acquisition 0 $ 0 48 $ 475
Redeemed (77,669) $ (680,742) (54,408) $ (477,386)
NET INCREASE 311,158 $ 2,736,606 385,936 $ 3,376,685
CLASS T
Sold 856 $ 6,961 1,782 $ 16,192
Issued in Connection with
Acquisition 0 $ 0 791 $ 7,690
Redeemed (6,333) $ (48,540) (33,797) $ (295,522)
NET DECREASE (5,477) $ (41,579) (31,224) $ (271,640)
</Table>
32
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$565,669,867 and $625,074,961, respectively.
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) $50 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 $50 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 December 31, 2003, the Fund did not have any borrowings under the
LOC.
7. 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>
8. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
34
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Growth Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
35
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
36
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
37
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
38
<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)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
Additional information about the Fund and its directors is available in the
Fund's Statement of Additional Information, which can be obtained free of charge
by contacting the Fund.
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:
February 27, 2004
Dreyfus Service Corporation, Distributor. (C)2004 Founders Asset
Management LLC.
A-646-GRO-03
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
GROWTH AND INCOME FUND
INVESTMENT UPDATE
DECEMBER 31, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
THE GROWTH SPECIALISTS
<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
Report of Independent Auditors 35
Other Tax Information 36
Your Board Representatives 37
</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 Annual 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 December 31, 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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
The year saw equity markets reinvigorated as uncertainty and an appetite for
lower-risk investments soon gave way to confidence and heightened expectations
in the domestic economy. Dreyfus Founders Growth and Income Fund fared well
during the period when compared to its benchmark, the Standard & Poor's 500
Index, which posted a return of 28.68%.
IN WHAT BROAD ECONOMIC AND MARKET ENVIRONMENT DID THE FUND PERFORM IN 2003?
2003 began sluggishly with falling equity prices, uncertainty over the possible
war in Iraq and continuing corporate malfeasance stunting confidence in the
equity markets as investors searched for lower risk, more defensive securities
in which to invest.
However, by the second quarter of the year, the market experienced an
upswing, spurred by the easing of the uncertainty surrounding the hostilities in
Iraq. Although economic statistics supplied by the government and other
organizations continued to show mixed results, investors' renewed confidence
[SIDENOTE]
"IT WAS IN THE CONSUMER DISCRETIONARY AND CONSUMER STAPLES SECTORS WHERE WE
FOUND THE MOST COMPELLING GROWTH AND INVESTMENT OPPORTUNITIES."
3
<Page>
in equity markets, the pace of economic growth and falling interest rates drew
investors' attention toward less-defensive vehicles and back to the equity
market.
The market's rise was driven by various economic improvements during the
course of the year. Better-than-expected corporate profit growth, the easing of
geopolitical uncertainty, the Federal Reserve's accommodative monetary policy
and President Bush's fiscal stimulus plan were major factors in the improving
economic trends. And although some weights on the economic recovery still
existed during the year, expectations that these may continue to ease in the
coming year remained strong.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE FOR THE PERIOD?
The Fund was able to take advantage of the improving economic environment during
the twelve months ended December 31. It was in the consumer discretionary and
consumer staples sectors where we found
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - By the second quarter of the year, the market experienced an upswing that
continued throughout the year, spurred by the initiation and successful
conclusion to major hostilities in Iraq.
- - Relative performance was driven by Fund holdings in the technology, consumer
staples and consumer discretionary sectors as well as favorable stock
selection and overweight positions in select sectors versus the benchmark.
- - An infusion of consumer capital, driven by the improving economy, bolstered
the consumer discretionary sector's performance. Paired with the Fund's
relative overweight position and strong stock selection in this sector, this
helped boost Fund returns.
- - Weak stock selection in the information technology sector and the Fund's cash
position detracted from overall Fund performance during the year.
4
<Page>
some of the most compelling growth and investment opportunities. An infusion of
consumer capital, driven by the improving economy, bolstered the performance of
these sectors. Strong stock selection buoyed overall Fund performance with names
such as BEST BUY COMPANY, INC., ROYAL CARIBBEAN CRUISES LIMITED, and ESTEE
LAUDER COMPANIES, INC. Best Buy's success was driven by solid execution and
market share gains from primary competitors like Circuit City, Tweeter and
Ultimate Electronics. An improvement in consumer spending also helped company
performance as new product cycles such as HDTV and digital photography sparked
consumer interest. One of the Fund's largest holdings during the period, Royal
Caribbean's performance was helped by an increase in demand for leisure travel,
solid execution and excellent product positioning. Estee Lauder posted
better-than-expected revenue and earnings growth as the company benefited from a
rebound in high-end consumer demand in the United States and abroad.
The healthcare sector was the second largest contributor to the Fund's
relative performance. Although a few specific healthcare holdings underperformed
during the period, strong stock selection paired with an underweight position
versus the benchmark had a positive effect on the Fund's relative return.
[SIDENOTE]
LARGEST EQUITY HOLDINGS (TICKER SYMBOL)
<Table>
1. SPDR Trust Series 1 (SPY) 5.22%
2. General Electric Company (GE) 3.75%
3. Estee Lauder Companies, Inc. (EL) 2.30%
4. Royal Caribbean Cruises Limited (RCL) 2.28%
5. Microsoft Corporation (MSFT) 2.07%
6. MBNA Corporation (KRB) 1.98%
7. Maxim Integrated Products, Inc. (MXIM) 1.94%
8. Nordstrom, Inc. (JWN) 1.86%
9. Wells Fargo & Company (WFC) 1.84%
10. Linear Technology Corporation (LLTC) 1.84%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
Several stock picks within the technology sector also favorably impacted
performance. Notable among these strong performers are names such as INTEL
CORPORATION, VERITAS SOFTWARE CORPORATION, and CISCO SYSTEMS, INC. Intel
benefited from robust demand for personal computers driven primarily by
consumers. VERITAS Software posted excellent revenue
[SIDE NOTE]
[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 12/31/93 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>
and earnings growth as business enterprise spending on storage-related software
rebounded from 2002's very low levels. Cisco Systems gained from both a rebound
in enterprise spending on networking equipment as well as recent product
introductions.
The least compelling area for investment in 2003 was in the long distance and
local telephone industries within the telecommunications sector. These
industries continued to present lackluster performance during the year, so the
Fund limited its exposure to this sector, reducing the potential negative
impact.
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 23.01% -- -- (12.05%)
Without sales charge 30.52% -- -- (10.75%)
CLASS B SHARES (12/31/99)
With redemption* 25.41% -- -- (11.80%)
Without redemption 29.41% -- -- (11.17%)
CLASS C SHARES (12/31/99)
With redemption** 28.34% -- -- (11.58%)
Without redemption 29.34% -- -- (11.58%)
CLASS F SHARES (7/5/38) 30.67% (5.73%) 5.39% N/A
CLASS R SHARES (12/31/99) 30.55% -- -- (10.55%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 23.38% -- -- (12.30%)
Without sales charge 29.20% -- -- (11.28%)
</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 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.
7
<Page>
WHAT MANAGEMENT DECISIONS HINDERED PERFORMANCE DURING THE YEAR?
Weak stock selection in the strong-performing technology sector detracted from
overall Fund performance during the year. BMC Software, Inc., a provider of
e-business systems management software, exhibited sluggish sales trends for
their software products during most of 2003, and revised earnings expectations
lower. By the end of the year the company began to see better trends, however
the Fund had sold the stock before this uptick in sales. Other negative
contributors to Fund performance included KOHL'S CORPORATION, an operator of
specialty department stores, which posted lackluster sales and lower margins as
consumers shifted spending to other, higher-end retailers. Biotechnology
company, Medimmune, Inc. saw its stock price move lower as the company's nasal
flu vaccine, FluMist, proved a disappointing product launch. A relatively high
price combined with restrictive handling requirements and limited distribution
resulted in poor
[SIDENOTE]
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 23.59%
Consumer Discretionary 19.84%
Industrials 10.82%
Financials 9.55%
Healthcare 7.83%
Consumer Staples 6.89%
Energy 3.81%
Materials 1.79%
Telecommunications Services 1.66%
Other 5.22%
Cash & Equivalents 9.00%
</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>
demand for the product. Wyeth, which partnered with Medimmune on the launch of
FluMist, also suffered poor stock price performance driven by continued concern
over diet drug litigation and the general lackluster performance experienced by
most large pharmaceutical companies.
Our management of the Fund continued to be driven primarily by our bottom-up
intensive research approach rather than macro-economic events. However, a
relatively high cash position in the first two months of the year helped buffer
the decline experienced in equity prices. A lowering of the Fund's cash position
in early March helped Fund performance as the commencement of the war in Iraq
sparked the rally in stock prices.
Even after this reduction, however, the Fund's cash position, which averaged
7.84% for the year, hampered returns the Fund might have otherwise seen in the
strong market environment.
An underweight position in the financials sector impeded Fund performance for
the year. Although some strong stock selection within this sector helped reduce
the negative effect that allocation had on performance, it was not enough to
counter-balance the overall negative impact.
Weak stock selection and an overweight position in the energy sector also
dampened the Fund's relative performance over the 12-month period.
As we move forward into 2004, our overall strategy remains unchanged. We will
continue to rely upon our bottom-up, fundamental-based intensive research
approach to seek 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
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-84.9%
AEROSPACE & DEFENSE-1.0%
13,375 General Dynamics Corporation $ 1,208,959
24,850 Lockheed Martin Corporation 1,277,290
----------------
2,486,249
----------------
AIRLINES-0.9%
80,575 AMR Corporation* 1,043,446
79,400 Northwest Airlines Corporation Class A* 1,002,028
----------------
2,045,474
----------------
ALUMINUM-1.0%
60,950 Alcoa, Inc. 2,316,100
----------------
APPAREL RETAIL-0.6%
62,050 Gap, Inc. 1,440,181
----------------
APPLICATION SOFTWARE-0.6%
58,650 PeopleSoft, Inc.* 1,337,220
----------------
ASSET MANAGEMENT & CUSTODY BANKS-0.9%
67,450 SEI Investments Company 2,055,202
----------------
BIOTECHNOLOGY-2.5%
26,810 Amgen, Inc.* 1,656,858
71,200 Gilead Sciences, Inc.* 4,139,568
----------------
5,796,426
----------------
BROADCASTING & CABLE TV-2.2%
13,950 Clear Channel Communications, Inc. 653,279
68,550 Comcast Corporation Special Class A* 2,144,244
72,050 Cox Communications, Inc. Class A* 2,482,123
----------------
5,279,646
----------------
CASINOS & GAMING-0.8%
43,125 Mandalay Resort Group 1,928,550
----------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.7%
166,038 Cisco Systems, Inc.* $ 4,033,063
----------------
COMPUTER & ELECTRONICS RETAIL-0.7%
31,424 Best Buy Company, Inc. 1,641,590
----------------
COMPUTER HARDWARE-1.7%
42,175 International Business Machines Corporation 3,908,779
----------------
COMPUTER STORAGE & PERIPHERALS-0.9%
156,175 EMC Corporation* 2,017,781
----------------
CONSUMER FINANCE-2.0%
188,456 MBNA Corporation 4,683,132
----------------
DATA PROCESSING & OUTSOURCED SERVICES-1.1%
68,875 Fiserv, Inc.* 2,721,251
----------------
DEPARTMENT STORES-3.1%
31,600 Kohl's Corporation* 1,420,104
128,516 Nordstrom, Inc. 4,408,099
31,000 Sears Roebuck & Company 1,410,190
----------------
7,238,393
----------------
DIVERSIFIED BANKS-3.2%
10,325 Bank of America Corporation 830,440
53,575 Bank One Corporation 2,442,484
74,075 Wells Fargo & Company 4,362,277
----------------
7,635,201
----------------
DIVERSIFIED COMMERCIAL SERVICES-1.8%
191,925 Cendant Corporation* 4,274,170
----------------
DRUG RETAIL-1.5%
96,800 Walgreen Company 3,521,584
----------------
EXCHANGE TRADED FUNDS-5.2%
110,950 SPDR Trust Series 1 12,347,626
----------------
FOOD RETAIL-0.5%
57,100 Safeway, Inc.* 1,251,061
----------------
GOLD-0.8%
39,225 Newmont Mining Corporation 1,906,727
----------------
HEALTHCARE EQUIPMENT-0.4%
28,500 Boston Scientific Corporation* 1,047,660
----------------
HOME IMPROVEMENT RETAIL-1.2%
78,525 Home Depot, Inc. 2,786,852
----------------
HOTELS, RESORTS & CRUISE LINES-1.7%
60,100 Carnival Corporation 2,387,773
44,175 Starwood Hotels & Resorts Worldwide, Inc. 1,588,975
----------------
3,976,748
----------------
</Table>
* NON-INCOME PRODUCING.
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS-1.1%
26,550 Procter & Gamble Company $ 2,651,814
----------------
HYPERMARKETS & SUPER CENTERS-0.5%
22,000 Wal-Mart Stores, Inc. 1,167,100
----------------
INDUSTRIAL CONGLOMERATES-4.3%
15,900 3M Company 1,351,977
286,700 General Electric Company 8,881,966
----------------
10,233,943
----------------
INDUSTRIAL MACHINERY-0.6%
16,075 Illinois Tool Works, Inc. 1,348,853
----------------
INTEGRATED OIL & GAS-1.8%
105,116 Exxon Mobil Corporation 4,309,756
----------------
INTEGRATED TELECOMMUNICATION SERVICES-0.9%
64,225 Verizon Communications, Inc. 2,253,013
----------------
INVESTMENT BANKING & BROKERAGE-1.3%
163,850 Charles Schwab Corporation 1,939,984
17,950 Morgan Stanley 1,038,767
----------------
2,978,751
----------------
LEISURE FACILITIES-2.3%
155,150 Royal Caribbean Cruises Limited 5,397,669
----------------
MOVIES & ENTERTAINMENT-4.3%
208,475 Time Warner, Inc.* 3,750,465
60,675 Viacom, Inc. Class B 2,692,757
159,450 Walt Disney Company 3,719,969
----------------
10,163,191
----------------
MULTI-LINE INSURANCE-1.0%
36,450 American International Group, Inc. 2,415,906
----------------
OIL & GAS DRILLING-0.2%
20,625 GlobalSantaFe Corporation 512,119
----------------
OIL & GAS EQUIPMENT & SERVICES-0.8%
46,950 Smith International, Inc.* 1,949,364
----------------
OIL & GAS EXPLORATION & PRODUCTION-0.9%
27,688 Apache Corporation 2,245,497
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.2%
58,099 Citigroup, Inc. 2,820,125
----------------
PERSONAL PRODUCTS-2.3%
138,500 Estee Lauder Companies, Inc. Class A 5,437,510
----------------
PHARMACEUTICALS-3.9%
45,625 Johnson & Johnson 2,356,988
26,200 Merck & Company, Inc. 1,210,440
88,434 Pfizer, Inc. 3,124,373
58,950 Wyeth 2,502,428
----------------
9,194,229
----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
PUBLISHING-1.6%
28,500 Gannett Company, Inc. $ 2,541,060
23,775 Tribune Company 1,226,790
----------------
3,767,850
----------------
RAILROADS-1.6%
55,875 Union Pacific Corporation 3,882,195
----------------
SEMICONDUCTOR EQUIPMENT-1.0%
16,150 KLA-Tencor Corporation* 947,521
31,025 Novellus Systems, Inc.* 1,304,601
----------------
2,252,122
----------------
SEMICONDUCTORS-7.0%
20,775 Broadcom Corporation* 708,220
88,803 Intel Corporation 2,859,457
103,250 Linear Technology Corporation 4,343,728
92,025 Maxim Integrated Products, Inc. 4,582,845
106,700 Xilinx, Inc.* 4,133,558
----------------
16,627,808
----------------
SOFT DRINKS-1.0%
44,700 Coca-Cola Company 2,268,525
----------------
SPECIALTY STORES-1.4%
45,650 Staples, Inc.* 1,246,245
45,925 Tiffany & Company 2,075,810
----------------
3,322,055
----------------
SYSTEMS SOFTWARE-5.2%
20,125 Adobe Systems, Inc. 790,913
177,766 Microsoft Corporation 4,895,676
233,725 Oracle Corporation* 3,085,170
93,454 VERITAS Software Corporation* 3,472,751
----------------
12,244,510
----------------
WIRELESS TELECOMMUNICATION SERVICES-0.7%
60,000 Nextel Communications, Inc.* 1,683,600
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$175,063,499) 200,804,171
----------------
COMMON STOCKS (FOREIGN)-6.1%
APPLICATION SOFTWARE-1.6%
91,075 SAP AG Sponsored ADR (GE) 3,785,077
----------------
COMMUNICATIONS EQUIPMENT-1.0%
132,100 Nokia Oyj Sponsored ADR (FI) 2,245,700
----------------
IT CONSULTING & OTHER SERVICES-1.0%
94,325 Accenture Limited Class A ADR (BD)* 2,482,634
----------------
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
PHARMACEUTICALS-1.0%
44,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS) $ 2,495,240
----------------
RAILROADS-0.6%
20,775 Canadian National Railway Company (CA) 1,314,642
----------------
SEMICONDUCTOR EQUIPMENT-0.6%
74,500 ASM Lithography Holding NV NY Shares (NE)* 1,493,725
----------------
SEMICONDUCTORS-0.3%
17,200 Marvell Technology Group Limited (BD)* 652,396
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$10,893,933) 14,469,414
----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-5.8%
$ 13,600,000 Federal National Mortgage Association
0.75% 1/2/04 $ 13,599,717
----------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$13,599,717) 13,599,717
----------------
CORPORATE SHORT-TERM NOTES-2.2%
DIVERSIFIED COMMERCIAL SERVICES-2.2%
5,300,000 TransAmerica Finance Corporation
1.04% 1/5/04 5,299,388
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$5,299,388) 5,299,388
----------------
TOTAL INVESTMENTS-99.0%
(TOTAL COST-$204,856,537) 234,172,690
OTHER ASSETS AND LIABILITIES-1.0% 2,402,749
----------------
NET ASSETS-100.0% $ 236,575,439
================
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 204,856,537
-------------
Investment securities, at market 234,172,690
Cash 589,837
Receivables:
Investment securities sold 7,565,743
Capital shares sold 31,476
Dividends 315,216
-------------
Total Assets 242,674,962
-------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 5,699,321
Capital shares redeemed 75,929
Advisory fees 127,934
Shareholder servicing fees 24,121
Accounting fees 11,809
Distribution fees 34,790
Transfer agency fees 42,677
Custodian fees 292
Other 82,650
-------------
Total Liabilities 6,099,523
-------------
Net Assets $ 236,575,439
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 332,380,794
Undistributed net investment income 79,859
Accumulated net realized loss from security transactions (125,201,367)
Net unrealized appreciation on investments 29,316,153
-------------
Total $ 236,575,439
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
Net Assets--Class A $ 935,431
Shares Outstanding--Class A 208,566
Net Asset Value, Redemption Price Per Share $ 4.49
Maximum offering price per share (net asset value plus
sales charge of 5.75% of offering price) $ 4.76
Net Assets--Class B $ 1,709,420
Shares Outstanding--Class B 388,523
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.40
Net Assets--Class C $ 356,875
Shares Outstanding--Class C 82,649
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.32
Net Assets--Class F $ 233,332,949
Shares Outstanding--Class F 51,002,185
Net Asset Value, Offering and Redemption Price Per Share $ 4.57
Net Assets--Class R $ 211,072
Shares Outstanding--Class R 46,585
Net Asset Value, Offering and Redemption Price Per Share $ 4.53
Net Assets--Class T $ 29,692
Shares Outstanding--Class T 6,774
Net Asset Value, Redemption Price Per Share $ 4.38
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 4.59
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 2,343,606
Interest 177,482
Foreign taxes withheld (12,343)
-------------
Total Investment Income 2,508,745
-------------
EXPENSES:
Advisory fees--Note 2 1,371,576
Shareholder servicing fees--Note 2 302,947
Accounting fees--Note 2 126,598
Distribution fees--Note 2 166,608
Transfer agency fees--Note 2 148,107
Registration fees 61,867
Postage and mailing expenses 48,057
Custodian fees and expenses--Note 2 8,790
Printing expenses 42,990
Legal and audit fees 36,497
Directors' fees and expenses--Note 2 45,305
Other expenses 55,476
-------------
Total Expenses 2,414,818
Earnings Credits (3,392)
Waived Expenses (1,892)
Expense Offset to Broker Commissions (3,896)
-------------
Net Expenses 2,405,638
-------------
Net Investment Income 103,107
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security transactions 8,677,330
Net Change in Unrealized Appreciation/Depreciation
of Investments 48,238,272
-------------
Net Realized and Unrealized Gain 56,915,602
-------------
Net Increase in Net Assets Resulting from Operations $ 57,018,709
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
-------------- --------------
OPERATIONS
Net Investment Income $ 103,107 $ 243,717
Net Realized Gain (Loss) 8,677,330 (45,255,731)
Net Change in Unrealized Appreciation / Depreciation 48,238,272 (25,124,429)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 57,018,709 (70,136,443)
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class F (183,602) (109,803)
-------------- --------------
Net Decrease from Dividends and Distributions (183,602) (109,803)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 408,018 74,186
Class B 407,646 (173,941)
Class C 121,020 (19,371)
Class F (14,678,661) (27,489,605)
Class R 127,592 42,140
Class T (12,373) (60,858)
-------------- --------------
Net Decrease from Capital Share Transactions (13,626,758) (27,627,449)
-------------- --------------
Net Increase (Decrease) in Net Assets 43,208,349 (97,873,695)
NET ASSETS
Beginning of year $ 193,367,090 $ 291,240,785
-------------- --------------
End of year (including undistributed net investment
income of $79,859 and $160,354, respectively) $ 236,575,439 $ 193,367,090
============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of year $ 3.44 $ 4.66 $ 5.73 $ 7.61
Income from investment operations:
Net investment income (loss) 0.03 (0.02) (0.07) 0.00+
Net realized and unrealized gains
(losses) on securities 1.02 (1.20) (1.00) (1.45)
---------- ---------- ---------- ----------
Total from investment
operations 1.05 (1.22) (1.07) (1.45)
Less dividends and 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 year $ 4.49 $ 3.44 $ 4.66 $ 5.73
========== ========== ========== ==========
Total return* 30.52% (26.18%) (18.65%) (19.04%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 935 $ 378 $ 442 $ 318
Net expenses to average net assets# 1.48% 1.87% 2.98% 1.01%
Gross expenses to average net assets# 1.49% 1.87% 2.98% 1.06%
Net investment loss to average
net assets (0.25%) (0.67%) (1.82%) (0.03%)
Portfolio turnover rate@ 123% 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.
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of year $ 3.40 $ 4.61 $ 5.65 $ 7.61
Income from investment operations:
Net investment loss (0.01) (0.05) (0.04) (0.02)
Net realized and unrealized gains
(losses) on securities 1.01 (1.16) (1.00) (1.51)
---------- ---------- ---------- ----------
Total from investment
operations 1.00 (1.21) (1.04) (1.53)
Less dividends and 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 year $ 4.40 $ 3.40 $ 4.61 $ 5.65
========== ========== ========== ==========
Total return* 29.41% (26.25%) (18.38%) (20.09%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,709 $ 1,013 $ 1,599 $ 1,170
Net expenses to average net assets# 2.30% 2.14% 2.19% 1.76%
Gross expenses to average net assets# 2.30% 2.14% 2.20% 1.80%
Net investment loss to average
net assets (1.08%) (0.95%) (1.03%) (0.88%)
Portfolio turnover rate@ 123% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of year $ 3.34 $ 4.55 $ 5.66 $ 7.61
Income from investment operations:
Net investment income (loss) 0.04 (0.07) (0.13) (0.01)
Net realized and unrealized gains
(losses) on securities 0.94 (1.14) (0.98) (1.51)
---------- ---------- ---------- ----------
Total from investment
operations 0.98 (1.21) (1.11) (1.52)
Less dividends and 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 year $ 4.32 $ 3.34 $ 4.55 $ 5.66
========== ========== ========== ==========
Total return* 29.34% (26.59%) (19.58%) (19.96%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 357 $ 186 $ 270 $ 343
Net expenses to average net assets#,+ 2.28% 2.76% 3.16% 1.75%
Gross expenses to average net assets#,+ 2.29% 2.77% 3.17% 1.84%
Net investment loss to average
net assets+ (1.04%) (1.55%) (2.01%) (0.83%)
Portfolio turnover rate@ 123% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of year $ 3.50 $ 4.69 $ 5.69 $ 7.61 $ 7.32
Income from investment operations:
Net investment income (loss) 0.00+ 0.00+ 0.00+ (0.02) (0.00)+
Net realized and unrealized gains
(losses) on securities 1.07 (1.19) (1.00) (1.47) 1.06
---------- ---------- ---------- ---------- ----------
Total from investment
operations 1.07 (1.19) (1.00) (1.49) 1.06
Less dividends and distributions:
From net investment income 0.00^ 0.00^ 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00^ (0.43) (0.77)
---------- ---------- ---------- ---------- ----------
Total distributions 0.00 0.00 0.00 (0.43) (0.77)
Net Asset Value, end of year $ 4.57 $ 3.50 $ 4.69 $ 5.69 $ 7.61
========== ========== ========== ========== ==========
Total return 30.67% (25.33%) (17.55%) (19.57%) 15.03%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 233,333 $ 191,701 $ 288,752 $ 385,816 $ 535,035
Net expenses to average
net assets# 1.13% 1.08% 1.14% 1.10% 1.12%
Gross expenses to average
net assets# 1.13% 1.08% 1.14% 1.12% 1.13%
Net investment income (loss) to
average net assets 0.06% 0.11% 0.02% (0.24%) (0.05%)
Portfolio turnover rate@ 123% 152% 144% 165% 165%
</Table>
+ Net investment income (loss) for the years ended December 31, 2003, 2002,
2001 and 1999 aggregated less than $0.01 on a per share basis.
^ Distributions from net investment income for the years ended December 31,
2003 and 2002 and distributions from net realized gains for the year ended
December 31, 2001 aggregated less than $0.01 on a per share basis.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of year $ 3.47 $ 4.74 $ 5.74 $ 7.61
Income from investment operations:
Net investment income (loss) 0.06 (0.08) (0.01) 0.00+
Net realized and unrealized gains
(losses) on securities 1.00 (1.19) (0.99) (1.44)
---------- ---------- ---------- ----------
Total from investment
operations 1.06 (1.27) (1.00) (1.44)
Less dividends and 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 year $ 4.53 $ 3.47 $ 4.74 $ 5.74
========== ========== ========== ==========
Total return 30.55% (26.79%) (17.39%) (18.91%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 211 $ 57 $ 51 $ 1
Net expenses to average net assets#,+ 1.35% 2.95% 2.72% 0.76%
Gross expenses to average net assets#,+ 1.35% 2.95% 2.73% 0.79%
Net investment income (loss) to average
net assets+ (0.12%) (1.78%) (1.68%) 0.01%
Portfolio turnover rate@ 123% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of year $ 3.39 $ 4.60 $ 5.68 $ 7.61
Income from investment operations:
Net investment loss (0.23) (0.30) (0.09) (0.01)
Net realized and unrealized gains
(losses) on securities 1.22 (0.91) (0.99) (1.49)
---------- ---------- ---------- ----------
Total from investment
operations 0.99 (1.21) (1.08) (1.50)
Less dividends and 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 year $ 4.38 $ 3.39 $ 4.60 $ 5.68
========== ========== ========== ==========
Total return* 29.20% (26.30%) (18.99%) (19.69%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 30 $ 33 $ 127 $ 82
Net expenses to average net assets#,+ 2.26% 2.46% 3.13% 1.25%
Gross expenses to average net assets#,+ 2.27% 2.47% 3.14% 1.28%
Net investment loss to average
net assets+ (1.11%) (1.29%) (1.96%) (0.40%)
Portfolio turnover rate@ 123% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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
December 31, 2003
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>
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, if any, is recorded
as foreign currency gain or loss and would be 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 arises 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 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.
26
<Page>
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) 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 an indirect 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.
27
<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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $191,030 and $107,055, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $84,757 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 $12.84, 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 year ended December
31, 2003, were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 2,219
Class B $ 5,091
Class C $ 875
Class R $ 518
Class T $ 324
</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 or servicing 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 year ended December 31, 2003, Class F shares were charged $156,391 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 1,398
Class B $ 8,603 $ 2,867
Class C $ 1,525 $ 508
Class T $ 89 $ 89
</Table>
During the year ended December 31, 2003, DSC retained $1,157 in sales
commissions from the sales of Class A shares. DSC also retained $8,955 and $163
of contingent deferred sales charges relating to redemptions of Class B and
Class C shares, respectively.
29
<Page>
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., a wholly owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $1,892. 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, if any, would be 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.
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<Page>
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 0 $ 0 $ 0
</Table>
The tax character of distributions paid during 2003 and 2002 was as follows:
<Table>
<Caption>
2003 2002
---- ----
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 183,602 $ 109,803
Long-term capital gain $ 0 $ 0
--------- ---------
$ 183,602 $ 109,803
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted
below, if any, as of December 31, 2003, 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. Net capital loss carryovers
utilized in 2003 amounted to $9,321,497.
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<Page>
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 110,145
Accumulated Capital Losses $ 120,320,075
Federal Tax Cost $ 209,737,830
Gross Tax Appreciation of Investments $ 28,426,754
Gross Tax Depreciation of Investments $ (3,991,894)
Net Tax Appreciation $ 24,434,860
</Table>
32
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
CLASS A
Sold 127,097 $ 521,827 71,858 $ 288,084
Redeemed (28,494) $ (113,809) (56,813) $ (213,898)
NET INCREASE 98,603 $ 408,018 15,045 $ 74,186
CLASS B
Sold 164,031 $ 669,282 42,856 $ 174,005
Redeemed (73,231) $ (261,636) (92,065) $ (347,946)
NET INCREASE (DECREASE) 90,800 $ 407,646 (49,209) $ (173,941)
CLASS C
Sold 55,885 $ 224,519 29,530 $ 112,098
Redeemed (28,811) $ (103,499) (33,351) $ (131,469)
NET INCREASE (DECREASE) 27,074 $ 121,020 (3,821) $ (19,371)
CLASS F
Sold 1,278,819 $ 5,147,869 1,166,742 $ 4,906,800
Dividends or Distributions
Reinvested 34,819 $ 159,122 27,018 $ 94,563
Redeemed (5,079,072) $ (19,985,652) (7,977,540) $ (32,490,968)
NET DECREASE (3,765,434) $ (14,678,661) (6,783,780) $ (27,489,605)
CLASS R
Sold 70,118 $ 283,426 26,221 $ 110,661
Redeemed (39,808) $ (155,834) (20,676) $ (68,521)
NET INCREASE 30,310 $ 127,592 5,545 $ 42,140
CLASS T
Sold 709 $ 2,660 1,045 $ 4,157
Redeemed (3,604) $ (15,033) (18,930) $ (65,015)
NET DECREASE (2,895) $ (12,373) (17,885) $ (60,858)
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$238,342,170 and $251,269,998, respectively.
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
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(a) $50 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 $50 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 December 31, 2003, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
34
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Growth and Income
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
35
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the period ended December 31, 2003, 76.0% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2003, the Fund designated 0.0% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
36
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
37
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TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
38
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
39
<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)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
Additional information about the Fund and its directors is available in the
Fund's Statement of Additional Information, which can be obtained free of
charge by contacting the Fund.
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:
February 27, 2004
Dreyfus Service Corporation, Distributor. (C) 2004 Founders Asset
Management LLC.
A-646-GI-03
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
INVESTMENT UPDATE
DECEMBER 31, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
THE GROWTH SPECIALISTS
<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
Report of Independent Auditors 35
Other Tax Information 36
Your Board Representatives 37
</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 Annual 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 December 31, 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]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT, AND
DANIEL B. LEVAN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12 MONTHS ENDED
DECEMBER 31, 2003?
Dreyfus Founders International Equity Fund showed strong absolute performance
for the year ended December 31, 2003, although it lagged the 39.42% return of
its benchmark, the Morgan Stanley Capital International (MSCI) World ex U.S.
Index.
TO WHAT DO YOU ATTRIBUTE THE MARKET'S OVERALL PERFORMANCE IN 2003?
Initially weighing sluggishly on market performance, the successful military
action in Iraq led to increased investor confidence and a resurgence in equity
markets. Likewise, although the onset of Severe Acute Respiratory Syndrome
(SARS) in Asia taxed an already stressed global marketplace during the beginning
months of 2003, the subsequent containment and seeming defeat of the viral
illness provided Asia with an economic boost through the middle of the year.
As 2003 progressed, many positive economic surprises from various regions
translated into increased global earnings expectations. Markets worldwide
climbed on the basis of this news with nearly every industry in every
[SIDENOTE]
"THE LARGEST POSITIVE SECTOR IMPACT ON THE FUND'S ANNUAL PERFORMANCE CAME FROM
MATERIALS, AS FUND HOLDINGS IN THIS SECTOR WERE UP STRONGLY FOR THE PERIOD."
3
<Page>
region experiencing broad gains. Companies were cutting costs and reining in
debt. Interest rates were falling in various major countries, stunting deflation
and helping to keep the rally alive.
The global fear of deflation saw many central banks keep rates at historic
lows. In the United States, tax rebate checks provided many families with extra
money to spend, helping the domestic economy grow at an annual rate of 8.2% for
the third quarter. The continued weakness of the U.S. dollar aided the unhedged
U.S. investor as the euro, British pound and yen all gained relative to U.S.
currency.
In the Asian region, the emergence of China as a secondary growth engine to
the global economic recovery came at an appropriate time. In general, as the
global economic picture began improving, it provided a solid backdrop for
quality performance by equity markets, more than offsetting any sell-off
experienced in the year's opening months.
HOW DID YOU POSITION THE FUND AFTER ASSUMING PORTFOLIO MANAGEMENT
RESPONSIBILITIES IN MARCH?
Upon assuming portfolio management responsibilities for the Fund, we
sold 65% of the companies previously held and increased the number of holdings
from 56 to 117 by the end of March. We also reduced the weighted
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - Initially weighing sluggishly on market performance, the successful military
action in Iraq led to increased investor confidence and a resurgence in
equity markets.
- - The largest positive sector impact on the Fund's annual performance came from
strong performance in the materials sector.
- - A slightly underweight position coupled with some poor stock selection in the
financials sector impeded relative Fund returns during the period.
- - During the 12-month period, the Fund performed well within the Europe
ex-United Kingdom region.
4
<Page>
average price-to-earnings ratio of the portfolio from 14 times to 12 times, and
increased the weighted average earnings growth from 9% to 13%. Finally, the
weighted average market capitalization of the Fund decreased from $38.8 billion
to $25.3 billion. These changes had a positive impact on the Fund's performance.
Since these initial adjustments were made, we have not made significant changes
to sector and country weightings.
During the year, the Fund was overweight the technology, telecommunications
and healthcare sectors relative to the benchmark. Conversely, the Fund was
underweight financials, industrials and materials relative to the benchmark.
When examining country weightings, the Fund was slightly overweight the
benchmark in the United Kingdom and France, and underweight in Japan.
IN WHICH COUNTRIES, SECTORS OR COMPANIES DID YOU FIND THE MOST COMPELLING GROWTH
OPPORTUNITIES?
During the 12-month period, the Fund performed well within the Europe ex-United
Kingdom region. Our overweight position in Greece, when paired with the
country's overall return, proved to be a substantial boon to relative Fund
performance.
[SIDENOTE]
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Vodafone Group PLC (United Kingdom; VOD) 3.19%
2. Barclays PLC (United Kingdom; BARC) 2.19%
3. Alpha Bank AE (Greece; ALPHA) 2.10%
4. SAP AG (Germany; SAP) 2.05%
5. BP PLC (United Kingdom; BP) 1.88%
6. Anglo Irish Bank Corporation PLC (Ireland; ANB) 1.72%
7. Royal Bank of Scotland Group PLC (United Kingdom; RBS) 1.69%
8. QBE Insurance Group Limited (Australia; QBE) 1.65%
9. Novartis AG (Switzerland; NOV.N) 1.64%
10. HBOS PLC (United Kingdom; HBOS) 1.49%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
The largest positive sector impact on the Fund's annual performance came from
strong performance in the materials sector. Three Fund holdings in the materials
sector that helped propel performance were Japanese chemical company NOK
CORPORATION, which increased nearly 230% for the year; THYSSENKRUPP AG, a steel,
capital goods and services company that
[SIDENOTE]
[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. 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 December 31, 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>
posted strong performance; and resource company BHP BILLITON PLC, which also had
a strong year. NOK Corporation rose following a strong shift into consumer
electronics and a continued increase in earnings expectations.
In an improving market such as was experienced in 2003, companies in the
consumer staples sector, which is defensive by nature, tend to lag the
overall market. This year was no exception. Although the consumer staples
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 28.95% -- -- (14.64%)
Without sales charge 36.84% -- -- (13.37%)
CLASS B SHARES (12/31/99)
With redemption* 31.95% -- -- (14.59%)
Without redemption 35.95% -- -- (14.01%)
CLASS C SHARES (12/31/99)
With redemption** 34.76% -- -- (14.07%)
Without redemption 35.76% -- -- (14.07%)
CLASS F SHARES (12/29/95) 37.17% (2.19%) -- 4.69%
CLASS R SHARES (12/31/99) 37.27% -- -- (13.17%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 30.37% -- -- (14.58%)
Without sales charge 36.58% -- -- (13.59%)
</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 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.
7
<Page>
sector rose 23.20% for the entire year, it was the Index's worst performer of
the ten economic sectors. However, due to the Fund's allocation in this sector,
as well as its strong stock selection, the consumer staples sector proved to be
a meaningful contributor to the Fund's overall performance.
Other individual holdings also greatly contributed to the Fund's overall
performance. One such example was German software company SAP AG, which rose
nearly 112% for the year. SAP, the main beneficiary of the proposed deal between
Oracle and PeopleSoft, appropriated customers and increased its market share in
the highly profitable enterprise software business. The company also reported
strong earnings throughout the year and was well positioned to take advantage of
the economic recovery. The Fund's large position in SAP was the largest positive
contributor to performance for the year on an individual stock basis.
[SIDENOTE]
[CHART]
PORTFOLIO COMPOSITION
<Table>
United Kingdom 22.88%
Japan 21.02%
Germany 7.03%
France 6.89%
Switzerland 6.49%
Canada 5.28%
Spain 4.43%
Netherlands 3.87%
Other Countries 21.23%
Cash & Equivalents 0.88%
</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>
WHAT FACTORS NEGATIVELY IMPACTED FUND PERFORMANCE DURING THE PERIOD?
Some of the biggest detractors on a relative basis came from holdings within
Hong Kong and Canada, which significantly underperformed the Fund's benchmark
for the annual period.
A slightly underweight position coupled with some poor stock selection in the
financials sector also impeded relative Fund returns during the period. One such
selection was Kingsway Financial Services, Inc., a Canadian property and
casualty company, which released a profit warning days before the end of the
third quarter, leading to a sell-off in the company's shares.
Three stocks that were held by the Fund when we assumed management in March
proved to be significant drags on performance relative to the benchmark.
Amvescap PLC, one of the largest independent global investment managers; Satyam
Computer Services Limited, a leading global information technology services and
consulting company; and Fast Retailing Company, a Japanese retailing company,
were all down in excess of 30% in the first quarter, with active exposures in
the Fund between 1.7% to 2% for each holding. We sold all three of these
securities in March.
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.
Therefore, we 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
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-99.1%
AEROSPACE & DEFENSE-0.6%
7,400 Gamesa Corporacion Tecnologica SA (SP) $ 243,521
-----------------
APPLICATION SOFTWARE-2.1%
4,670 SAP AG (GE) 788,151
-----------------
AUTO PARTS & EQUIPMENT-1.2%
6,500 Canadian Tire Corporation Limited Class A (CA) 198,425
7,000 NOK Corporation (JA) 254,735
-----------------
453,160
-----------------
AUTOMOBILE MANUFACTURERS-3.1%
38,600 Nissan Motor Company Limited (JA) 440,855
4,700 Renault SA (FR) 324,281
12,200 Toyota Motor Corporation (JA) 412,093
-----------------
1,177,229
-----------------
BIOTECHNOLOGY-1.5%
2,900 Actelion Limited (SZ)* 313,026
12,800 QLT, Inc. (CA)* 242,668
-----------------
555,694
-----------------
BREWERS-1.9%
28,000 Asahi Breweries Limited (JA) 255,258
35,400 Fraser & Neave Limited (SG) 262,639
9,000 Orkla ASA (NW) 201,569
-----------------
719,466
-----------------
BROADCASTING & CABLE TV-1.1%
15,400 Mediaset SPA (IT) 182,982
52,900 Seven Network Limited (AU) 244,332
-----------------
427,314
-----------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.5%
12,000 Nokia Oyj (FI) $ 207,518
3,383 Sagem SA (FR) 362,495
-----------------
570,013
-----------------
COMPUTER STORAGE & PERIPHERALS-1.9%
18,300 ATI Technologies, Inc. (CA)* 275,994
4,300 Logitech International SA (SZ)* 186,004
5,900 Seiko Epson Corporation (JA) 275,264
-----------------
737,262
-----------------
CONSTRUCTION & ENGINEERING-0.6%
4,900 ACS, Actividades de Construccion y Servicios SA (SP) 239,190
-----------------
CONSTRUCTION MATERIALS-0.6%
60,700 Boral Limited (AU) 232,336
-----------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.7%
8,000 Volvo AB Class B (SW) 244,604
-----------------
CONSUMER ELECTRONICS-2.7%
30,000 Casio Computer Company Limited (JA) 317,440
5,800 Koninklijke (Royal) Philips Electronics NV (NE) 169,362
34,000 Sharp Corporation (JA) 536,475
-----------------
1,023,277
-----------------
DIVERSIFIED BANKS-15.2%
8,800 ABN AMRO Holding NV (NE) 205,903
26,700 Alpha Bank AE (GR) 807,601
42,000 Anglo Irish Bank Corporation PLC (IE) 662,740
95,107 Banca Intesa SPA (IT) 371,887
94,519 Barclays PLC (UK) 843,074
8,807 BNP Paribas SA (FR) 554,548
44,100 HBOS PLC (UK) 571,184
5,300 Jyske Bank SA (DE)* 280,119
52 Mitsubishi Tokyo Financial Group, Inc. (JA) 405,636
22,034 Royal Bank of Scotland Group PLC (UK) 649,265
17,600 Skandinaviska Enskilda Banken (SW) 259,280
2,800 Societe Generale (FR) 247,225
-----------------
5,858,462
-----------------
DIVERSIFIED CAPITAL MARKETS-1.7%
11,200 Credit Suisse Group (SZ) 409,767
3,770 UBS AG (SZ) 258,182
-----------------
667,949
-----------------
DIVERSIFIED METALS & MINING-0.8%
34,000 BHP Billiton PLC (UK) 297,028
-----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
ELECTRIC UTILITIES-2.8%
6,300 E.ON AG (GE) $ 412,663
14,738 Endesa SA (SP) 283,495
37,900 Fortum Oyj (FI) 391,047
-----------------
1,087,205
-----------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.5%
23,000 Sumitomo Electric Industries Limited (JA) 205,599
-----------------
ELECTRONIC EQUIPMENT MANUFACTURERS-2.4%
2,000 Keyence Corporation (JA) 421,573
7,100 TDK Corporation (JA) 511,449
-----------------
933,022
-----------------
FOOD RETAIL-2.4%
7,000 Delhaize Group (BE) 360,066
16,900 Metro, Inc. Class A (CA) 286,396
61,200 Tesco PLC (UK) 282,390
-----------------
928,852
-----------------
HEALTHCARE DISTRIBUTORS-0.7%
8,700 Suzuken Company Limited (JA) 282,504
-----------------
HEALTHCARE EQUIPMENT-0.7%
28,500 Getinge AB Class B (SW) 273,303
-----------------
HOME FURNISHINGS-0.6%
5,200 Hunter Douglas NV (NE) 243,406
-----------------
HOMEBUILDING-0.8%
33,400 Barratt Developments PLC (UK) 324,672
-----------------
HOUSEHOLD PRODUCTS-0.9%
15,700 Reckitt Benckiser PLC (UK) 355,260
-----------------
HOUSEWARES & SPECIALTIES-1.5%
6,200 Citizen Electronics Company Limited (JA) 564,057
-----------------
HYPERMARKETS & SUPER CENTERS-1.3%
11,500 Metro AG (GE) 507,694
-----------------
INDUSTRIAL CONGLOMERATES-0.7%
71,000 Keppel Corporation Limited (SG) 255,020
-----------------
INDUSTRIAL MACHINERY-0.8%
7,200 Saurer AG (SZ)* 319,599
-----------------
INTEGRATED OIL & GAS-6.0%
89,319 BP PLC (UK) 724,338
1,960 OMV AG (AT) 291,923
19,800 Repsol YPF SA (SP) 386,110
59,050 Shell Transport & Trading Company PLC (UK) 439,228
2,578 Total SA (FR) 479,310
-----------------
2,320,909
-----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-5.6%
59,700 BT Group PLC (UK) $ 201,191
15,800 Deutsche Telekom AG (GE)* 289,773
41,900 Koninklijke NV (NE)* 323,446
12,100 TDC AS Class B (DE) 436,594
23,100 Telefonica SA (SP) 339,157
60,900 Telenor ASA (NW) 398,201
34,100 TeliaSonera AB (SW) 178,194
-----------------
2,166,556
-----------------
INVESTMENT BANKING & BROKERAGE-0.8%
19,000 Nomura Holdings, Inc. (JA) 323,551
-----------------
IT CONSULTING & OTHER SERVICES-0.5%
38,000 LogicaCMG PLC (UK) 174,320
-----------------
OIL & GAS EXPLORATION & PRODUCTION-3.8%
65,900 Cairn Energy PLC (UK)* 473,074
5,800 Canadian National Resources Limited (CA) 293,389
10,400 Eni SPA (IT) 196,246
3,100 Norsk Hydro ASA (NW) 191,280
8,600 Penn West Petroleum Limited (CA) 320,562
-----------------
1,474,551
-----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.1%
10,500 ING Groep NV (NE) 244,885
7,300 Sun Life Financial, Inc. (CA) 182,458
-----------------
427,343
-----------------
PACKAGED FOODS & MEATS-1.8%
1,900 Groupe Danone (FR) 310,116
21,000 Nisshin Seifun Group, Inc. (JA) 186,937
193,000 Want Want Holdings Limited (SG) 183,350
-----------------
680,403
-----------------
PHARMACEUTICALS-10.0%
6,950 AstraZeneca Group PLC (UK) 333,441
5,600 Aventis SA (FR) 370,131
14,600 Axcan Pharma, Inc. (CA)* 228,778
12,600 Eisai Company Limited (JA) 339,778
38,100 Galen Holdings PLC (UK) 487,675
24,818 GlaxoSmithKline PLC (UK) 568,690
13,859 Novartis AG (SZ) 629,191
10,000 Ono Pharmaceuticals Company Limited (JA) 376,038
32,600 Shire Pharmaceuticals Group PLC (UK)* 316,604
4,700 Takeda Chemical Industries Limited (JA) 186,386
-----------------
3,836,712
-----------------
PRECIOUS METALS & MINERALS-0.9%
17,600 ThyssenKrupp AG (GE) 348,537
-----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-1.7%
79,600 QBE Insurance Group Limited (AU) $ 635,744
-----------------
PUBLISHING-0.6%
26,200 Johnston Press PLC (UK) 218,451
-----------------
REAL ESTATE INVESTMENT TRUSTS-1.4%
100 Sumitomo Mitsui Financial Group, Inc. (JA) 532,798
-----------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.8%
4,000 Wereldhave NV (NE) 299,445
-----------------
SEMICONDUCTORS-1.0%
8,900 Micronas Semiconductor Holding AG (SZ)* 381,028
-----------------
THRIFTS & MORTGAGE FINANCE-0.8%
24,200 Northern Rock PLC (UK) 309,107
-----------------
TIRES & RUBBER-0.9%
9,400 Continental AG (GE) 357,836
-----------------
TRADING COMPANIES & DISTRIBUTORS-0.9%
31,000 Mitsubishi Corporation (JA) 328,599
-----------------
TRUCKING-0.6%
28,000 Seino Transportation Company Limited (JA) 231,483
-----------------
WIRELESS TELECOMMUNICATION SERVICES-6.6%
72 KDDI Corporation (JA) 412,503
123 NTT DoCoMo, Inc. (JA) 278,893
75,800 Telecom Italia Mobile SPA (IT) 412,081
20,300 Telefonica Moviles SA (SP)* 212,013
494,575 Vodafone Group PLC (UK) 1,226,256
-----------------
2,541,746
-----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$27,435,980) 38,103,968
-----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-2.3%
$ 900,000 Federal National Mortgage Association 0.75% 1/2/04 $ 899,981
-----------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$899,981) 899,981
-----------------
TOTAL INVESTMENTS-101.4%
(TOTAL COST-$28,335,961) 39,003,949
OTHER ASSETS AND LIABILITIES-(1.4%) (562,284)
-----------------
NET ASSETS-100.0% $ 38,441,665
=================
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 28,335,961
-----------------
Investment securities, at market 39,003,949
Cash 31,325
Foreign currency (cost $810) 816
Receivables:
Capital shares sold 14,775
Dividends 35,406
Due from adviser 22,753
Other assets 31,704
-----------------
Total Assets 39,140,728
-----------------
LIABILITIES
Payables and other liabilities:
Capital shares redeemed 489,303
Advisory fees 24,009
Shareholder servicing fees 7,880
Accounting fees 3,201
Distribution fees 4,543
Transfer agency fees 12,415
Custodian fees 5,172
Line of credit 100,000
Other 52,540
-----------------
Total Liabilities 699,063
-----------------
Net Assets $ 38,441,665
=================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 67,485,335
Accumulated net investment loss (2,753)
Accumulated net realized loss from security transactions (39,714,354)
Net unrealized appreciation on investments
and foreign currency translation 10,673,437
-----------------
Total $ 38,441,665
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
Net Assets--Class A $ 22,432,457
Shares Outstanding--Class A 2,296,158
Net Asset Value, Redemption Price Per Share $ 9.77
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $ 10.37
Net Assets--Class B $ 2,372,245
Shares Outstanding--Class B 248,502
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 9.55
Net Assets--Class C $ 481,889
Shares Outstanding--Class C 50,543
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 9.53
Net Assets--Class F $ 9,837,083
Shares Outstanding--Class F 1,006,074
Net Asset Value, Offering and Redemption Price Per Share $ 9.78
Net Assets--Class R $ 3,145,614
Shares Outstanding--Class R 320,219
Net Asset Value, Offering and Redemption Price Per Share $ 9.82
Net Assets--Class T $ 172,377
Shares Outstanding--Class T 17,764
Net Asset Value, Redemption Price Per Share $ 9.70
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 10.16
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 807,676
Interest 15,315
Foreign taxes withheld (89,599)
-----------------
Total Investment Income 733,392
-----------------
EXPENSES:
Advisory fees--Note 2 333,061
Shareholder servicing fees--Note 2 83,857
Accounting fees--Note 2 33,305
Distribution fees--Note 2 41,570
Transfer agency fees--Note 2 108,819
Registration fees 66,579
Postage and mailing expenses 3,444
Custodian fees and expenses--Note 2 76,660
Printing expenses 33,880
Legal and audit fees 6,261
Directors' fees and expenses--Note 2 8,127
Other expenses 40,235
-----------------
Total Expenses 835,798
Earnings Credits (957)
Reimbursed/Waived Expenses (356,021)
Expense Offset to Broker Commissions (70)
-----------------
Net Expenses 478,750
-----------------
Net Investment Income 254,642
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS AND
FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on :
Security transactions (5,301,870)
Foreign currency transactions 5,330
-----------------
Net Realized Loss (5,296,540)
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation 16,056,126
-----------------
Net Realized and Unrealized Gain 10,759,586
-----------------
Net Increase in Net Assets Resulting from Operations $ 11,014,228
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
----------------- -----------------
OPERATIONS
Net Investment Income $ 254,642 $ 32,165
Net Realized Loss (5,296,540) (5,583,604)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 16,056,126 (8,376,964)
----------------- -----------------
Net Increase (Decrease) in Net Assets Resulting from Operations 11,014,228 (13,928,403)
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (156,488) (32,238)
Class B (1,759) 0
Class F (71,823) (15,146)
Class R (28,532) (9,276)
Class T (910) 0
----------------- -----------------
Net Decrease from Dividends and Distributions (259,512) (56,660)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A (1,959,586) (3,344,747)
Class B (450,587) (592,334)
Class C (190,274) (629,053)
Class F (2,350,311) (3,309,006)
Class R (204,031) (2,588,838)
Class T (57,906) (102,473)
----------------- -----------------
Net Decrease from Capital Share Transactions (5,212,695) (10,566,451)
----------------- -----------------
Net Increase (Decrease) in Net Assets 5,542,021 (24,551,514)
NET ASSETS
Beginning of year $ 32,899,644 $ 57,451,158
----------------- -----------------
End of year (including accumulated net investment
loss of $2,753 and $7,832, respectively) $ 38,441,665 $ 32,899,644
================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of year $ 7.19 $ 10.03 $ 14.42 $ 19.88
Income from investment operations:
Net investment income (loss) 0.06 0.01 (0.00)+ (0.03)
Net realized and unrealized gains (losses)
on securities 2.59 (2.84) (4.39) (3.53)
---------- ---------- ---------- ----------
Total from investment operations 2.65 (2.83) (4.39) (3.56)
Less dividends and distributions:
From net investment income (0.07) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90)
---------- ---------- ---------- ----------
Total distributions (0.07) (0.01) 0.00 (1.90)
Net Asset Value, end of year $ 9.77 $ 7.19 $ 10.03 $ 14.42
========== ========== ========== ==========
Total return* 36.84% (28.19%) (30.44%) (17.60%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 22,432 $ 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+ 0.80% 0.13% (0.74%) (0.36%)
Portfolio turnover rate@ 144% 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.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 2.47% (2003), 2.18% (2002) and 1.76% (2001). The gross expense ratios
would have been 2.48% (2003), 2.18% (2002) and 1.78% (2001). The net
investment income (loss) ratios would have been (0.27%) (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.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of year $ 7.03 $ 9.87 $ 14.29 $ 19.88
Income from investment operations:
Net investment loss (0.08) (0.11) (0.12) (0.09)
Net realized and unrealized gains (losses)
on securities 2.61 (2.73) (4.30) (3.60)
---------- ---------- ---------- ----------
Total from investment operations 2.53 (2.84) (4.42) (3.69)
Less dividends and distributions:
From net investment income (0.01) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90)
---------- ---------- ---------- ----------
Total distributions (0.01) 0.00 0.00 (1.90)
Net Asset Value, end of year $ 9.55 $ 7.03 $ 9.87 $ 14.29
========== ========== ========== ==========
Total return* 35.95% (28.77%) (30.93%) (18.27%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 2,372 $ 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+ 0.07% (0.61%) (1.03%) (1.18%)
Portfolio turnover rate@ 144% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 3.31% (2003), 2.90% (2002) and 2.65%. (2001) . The gross expense
ratios would have been 3.32% (2003), 2.91% (2002) and 2.67% (2001). The net
investment loss ratios would have been (1.09%) (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.
20
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of year $ 7.02 $ 9.86 $ 14.27 $ 19.88
Income from investment operations:
Net investment loss (0.26) (0.29) (0.16) (0.07)
Net realized and unrealized
gains (losses) on securities 2.77 (2.55) (4.25) (3.64)
---------- ---------- ---------- ----------
Total from investment operations 2.51 (2.84) (4.41) (3.71)
Less dividends and 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 year $ 9.53 $ 7.02 $ 9.86 $ 14.27
========== ========== ========== ==========
Total return* 35.76% (28.80%) (30.90%) (18.37%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 482 $ 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+ 0.08% (0.63%) (0.99%) (1.18%)
Portfolio turnover rate@ 144% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 3.24% (2003), 3.10% (2002) and 2.83% (2001). The gross expense ratios
would have been 3.25% (2003), 3.11% (2002) and 2.85% (2001). The net
investment income (loss) ratios would have been (1.01%) (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.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of year $ 7.18 $ 10.03 $ 14.40 $ 19.87 $ 14.03
Income from investment operations:
Net investment loss (0.01) (0.05) (0.07) (0.08) (0.05)
Net realized and unrealized gains (losses)
on securities 2.68 (2.79) (4.30) (3.49) 8.07
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.67 (2.84) (4.37) (3.57) 8.02
Less dividends and distributions:
From net investment income (0.07) (0.01) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90) (2.18)
---------- ---------- ---------- ---------- ----------
Total distributions (0.07) (0.01) 0.00 (1.90) (2.18)
Net Asset Value, end of year $ 9.78 $ 7.18 $ 10.03 $ 14.40 $ 19.87
========== ========== ========== ========== ==========
Total return 37.17% (28.30%) (30.35%) (17.65%) 58.71%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 9,837 $ 9,321 $ 16,640 $ 30,040 $ 35,607
Net expenses to average net assets#,+ 1.40% 1.40% 1.52% 1.80% 1.80%
Gross expenses to average net assets#,+ 1.40% 1.40% 1.55% 1.84% 1.82%
Net investment income (loss) to average net
assets+ 0.80% 0.12% (0.26%) (0.55%) (0.36%)
Portfolio turnover rate@ 144% 220% 213% 184% 205%
</Table>
# 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 or waived by the management company and its
affiliates. Had these fees not been reimbursed and/or waived, the net
expense ratios would have been 2.52% (2003), 2.13% (2002), 1.96% (2001),
1.91% (2000), and 1.97% (1999). The gross expense ratios would have been
2.52% (2003), 2.13% (2002), 1.99% (2001), 1.95% (2000), and 1.99% (1999).
The net investment income (loss) ratios would have been (0.32%) (2003),
(0.61%) (2002), (0.70%) (2001), (0.66%) (2000), and (0.53%) (1999).
@ 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of year $ 7.22 $ 10.08 $ 14.45 $ 19.88
Income from investment operations:
Net investment income (loss) 0.09 0.02 (0.00)+ (0.01)
Net realized and unrealized gains (losses)
on securities 2.60 (2.85) (4.37) (3.52)
---------- ---------- ---------- ----------
Total from investment operations 2.69 (2.83) (4.37) (3.53)
Less dividends and distributions:
From net investment income (0.09) (0.03) 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90)
---------- ---------- ---------- ----------
Total distributions (0.09) (0.03) 0.00 (1.90)
Net Asset Value, end of year $ 9.82 $ 7.22 $ 10.08 $ 14.45
========== ========== ========== ==========
Total return 37.27% (28.10%) (30.24%) (17.45%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 3,146 $ 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+ 1.03% 0.27% (0.04%) (0.40%)
Portfolio turnover rate@ 144% 220% 213% 184%
</Table>
+ Net investment loss for the year ended December 31, 2001 aggregated less
than $0.01 on a per share basis.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 1.95% (2003), 1.70% (2002) and 1.55% (2001). The gross expense ratios
would have been 1.95% (2003), 1.71% (2002) and 1.57% (2001). The net
investment income (loss) ratios would have been 0.23% (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.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of year $ 7.14 $ 9.97 $ 14.37 $ 19.88
Income from investment operations:
Net investment income (loss) 0.00+ (0.10) (0.09) (0.06)
Net realized and unrealized gains (losses)
on securities 2.61 (2.73) (4.31) (3.55)
---------- ---------- ---------- ----------
Total from investment operations 2.61 (2.83) (4.40) (3.61)
Less dividends and distributions:
From net investment income (0.05) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90)
---------- ---------- ---------- ----------
Total distributions (0.05) 0.00 0.00 (1.90)
Net Asset Value, end of year $ 9.70 $ 7.14 $ 9.97 $ 14.37
========== ========== ========== ==========
Total return* 36.58% (28.39%) (30.62%) (17.85%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 172 $ 158 $ 343 $ 654
Net expenses to average net assets#,+ 1.65% 1.65% 1.77% 1.98%
Gross expenses to average net assets#,+ 1.65% 1.65% 1.80% 2.03%
Net investment income (loss) to average net
assets+ 0.67% (0.12%) (0.53%) (0.70%)
Portfolio turnover rate@ 144% 220% 213% 184%
</Table>
+ Net investment income for the year ended December 31, 2003 aggregated less
than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 2.88% (2003), 4.00% (2002) and 2.83% (2001). The gross expense ratios
would have been 2.88% (2003), 4.00% (2002) and 2.86% (2001). The net
investment income (loss) ratios would have been (0.56%) (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.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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.
25
<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 December 31, 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 arises 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 distributions
26
<Page>
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) 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 an indirect 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
1.00% of the
27
<Page>
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 year
ended December 31, 2003, $342,377 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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $19,110 and $10,586, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $5,685 and $3,228,
respectively, for out-of-pocket transfer agent charges.
28
<Page>
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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 73,674
Class B $ 9,767
Class C $ 1,981
Class R $ 3,110
Class T $ 817
</Table>
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 or servicing 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 year ended December 31, 2003, Class F shares were charged $22,388 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.
29
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class
A, B, C, and T shares for the year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 47,482
Class B $ 15,145 $ 5,048
Class C $ 3,610 $ 1,204
Class T $ 427 $ 427
</Table>
During the year ended December 31, 2003, DSC retained $94 and $10 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $10,862 and $85 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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $13,644. The amount paid to Mellon was
reduced by this fee waiver amount.
30
<Page>
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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 9,949 $ 54,218 $ (64,167)
</Table>
The tax character of distributions paid during 2003 and 2002 was as follows:
<Table>
<Caption>
2003 2002
--------- ---------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 259,512 $ 56,660
Long-term capital gain $ 0 $ 0
--------- ---------
$ 259,512 $ 56,660
</Table>
31
<Page>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003, 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, 2011.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 2,512
Accumulated Capital Losses $ 39,617,964
Post-October Currency Loss Deferral $ 838
Federal Tax Cost $ 28,432,349
Gross Tax Appreciation of Investments $ 10,576,208
Gross Tax Depreciation of Investments $ (4,608)
Net Tax Appreciation $ 10,571,600
</Table>
32
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
CLASS A
Sold 724,401 $ 5,318,119 4,149,772 $ 34,712,760
Dividends or Distributions Reinvested 15,239 $ 147,964 4,234 $ 30,237
Redeemed (978,731) $ (7,425,669) (4,523,803) $ (38,087,744)
NET DECREASE (239,091) $ (1,959,586) (369,797) $ (3,344,747)
CLASS B
Sold 72,988 $ 520,427 144,790 $ 1,041,200
Dividends or Distributions Reinvested 146 $ 1,391 0 $ 0
Redeemed (137,735) $ (972,405) (215,227) $ (1,633,534)
NET DECREASE (64,601) $ (450,587) (70,437) $ (592,334)
CLASS C
Sold 165,203 $ 1,132,327 27,418 $ 241,026
Redeemed (190,526) $ (1,322,601) (96,541) $ (870,079)
NET DECREASE (25,323) $ (190,274) (69,123) $ (629,053)
CLASS F
Sold 1,515,865 $ 11,180,704 1,879,837 $ 15,539,534
Dividends or Distributions Reinvested 6,797 $ 66,066 1,997 $ 14,235
Redeemed (1,814,806) $ (13,597,081) (2,242,842) $ (18,862,775)
NET DECREASE (292,144) $ (2,350,311) (361,008) $ (3,309,006)
CLASS R
Sold 146,346 $ 1,105,834 280,113 $ 2,397,887
Dividends or Distributions Reinvested 2,764 $ 26,981 1,130 $ 8,099
Redeemed (170,854) $ (1,336,846) (544,644) $ (4,994,824)
NET DECREASE (21,744) $ (204,031) (263,401) $ (2,588,838)
CLASS T
Sold 97,501 $ 651,910 291 $ 2,419
Dividends or Distributions Reinvested 91 $ 882 0 $ 0
Redeemed (101,973) $ (710,698) (12,536) $ (104,892)
NET DECREASE (4,381) $ (57,906) (12,245) $ (102,473)
</Table>
33
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$46,409,480 and $50,639,763, respectively.
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) $50 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 $50 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 December 31, 2003, the Fund had borrowings in the amount of $100,000
pursuant to this LOC arrangement.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
34
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders International
Equity Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc.,
hereafter referred to as the "Fund") at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2003 by correspondence with the custodian, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
35
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the period ended December 31, 2003, 0.0% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2003, the Fund designated 100% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
36
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
37
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
38
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
39
<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)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
Additional information about the Fund and its directors is available in the
Fund's Statement of Additional Information, which can be obtained free of charge
by contacting the Fund.
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:
February 27, 2004
Dreyfus Service Corporation, Distributor. (C) 2004 Founders Asset
Management LLC.
A-646-IE-03
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
INVESTMENT UPDATE
DECEMBER 31, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
THE GROWTH SPECIALISTS
<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
Report of Independent Auditors 34
Your Board Representatives 35
</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 Annual 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 December 31, 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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
While we were pleased with the Fund's performance relative to its mid-cap growth
fund peers in 2003, the Fund's gains trailed its benchmark, the Russell Midcap
Growth Index, which rose 42.71% during the period.
Despite the fact that riskier stocks were the strongest performers in 2003,
we adhered to our core process, continuing to search for companies with superior
long-term profit growth prospects led by exceptional management teams. We also
continued to maintain a strong valuation discipline, investing when we felt
stocks were trading below our fair value estimation. Good stock picking helped
offset the headwind of the Fund's lower beta in this very strong market,
providing an even better risk-adjusted return.
The Fund's lower relative return versus the benchmark was largely due to
its lower beta investments, higher weighted-average market capitalization, an
underweight position in the technology sector and average cash position of about
2.7% compared to the fully invested Index.
DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE PERIOD.
Stock markets worldwide generally posted double-digit gains during
the year, with the U.S. market ending 2003 in the black for the first time
in the last four years. Rapidly improving economic conditions following
[SIDENOTE]
"BETTER SALES FROM A STRONGER ECONOMY COUPLED WITH EXTRAORDINARY PRODUCTIVITY
GAINS LED TO DOUBLE-DIGIT PROFIT GROWTH FROM MANY PUBLIC COMPANIES."
3
<Page>
the conclusion of major hostilities in Iraq, higher corporate profits and benign
inflation contributed to market gains. Powerful fiscal and monetary stimuli in
the form of tax cuts, government spending and lower interest rates also assisted
the boost in economic activity. Better sales from a stronger economy coupled
with extraordinary productivity gains led to double-digit profit growth from
many public companies. Higher profits, confidence in a stronger economic future
and poor alternative investment options--for example, 10-year Treasury bond
yields ranged from 3.5-4.5% for most of the year while money market funds paid
even less--also contributed to higher share prices.
WHAT CHANGES WERE MADE TO THE FUND DURING THE PERIOD?
Our individual stock selection and the market's strong gains in 2003 resulted in
changes in Fund composition. The weighted average market capitalization grew
from $5.7 billion at the beginning of the year to $6.8 billion by year's end.
The forward price-to-earnings ratio (P/E) of the Fund also rose, from 19 times
forward earnings at the end of 2002 to 24 times by the end of 2003. And while
the P/E of the Fund remained lower than that of its benchmark, the consensus
estimates of the long-term
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - Stock markets worldwide generally posted double-digit gains for the year,
with the U.S. market ending 2003 in the black for the first time in the
last four years.
- - Our individual stock selection and the market's strong gains in 2003 led to
some changes in Fund composition.
- - Among the positive relative impacts were the returns experienced by Fund
holdings in the financials, consumer staples and energy sectors.
- - The Fund was generally underweight such strong performing industries as
communications equipment, Internet software, semiconductors and
semiconductor equipment. However, strong selection in the Fund's largest
technology industry, systems software, helped mitigate the Fund's relative
underperformance in the technology sector.
4
<Page>
profit growth of the stocks in the Fund were slighter higher. Further, we
invested in very few companies that are forecasted to lose money in the coming
year, while such holdings comprised about 3% of the benchmark.
In the midst of an improving economy and a rebound in business capital
spending, we found many attractive opportunities among technology stocks, and as
a result of new buys and strong gains from the sector, the Fund's weighting in
technology nearly doubled, largely at the expense of the healthcare and
industrials sectors.
Also of note, the Fund had significant weightings in the consumer
discretionary, technology and healthcare sectors by the end of the period, the
three largest sectors in which we generally invest.
WHAT POSITIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE PERIOD?
Strong stock performance and favorable weightings versus the benchmark in the
financials and consumer staples sectors positively impacted relative Fund
performance for the year. Our energy holdings also advanced relative
performance, with oil and gas exploration and development company APACHE
CORPORATION leading the sector. The Fund benefited from participation in initial
public offerings (IPOs) over the period as well.
Strong stock selection in the healthcare sector also positively impacted
overall performance. BARR PHARMACEUTICALS, INC., for example, rose 77% for the
year, driven by its strong generic and proprietary drug sales in markets such as
women's health. Barr was the single largest positive contributor to Fund
performance for the reporting period on an individual stock basis. In
[SIDENOTE]
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Getty Images, Inc.(GYI) 2.06%
2. Maxim Integrated Products, Inc.(MXIM) 2.03%
3. Teva Pharmaceutical Industries Limited (TEVA) 1.96%
4. Barr Pharmaceuticals, Inc. (BRL.A) 1.92%
5. Amdocs Limited (DOX) 1.87%
6. Corinthian Colleges, Inc. (COCO) 1.85%
7. Danaher Corporation (DHR) 1.82%
8. Gilead Sciences, Inc. (GILD) 1.81%
9. Fastenal Company (FAST) 1.81%
10. TJX Companies, Inc. (TJX) 1.80%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
addition, generic pharmaceutical company TEVA PHARMACEUTICAL INDUSTRIES LIMITED,
and pharmacy benefit manager CAREMARK RX, INC., also greatly boosted Fund
performance in this sector.
Trucking company J.B. HUNT TRANSPORT SERVICES, INC. experienced an
exceptional increase during the period, rising 84%. The company's business
performance was aided by the strengthening economy as well as a favorable
industry environment in which many smaller trucking companies grappled with
limited capital and a tight driver supply. However, real profit gains came from
Hunt's efforts to reduce its operating expenses and increase its productivity.
As a result of these strides, Wall Street forecasts for the company rose and
became more closely aligned with our estimates.
[SIDENOTE]
[CHART]
GROWTH OF $10,000 INVESTMENT
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 12/31/93 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>
INTERNATIONAL GAME TECHNOLOGY, the leading maker of games for casinos,
appreciated nearly 90% during the period, powered by very strong sales of
cashless slot machines and profit growth of over 30%.
Strong stock performance by HARMAN INTERNATIONAL INDUSTRIES, INC., a
provider of audio and other electronics to the consumer and automobile original
equipment manufacturer (OEM) markets, and CADENCE DESIGN SYSTEMS, INC., a
supplier of electronic design automation (EDA) and engineering services, also
buoyed relative Fund performance during the period.
Other standout individual performers during the period included financial
holdings FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. and NEW YORK COMMUNITY BANCORP,
INC.
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- -----------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 28.47% -- -- (12.72%)
Without sales charge 36.43% -- -- (11.42%)
CLASS B SHARES (12/31/99)
With redemption* 31.04% -- -- (12.34%)
Without redemption 35.04% -- -- (11.91%)
CLASS C SHARES (12/31/99)
With redemption** 34.20% -- -- (12.23%)
Without redemption 35.20% -- -- (12.23%)
CLASS F SHARES (9/8/61) 36.64% (2.27%) 3.47% N/A
CLASS R SHARES (12/31/99) 36.40% -- -- (11.19%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 28.90% -- -- (13.22%)
Without sales charge 35.06% -- -- (12.22%)
</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 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
one-year 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.
7
<Page>
WHAT FACTORS DETRACTED FROM FUND PERFORMANCE?
The Fund's technology investments significantly trailed the benchmark's return
in this sector. For example, one of the world's largest distributors of
technology equipment, Technology Data Corporation, declined early in the year as
pricing and volumes for the industry remained weak. Additionally, the Fund was
generally underweight such strong performing industries as communications
equipment, Internet software, semiconductors and semiconductor equipment.
However, strong selection in the Fund's largest technology industry, systems
software, helped mitigate underperformance in the sector.
An underweight position coupled with weak stock selection in the consumer
discretionary sector weighed heavily on relative Fund performance, with such
holdings as Darden Restaurants, Inc., parent company of such casual restaurants
as Red Lobster and Olive Garden, producing a significant drag on performance
during the period.
The Fund's overweight position in the industrials sector also impeded
relative performance. Poor performance by individual industrials holdings such
as L-3 Communications Corporation, a merchant supplier of intelligence,
surveillance and reconnaissance systems and products, and uniform specialist
Cintas Corporation, negatively impacted the Fund's overall performance in this
sector.
[SIDENOTE]
[CHART]
<Table>
PORTFOLIO COMPOSITION
Information Technology 26.27%
Consumer Discretionary 21.26%
Healthcare 17.04%
Industrials 10.62%
Financials 8.80%
Energy 4.57%
Materials 2.61%
Consumer Staples 2.22%
Other 4.05%
Cash & Equivalents 2.56%
</Table>
The Funds 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>
The Fund underperformed in the materials sector relative to the benchmark
due to poor stock selection. Crown Holdings, Inc., manufacturer of packaging
products to consumer marketing companies, was the Fund's second-worst individual
performer for the period.
Some additional individual holdings should be singled out for poor
performance during the period. Cephalon, Inc., a biotechnology company
specializing in narcolepsy and pain products, dropped during the period when
sales of the company's leading daytime wakefulness drug, Provigil, fell short of
expectations and led to weaker-than-expected profits. Biotechnology holding
Medimmune, Inc. likewise fell after a disappointing launch of its new nasal
influenza vaccine, FluMist, which failed to generate enough use to meet the
investment community's expectations.
Additional detractors from relative Fund performance were other
stock-specific disappointments, such as The Pepsi Bottling Group, Inc., MGM
Mirage and Quest Diagnostics, Inc.
Some of these positions were sold during the first few months of 2003,
unfortunately locking in losses before the market rebounded. However, the
capital raised with these sales was quickly re-deployed into other investments
that provided the Fund with more attractive alternatives.
We will continue to seek companies we feel possess the best opportunity for
superior long-term profit growth, led by management teams we believe may execute
the plan and deliver on that potential. As we move into 2004, our Fund strategy
remains consistent. We will continue to focus on our bottom-up investment
process to identify the most attractive mix of potential reward and limited
risk.
/s/ Kevin Sonnett
Kevin Sonnett, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-92.2%
AIR FREIGHT & LOGISTICS-0.5%
20,475 C.H. Robinson Worldwide, Inc. $ 776,200
--------------
APPAREL RETAIL-3.1%
82,594 Ross Stores, Inc. 2,182,959
132,800 TJX Companies, Inc. 2,928,240
--------------
5,111,199
--------------
APPAREL, ACCESSORIES & LUXURY GOODS-0.9%
36,375 Coach, Inc.* 1,373,157
--------------
APPLICATION SOFTWARE-3.4%
101,425 Cadence Design Systems, Inc.* 1,823,621
64,900 Citrix Systems, Inc.* 1,376,529
47,425 Mercury Interactive Corporation* 2,306,752
--------------
5,506,902
--------------
ASSET MANAGEMENT & CUSTODY BANKS-2.1%
40,500 Federated Investors, Inc. Class B 1,189,080
74,800 SEI Investments Company 2,279,156
--------------
3,468,236
--------------
BIOTECHNOLOGY-1.8%
50,700 Gilead Sciences, Inc.* 2,947,698
--------------
BROADCASTING & CABLE TV-0.8%
50,375 Cox Radio, Inc. Class A* 1,270,961
--------------
CASINOS & GAMING-1.1%
47,850 International Game Technology 1,708,245
--------------
COMMUNICATIONS EQUIPMENT-1.2%
42,050 Foundry Networks, Inc.* 1,150,488
38,025 Polycom, Inc.* 742,248
--------------
1,892,736
--------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMPUTER & ELECTRONICS RETAIL-1.0%
31,425 Best Buy Company, Inc. $ 1,641,642
--------------
COMPUTER STORAGE & PERIPHERALS-2.2%
136,675 Maxtor Corporation* 1,517,093
39,600 QLogic Corporation* 2,043,360
--------------
3,560,453
--------------
CONSUMER ELECTRONICS-0.7%
15,475 Harman International Industries, Inc. 1,144,841
--------------
DATA PROCESSING & OUTSOURCED SERVICES-3.4%
47,635 Affiliated Computer Services, Inc. Class A* 2,594,202
73,000 Fiserv, Inc.* 2,884,230
--------------
5,478,432
--------------
DIVERSIFIED COMMERCIAL SERVICES-3.8%
10,075 Apollo Group, Inc. Class A* 685,100
92,439 ARAMARK Corporation Class B 2,534,677
54,049 Corinthian Colleges, Inc.* 3,002,962
--------------
6,222,739
--------------
ELECTRONIC EQUIPMENT MANUFACTURERS-2.2%
166,500 Symbol Technologies, Inc. 2,812,185
23,575 Waters Corporation* 781,747
--------------
3,593,932
--------------
EMPLOYMENT SERVICES-1.1%
39,200 Manpower, Inc. 1,845,536
--------------
EXCHANGE TRADED FUNDS-4.1%
34,100 Internet Architecture HOLDRS Trust 1,227,941
17,300 Internet HOLDRS Trust 868,287
29,575 iShares Goldman Sachs Networking Index Fund* 816,566
32,400 iShares Goldman Sachs Software Index Fund* 1,223,424
41,225 iShares Russell 2000 Growth Fund 2,442,581
--------------
6,578,799
--------------
FOOD DISTRIBUTORS-0.9%
37,150 Sysco Corporation 1,383,095
--------------
FOOD RETAIL-0.9%
20,750 Whole Foods Market, Inc.* 1,392,948
--------------
GENERAL MERCHANDISE STORES-1.1%
60,175 Dollar Tree Stores, Inc.* 1,808,861
--------------
HEALTHCARE DISTRIBUTORS-0.4%
10,900 Patterson Dental Company* 699,344
--------------
</Table>
* NON-INCOME PRODUCING.
HOLDRS - HOLDING COMPANY DEPOSITARY RECEIPTS
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT-4.0%
43,875 Biomet, Inc. $ 1,597,489
32,900 Boston Scientific Corporation* 1,209,404
44,987 DENTSPLY International, Inc. 2,032,063
28,025 St. Jude Medical, Inc.* 1,719,334
--------------
6,558,290
--------------
HEALTHCARE SERVICES-1.3%
31,400 Caremark Rx, Inc.* 795,362
18,750 Express Scripts, Inc. Class A* 1,245,563
--------------
2,040,925
--------------
HOME ENTERTAINMENT SOFTWARE-0.6%
50,625 Activision, Inc.* 921,375
--------------
HOME FURNISHINGS-1.3%
32,150 Leggett & Platt, Inc. 695,405
19,075 Mohawk Industries, Inc.* 1,345,551
--------------
2,040,956
--------------
HOMEBUILDING-0.5%
9,175 Lennar Corporation Class A 880,800
--------------
HOTELS, RESORTS & CRUISE LINES-1.0%
95,625 Hilton Hotels Corporation 1,638,056
--------------
INDUSTRIAL CONGLOMERATES-1.8%
32,130 Danaher Corporation 2,947,927
--------------
INDUSTRIAL GASES-0.8%
32,775 Praxair, Inc. 1,252,005
--------------
INVESTMENT BANKING & BROKERAGE-1.8%
205,000 Ameritrade Holding Corporation* 2,884,350
--------------
LEISURE FACILITIES-0.9%
43,300 Royal Caribbean Cruises Limited 1,506,407
--------------
MANAGED HEALTHCARE-2.4%
16,225 Anthem, Inc.* 1,216,875
15,000 PacifiCare Health Systems, Inc.* 1,014,000
18,000 WellPoint Health Networks, Inc.* 1,745,820
--------------
3,976,695
--------------
METAL & GLASS CONTAINERS-1.0%
28,225 Ball Corporation 1,681,363
--------------
OIL & GAS EQUIPMENT & SERVICES-2.9%
68,225 BJ Services Company* 2,449,278
55,600 Smith International, Inc.* 2,308,512
--------------
4,757,790
--------------
OIL & GAS EXPLORATION & PRODUCTION-1.6%
32,801 Apache Corporation 2,660,161
--------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-2.2%
37,775 Ambac Financial Group, Inc. $ 2,621,207
41,775 Friedman, Billings, Ramsey Group, Inc. 964,167
--------------
3,585,374
--------------
PERSONAL PRODUCTS-0.5%
21,150 Estee Lauder Companies, Inc. Class A 830,349
--------------
PHARMACEUTICALS-5.1%
73,700 Andrx Corporation* 1,771,748
40,550 Barr Pharmaceuticals, Inc.* 3,120,323
30,425 MGI Pharma, Inc.* 1,251,989
46,300 Watson Pharmaceuticals, Inc.* 2,129,800
--------------
8,273,860
--------------
PROPERTY & CASUALTY INSURANCE-0.8%
40,275 Infinity Property & Casualty Corporation 1,331,089
--------------
PUBLISHING-3.7%
66,650 Getty Images, Inc.* 3,341,165
22,875 McClatchy Company Class A 1,573,800
23,600 New York Times Company Class A 1,127,844
--------------
6,042,809
--------------
RESTAURANTS-1.5%
72,925 Brinker International, Inc.* 2,418,193
--------------
SEMICONDUCTOR EQUIPMENT-1.5%
81,800 MKS Instruments, Inc.* 2,372,200
--------------
SEMICONDUCTORS-5.2%
65,650 Fairchild Semiconductor Corporation Class A* 1,639,281
32,450 Intersil Corporation Class A 806,383
66,250 Maxim Integrated Products, Inc. 3,299,250
29,350 Microchip Technology, Inc. 979,116
76,675 Semtech Corporation* 1,742,823
--------------
8,466,853
--------------
SPECIALIZED FINANCE-0.4%
10,475 Moody's Corporation 634,261
--------------
SPECIALTY STORES-3.7%
9,175 AutoZone, Inc.* 781,802
58,875 Bed Bath & Beyond, Inc.* 2,552,231
95,825 Staples, Inc.* 2,616,023
--------------
5,950,056
--------------
STEEL-0.8%
33,675 International Steel Group, Inc.* 1,311,641
--------------
SYSTEMS SOFTWARE-2.2%
19,600 Adobe Systems, Inc. 770,280
45,550 Macrovision Corporation* 1,028,975
50,750 Symantec Corporation* 1,758,488
--------------
3,557,743
--------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-1.6%
44,400 CDW Corporation $ 2,564,544
--------------
THRIFTS & MORTGAGE FINANCE-1.1%
46,406 New York Community Bancorp, Inc. 1,765,748
--------------
TRADING COMPANIES & DISTRIBUTORS-1.8%
58,875 Fastenal Company 2,940,218
--------------
TRUCKING-1.5%
92,850 JB Hunt Transport Services, Inc.* 2,507,879
--------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$124,593,270) 149,705,873
--------------
COMMON STOCKS (FOREIGN)-5.2%
APPLICATION SOFTWARE-1.9%
135,100 Amdocs Limited (CI)* 3,037,048
--------------
IT CONSULTING & OTHER SERVICES-1.0%
64,825 Accenture Limited Class A ADR (BD)* 1,706,194
--------------
PHARMACEUTICALS-1.9%
56,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS) 3,175,760
--------------
THRIFTS & MORTGAGE FINANCE-0.4%
19,350 Doral Financial Corporation (PU) 624,618
--------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$6,728,305) 8,543,620
--------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-1.8%
$ 2,900,000 Federal National Mortgage Association
0.75% 1/2/04 $ 2,899,940
--------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$2,899,940) 2,899,940
--------------
TOTAL INVESTMENTS-99.2%
(TOTAL COST-$134,221,515) 161,149,433
OTHER ASSETS AND LIABILITIES-0.8% 1,265,074
--------------
NET ASSETS-100.0% $ 162,414,507
==============
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 134,221,515
--------------
Investment securities, at market 161,149,433
Cash 110,890
Receivables:
Investment securities sold 5,704,748
Capital shares sold 27,019
Dividends 38,808
Other assets 15,139
--------------
Total Assets 167,046,037
--------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 4,191,296
Capital shares redeemed 107,777
Advisory fees 109,135
Shareholder servicing fees 15,071
Accounting fees 8,221
Distribution fees 31,678
Transfer agency fees 24,445
Custodian fees 490
Other 143,417
--------------
Total Liabilities 4,631,530
--------------
Net Assets $ 162,414,507
==============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 218,073,564
Accumulated net investment loss (15,164)
Accumulated net realized loss from security transactions (82,571,811)
Net unrealized appreciation on investments 26,927,918
--------------
Total $ 162,414,507
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
Net Assets--Class A $ 1,190,590
Shares Outstanding--Class A 338,414
Net Asset Value, Redemption Price Per Share $ 3.52
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 3.73
Net Assets--Class B $ 1,586,902
Shares Outstanding--Class B 463,226
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.43
Net Assets--Class C $ 323,067
Shares Outstanding--Class C 95,669
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.38
Net Assets--Class F $ 159,160,902
Shares Outstanding--Class F 44,456,647
Net Asset Value, Offering and Redemption Price Per Share $ 3.58
Net Assets--Class R $ 119,048
Shares Outstanding--Class R 33,476
Net Asset Value, Offering and Redemption Price Per Share $ 3.56
Net Assets--Class T $ 33,998
Shares Outstanding--Class T 10,038
Net Asset Value, Redemption Price Per Share $ 3.39
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 3.55
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 615,664
Interest 37,699
Foreign taxes withheld (2,821)
--------------
Total Investment Income 650,542
--------------
EXPENSES:
Advisory fees--Note 2 1,067,149
Shareholder servicing fees--Note 2 187,467
Accounting fees--Note 2 79,360
Distribution fees--Note 2 327,456
Transfer agency fees--Note 2 120,174
Registration fees 75,381
Postage and mailing expenses 25,652
Custodian fees and expenses--Note 2 10,187
Printing expenses 45,011
Legal and audit fees 18,276
Directors' fees and expenses--Note 2 29,908
Other expenses 29,034
--------------
Total Expenses 2,015,055
Earnings Credits (2,314)
Waived Expenses (1,996)
Expense Offset to Broker Commissions (3,995)
--------------
Net Expenses 2,006,750
--------------
Net Investment Loss (1,356,208)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security transactions 20,810,975
Net Change in Unrealized Appreciation/Depreciation of Investments 25,868,151
--------------
Net Realized and Unrealized Gain 46,679,126
--------------
Net Increase in Net Assets Resulting from Operations $ 45,322,918
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
------------- -------------
OPERATIONS
Net Investment Loss $ (1,356,208) $ (1,349,450)
Net Realized Gain (Loss) 20,810,975 (27,913,078)
Net Change in Unrealized Appreciation / Depreciation 25,868,151 (1,680,486)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 45,322,918 (30,943,014)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 542,198 66,609
Class B 264,005 150,527
Class C (52,492) (6,389)
Class F 24,535,977 620,840
Class R 9,780 57,755
Class T 5,472 6,135
------------- -------------
Net Increase from Capital Share Transactions 25,304,940 895,477
------------- -------------
Net Increase (Decrease) in Net Assets 70,627,858 (30,047,537)
NET ASSETS
Beginning of year $ 91,786,649 $ 121,834,186
------------- -------------
End of year (including accumulated net investment
loss of $15,164 and $0, respectively) $ 162,414,507 $ 91,786,649
============= =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS A SHARES
Net Asset Value, beginning of year $ 2.58 $ 3.44 $ 4.38 $ 8.68
Income from investment operations:
Net investment income (loss) 0.03 (0.04) (0.06) (0.02)
Net realized and unrealized
gains (losses)on securities 0.91 (0.82) (0.88) (2.05)
--------- --------- --------- ---------
Total from investment
operations 0.94 (0.86) (0.94) (2.07)
Less dividends and 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 year $ 3.52 $ 2.58 $ 3.44 $ 4.38
========= ========= ========= =========
Total return* 36.43% (25.00%) (21.46%) (23.40%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,191 $ 476 $ 538 $ 625
Net expenses to average net assets# 1.86% 2.15% 2.46% 1.25%
Gross expenses to average net assets# 1.87% 2.15% 2.47% 1.29%
Net investment loss to average
net assets (1.38%) (1.81%) (1.93%) (0.74%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS B SHARES
Net Asset Value, beginning of year $ 2.54 $ 3.39 $ 4.32 $ 8.68
Income from investment operations:
Net investment loss (0.03) (0.05) (0.05) (0.04)
Net realized and unrealized
gains (losses)on securities 0.92 (0.80) (0.88) (2.09)
--------- --------- --------- ---------
Total from investment
operations 0.89 (0.85) (0.93) (2.13)
Less dividends and 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 year $ 3.43 $ 2.54 $ 3.39 $ 4.32
========= ========= ========= =========
Total return* 35.04% (25.07%) (21.53%) (24.14%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,587 $ 969 $ 1,138 $ 1,047
Net expenses to average net assets# 2.64% 2.67% 2.58% 1.99%
Gross expenses to average net assets# 2.65% 2.68% 2.59% 2.04%
Net investment loss to average
net assets (2.16%) (2.33%) (2.06%) (1.47%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS C SHARES
Net Asset Value, beginning of year $ 2.50 $ 3.36 $ 4.32 $ 8.68
Income from investment operations:
Net investment loss (0.10) (0.08) (0.08) (0.04)
Net realized and unrealized
gains (losses)on securities 0.98 (0.78) (0.88) (2.09)
--------- --------- --------- ---------
Total from investment
operations 0.88 (0.86) (0.96) (2.13)
Less dividends and 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 year $ 3.38 $ 2.50 $ 3.36 $ 4.32
========= ========= ========= =========
Total return* 35.20% (25.60%) (22.22%) (24.14%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 323 $ 274 $ 380 $ 422
Net expenses to average net assets#,+ 2.51% 2.98% 3.93% 2.00%
Gross expenses to average net
assets#,+ 2.51% 2.99% 3.94% 2.04%
Net investment loss to
average net assets+ (2.02%) (2.65%) (3.41%) (1.46%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of year $ 2.62 $ 3.47 $ 4.36 $ 8.68 $ 7.44
Income from investment operations:
Net investment income (loss) 0.02 (0.04) (0.05) (0.03) (0.08)
Net realized and unrealized gains
(losses)on securities 0.94 (0.81) (0.84) (2.06) 3.12
---------- ---------- ---------- ---------- ----------
Total from investment
operations 0.96 (0.85) (0.89) (2.09) 3.04
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00^
From net realized gains 0.00 0.00 0.00 (2.23) (1.80)
---------- ---------- ---------- ---------- ----------
Total distributions 0.00 0.00 0.00 (2.23) (1.80)
Net Asset Value, end of year $ 3.58 $ 2.62 $ 3.47 $ 4.36 $ 8.68
========== ========== ========== ========== ==========
Total return 36.64% (24.50%) (20.41%) (23.69%) (42.27%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 159,161 $ 89,970 $ 119,708 $ 166,365 $ 253,385
Net expenses to average
net assets# 1.50% 1.56% 1.37% 1.36% 1.40%
Gross expenses to average
net assets# 1.51% 1.56% 1.39% 1.39% 1.42%
Net investment loss to
average net assets (1.01%) (1.22%) (0.84%) (0.92%) (0.98%)
Portfolio turnover rate@ 160% 216% 214% 226% 186%
</Table>
^ Distributions from net investment income for the year ended December 31, 1999
aggregated less than $0.01 on a per share basis.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS R SHARES
Net Asset Value, beginning of year $ 2.61 $ 3.48 $ 4.39 $ 8.68
Income from investment operations:
Net investment income (loss) (0.03) (0.04) 0.01 (0.03)
Net realized and unrealized
gains (losses) on securities 0.98 (0.83) (0.92) (2.03)
--------- --------- --------- ---------
Total from investment
operations 0.95 (0.87) (0.91) (2.06)
Less dividends and 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 year $ 3.56 $ 2.61 $ 3.48 $ 4.39
========= ========= ========= =========
Total return 36.40% (25.00%) (20.73%) (23.28%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 119 $ 77 $ 49 $ 7
Net expenses to average net assets#,+ 1.64% 1.97% 2.89% 1.00%
Gross expenses to average net
assets#,+ 1.64% 1.97% 2.91% 1.03%
Net investment loss to average
net assets+ (1.15%) (1.63%) (2.40%) (0.55%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS T SHARES
Net Asset Value, beginning of year $ 2.51 $ 3.39 $ 4.35 $ 8.68
Income from investment operations:
Net investment loss (0.02) (0.06) (0.11) (0.02)
Net realized and unrealized
gains (losses) on securities 0.90 (0.82) (0.85) (2.08)
--------- --------- --------- ---------
Total from investment
operations 0.88 (0.88) (0.96) (2.10)
Less dividends and 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 year $ 3.39 $ 2.51 $ 3.39 $ 4.35
========= ========= ========= =========
Total return* 35.06% (25.96%) (22.07%) (23.80%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 34 $ 20 $ 20 $ 29
Net expenses to average net assets#,+ 2.76% 3.63% 3.11% 1.50%
Gross expenses to average net
assets#,+ 2.76% 3.64% 3.13% 1.55%
Net investment loss to average
net assets+ (2.27%) (3.29%) (2.57%) (0.98%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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
December 31, 2003
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>
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, if any, is recorded
as foreign currency gain or loss and would be 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 arises 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 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.
26
<Page>
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) 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 an indirect 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
1.00% 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>
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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $116,874 and $65,407, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $43,721 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-------------
Class A $ 3,179
Class B $ 6,585
Class C $ 1,404
Class R $ 549
Class T $ 324
</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 or servicing 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 year ended December 31, 2003, Class F shares were charged $316,409 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 1,458
Class B $ 8,578 $ 2,859
Class C $ 2,401 $ 801
Class T $ 68 $ 68
</Table>
During the year ended December 31, 2003, DSC retained $572 and $33 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,629 and $269 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.
29
<Page>
CUSTODIAN FEES--Mellon Bank N.A., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $1,996. 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.
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
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
30
<Page>
for items such as deferral of wash sale losses, foreign currency transactions,
net operating losses, and capital loss carryovers. Permanent differences
identified during the year ended December 31, 2003 have been reclassified among
the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 1,341,044 $ 0 $ (1,341,044)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted
below, if any, as of December 31, 2003, 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. Net capital loss carryovers
utilized in 2003 amounted to $17,249,198.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 82,241,465
Federal Tax Cost $ 134,551,861
Gross Tax Appreciation of Investments $ 27,113,453
Gross Tax Depreciation of Investments $ (515,881)
Net Tax Appreciation $ 26,597,572
</Table>
31
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
CLASS A
Sold 244,735 $ 828,175 282,153 $ 757,701
Redeemed (90,696) $ (285,977) (254,287) $ (691,092)
NET INCREASE 154,039 $ 542,198 27,866 $ 66,609
CLASS B
Sold 145,154 $ 449,120 156,797 $ 474,952
Redeemed (63,928) $ (185,115) (110,190) $ (324,425)
NET INCREASE 81,226 $ 264,005 46,607 $ 150,527
CLASS C
Sold 56,880 $ 169,451 29,342 $ 92,484
Redeemed (70,756) $ (221,943) (32,951) $ (98,873)
NET DECREASE (13,876) $ (52,492) (3,609) $ (6,389)
CLASS F
Sold 19,131,927 $ 50,872,801 15,890,407 $ 45,272,617
Redeemed (8,999,875) $ (26,336,824) (16,090,739) $ (44,651,777)
NET INCREASE (DECREASE) 10,132,052 $ 24,535,977 (200,332) $ 620,840
CLASS R
Sold 15,172 $ 45,615 41,636 $ 135,210
Redeemed (11,397) $ (35,835) (26,128) $ (77,455)
NET INCREASE 3,775 $ 9,780 15,508 $ 57,755
CLASS T
Sold 2,448 $ 6,710 4,300 $ 13,887
Redeemed (403) $ (1,238) (2,324) $ (7,752)
NET INCREASE 2,045 $ 5,472 1,976 $ 6,135
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$227,564,229 and $204,928,042, respectively.
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
32
<Page>
(a) $50 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 $50 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 December 31, 2003, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
33
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Mid-Cap Growth
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
34
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
35
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
36
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
37
<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)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
Additional information about the Fund and its directors is available in the
Fund's Statement of Additional Information, which can be obtained free of charge
by contacting the Fund.
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:
February 27, 2004
Dreyfus Service Corporation, Distributor. (C) 2004 Founders Asset
Management LLC.
A-646-MC-03
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
PASSPORT FUND
INVESTMENT UPDATE
DECEMBER 31, 2003
[DREYFUS FOUNDERS FUND LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Auditors 37
Your Board Representatives 38
</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 Annual 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 December 31, 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]
A DISCUSSION WITH PORTFOLIO MANAGER TRACY STOUFFER, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
Dreyfus Founders Passport Fund had a very impressive year, significantly
outperforming its international small-cap benchmark, the Morgan Stanley Capital
International (MSCI) World ex U.S. Small Cap Index, which returned 61.81% for
the period. The Fund also bested the large-cap MSCI World ex U.S. Index, which
returned 39.42% for the year.
WHAT DYNAMICS AFFECTED INTERNATIONAL SMALL-CAP STOCKS DURING THE YEAR?
Uncertainty plagued the year's opening, due in large part to the impending
conflict in Iraq. Corporate spending remained sluggish and consumer spending
proved to be the main driver. However as the Iraqi conflict moved toward a
resolution, investors regained confidence in an emerging economic recovery and
began increasing their risk appetite.
2003 saw the global stock markets experiencing their first broad-based rally
in four years. Several factors revived the markets after their
[SIDENOTE]
"THERE WERE NUMEROUS COMPELLING GROWTH OPPORTUNITIES DURING THE YEAR, MOST OF
WHICH REVOLVED AROUND THE ASIAN GROWTH STORY, WITH CHINA AS THE GREAT GROWTH
ENGINE OF 2003 CAUSING A SURGE IN COMMODITY PRICES".
3
<Page>
three-year lull: a global easing of interest rates, improved corporate earnings
spurred by cost-cutting measures and debt reduction, and the emergence of China
as a secondary growth engine for the world. While the developed markets achieved
impressive gains, the rally was most pronounced in the emerging markets sector.
Unlike its small-cap benchmark, the Fund benefited from exposure in the emerging
markets, maintaining about a 22% weighting in the emerging markets throughout
the year, garnering bountiful gains specifically from Asia and Latin America.
WHAT FACTORS BENEFITED FUND PERFORMANCE DURING THE PERIOD?
There were numerous compelling growth opportunities during the year, most of
which revolved around the Asian growth story, with China as the great growth
engine of 2003 causing a surge in commodity prices. As a result, commodity
companies around the world profited from China's increasing demand for metal and
other raw materials. Japanese heavy equipment manufacturers benefited from the
building boom in China, as they were a large supplier of construction equipment.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - 2003 saw the global stock markets experiencing their first broad-based rally
in four years.
- - The Fund significantly outperformed its benchmarks for the year.
- - The Fund's holdings in numerous Asian domestic engineering and construction
companies reaped the benefits of a tremendous infrastructure boom throughout
Asia.
- - The Fund's large weighting in Japan was the principal contributor to
performance for the period, as after years of restructuring, the Japanese
economy was finally poised to benefit from some improvement.
- - The Fund's overweight positions in Israel and Taiwan, and its underweight
position in Canada dampened relative returns for the period.
4
<Page>
A tremendous infrastructure expansion continued to evolve throughout Asia in
2003. In the industrials sector, numerous Asian domestic engineering and
construction companies reaped the benefits of this growth, posting excellent
returns. The Fund was well positioned to garner the gains seen in this sector.
The Fund's large weighting in Japan was the principal contributor to
performance for the period. After years of restructuring, the Japanese economy
was finally poised to benefit from some improvement. The recovery has largely
presented itself in Japan's small-capitalization stocks, which far outperformed
the country's large-cap issues. For example, the JASDAQ(1) exchange, similar to
the United States' Nasdaq, was up 77% for 2003, while the Topix Small Cap
Index(2) saw a gain of 36% for the same period. These smaller companies have
been better positioned to restructure for profitability as they do not
participate in the common practice of holding shares in other institutions. This
cross-share holding practice has proven to be a burden to large Japanese
companies' restructuring efforts.
[SIDENOTE]
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Fast Search & Transfer ASA (Norway; FAST) 1.40%
2. Andritz AG (Austria; ANDR) 1.35%
3. SBS Broadcasting SA (Luxembourg; SBTV) 1.26%
4. Siemens India Limited (India; SIEI) 1.25%
5. Fullcast Company Limited (Japan; 4848) 1.18%
6. ABB Limited (India; ABB) 1.18%
7. Jeronimo Martins SGPS SA (Portugal; JMT) 1.16%
8. Kemira Oyj (Finland; KRA) 1.15%
9. JGC Corporation (Japan; 1963) 1.12%
10. Grande Holdings Limited (Hong Kong; 186) 1.10%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
- ----------
(1) The JASDAQ market is the Japanese share trading market geared to small and
medium companies and mid-size ventures.
(2) The Topix Small Cap Index is a capitalization-weighted index designed to
measure the performance of the stocks not included in the larger-cap Topix 500
Index that are listed on the First Section of the Tokyo Stock Exchange.
5
<Page>
Although Japan still represented the Fund's largest country weighting at
year-end, we began to pare back holdings as we felt earnings momentum for
restructuring stocks was peaking for the near term. We instead added positions
in India, whose domestic economy is booming due to a good monsoon season and its
growing status as a business processing outsourcing
[SIDENOTE]
[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 12/31/93 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 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. 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>
market. Indian construction and engineering firms have profited from energy and
other civil infrastructure projects. These factors have assisted the country's
burgeoning economy and the success of its stock market over the past year. Fund
holdings involved in Indian infrastructure and domestic demand were strong
contributors to the Fund's annual return.
Examining the effect individual holdings had on Fund performance, it becomes
obvious that 2003 was also the year in which Internet companies possessing valid
business models became profitable. The Fund's best
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 64.81% -- -- (9.66%)
Without sales charge 74.94% -- -- (8.31%)
CLASS B SHARES (12/31/99)
With redemption* 69.46% -- -- (9.63%)
Without redemption 73.46% -- -- (9.02%)
CLASS C SHARES (12/31/99)
With redemption** 72.52% -- -- (9.07%)
Without redemption 73.52% -- -- (9.07%)
CLASS F SHARES (11/16/93) 75.15% 5.79% 7.33% 7.79%
CLASS R SHARES (12/31/99) 75.60% -- -- (9.00%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 66.26% -- -- (10.22%)
Without sales charge 74.08% -- -- (9.18%)
</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 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.
7
<Page>
example of this, as well as its best performer, was lastminute.com PLC, a
British-based web company offering last minute entertainment and vacation
opportunities. Filling a niche in the online travel market, lastminute.com has
been very successful, offering more flexibility than traditional travel
arrangement sources.
Thai-based Italian-Thai Development, a designer and constructor of civil
engineering projects, was the Fund's second best performing stock for the year.
The company was well positioned to gain from the Thai government's push for
infrastructure projects during the year.
The Fund also benefited from participation in initial public offerings (IPOs)
over the period.
Direct Fund exposure to the local markets in China was minimal as the Fund
mainly invested in companies outside the country that benefited from its growth.
As most of the Chinese markets did not fare as well as the majority of world
regions in 2003, this positioning proved to be beneficial
[SIDENOTE]
PORTFOLIO COMPOSITION
[CHART]
<Table>
Japan 13.63%
India 11.94%
Hong Kong 8.89%
Canada 6.80%
United Kingdom 6.74%
Thailand 5.38%
Sweden 5.31%
Germany 4.38%
Other Countries 34.86%
Cash & Equivalents 2.07%
</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>
to Fund performance. Many local Chinese companies are poorly run former
government-owned institutions, and there is an abundance of highly speculative
investment in China. The Chinese government, however, is gradually trying to
improve the Chinese corporate culture.
WHAT FACTORS NEGATIVELY IMPACTED FUND PERFORMANCE?
The Fund's overweight positions in Israel and Taiwan, and its underweight
position in Canada, dampened relative returns for the period. Poor stock
selection in the Taiwanese market also produced a drag on overall Fund
performance. Additionally, the Fund's average cash allocation of 5.90% produced
a negative effect on Fund performance as compared to the fully invested Indexes.
When looking at holdings that underperformed, there are two companies that
stand out: M-Systems Flash Disk Pioneers Limited, a developer, manufacturer and
marketer of data storage products, and TOMRA Systems ASA, a Norwegian
manufacturer of vending machines for recycling beverage containers. M-Systems'
earnings came in below expectations and ongoing delays in the German recycling
market's regulatory environment led to TOMRA's sluggish performance. The Fund's
positions in both companies were liquidated.
As we enter 2004, our strategy remains constant: we remain committed to our
fundamental-based investment strategy to seek international small-capitalization
companies with the strongest growth potential.
/s/ Tracy P. Stouffer
Tracy Stouffer, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-94.2%
ADVERTISING-1.6%
10,875 Ipsos (FR) $ 1,015,072
23,800 LG Ad, Inc. (KR) 417,474
38,070 Phoenix Communications, Inc. (KR)* 686,953
---------------
2,119,499
---------------
AGRICULTURAL PRODUCTS-0.8%
97,900 Agricore United (CA) 689,383
592,800 Univanich Palm Oil Public Company Limited NVDR Shares (TH)* 460,057
---------------
1,149,440
---------------
AIR FREIGHT & LOGISTICS-0.7%
2,112,000 Goodpack Limited (SG) 1,013,531
---------------
ALTERNATIVE CARRIERS-0.8%
312,875 QSC AG (GE)* 1,124,740
---------------
APPAREL, ACCESSORIES & LUXURY GOODS-1.0%
51,925 Hockey Company Holdings, Inc. 144A (CA)*,+ 602,704
291,875 Titan Industries Limited (IN) 827,166
---------------
1,429,870
---------------
APPLICATION SOFTWARE-2.5%
184,450 Aldata Solution Oyj (FI)* 451,353
679,452 Intec Telecom Systems PLC (UK)* 719,227
56,850 Mphasis BFL Limited (IN) 946,981
77,546 Subex Systems Limited (IN) 678,666
395,575 Telelogic AB (SW)* 632,234
---------------
3,428,461
---------------
ASSET MANAGEMENT & CUSTODY BANKS-0.5%
18,800 AWD Holding AG (GE) 652,593
---------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kngdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT-1.3%
197,200 Aapico Hitech Public Company Limited Foreign Shares (TH) $ 776,408
63,725 Decoma International, Inc. Class A (CA) 654,854
44,000 Suncall Corporation (JA) 351,442
---------------
1,782,704
---------------
AUTOMOBILE MANUFACTURERS-0.7%
114,300 Mahindra & Mahindra Limited (IN) 974,650
---------------
BIOTECHNOLOGY-0.5%
27,100 Q-Med AB (SW)* 642,162
---------------
BROADCASTING & CABLE TV-2.0%
166,975 Balaji Telefilms Limited (IN) 367,071
110,000 Naspers Limited (SA) 684,225
52,300 SBS Broadcasting SA (LU)* 1,704,980
---------------
2,756,276
---------------
BUILDING PRODUCTS-0.4%
2,082,500 PT Asahimas Flat Glass Tbk (ID) 488,327
---------------
COMMERCIAL PRINTING-0.5%
1,504,000 Next Media Limited (HK)* 711,938
---------------
COMMUNICATIONS EQUIPMENT-2.8%
62,800 Alvarion Limited ADR (IS)* 725,340
268,025 Carphone Warehouse PLC (UK) 707,728
157,875 ECI Telecom Limited (IS)* 904,624
33,837 Sirti SPA (IT) 71,490
308,100 Tandberg Television ASA (NW)* 1,352,291
---------------
3,761,473
---------------
COMPUTER HARDWARE-0.6%
1,790,000 GES International Limited (SG) 748,337
---------------
CONSTRUCTION & ENGINEERING-6.2%
108,050 ABB Limited (IN) 1,595,588
229,000 Chiyoda Corporation (JA)* 1,406,009
4,334,000 Guangzhou Shipyard International Company Limited (CN)* 1,021,590
146,000 JGC Corporation (JA) 1,523,075
72,270 Kyeryong Construction Industrial Company Limited (KR) 679,332
120,925 Larsen & Toubro Limited (IN) 1,397,694
1,154,400 TRC Synergy Berhad (MA) 768,587
---------------
8,391,875
---------------
CONSTRUCTION MATERIALS-1.2%
2,312,000 Chia Hsin Cement Greater China Holding Corporation (HK)* 589,644
1,000,000 China Resources Cement Holding Limited (HK)* 322,016
41,300 NIBE Industrier AB (SW) 731,832
---------------
1,643,492
---------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A OF THE SECURITIES ACT OF 1933 AND
MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
ADR - AMERICAN DEPOSITARY RECEIPT
NVDR - NON-VOTING DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.5%
2,500,000 First Tractor Company Limited Class H (CN)* $ 676,233
---------------
CONSUMER ELECTRONICS-1.4%
1,162,000 Grande Holdings Limited (HK) 1,489,245
500,000 Mida Assets Public Company Limited Foreign Shares (TH)* 350,180
---------------
1,839,425
---------------
DATA PROCESSING & OUTSOURCED SERVICES-0.4%
44,100 Dicom Group PLC (UK) 541,342
---------------
DIVERSIFIED BANKS-0.9%
1,565,700 Bank of Ayudhya Public Company Limited Foreign Shares (TH)* 557,168
4,585,500 DBS Thai Danu Bank Public Company Limited Foreign Shares (TH)* 601,794
---------------
1,158,962
---------------
DIVERSIFIED CHEMICALS-1.1%
134,200 Kemira Oyj (FI) 1,557,316
---------------
DIVERSIFIED COMMERCIAL SERVICES-4.4%
17,425 Acadomia (FR) 755,860
930 Big Group Company Limited (JA) 1,240,926
92,320 Hexaware Technologies Limited (IN) 840,036
791,425 PHS Group PLC (UK) 1,186,571
49,575 Sixt AG (GE) 744,125
3,597 Telegate AG (GE)* 39,427
90,000 Tribal Group PLC (UK) 539,742
10,200 USS Company Limited (JA) 721,433
---------------
6,068,120
---------------
DIVERSIFIED METALS & MINING-5.1%
183,000 Amerigo Resources Limited (CA)* 283,216
511,975 Dynatec Corporation (CA)* 697,265
40,075 Fording Canadian Coal Trust (CA) 1,426,488
27,275 Inmet Mining Corporation (CA)* 368,296
27,640 Korea Zinc Company Limited (KR) 728,406
504,850 Mincor Resources NL (AU) 342,349
853,575 Oxiana Limited (AU)* 675,297
25,000,000 PT Bumi Resources Tbk (ID) 1,484,120
64,900 Sumitomo Titanium Corporation (JA) 935,621
---------------
6,941,058
---------------
ELECTRICAL COMPONENTS & EQUIPMENT-1.2%
72,025 Siemens India Limited (IN) 1,694,896
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.2%
1,130,000 Harbin Power Equipment Company Limited (CN) 331,129
114,400 Micronic Laser Systems AB (SW)* 1,327,589
---------------
1,658,718
---------------
EMPLOYMENT SERVICES-1.2%
516 Fullcast Company Limited (JA) 1,598,507
---------------
EXCHANGE TRADED FUNDS-0.5%
41,550 iShares MSCI Brazil Index Fund (BR) 706,350
---------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
FOOD RETAIL-2.2%
846,900 Dairy Farm International Holdings Limited (HK) $ 1,448,199
118,700 Jeronimo Martins SGPS SA (PT)* 1,566,097
---------------
3,014,296
---------------
FOREST PRODUCTS-0.3%
101,425 Sino-Forest Corporation (CA)* 404,978
---------------
GAS UTILITIES-0.7%
24,650 Gujarat Gas Company Limited (IN) 329,567
1,114,000 Xinao Gas Holdings Limited (CN)* 620,595
---------------
950,162
---------------
GENERAL MERCHANDISE STORES-0.6%
22,500 Ryohin Keikaku Company Limited (JA) 760,007
---------------
HEALTHCARE DISTRIBUTORS-0.5%
252,350 United Drug PLC (IE) 732,095
---------------
HEALTHCARE EQUIPMENT-1.0%
44,000 Carl Zeiss Meditec AG (GE)* 699,294
13,450 Tecan AG (SZ) 650,315
---------------
1,349,609
---------------
HEALTHCARE FACILITIES-1.0%
480,948 NHP PLC (UK) 1,330,227
---------------
HEALTHCARE SUPPLIES-1.3%
66,000 Fujirebio, Inc. (JA) 760,567
378,750 Whatman PLC (UK) 1,050,953
---------------
1,811,520
---------------
HEAVY ELECTRICAL EQUIPMENT-0.3%
760,000 Dongfang Electrical Machinery Company Limited (CN)* 362,203
---------------
HOME FURNISHINGS-0.1%
164,450 Steinhoff International Holdings Limited (SA) 188,471
---------------
HOME IMPROVEMENT RETAIL-0.9%
49,100 Rona, Inc. (CA)* 1,185,041
---------------
HOMEBUILDING-1.1%
123,025 Fleetwood Corporation (AU) 574,710
19,000 Goldcrest Company Limited (JA) 904,171
---------------
1,478,881
---------------
HOTELS, RESORTS & CRUISE LINES-3.7%
146,360 De Vere Group PLC (UK) 1,069,665
580,150 Hotel Leelaventure Limited (IN) 790,911
136,500 Hotel Shilla Company Limited (KR) 628,943
7,100 Pierre & Vacances (FR) 716,448
3,070,000 Star Cruises Limited (HK)* 890,300
87,300 Thomas Cook Limited (IN) 880,558
---------------
4,976,825
---------------
HYPERMARKETS & SUPER CENTERS-0.8%
979,600 Siam Makro Public Company Limited Foreign Shares (TH) 1,137,273
---------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-0.8%
130,980 Hanwha Corporation (KR) $ 654,076
750,000 United Industrial Corporation Limited (SG) 370,959
---------------
1,025,035
---------------
INDUSTRIAL MACHINERY-3.1%
38,225 Andritz AG (AT) 1,829,766
72,750 Bharat Forge Limited (IN) 1,266,288
67,094 Deutz AG New Shares (GE)* 260,658
331,000 Ishikawajima-Harima Heavy Industries Company Limited (JA) 472,548
25,400 Nidec Tosok Corporation (JA) 356,221
---------------
4,185,481
---------------
INTEGRATED OIL & GAS-1.0%
29,800 PetroKazakhstan, Inc. (CA)* 674,956
294,700 Picnic Gas & Engineering Public Company Limited Foreign Shares (TH)* 647,079
---------------
1,322,035
---------------
INTEGRATED TELECOMMUNICATION SERVICES-1.0%
137,800 Song Networks Holding AB (SW)* 1,292,719
52,500 Yangtze Telecom Corporation (CA)* 80,844
---------------
1,373,563
---------------
INTERNET SOFTWARE & SERVICES-6.0%
120,000 Certicom Corporation 144A (CA)*,+ 254,430
271,825 Emblaze Systems Limited (IS)* 598,541
866,000 Fast Search & Transfer ASA (NW)* 1,900,493
18,225 Freenet.de AG (GE)* 1,280,440
117 Index Corporation (JA) 687,786
40 Kakaku.com, Inc. (JA)* 285,528
160 Kakaku.com, Inc. New Shares (JA)* 919,660
366,100 Points International Limited (CA)* 283,293
1,228,075 SwitchCore AB (SW)* 757,808
47,125 United Internet AG (GE) 1,132,355
---------------
8,100,334
---------------
LEISURE PRODUCTS-1.6%
26,750 Amer Group Limited (FI) 1,159,009
246,525 lastminute.com PLC (UK)* 981,952
---------------
2,140,961
---------------
MARINE-0.5%
1,000 DS Norden AS (DE) 223,608
99,400 Shipping Corporation of India (IN) 393,570
---------------
617,178
---------------
MOVIES & ENTERTAINMENT-0.7%
250,075 Gameloft.com (FR)* 977,841
---------------
OFFICE SERVICES & SUPPLIES-0.6%
21,300 Glory Limited (JA) 785,061
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
OIL & GAS DRILLING-1.0%
2,118,000 China Oilfield Services Limited (CN) $ 750,232
312,100 Crest Petroleum Berhad (MA) 657,053
---------------
1,407,285
---------------
OIL & GAS EQUIPMENT & SERVICES-2.1%
50,000 ProSafe ASA (NW) 1,007,095
186,000 Scomi Group Berhad (MA) 704,842
48,700 TGS Nopec Geophysical Company ASA (NW)* 666,141
359,000 Toyo Kanetsu KK (JA)* 445,526
---------------
2,823,604
---------------
OIL & GAS EXPLORATION & PRODUCTION-0.6%
170,675 Lundin Petroleum AB (SW)* 813,608
---------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION-2.0%
413,000 Formosa Petrochemical Corporation (TW)* 614,330
47,000 Golar LNG Limited (NW)* 674,678
251,175 Indraprastha Gas Limited (IN)* 816,697
3,110,000 PT Perusahaan Gas Negara 144A (ID)*,+ 572,336
---------------
2,678,041
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.6%
295,140 AMMB Holdings Berhad (MA) 240,772
5,536,000 First Shanghai Investments Limited (HK) 584,718
---------------
825,490
---------------
PACKAGED FOODS & MEATS-1.6%
129,750 Balrampur Chini Mills Limited (IN) 793,288
50,000 CoolBrands International, Inc. (CA)* 655,807
16,680 Crown Confectionery Company Limited (KR) 713,957
---------------
2,163,052
---------------
PERSONAL PRODUCTS-2.0%
3,783,000 Beauty China Holdings Limited (HK)* 1,303,100
51,800 Milbon Company Limited (JA) 1,379,948
---------------
2,683,048
---------------
PHARMACEUTICALS-0.5%
382,000 Tong Ren Tang Technologies Company Limited (CN) 671,634
---------------
PHOTOGRAPHIC PRODUCTS-1.2%
146,000 Pentax Corporation (JA) 882,784
333,125 Photo-Me International PLC (UK)* 691,774
---------------
1,574,558
---------------
PUBLISHING-1.0%
79,200 Elanders AB (SW)* 996,150
299,325 Future Network PLC (UK)* 317,812
---------------
1,313,962
---------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A OF THE SECURITIES ACT OF 1933 AND
MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
RAILROADS-0.6%
55,375 Container Corporation of India Limited (IN) $ 807,656
---------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-5.1%
2,223,800 Amata Corporation Public Company Limited Foreign Shares (TH) 836,258
1,054,200 Asas Dunia Berhad (MA) 266,324
1,468,000 Asia Orient Holdings Limited (HK)* 444,356
3,468,000 China Overseas Land & Investment Limited (HK) 634,314
42,800 First Juken Company Limited (JA) 918,541
432,150 Immsi SPA (IT) 613,775
250,400 MBK Public Company Limited NVDR Shares (TH) 319,142
1,812,000 Midland Realty Holdings Limited (HK) 495,968
1,734,000 New World Development Company Limited (HK) 1,395,937
4,089,100 Ticon Industrial Connection Public Company Limited Foreign Shares (TH) 1,021,694
---------------
6,946,309
---------------
SEMICONDUCTOR EQUIPMENT-0.7%
167,308 Richtek Technology Corporation (TW)* 911,693
---------------
SEMICONDUCTORS-0.4%
152,600 Anam Semiconductor, Inc. (KR)* 523,182
---------------
SPECIALTY CHEMICALS-0.8%
185,000 Chugoku Marine Paints Limited (JA) 1,134,133
---------------
SPECIALTY STORES-1.3%
748,000 Dickson Concepts International Limited (HK)* 611,804
3,000,000 Luk Fook Holdings (International) Limited (HK) 564,171
2,000,000 Sa Sa International Holdings Limited (HK) 560,307
---------------
1,736,282
---------------
STEEL-0.6%
122,425 Saw Pipes Limited (IN) 775,336
---------------
SYSTEMS SOFTWARE-0.3%
51,500 Temenos Group AG (SZ)* 370,593
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$115,966,406) 127,628,838
---------------
PREFERRED STOCKS (FOREIGN)-2.1%
COMMODITY CHEMICALS-0.3%
16,000 Braskem SA Class A (BR)* 370,468
---------------
PAPER PRODUCTS-0.8%
82,000 Companhia Suzano de Papel e Celulose (BR) 360,686
531,000 Klabin SA (BR) 692,049
---------------
1,052,735
---------------
STEEL-1.0%
115,900 Usinas Siderurgicas de Minas Gerais SA Class A (BR) 1,363,884
---------------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST-$2,606,095) 2,787,087
---------------
</Table>
16
<Page>
<Table>
<Caption>
UNITS MARKET VALUE
- -------------------------------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS-1.0%
INTEGRATED TELECOMMUNICATION SERVICES-0.4%
2,786,000 Jasmine International Public Company Limited Rights (TH)* $ 481,648
---------------
OIL & GAS DRILLING-0.5%
411,815 Crest Petroleum Berhad Rights (MA)* 704,420
---------------
INTEGRATED OIL & GAS-0.1%
73,675 Picnic Gas & Engineering Public Company Limited Warrants (TH)* 105,987
---------------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST-$895,484) 1,292,055
---------------
OTHER SECURITIES-0.7%
INDUSTRIAL CONGLOMERATES-0.0%
204,677 Media Prima Berhad ICULS (MA) 40,397
---------------
INTEGRATED TELECOMMUNICATION SERVICES-0.7%
600,000 Yangtze Telecom Corporation Units 144A (CA)*,+, ^,# 958,988
---------------
TOTAL OTHER SECURITIES
(COST-$623,934) 999,385
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-3.3%
$ 4,500,000 Federal National Mortgage Association
0.75% 1/2/04 $ 4,499,906
---------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$4,499,906) 4,499,906
---------------
TOTAL INVESTMENTS-101.3%
(TOTAL COST-$124,591,825) 137,207,271
OTHER ASSETS AND LIABILITIES-(1.3%) (1,694,806)
---------------
NET ASSETS-100.0% $ 135,512,465
===============
</Table>
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A OF THE SECURITIES ACT OF 1933 AND
MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
^ SECURITY IS CONSIDERED TO BE RESTRICTED AND ILLIQUID. ACQUIRED ON 11/4/03 FOR
$570,000. THE AGGREGATE VALUE OF RESTRICTED SECURITIES AT DECEMBER 31, 2003
WAS $958,988, WHICH WAS 0.7% OF NET ASSETS.
# FAIR VALUED SECURITY.
ICULS - IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCK
NVDR - NON-VOTING DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 124,591,825
-------------
Investment securities, at market 137,207,271
Cash 831,254
Foreign currency (cost $1,262,826) 1,287,629
Receivables:
Investment securities sold 3,407,455
Capital shares sold 107,016
Dividends 235,598
From transfer agent 14,242
Other assets 111,708
-------------
Total Assets 143,202,173
-------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 5,878,110
Capital shares redeemed 173,575
Advisory fees 112,003
Shareholder servicing fees 18,730
Accounting fees 11,200
Distribution fees 38,586
Transfer agency fees 56,267
Custodian fees 28,658
India and Thailand taxes 1,000,403
To custodian 77,096
Other 295,080
-------------
Total Liabilities 7,689,708
-------------
Net Assets $ 135,512,465
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 283,821,637
Accumulated net investment loss (10,037)
Accumulated net realized loss from security transactions (159,918,362)
Net unrealized appreciation on investments and
foreign currency translation 11,619,227
-------------
Total $ 135,512,465
=============
</Table>
18
<Page>
<Table>
Net Assets--Class A $ 27,252,014
Shares Outstanding--Class A 1,913,868
Net Asset Value, Redemption Price Per Share $ 14.24
Maximum offering price per share (net asset value plus
sales charge of 5.75% of offering price) $ 15.11
Net Assets--Class B $ 18,198,180
Shares Outstanding--Class B 1,319,868
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share $ 13.79
Net Assets--Class C $ 10,638,983
Shares Outstanding--Class C 773,004
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share $ 13.76
Net Assets--Class F $ 78,759,006
Shares Outstanding--Class F 5,532,377
Net Asset Value, Offering and Redemption Price Per Share $ 14.24
Net Assets--Class R $ 142,464
Shares Outstanding--Class R 10,306
Net Asset Value, Offering and Redemption Price Per Share $ 13.82
Net Assets--Class T $ 521,818
Shares Outstanding--Class T 38,099
Net Asset Value, Redemption Price Per Share $ 13.70
Maximum offering price per share (net asset value plus
sales charge of 4.50% of offering price) $ 14.35
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 1,884,523
Interest 43,180
Foreign taxes withheld (169,952)
-------------
Total Investment Income 1,757,751
-------------
EXPENSES:
Advisory fees--Note 2 971,277
Shareholder servicing fees--Note 2 172,480
Accounting fees--Note 2 97,094
Distribution fees--Note 2 306,016
Transfer agency fees--Note 2 244,697
Registration fees 75,038
Postage and mailing expenses 29,582
Custodian fees and expenses--Note 2 430,741
Printing expenses 54,034
Legal and audit fees 29,714
Directors' fees and expenses--Note 2 24,516
Other expenses 128,024
-------------
Total Expenses 2,563,213
Earnings Credits (3,042)
Waived Expenses (83,808)
Expense Offset to Broker Commissions (4,771)
-------------
Net Expenses 2,471,592
-------------
Net Investment Loss (713,841)
-------------
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 $915,957) 41,089,342
Foreign currency transactions (211,706)
-------------
Net Realized Gain 40,877,636
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 14,435,879
-------------
Net Realized and Unrealized Gain 55,313,515
-------------
Net Increase in Net Assets Resulting from Operations $ 54,599,674
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
-------------- --------------
OPERATIONS
Net Investment Loss $ (713,841) $ (1,023,871)
Net Realized Gain (Loss) 40,877,636 (12,388,968)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 14,435,879 (2,075,681)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 54,599,674 (15,488,520)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 8,132,869 (2,916,773)
Class B (2,705,719) (4,098,985)
Class C 1,905,536 (2,563,176)
Class F (4,988,538) (17,949,856)
Class R 23,012 (21,426)
Class T (77,846) (148,171)
------------- -------------
Net Increase (Decrease) from Capital Share Transactions 2,289,314 (27,698,387)
------------- -------------
Net Increase (Decrease) in Net Assets 56,888,988 (43,186,907)
NET ASSETS
Beginning of year $ 78,623,477 $ 121,810,384
------------- -------------
End of year (including accumulated net investment
loss of $10,037 and $1,836, respectively) $ 135,512,465 $ 78,623,477
============= =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS A SHARES
Net Asset Value, beginning of year $ 8.14 $ 9.68 $ 14.18 $ 22.93
Income from investment operations:
Net investment income (loss) 0.10 (0.16) (0.14) (0.13)
Net realized and unrealized gains
(losses) on securities 6.00 (1.38) (4.36) (6.65)
------------ ------------ ------------ ------------
Total from investment operations 6.10 (1.54) (4.50) (6.78)
Less dividends and 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 year $ 14.24 $ 8.14 $ 9.68 $ 14.18
============ ============ ============ ============
Total return* 74.94% (15.91%) (31.74%) (29.61%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 27,252 $ 9,422 $ 14,033 $ 36,353
Net expenses to average net assets#,+ 2.45% 2.24% 1.87% 1.59%
Gross expenses to average net assets#,+ 2.45% 2.24% 1.88% 1.61%
Net investment loss to average net assets+ (0.83%) (0.80%) (0.26%) (0.80%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31, 2003
and 2002. Had these fees not been waived, the net expense ratios would have
been 2.54% (2003) and 2.27% (2002). The gross expense ratios would have been
2.54% (2003) and 2.27% (2002). The net investment loss ratios would have been
(0.92%) (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.
22
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS B SHARES
Net Asset Value, beginning of year $ 7.95 $ 9.54 $ 14.08 $ 22.93
Income from investment operations:
Net investment loss (0.31) (0.29) (0.18) (0.23)
Net realized and unrealized gains
(losses) on securities 6.15 (1.30) (4.36) (6.65)
------------ ------------ ------------ ------------
Total from investment operations 5.84 (1.59) (4.54) (6.88)
Less dividends and 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 year $ 13.79 $ 7.95 $ 9.54 $ 14.08
============ ============ ============ ============
Total return* 73.46% (16.67%) (32.24%) (30.05%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 18,198 $ 12,810 $ 19,661 $ 35,000
Net expenses to average net assets#,+ 3.29% 3.09% 2.64% 2.35%
Gross expenses to average net assets#,+ 3.30% 3.09% 2.66% 2.38%
Net investment loss to average net assets+ (1.44%) (1.64%) (1.06%) (1.50%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31, 2003
and 2002. Had these fees not been waived, the net expense ratios would have
been 3.37% (2003) and 3.12% (2002). The gross expense ratios would have been
3.38% (2003) and 3.12% (2002). The net investment loss ratios would have been
(1.52%) (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.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS C SHARES
Net Asset Value, beginning of year $ 7.93 $ 9.52 $ 14.06 $ 22.93
Income from investment operations:
Net investment loss (0.01) (0.35) (0.22) (0.21)
Net realized and unrealized gains
(losses) on securities 5.84 (1.24) (4.32) (6.69)
------------ ------------ ------------ ------------
Total from investment operations 5.83 (1.59) (4.54) (6.90)
Less dividends and 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 year $ 13.76 $ 7.93 $ 9.52 $ 14.06
============ ============ ============ ============
Total return* 73.52% (16.70%) (32.29%) (30.13%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 10,639 $ 5,268 $ 8,928 $ 17,925
Net expenses to average net assets#,+ 3.25% 3.05% 2.65% 2.35%
Gross expenses to average net assets#,+ 3.25% 3.06% 2.67% 2.38%
Net investment loss to average net assets+ (1.43%) (1.58%) (1.08%) (1.50%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31,
2003 and 2002. Had these fees not been waived, the net expense ratios would
have been 3.34% (2003) and 3.07% (2002). The gross expense ratios would have
been 3.34% (2003) and 3.08% (2002). The net investment loss ratios would have
been (1.52%) (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.
24
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
CLASS F SHARES
Net Asset Value, beginning of year $ 8.13 $ 9.67 $ 14.17 $ 22.93 $ 14.93
Income from investment operations:
Net investment loss (0.14) (0.23) (0.22) (0.19) (0.11)
Net realized and unrealized gains
(losses) on securities 6.25 (1.31) (4.28) (6.60) 12.94
----------- ----------- ----------- ----------- -----------
Total from investment operations 6.11 (1.54) (4.50) (6.79) 12.83
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.97) (4.83)
----------- ----------- ----------- ----------- -----------
Total distributions 0.00 0.00 0.00 (1.97) (4.83)
Net Asset Value, end of year $ 14.24 $ 8.13 $ 9.67 $ 14.17 $ 22.93
=========== =========== =========== =========== ===========
Total return 75.15% (15.93%) (31.76%) (29.65%) 87.44%
Ratios/Supplemental Data
Net assets, end of year
(000s) $ 78,759 $ 50,742 $ 78,574 $ 182,036 $ 261,437
Net expenses to average
net assets#,+ 2.31% 2.18% 1.90% 1.59% 1.63%
Gross expenses to average
net assets#,+ 2.31% 2.18% 1.92% 1.61% 1.64%
Net investment loss to
average net assets+ (0.45%) (0.74%) (0.30%) (0.88%) (0.91%)
Portfolio turnover rate@ 707% 495% 704% 535% 330%
</Table>
# 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 years ended December 31,
2003 and 2002. Had these fees not been waived, the net expense ratios would
have been 2.40% (2003) and 2.21% (2002). The gross expense ratios would have
been 2.40% (2003) and 2.21% (2002). The net investment loss ratios would have
been (0.54%) (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.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS R SHARES
Net Asset Value, beginning of year $ 7.87 $ 9.56 $ 14.22 $ 22.93
Income from investment operations:
Net investment income (loss) 0.54 (0.81) (0.17) (0.09)
Net realized and unrealized gains
(losses) on securities 5.41 (0.88) (4.49) (6.65)
------------ ------------ ------------ ------------
Total from investment operations 5.95 (1.69) (4.66) (6.74)
Less dividends and 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 year $ 13.82 $ 7.87 $ 9.56 $ 14.22
============ ============ ============ ============
Total return 75.60% (17.68%) (32.77%) (29.44%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 142 $ 37 $ 76 $ 241
Net expenses to average net assets#,+ 2.07% 3.91% 1.84% 1.31%
Gross expenses to average net assets#,+ 2.08% 3.94% 1.86% 1.33%
Net investment loss to average net assets+ (0.32%) (2.20%) (0.08%) (0.55%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
# 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 years ended December 31, 2003, 2002 and 2001. Had these fees
not been waived or reimbursed, the net expense ratios would have been 2.16%
(2003), 4.62% (2002), and 2.76% (2001). The gross expense ratios would have
been 2.17% (2003), 4.65% (2002), and 2.78% (2001). The net investment loss
ratios would have been (0.41%) (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.
26
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS T SHARES
Net Asset Value, beginning of year $ 7.87 $ 9.50 $ 14.14 $ 22.93
Income from investment operations:
Net investment loss (0.24) (0.45) (0.22) (0.16)
Net realized and unrealized gains
(losses) on securities 6.07 (1.18) (4.42) (6.66)
------------ ------------ ------------ ------------
Total from investment operations 5.83 (1.63) (4.64) (6.82)
Less dividends and 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 year $ 13.70 $ 7.87 $ 9.50 $ 14.14
============ ============ ============ ============
Total return * 74.08% (17.16%) (32.82%) (29.79%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 522 $ 345 $ 538 $ 869
Net expenses to average net assets#,+ 3.07% 4.03% 3.14% 1.84%
Gross expenses to average net assets#,+ 3.07% 4.03% 3.16% 1.87%
Net investment loss to average net assets+ (1.06%) (2.69%) (1.60%) (1.00%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31,
2003 and 2002. Had these fees not been waived, the net expense ratios would
have been 3.16% (2003) and 4.05% (2002). The gross expense ratios would have
been 3.16% (2003) and 4.05% (2002). The net investment loss ratios would have
been (1.15%) (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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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. Thai foreign shares are
valued at the local share price when current foreign share prices are not
available or reflective of fair market value. 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.
28
<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 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 December 31, 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 arises 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 distributions
29
<Page>
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) 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 an indirect 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
1.00% 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.
30
<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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $49,740 and $26,862, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $28,095 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 56,982
Class B $ 64,563
Class C $ 26,004
Class R $ 322
Class T $ 2,948
</Table>
31
<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 or servicing 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 year ended December 31, 2003, Class F shares were charged $146,612 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 42,063
Class B $ 109,094 $ 36,365
Class C $ 49,289 $ 16,429
Class T $ 1,021 $ 1,021
</Table>
During the year ended December 31, 2003, DSC retained $6,036 and $304 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $60,309 and $3,283 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
32
<Page>
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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $83,808. 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,
33
<Page>
net operating losses, and capital loss carryovers. Permanent differences
identified during the year ended December 31, 2003 have been reclassified among
the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 705,640 $ 573,347 $ (1,278,987)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003, 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. Net capital loss carryovers utilized in 2003 amounted to
$39,960,650.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 159,719,747
Post-October Capital Loss Deferral $ 116,722
Post-October Currency Loss Deferral $ 8,045
Federal Tax Cost $ 124,673,718
Gross Tax Appreciation of Investments $ 15,100,571
Gross Tax Depreciation of Investments $ (2,567,018)
Net Tax Appreciation $ 12,533,553
</Table>
34
<Page>
4. CAPITAL 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>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
CLASS A
Sold 3,502,478 $ 36,560,507 5,383,012 $ 50,430,851
Redeemed (2,746,760) $ (28,427,638) (5,673,919) $ (53,347,624)
NET INCREASE (DECREASE) 755,718 $ 8,132,869 (290,907) $ (2,916,773)
CLASS B
Sold 58,678 $ 685,415 41,666 $ 391,779
Redeemed (350,900) $ (3,391,134) (489,773) $ (4,490,764)
NET DECREASE (292,222) $ (2,705,719) (448,107) $ (4,098,985)
CLASS C
Sold 1,047,656 $ 9,859,862 481,390 $ 4,684,798
Redeemed (938,988) $ (7,954,326) (754,486) $ (7,247,974)
NET INCREASE (DECREASE) 108,668 $ 1,905,536 (273,096) $ (2,563,176)
CLASS F
Sold 3,504,087 $ 34,110,158 9,855,244 $ 92,121,343
Redeemed (4,216,077) $ (39,098,696) (11,734,716) $ (110,071,199)
NET DECREASE (711,990) $ (4,988,538) (1,879,472) $ (17,949,856)
CLASS R
Sold 88,378 $ 927,946 315,313 $ 3,139,336
Redeemed (82,802) $ (904,934) (318,502) $ (3,160,762)
NET INCREASE (DECREASE) 5,576 $ 23,012 (3,189) $ (21,426)
CLASS T
Sold 154,521 $ 1,219,197 371,045 $ 3,559,032
Redeemed (160,244) $ (1,297,043) (383,873) $ (3,707,203)
NET DECREASE (5,723) $ (77,846) (12,828) $ (148,171)
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$652,404,866 and $651,427,303, respectively.
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
35
<Page>
(a) $50 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 $50
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
December 31, 2003, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
36
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Passport Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
37
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
38
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
39
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
40
<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)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
Additional information about the Fund and its directors is available in the
Fund's Statement of Additional Information, which can be obtained free of charge
by contacting the Fund.
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:
February 27, 2004
Dreyfus Service Corporation, Distributor. (C) 2004 Founders Asset
Management LLC.
A-646-PAS-03
<Page>
ANNUAL REPORT
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
INVESTMENT UPDATE
DECEMBER 31, 2003
[DREYFUS FOUNDERS FUNDS LOGO]
THE GROWTH SPECIALISTS
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 17
Statement of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 27
Report of Independent Auditors 36
Your Board Representatives 37
</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 Annual 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 December 31, 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
[PHOTOS OF REMI J. BROWNE, JOHN B. JARES AND 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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
2003 has proven to be a substantially positive year for equity markets. Dreyfus
Founders Worldwide Growth Fund exhibited strong performance for the year, with
returns comparing favorably with the Fund's benchmark, the Morgan Stanley
Capital International (MSCI) World Index, which posted a 33.11% return for the
12-month period.
DESCRIBE THE MARKET FACTORS DURING THE PERIOD.
Equity markets worldwide rallied in 2003, after a slow start. The successful
military action in Iraq led to increased investor confidence and a resurgence in
equity markets. Corporate cost-cutting and debt containment coupled with the
historically low interest rates of many central banks helped spark a growing
appetite for higher risk, less defensive investment vehicles. In the United
States, tax rebate checks provided many families with extra spending money,
helping the domestic economy to grow at an annualized rate of 8.2% during the
third quarter. The continued
[SIDENOTE]
"THE IMPROVING ECONOMIC ENVIRONMENT LAID THE BACKGROUND FOR THE POSITIVE
PERFORMANCE ACHIEVED BY THE FUND."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - As the global economic picture began improving during the course of the year,
it provided a solid backdrop for quality performance by equity markets, more
than offsetting any sell-off activity experienced in the year's opening
months.
- - Good overall stock selection in the United States assisted the Fund's
relative performance as these holdings strongly outperformed the benchmark
for the period.
- - Relative performance was primarily driven by Fund holdings in the healthcare,
consumer staples, consumer discretionary and telecommunications sectors.
- - Although the securities in the international portion of the Fund were
repositioned in March, three stocks proved to be among the most detrimental
to the Fund's annual performance relative to the benchmark.
weakness of the U.S. dollar aided the unhedged U.S. investor as the euro,
British pound and yen all gained relative to U.S. currency by year's end.
In Asia, the containment and seeming defeat of the viral illness, Severe
Acute Respiratory Syndrome (SARS), provided the region with an economic boost
through the middle of the year. The emergence of China as a secondary growth
engine to the global economic recovery also came at an appropriate time,
lowering the cost of many goods purchased in the western world, and offering
outsourcing services that have helped boost corporate profits in more developed
countries. China's burgeoning middle class also aided Chinese companies and
markets during the period. And finally, after years of restructuring, the
Japanese economy appeared poised to benefit from some improvement.
The domestic market's rise was driven by various economic improvements during
the course of the year. Better-than-expected corporate profit growth, the easing
of geopolitical uncertainty, the Federal Reserve's accommodative monetary policy
and President Bush's fiscal stimulus plan were major factors in the improving
economic trends. Consumer spending was high, felt especially in the housing and
automobile markets, and productivity beat
4
<Page>
expectations during the year. Although some domestic economic concerns still
existed at year's end, expectations that these will continue to recover in 2004
remained strong.
In general, as the global economic picture began improving, it provided a
solid backdrop for quality performance by equity markets, more than offsetting
any sell-off activity experienced in the year's opening months.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE FOR THE PERIOD?
This improving economic environment laid the background for the positive
performance achieved by the Fund during the period. Relative performance was
primarily driven by Fund holdings in the healthcare, consumer staples, consumer
discretionary and telecommunication services sectors.
Good overall stock selection in the United States assisted the Fund's
relative performance as these holdings strongly outperformed the benchmark for
the period.
Gains in Greece, Ireland and Belgium assisted in counterbalancing the
disappointing relative contributions experienced in Switzerland, Canada and the
Netherlands.
One of the largest positive contributors to the Fund's performance for the
year was Greek financial company, ALPHA BANK AE. Alpha Bank reported strong
third quarter results and issued positive profit growth projections.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. General Electric Company (GE) 2.27%
2. Royal Caribbean Cruises Limited (RCL) 2.25%
3. Maxim Integrated Products, Inc. (MXIM) 2.03%
4. MBNA Corporation (KRB) 1.97%
5. Intel Corporation (INTC) 1.89%
6. Oracle Corporation (ORCL) 1.81%
7. Gilead Sciences, Inc. (GILD) 1.74%
8. Estee Lauder Companies, Inc. (EL) 1.67%
9. Union Pacific Corporation (UNP) 1.63%
10. International Business Machines Corporation (IBM) 1.57%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
Another positive contributor to the overall return was German software
company SAP AG. SAP reaped benefits from an improved environment for software
spending as well as from a general improvement in the business pace of the
software industry.
The most compelling domestic investment opportunities were found in the
consumer discretionary and technology sectors. The increase in consumer
confidence, and therefore consumer spending, drove performance in these
[CHART]
GROWTH OF $10,000 INVESTMENT
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 12/31/93 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>
sectors. Strong stock selection buoyed overall Fund performance with names such
as BEST BUY COMPANY, INC., ROYAL CARIBBEAN CRUISES LIMITED, and ESTEE LAUDER
COMPANIES, INC. among the top contributors. Solid execution and market share
gains from primary competitors drove Best Buy's success. The company also
benefited from a recovery in consumer spending and some desirable new product
cycles such as digital photography and HDTV. Performance by Royal Caribbean
Cruises, one of the Fund's largest holdings, was spurred by an improvement in
demand for leisure travel, solid execution and excellent product positioning.
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------------
Class A Shares (12/31/99)
With sales charge (5.75%) 28.88% -- -- (14.62%)
Without sales charge 36.78% -- -- (13.35%)
Class B Shares (12/31/99)
With redemption* 31.71% -- -- (14.51%)
Without redemption 35.71% -- -- (13.99%)
Class C Shares (12/31/99)
With redemption** 34.80% -- -- (14.39%)
Without redemption 35.80% -- -- (14.39%)
Class F Shares (12/29/89) 36.97% (3.37%) 3.22% 7.07%
Class R Shares (12/31/99) 37.44% -- -- (12.92%)
Class T Shares (12/31/99)
With sales charge (4.50%) 29.90% -- -- (15.56%)
Without sales charge 35.99% -- -- (14.58%)
</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 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.
7
<Page>
Additionally, some domestic holdings within the technology sector favorably
impacted performance with companies such as INTEL CORPORATION, VERITAS SOFTWARE
CORPORATION and CISCO SYSTEMS, INC., positively contributing to the Fund's
overall return. Intel benefited from robust demand for personal computers driven
primarily by consumers, while Cisco Systems gained from both product
introductions and a rebound in enterprise spending on networking equipment.
WHAT MANAGEMENT DECISIONS HINDERED PERFORMANCE DURING THE YEAR?
Three stocks proved to be among the most detrimental to the Fund's annual
performance relative to the benchmark, even though they were sold shortly after
Messrs. Browne and LeVan assumed management of the international portion of the
portfolio in March: Amvescap PLC, Satyam Computer Services Limited and Fast
Retailing Company Limited. Britain's Amvescap, one of the largest independent
global investment managers; Satyam Computer Services Limited, a leading global
information technology services and consulting company based in India; and Fast
Retailing, a Japanese retailing company, were all down in excess of 30% in the
first quarter, with active exposures in the Fund between 1.7% to 2% for each
holding.
[CHART]
PORTFOLIO COMPOSITION
<Table>
United States 51.87%
Japan 9.48%
United Kingdom 9.32%
Germany 4.33%
France 3.09%
Canada 2.90%
Switzerland 2.26%
Netherlands 2.25%
Other Countries 11.70%
Cash & Equivalents 2.80%
</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>
Domestically, weak stock selection in various sectors detracted from overall
Fund performance during the year, with BMC Software, Inc., Kohl's Corporation,
and Medimmune, Inc. creating some of the largest hits. A provider of e-business
systems management software, BMC Software exhibited sluggish sales trends for
their software products during most of 2003, and revised earnings expectations
lower. An operator of specialty department stores, Kohl's also posted sluggish
sales trends and lower margins as consumers shifted spending to other retailers.
Biotechnology issue Medimmune saw its stock price drop slightly as the launch of
the company's new product, the nasal flu vaccine FluMist, proved to be
disappointing. A relatively high price combined with restrictive handling
requirements and limited distribution resulted in poor demand for the product.
In conclusion, 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
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-51.9%
AEROSPACE & DEFENSE-1.0%
5,275 General Dynamics Corporation $ 476,804
9,725 Lockheed Martin Corporation 499,865
------------
976,669
------------
AIRLINES-1.0%
32,075 AMR Corporation* 415,371
39,300 Northwest Airlines Corporation Class A* 495,966
------------
911,337
------------
ALUMINUM-1.0%
23,625 Alcoa, Inc. 897,750
------------
APPAREL RETAIL-0.6%
24,400 Gap, Inc. 566,324
------------
BIOTECHNOLOGY-1.7%
28,375 Gilead Sciences, Inc.* 1,649,723
------------
BROADCASTING & CABLE TV-1.2%
20,450 Comcast Corporation Special Class A* 639,676
13,875 Cox Communications, Inc. Class A* 477,994
------------
1,117,670
------------
CASINOS & GAMING-0.8%
17,175 Mandalay Resort Group 768,066
------------
COMMUNICATIONS EQUIPMENT-0.9%
35,375 Cisco Systems, Inc.* 859,259
------------
COMPUTER & ELECTRONICS RETAIL-0.7%
12,562 Best Buy Company, Inc. 656,239
------------
COMPUTER HARDWARE-1.6%
16,100 International Business Machines Corporation 1,492,148
------------
COMPUTER STORAGE & PERIPHERALS-0.3%
25,325 EMC Corporation* 327,199
------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
CONSUMER FINANCE-2.0%
75,000 MBNA Corporation $ 1,863,750
------------
DATA PROCESSING & OUTSOURCED SERVICES-1.1%
26,450 Fiserv, Inc.* 1,045,040
------------
DEPARTMENT STORES-1.7%
12,550 Kohl's Corporation* 563,997
13,850 Nordstrom, Inc. 475,055
12,325 Sears Roebuck & Company 560,664
------------
1,599,716
------------
DIVERSIFIED BANKS-2.0%
21,200 Bank One Corporation 966,508
15,125 Wells Fargo & Company 890,711
------------
1,857,219
------------
DRUG RETAIL-1.5%
38,425 Walgreen Company 1,397,902
------------
GOLD-0.8%
15,650 Newmont Mining Corporation 760,747
------------
HEALTHCARE EQUIPMENT-0.7%
19,400 Boston Scientific Corporation* 713,144
------------
HOME IMPROVEMENT RETAIL-0.6%
15,325 Home Depot, Inc. 543,884
------------
HOTELS, RESORTS & CRUISE LINES-0.5%
12,150 Carnival Corporation 482,720
------------
HYPERMARKETS & SUPER CENTERS-0.5%
8,750 Wal-Mart Stores, Inc. 464,188
------------
INDUSTRIAL CONGLOMERATES-2.3%
69,325 General Electric Company 2,147,689
------------
INDUSTRIAL GASES-1.4%
33,700 Praxair, Inc. 1,287,340
------------
INDUSTRIAL MACHINERY-0.9%
10,250 Illinois Tool Works, Inc. 860,078
------------
INVESTMENT BANKING & BROKERAGE-0.6%
6,125 Goldman Sachs Group, Inc. 604,721
------------
LEISURE FACILITIES-2.3%
61,225 Royal Caribbean Cruises Limited 2,130,018
------------
MOVIES & ENTERTAINMENT-1.5%
62,400 Walt Disney Company 1,455,792
------------
MULTI-LINE INSURANCE-1.0%
14,375 American International Group, Inc. 952,775
------------
OIL & GAS EQUIPMENT & SERVICES-0.8%
18,325 Smith International, Inc.* 760,854
------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.1%
21,583 Citigroup, Inc. 1,047,639
------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
PERSONAL PRODUCTS-1.7%
40,200 Estee Lauder Companies, Inc. Class A $ 1,578,252
------------
PHARMACEUTICALS-2.5%
8,650 Johnson & Johnson 446,859
28,137 Pfizer, Inc. 994,080
22,950 Wyeth 974,228
------------
2,415,167
------------
RAILROADS-1.6%
22,200 Union Pacific Corporation 1,542,456
------------
SEMICONDUCTOR EQUIPMENT-0.7%
11,300 KLA-Tencor Corporation* 662,971
------------
SEMICONDUCTORS-6.6%
55,550 Intel Corporation 1,788,710
35,025 Linear Technology Corporation 1,473,502
38,575 Maxim Integrated Products, Inc. 1,921,035
28,125 Xilinx, Inc.* 1,089,563
------------
6,272,810
------------
SOFT DRINKS-0.5%
9,725 Coca-Cola Company 493,544
------------
SPECIALTY STORES-1.0%
20,375 Tiffany & Company 920,950
------------
SYSTEMS SOFTWARE-3.2%
8,000 Adobe Systems, Inc. 314,400
130,275 Oracle Corporation* 1,719,630
28,125 VERITAS Software Corporation* 1,045,125
------------
3,079,155
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$40,563,804) 49,162,905
------------
COMMON STOCKS (FOREIGN)-45.3%
AEROSPACE & DEFENSE-0.3%
9,800 Gamesa Corporacion Tecnologica SA (SP) 322,505
------------
APPLICATION SOFTWARE-2.2%
4,520 SAP AG (GE) 762,836
30,975 SAP AG Sponsored ADR (GE) 1,287,321
------------
2,050,157
------------
AUTO PARTS & EQUIPMENT-0.5%
8,400 Canadian Tire Corporation Limited Class A (CA) 256,427
7,000 NOK Corporation (JA) 254,735
------------
511,162
------------
AUTOMOBILE MANUFACTURERS-1.3%
32,400 Nissan Motor Company Limited (JA) 370,044
4,900 Renault SA (FR) 338,080
15,100 Toyota Motor Corporation (JA) 510,049
------------
1,218,173
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
BIOTECHNOLOGY-0.6%
2,900 Actelion Limited (SZ)* $ 313,026
11,800 QLT, Inc. (CA)* 223,710
------------
536,736
------------
BREWERS-0.7%
21,000 Asahi Breweries Limited (JA) 191,444
27,000 Fraser & Neave Limited (SG) 200,318
11,400 Orkla ASA (NW) 255,321
------------
647,083
------------
BROADCASTING & CABLE TV-0.5%
18,800 Mediaset SPA (IT) 223,380
57,500 Seven Network Limited (AU) 265,578
------------
488,958
------------
COMMUNICATIONS EQUIPMENT-1.2%
16,300 Nokia Oyj (FI) 281,878
28,300 Nokia Oyj Sponsored ADR (FI) 481,100
3,616 Sagem SA (FR) 387,461
------------
1,150,439
------------
COMPUTER STORAGE & PERIPHERALS-1.0%
23,100 ATI Technologies, Inc. (CA)* 348,386
5,300 Logitech International SA (SZ)* 229,261
8,500 Seiko Epson Corporation (JA) 396,566
------------
974,213
------------
CONSTRUCTION & ENGINEERING-0.1%
2,600 ACS, Actividades de Construccion y Servicios SA (SP) 126,917
------------
CONSTRUCTION MATERIALS-0.2%
50,500 Boral Limited (AU) 193,294
------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.3%
10,200 Volvo AB Class B (SW) 311,870
------------
CONSUMER ELECTRONICS-1.2%
25,000 Casio Computer Company Limited (JA) 264,533
10,300 Koninklijke (Royal) Philips Electronics NV (NE) 300,763
36,000 Sharp Corporation (JA) 568,032
------------
1,133,328
------------
DIVERSIFIED BANKS-7.3%
10,700 ABN AMRO Holding NV (NE) 250,359
38,000 Alpha Bank AE (GR) 1,149,395
42,400 Anglo Irish Bank Corporation PLC (IE) 669,051
90,302 Banca Intesa SPA (IT) 353,098
116,271 Barclays PLC (UK) 1,037,093
10,589 BNP Paribas SA (FR) 666,754
45,100 HBOS PLC (UK) 584,136
7,600 Jyske Bank SA (DE)* 401,680
69 Mitsubishi Tokyo Financial Group, Inc. (JA) 538,248
25,088 Royal Bank of Scotland Group PLC (UK) 739,256
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
DIVERSIFIED BANKS (CONTINUED)
17,400 Skandinaviska Enskilda Banken (SW) $ 256,334
2,800 Societe Generale (FR) 247,225
------------
6,892,629
------------
DIVERSIFIED CAPITAL MARKETS-0.8%
13,900 Credit Suisse Group (SZ) 508,550
3,744 UBS AG (SZ) 256,401
------------
764,951
------------
DIVERSIFIED METALS & MINING-0.3%
28,000 BHP Billiton PLC (UK) 244,612
------------
ELECTRIC UTILITIES-1.0%
6,900 E.ON AG (GE) 451,964
13,073 Endesa SA (SP) 251,467
24,300 Fortum Oyj (FI) 250,724
------------
954,155
------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.3%
29,000 Sumitomo Electric Industries Limited (JA) 259,233
------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.0%
1,700 Keyence Corporation (JA) 358,337
8,300 TDK Corporation (JA) 597,891
------------
956,228
------------
FOOD RETAIL-1.0%
8,400 Delhaize Group (BE) 432,079
16,100 Metro, Inc. Class A (CA) 272,839
57,900 Tesco PLC (UK) 267,163
------------
972,081
------------
HEALTHCARE DISTRIBUTORS-0.3%
8,100 Suzuken Company Limited (JA) 263,021
------------
HEALTHCARE EQUIPMENT-0.3%
32,800 Getinge AB Class B (SW) 314,539
------------
HOME FURNISHINGS-0.3%
6,300 Hunter Douglas NV (NE) 294,895
------------
HOMEBUILDING-0.3%
26,600 Barratt Developments PLC (UK) 258,571
------------
HOUSEHOLD PRODUCTS-0.2%
9,550 Reckitt Benckiser PLC (UK) 216,097
------------
HOUSEWARES & SPECIALTIES-0.7%
7,600 Citizen Electronics Company Limited (JA) 691,425
------------
HYPERMARKETS & SUPER CENTERS-0.5%
11,700 Metro AG (GE) 516,524
------------
INDUSTRIAL CONGLOMERATES-0.3%
71,700 Keppel Corporation Limited (SG) 257,534
------------
INDUSTRIAL MACHINERY-0.4%
7,400 Saurer AG (SZ)* 328,477
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
INTEGRATED OIL & GAS-2.2%
75,642 BP PLC (UK) $ 613,423
1,300 OMV AG (AT) 193,623
9,200 Repsol YPF SA (SP) 179,405
62,100 Shell Transport & Trading Company PLC (UK) 461,915
3,500 Total SA (FR) 650,732
------------
2,099,098
------------
INTEGRATED TELECOMMUNICATION SERVICES-2.5%
72,300 BT Group PLC (UK) 243,653
20,100 Deutsche Telekom AG (GE)* 368,635
29,300 Koninklijke NV (NE)* 226,181
11,000 TDC AS Class B (DE) 396,903
25,600 Telefonica SA (SP) 375,863
78,400 Telenor ASA (NW) 512,626
49,300 TeliaSonera AB (SW) 257,624
------------
2,381,485
------------
INVESTMENT BANKING & BROKERAGE-0.5%
28,000 Nomura Holdings, Inc. (JA) 476,813
------------
IT CONSULTING & OTHER SERVICES-0.2%
48,100 LogicaCMG PLC (UK) 220,652
------------
OIL & GAS EXPLORATION & PRODUCTION-1.8%
75,900 Cairn Energy PLC (UK)* 544,860
5,200 Canadian National Resources Limited (CA) 263,038
12,700 Eni SPA (IT) 239,647
3,900 Norsk Hydro ASA (NW) 240,643
10,300 Penn West Petroleum Limited (CA) 383,929
------------
1,672,117
------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.5%
11,000 ING Groep NV (NE) 256,546
9,200 Sun Life Financial, Inc. (CA) 229,947
------------
486,493
------------
PACKAGED FOODS & MEATS-0.7%
1,500 Groupe Danone (FR) 244,828
20,000 Nisshin Seifun Group, Inc. (JA) 178,035
243,000 Want Want Holdings Limited (SG) 230,850
------------
653,713
------------
PHARMACEUTICALS-4.3%
7,100 AstraZeneca Group PLC (UK) 340,637
6,000 Aventis SA (FR) 396,569
18,200 Axcan Pharma, Inc. (CA)* 285,189
17,800 Eisai Company Limited (JA) 480,004
47,900 Galen Holdings PLC (UK) 613,113
19,152 GlaxoSmithKline PLC (UK) 438,857
11,088 Novartis AG (SZ) 503,389
13,000 Ono Pharmaceuticals Company Limited (JA) 488,849
27,000 Shire Pharmaceuticals Group PLC (UK)* 262,218
5,900 Takeda Chemical Industries Limited (JA) 233,974
------------
4,042,799
------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
PRECIOUS METALS & MINERALS-0.4%
17,300 ThyssenKrupp AG (GE) $ 342,596
------------
PROPERTY & CASUALTY INSURANCE-0.9%
101,600 QBE Insurance Group Limited (AU) 811,453
------------
PUBLISHING-0.2%
27,700 Johnston Press PLC (UK) 230,957
------------
RAILROADS-0.5%
7,700 Canadian National Railway Company (CA) 487,256
------------
REAL ESTATE INVESTMENT TRUSTS-0.6%
110 Sumitomo Mitsui Financial Group, Inc. (JA) 586,078
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.2%
2,900 Wereldhave NV (NE) 217,098
------------
SEMICONDUCTOR EQUIPMENT-0.6%
29,075 ASM Lithography Holding NV NY Shares (NE)* 582,954
------------
THRIFTS & MORTGAGE FINANCE-0.3%
23,000 Northern Rock PLC (UK) 293,779
------------
TIRES & RUBBER-0.4%
9,900 Continental AG (GE) 376,869
------------
TRADING COMPANIES & DISTRIBUTORS-0.3%
23,000 Mitsubishi Corporation (JA) 243,800
------------
TRUCKING-0.3%
37,000 Seino Transportation Company Limited (JA) 305,888
------------
WIRELESS TELECOMMUNICATION SERVICES-2.8%
79 KDDI Corporation (JA) 452,608
121 NTT DoCoMo, Inc. (JA) 274,358
71,200 Telecom Italia Mobile SPA (IT) 387,074
25,100 Telefonica Moviles SA (SP)* 262,144
491,975 Vodafone Group PLC (UK) 1,219,809
------------
2,595,993
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$31,000,664) 42,957,698
------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-3.1%
$ 2,900,000 Federal National Mortgage Association
0.75% 1/2/04 $ 2,899,940
------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$2,899,940) 2,899,940
------------
TOTAL INVESTMENTS-100.3%
(TOTAL COST-$74,464,408) 95,020,543
OTHER ASSETS AND LIABILITIES-(0.3%) (241,807)
------------
NET ASSETS-100.0% $ 94,778,736
============
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 74,464,408
--------------
Investment securities, at market 95,020,543
Cash 289,685
Foreign currency (cost $1,021) 1,029
Receivables:
Capital shares sold 141,932
Dividends 101,875
Other assets 74,529
--------------
Total Assets 95,629,593
--------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 401,335
Capital shares redeemed 185,355
Advisory fees 78,846
Shareholder servicing fees 9,392
Accounting fees 6,151
Distribution fees 18,971
Transfer agency fees 15,352
Custodian fees 4,455
Other 131,000
--------------
Total Liabilities 850,857
--------------
Net Assets $ 94,778,736
==============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 158,449,758
Accumulated net investment loss (14,782)
Accumulated net realized loss from security transactions (84,219,091)
Net unrealized appreciation on investments and
foreign currency translation 20,562,851
--------------
Total $ 94,778,736
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
Net Assets--Class A $ 656,014
Shares Outstanding--Class A 57,666
Net Asset Value, Redemption Price Per Share $ 11.38
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $ 12.07
Net Assets--Class B $ 1,821,058
Shares Outstanding--Class B 165,181
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 11.02
Net Assets--Class C $ 270,969
Shares Outstanding--Class C 25,066
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 10.81
Net Assets--Class F $ 70,565,735
Shares Outstanding--Class F 6,184,127
Net Asset Value, Offering and Redemption Price Per Share $ 11.41
Net Assets--Class R $ 21,403,811
Shares Outstanding--Class R 1,844,663
Net Asset Value, Offering and Redemption Price Per Share $ 11.60
Net Assets--Class T $ 61,149
Shares Outstanding--Class T 5,699
Net Asset Value, Redemption Price Per Share $ 10.73
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 11.24
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 1,280,071
Interest 29,612
Foreign taxes withheld (92,028)
--------------
Total Investment Income 1,217,655
--------------
EXPENSES:
Advisory fees--Note 2 814,540
Shareholder servicing fees--Note 2 118,185
Accounting fees--Note 2 62,611
Distribution fees--Note 2 169,431
Transfer agency fees--Note 2 113,426
Registration fees 66,862
Postage and mailing expenses 22,329
Custodian fees and expenses--Note 2 66,896
Printing expenses 54,962
Legal and audit fees 17,658
Directors' fees and expenses--Note 2 18,522
Other expenses 34,367
--------------
Total Expenses 1,559,789
Earnings Credits (1,074)
Waived Expenses (12,364)
Expense Offset to Broker Commissions (4,253)
--------------
Net Expenses 1,542,098
--------------
Net Investment Loss (324,443)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on :
Security transactions (67,528)
Foreign currency transactions 6,544
--------------
Net Realized Loss (60,984)
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation 26,608,251
--------------
Net Realized and Unrealized Gain 26,547,267
--------------
Net Increase in Net Assets Resulting from Operations $ 26,222,824
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
-------------- --------------
OPERATIONS
Net Investment Loss $ (324,443) $ (493,713)
Net Realized Loss (60,984) (21,248,091)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 26,608,251 (11,501,638)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 26,222,824 (33,243,442)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (95,963) (185,979)
Class B (128,745) (3,433)
Class C (25,117) (61,045)
Class F (9,169,160) (14,839,943)
Class R 1,759,076 225,695
Class T (2,291) (19,951)
-------------- --------------
Net Decrease from Capital Share Transactions (7,662,200) (14,884,656)
-------------- --------------
Net Increase (Decrease) in Net Assets 18,560,624 (48,128,098)
NET ASSETS
Beginning of year $ 76,218,112 $ 124,346,210
-------------- --------------
End of year (including accumulated net investment
loss of $14,782 and $0, respectively) $ 94,778,736 $ 76,218,112
============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of year $ 8.32 $ 11.71 $ 15.78 $ 25.18
Income from investment operations:
Net investment loss (0.10) (0.15) (0.09) (0.09)
Net realized and unrealized gains
(losses) on securities 3.16 (3.24) (3.98) (5.44)
---------- ---------- ---------- ----------
Total from investment
operations 3.06 (3.39) (4.07) (5.53)
Less dividends and 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 year $ 11.38 $ 8.32 $ 11.71 $ 15.78
========== ========== ========== ==========
Total return* 36.78% (28.95%) (25.79%) (21.82%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 656 $ 543 $ 1,003 $ 800
Net expenses to average net assets#,+ 2.03% 2.06% 2.09% 1.41%
Gross expenses to average net assets#,+ 2.03% 2.06% 2.10% 1.43%
Net investment loss to average
net assets+ (0.55%) (0.77%) (0.96%) (0.35%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
# 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 year ended December 31,
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 (0.56%).
@ 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of year $ 8.12 $ 11.52 $ 15.57 $ 25.18
Income from investment operations:
Net investment loss (0.16) (0.14) (0.15) (0.11)
Net realized and unrealized gains
(losses) on securities 3.06 (3.26) (3.90) (5.63)
---------- ---------- ---------- ----------
Total from investment
operations 2.90 (3.40) (4.05) (5.74)
Less dividends and 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 year $ 11.02 $ 8.12 $ 11.52 $ 15.57
========== ========== ========== ==========
Total return* 35.71% (29.51%) (26.01%) (22.67%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,821 $ 1,459 $ 2,089 $ 2,329
Net expenses to average net assets#,+ 2.80% 2.70% 2.53% 2.21%
Gross expenses to average net assets#,+ 2.80% 2.71% 2.54% 2.25%
Net investment loss to average
net assets+ (1.30%) (1.41%) (1.43%) (1.40%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
# 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 year ended December 31,
2003. Had these fees not been waived, the net expense ratio would have been
2.82%. The gross expense ratio would have been 2.82%. The net investment loss
ratio would have been (1.32%).
@ 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of year $ 7.96 $ 11.34 $ 15.56 $ 25.18
Income from investment operations:
Net investment loss (0.20) (0.30) (0.30) (0.11)
Net realized and unrealized gains
(losses) on securities 3.05 (3.08) (3.92) (5.64)
---------- ---------- ---------- ----------
Total from investment
operations 2.85 (3.38) (4.22) (5.75)
Less dividends and 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 year $ 10.81 $ 7.96 $ 11.34 $ 15.56
========== ========== ========== ==========
Total return* 35.80% (29.81%) (27.12%) (22.70%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 271 $ 218 $ 380 $ 375
Net expenses to average net assets#,+ 2.82% 3.33% 4.17% 2.21%
Gross expenses to average net assets#,+ 2.82% 3.33% 4.18% 2.25%
Net investment loss to average
net assets,+ (1.34%) (2.05%) (3.07%) (1.31%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31, 2003 and 2002. Had these fees not
been waived or reimbursed, the net expense ratios would have been 2.84%
(2003) and 3.40% (2002). The gross expense ratios would have been 2.84%
(2003) and 3.40 (2002)%. The net investment loss ratios would have been
(1.36%) (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.
23
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of year $ 8.33 $ 11.72 $ 15.69 $ 25.17 $ 22.06
Income from investment operations:
Net investment loss (0.13) (0.13) (0.14) (0.16) (0.06)
Net realized and unrealized
gains (losses) on securities 3.21 (3.26) (3.83) (5.45) 10.11
---------- ---------- ---------- ---------- ----------
Total from investment
operations 3.08 (3.39) (3.97) (5.61) 10.05
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (3.87) (6.94)
---------- ---------- ---------- ---------- ----------
Total distributions 0.00 0.00 0.00 (3.87) (6.94)
Net Asset Value, end of year $ 11.41 $ 8.33 $ 11.72 $ 15.69 $ 25.17
========== ========== ========== ========== ==========
Total return 36.97% (28.92%) (25.30%) (22.14%) 48.78%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 70,566 $ 59,890 $ 101,592 $ 176,405 $ 284,839
Net expenses to average
net assets#,+ 1.97% 1.84% 1.60% 1.52% 1.53%
Gross expenses to average
net assets#,+ 1.97% 1.84% 1.61% 1.54% 1.55%
Net investment loss to average
net assets+ (0.47%) (0.55%) (0.50%) (0.67%) (0.27%)
Portfolio turnover rate@ 138% 211% 145% 210% 157%
</Table>
# 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 year ended December 31,
2003. Had these fees not been waived, the net expense ratio would have been
1.98%. The gross expense ratio would have been 1.98%. The net investment loss
ratio would have been (0.48%).
@ 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of year $ 8.44 $ 11.81 $ 15.75 $ 25.18
Income from investment operations:
Net investment loss (0.00)+ (0.01) (0.02) (0.00)+
Net realized and unrealized gains
(losses) on securities 3.16 (3.36) (3.92) (5.56)
---------- ---------- ---------- ----------
Total from investment
operations 3.16 (3.37) (3.94) (5.56)
Less dividends and 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 year $ 11.60 $ 8.44 $ 11.81 $ 15.75
========== ========== ========== ==========
Total return 37.44% (28.54%) (25.02%) (21.94%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 21,404 $ 14,060 $ 19,193 $ 27,611
Net expenses to average net assets#,+ 1.51% 1.41% 1.24% 1.22%
Gross expenses to average net assets#,+ 1.51% 1.41% 1.25% 1.26%
Net investment loss to average
net assets+ (0.03%) (0.13%) (0.14%) (0.49%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
+ Net investment loss for the years ended December 31, 2003 and 2000 aggregated
less than $0.01 on a per share basis.
# 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 year ended December 31,
2003. Had these fees not been waived, the net expense ratio would have been
1.53%. The gross expense ratio would have been 1.53%. 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.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of year $ 7.89 $ 11.46 $ 15.65 $ 25.18
Income from investment operations:
Net investment loss (0.14) (0.59) (0.26) (0.06)
Net realized and unrealized gains
(losses) on securities 2.98 (2.98) (3.93) (5.60)
---------- ---------- ---------- ----------
Total from investment
operations 2.84 (3.57) (4.19) (5.66)
Less dividends and 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 year $ 10.73 $ 7.89 $ 11.46 $ 15.65
========== ========== ========== ==========
Total return* 35.99% (31.15%) (26.77%) (22.34%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 61 $ 47 $ 90 $ 48
Net expenses to average net assets#,+ 2.54% 4.60% 3.74% 1.72%
Gross expenses to average net assets#,+ 2.54% 4.60% 3.75% 1.76%
Net investment loss to average
net assets+ (1.05%) (2.88%) (2.72%) (0.76%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31, 2003, 2002 and 2001. Had these fees
not been waived or reimbursed, the net expense ratios would have been 2.56%
(2003), 5.48% (2002), and 10.01% (2001). The gross expense ratios would have
been 2.56% (2003), 5.48% (2002), and 10.02% (2001). The net investment loss
ratios would have been (1.07%) (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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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.
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.
27
<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 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 December 31, 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 arises 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 distributions
28
<Page>
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) 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 an indirect 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
1.00% 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.
29
<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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $71,824 and $40,250, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares paid DTI and ITC $28,643 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------
Class A $ 1,888
Class B $ 5,202
Class C $ 806
Class R $ 6,868
Class T $ 293
</Table>
30
<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 or servicing 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 year ended December 31, 2003, Class F shares were charged $155,738 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 1,461
Class B $ 11,711 $ 3,904
Class C $ 1,854 $ 618
Class T $ 128 $ 128
</Table>
During the year ended December 31, 2003, DSC retained $1,546 in sales
commissions from the sales of Class A shares. DSC also retained $5,371 and $19
of contingent deferred sales charges relating to redemptions of Class B and
Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE 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 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.
31
<Page>
<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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $12,364. 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.
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
32
<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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 309,661 $ 54,521 $ (364,182)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003, 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, 2011.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 83,274,416
Post-October Capital Loss Deferral $ 253,252
Post-October Currency Loss Deferral $ 628
Federal Tax Cost $ 75,155,831
Gross Tax Appreciation of Investments $ 20,451,558
Gross Tax Depreciation of Investments $ (586,846)
Net Tax Appreciation $ 19,864,712
</Table>
33
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A
Sold 197,675 $ 1,902,667 431,081 $ 4,390,277
Redeemed (205,316) $ (1,998,630) (451,369) $ (4,576,256)
NET DECREASE (7,641) $ (95,963) (20,288) $ (185,979)
CLASS B
Sold 13,807 $ 133,035 40,977 $ 409,634
Redeemed (28,252) $ (261,780) (42,643) $ (413,067)
NET DECREASE (14,445) $ (128,745) (1,666) $ (3,433)
CLASS C
Sold 50,623 $ 402,228 12,934 $ 110,508
Redeemed (52,994) $ (427,345) (19,036) $ (171,553)
NET DECREASE (2,371) $ (25,117) (6,102) $ (61,045)
CLASS F
Sold 2,467,985 $ 22,841,668 4,440,187 $ 42,616,720
Redeemed (3,470,420) $ (32,010,828) (5,924,226) $ (57,456,663)
NET DECREASE (1,002,435) $ (9,169,160) (1,484,039) $ (14,839,943)
CLASS R
Sold 286,586 $ 2,765,461 427,695 $ 4,393,330
Redeemed (108,124) $ (1,006,385) (386,843) $ (4,167,635)
NET INCREASE 178,462 $ 1,759,076 40,852 $ 225,695
CLASS T
Sold 0 $ 0 142,397 $ 1,559,000
Redeemed (282) $ (2,291) (144,278) $ (1,578,951)
NET DECREASE (282) $ (2,291) (1,881) $ (19,951)
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$108,289,425 and $115,097,788, respectively.
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) $50 million,
34
<Page>
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 $50 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 December 31,
2003, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
35
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Worldwide Growth
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
36
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
37
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
38
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
39
<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)
210 University Boulevard, Suite 800
Denver, CO 80206
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
Additional information about the Fund and its directors is available in the
Fund's Statement of Additional Information, which can be obtained free of charge
by contacting the Fund.
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:
February 27, 2004
Dreyfus Service Corporation, Distributor. (C) 2004 Founders Asset Management
LLC.
A-646-WWG-03
<Page>
Dreyfus Founders
Balanced Fund
ANNUAL REPORT December 31, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
(R) 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
Report of Independent Auditors 37
Other Tax Information 38
Your Board Representatives 39
</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 December 31, 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] [PHOTO]
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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
During the first few months of 2003, our defensive equity position and
the fixed-income component of the Fund helped cushion returns during the
sluggish equity-investing environment. However, with the mid-March market rally,
our equity holdings took the limelight, as increased confidence and a shift
toward less-defensive investment alternatives helped infuse the market's
recovery.
While we were pleased with the Fund's performance during the period, our
annual return trailed that of our all-equity benchmark, the Standard & Poor's
500 Index, which returned 28.68% for the year.
WHAT WERE THE BROAD ECONOMIC AND MARKET FACTORS DURING THE PERIOD?
Earlier in the year, a sedentary market backdrop was laid by the potential war
in Iraq. Continuing corporate scandals, static corporate spending and high
unemployment also weighed on equities, moving investors toward more defensive
investments.
However, as we entered the second quarter, the end of the Iraqi conflict and
continued economic improvements brought optimism back to the equity market.
Additionally, the low
[SIDENOTE]
"FROM A BROAD PERSPECTIVE, THE FUND'S SOLID PERFORMANCE THIS YEAR WAS
DRIVEN BY OUR RESEARCH PROCESS, BY FUNDAMENTALLY AND INDIVIDUALLY EVALUATING
COMPANIES ACROSS ALL SECTORS."
3
<Page>
interest rate environment kept consumer confidence high and prompted a shift
away from low-yielding alternative investments.
The market's rise can be attributed to various economic improvements during
the course of the year. Better-than-expected corporate revenue growth, improved
earnings across nearly all sectors, the easing of geopolitical uncertainty, the
Federal Reserve's accommodative monetary policy and President Bush's fiscal
stimulus plan were major factors in the recuperation of market and economic
trends. Consumer spending was high. Capital spending also appeared to
strengthen. Productivity beat expectations during the year, and real gross
domestic product (GDP) increased at an annual rate of 8.2% in the third quarter.
Although some domestic economic concerns still existed, expectations that the
economy may continue to recover in the coming year remained strong.
These stronger equity markets impacted fixed-income issues as well, pushing
bond prices lower. As the year continued, interest rates rose across the
majority of the yield curves with the aggregate yield curve steepening.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE DURING THE YEAR?
From a broad perspective, the Fund's solid performance this year was driven by
our research process, by fundamentally and individually evaluating companies
across all sectors. For example, the Fund was less exposed to technology earlier
in the year. However, as we identified improving
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - The Fund migrated from a fairly defensive position in the first part of the
year to a more fully-invested structure later in the year.
- - Strong stock selection in the consumer discretionary sector was the largest
boon to Fund performance throughout the year.
- - Weak stock selection in the information technology and industrials sectors
impeded Fund performance.
- - The concentration of the Fund's fixed-income assets in the short- and
intermediate-maturity sector of the yield curve assisted the Fund's return
during the second half of the year.
- - An overweight position in the government sector of the fixed-income portion
of the Fund's portfolio hampered performance, as did the Fund's quality bias
toward higher-grade instruments.
4
<Page>
fundamentals, we began to selectively add stocks within this sector to the
portfolio. Additionally, we maintained and adjusted our consumer discretionary
sector holdings to those more sensitive to an economic upturn, as these
companies demonstrated strong earnings data that was again captured by our
research process. Finally, the Fund was underweight the large-capitalization
pharmaceutical industry as these companies continued to struggle with slowing
revenue growth and bottom lines, as well as products meeting generic
substitution. Finally, the Fund migrated from a fairly defensive position in the
first part of the year to a more fully invested structure later in 2003 through
the addition of such names as ALCOA, INC. and LAM RESEARCH CORPORATION.
Strong stock selection in the consumer discretionary sector was the largest
boon to Fund performance throughout the year. Improving fundamentals within the
technology, materials, financials and consumer discretionary sectors prompted us
to select holdings that we believed were most likely to exhibit strong
earnings-per-share growth. The most compelling growth was ultimately found in
these sectors, with select holdings in the technology, consumer discretionary
and financials sectors offering the largest individual contributions to
performance. Fund positions in ROYAL CARIBBEAN CRUISES LIMITED, BEST BUY
COMPANY, INC., SAP AG and WELLS FARGO & COMPANY all exhibited strong growth and
boosted overall performance of the Fund. Providing the largest contribution to
the Fund's return for the period of any single stock, Royal Caribbean's
performance was promoted by improving outlooks and increased consumer spending
in the leisure travel market. Best Buy, the second largest contributor, reaped
the benefits of continued consumer
[SIDENOTE]
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. General Electric Company (GE) 3.20%
2. Wells Fargo & Company (WFC) 3.11%
3. Union Pacific Corporation (UNP) 2.96%
4. Pfizer, Inc. (PFE) 2.91%
5. Maxim Integrated Products, Inc. (MXIM) 2.78%
6. Royal Caribbean Cruises Limited (RCL) 2.71%
7. Goldman Sachs Group, Inc. (GS) 2.56%
8. Nordstrom, Inc. (JWN) 2.53%
9. Oracle Corporation (ORCL) 2.31%
10. Wyeth (WYE) 2.31%
</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>
spending during an improving economic environment. Desirable new product cycles
such as digital photography and HDTV, as well as solid execution resulting in
increased market share, boosted the stock's price. SAP was another standout
performer during the period, as it benefited from an improved environment for
software spending as well as from a general improvement in the business pace of
the software industry.
WHAT FACTORS HINDERED FUND PERFORMANCE DURING THE YEAR?
The oil service industry within the energy sector proved troublesome throughout
the year as it suffered from changing market sentiment over
[SIDENOTE]
[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
12/31/93 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>
oil and gas prices following the Iraqi conflict. Although the industry continued
to exhibit solid fundamentals during the period, companies gyrated and
ultimately underperformed.
While select holdings in the information technology sector performed well,
poor stock selection in this sector proved an impediment to the Fund's relative
return. One specific holding, BMC Software, Inc., which provides e-business
systems management software, exhibited sluggish sales trends for their software
products during most of 2003, and revised earnings expectations lower.
Underachieving individual issues also impacted Fund performance, such as
biotechnology holding Medimmune, Inc., which underperformed late in the year as
its launch of the first-ever inhaled flu vaccine, FluMist, failed to generate
enough market activity to meet the investment community's expectations. High
price, rigid handling requirements and limited distribution also impeded the
vaccine's success in the marketplace.
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 11.94% -- -- (7.27%)
Without sales charge 18.81% -- -- (5.88%)
CLASS B SHARES (12/31/99)
With redemption* 13.76% -- -- (7.28%)
Without redemption 17.76% -- -- (6.59%)
CLASS C SHARES (12/31/99)
With redemption** 16.59% -- -- (7.01%)
Without redemption 17.59% -- -- (7.01%)
CLASS F SHARES (2/19/63) 18.96% (4.98%) 4.51% N/A
CLASS R SHARES (12/31/99) 18.12% -- -- (6.05%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 12.42% -- -- (6.72%)
Without sales charge 17.65% -- -- (5.65%)
</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 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.
7
<Page>
While the infusion of consumer capital into the marketplace helped boost the
consumer-related sectors, two of the Fund's retail holdings, KOHL'S CORPORATION
and SEARS ROEBUCK & COMPANY, were hit with weaker-than-expected sales late in
the year, significantly underperforming, thus hampering relative Fund
performance for the year.
Finally, Delta Air Lines, Inc. was the Fund's worst performer in the
industrials sector, placing a drag on overall Fund performance due to the
company's annual net earnings decline and loss per share.
HOW DID THE FIXED-INCOME PORTION OF THE FUND FARE IN 2003?
The fixed-income portion of the Fund fared well during the first half of the
year as many economic fundamentals remained stagnant during the first six
months, adding to the positive contribution the Fund's fixed-income holdings
made to its overall performance during that period.
However, by mid-June, market expectations that the Federal Reserve would take
action to defeat deflation were not fulfilled. Worries over Government Sponsored
Enterprises (GSE) accounting issues, larger deficits and financing needs, as
well as stronger equity markets and improving economic fundamentals, led the
bond market lower in July. The rise in bond yields prompted mortgage-related
selling due to the extended portfolio durations, which exacerbated the situation
further. The market, however, regained its composure in August and September
after July's massive sell-off.
[SIDENOTE]
[CHART]
COMPOSITION OF EQUITY ASSETS
<Table>
Consumer Discretionary 21.48%
Information Technology 20.52%
Financials 15.41%
Healthcare 12.36%
Industrials 11.17%
Consumer Staples 7.92%
Energy 4.09%
Materials 3.97%
Telecommunications Services 3.08%
</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>
The Fund sold its position in Freddie Mac securities in June due to an
investigation into the mortgage financier's accounting practices. We continued
to monitor the Freddie Mac situation as well as GSEs in general, and viewed any
efforts to increase regulatory oversight, disclosure and capital requirements
positively for debt holders.
Interest rates continued to rise across the majority of the yield curves
during the second half of the year, with the aggregate yield curve continuing to
steepen at year's end. 2003 ended with investors' risk appetite increasing,
favoring investments such as equities and high-yield debt.
The concentration of the Fund's fixed-income assets in the short- and
intermediate-maturity sector of the yield curve during the second half of the
year helped performance as these areas outperformed longer-dated securities. The
Fund ended the period overweight in its corporate bond exposure, which likewise
boosted performance. The Fund's position in PROVINCE OF QUEBEC bonds also proved
beneficial to Fund performance as the Canadian dollar climbed against the U.S.
dollar.
On the negative side, the Fund's overweight position in the government sector
as well as the Fund's quality bias toward higher-grade instruments hampered
performance. The Fund's underweight mortgage exposure also impeded the Fund's
annual return.
In general, the Fund's fixed-income holdings provided a defensive position
and a strong foundation for investors as the market began its recovery in 2003,
but were outshone by the Fund's equity component later in the year.
We will continue to apply our intensive research process and growth-stock
investment strategy to seek out companies that continue to take advantage of the
economic uplift. We will also continue to seek companies that are exhibiting
strong growth potential.
/s/ John B. Jares /s/ John Johnson
John B. Jares, CFA John Johnson, CFA
Portfolio Manager Assistant Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-55.4%
AEROSPACE & DEFENSE-1.1%
27,200 Lockheed Martin Corporation $ 1,398,046
---------------
AIRLINES-0.9%
44,700 AMR Corporation* 578,865
38,700 Northwest Airlines Corporation Class A* 488,394
---------------
1,067,259
---------------
ALUMINUM-1.1%
34,200 Alcoa, Inc. 1,299,600
---------------
APPAREL RETAIL-0.4%
21,000 Gap, Inc. 487,410
---------------
ASSET MANAGEMENT & CUSTODY BANKS-0.7%
27,600 Bank of New York Company, Inc. 914,112
---------------
BIOTECHNOLOGY-1.6%
8,000 Amgen, Inc.* 494,400
25,000 Gilead Sciences, Inc.* 1,453,500
---------------
1,947,900
---------------
BROADCASTING & CABLE TV-1.8%
8,000 Clear Channel Communications, Inc. 374,640
35,000 Comcast Corporation Special Class A* 1,094,800
23,200 Cox Communications, Inc. Class A* 799,240
---------------
2,268,680
---------------
CASINOS & GAMING-0.9%
24,000 Mandalay Resort Group 1,073,280
---------------
COMMUNICATIONS EQUIPMENT-1.3%
36,200 Cisco Systems, Inc.* 879,298
24,900 Foundry Networks, Inc.* 681,264
---------------
1,560,562
---------------
COMPUTER & ELECTRONICS RETAIL-0.4%
9,050 Best Buy Company, Inc. 472,772
---------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE-1.0%
13,500 International Business Machines Corporation $ 1,251,180
---------------
COMPUTER STORAGE & PERIPHERALS-0.4%
34,600 EMC Corporation* 447,032
---------------
CONSUMER FINANCE-1.0%
52,250 MBNA Corporation 1,298,413
---------------
DATA PROCESSING & OUTSOURCED SERVICES-1.0%
29,950 Fiserv, Inc.* 1,183,325
---------------
DEPARTMENT STORES-2.3%
5,500 Kohl's Corporation* 247,170
54,300 Nordstrom, Inc. 1,862,490
17,200 Sears Roebuck & Company 782,428
---------------
2,892,088
---------------
DIVERSIFIED BANKS-3.1%
1,900 Bank of America Corporation 152,817
30,800 Bank One Corporation 1,404,172
38,800 Wells Fargo & Company 2,284,932
---------------
3,841,921
---------------
DIVERSIFIED COMMERCIAL SERVICES-0.4%
24,700 Cendant Corporation* 550,069
---------------
DRUG RETAIL-0.9%
32,200 Walgreen Company 1,171,436
---------------
FOOD RETAIL-0.3%
19,901 Safeway, Inc.* 436,031
---------------
GOLD-0.4%
10,600 Newmont Mining Corporation 515,266
---------------
HEALTHCARE EQUIPMENT-0.7%
22,000 Boston Scientific Corporation* 808,720
---------------
HOME IMPROVEMENT RETAIL-1.2%
40,800 Home Depot, Inc. 1,447,992
---------------
HOTELS, RESORTS & CRUISE LINES-0.5%
16,200 Carnival Corporation 643,626
---------------
HOUSEHOLD PRODUCTS-0.8%
9,800 Procter & Gamble Company 978,824
---------------
HYPERMARKETS & SUPER CENTERS-0.3%
6,000 Wal-Mart Stores, Inc. 318,300
---------------
INDUSTRIAL CONGLOMERATES-1.9%
76,100 General Electric Company 2,357,578
---------------
INDUSTRIAL GASES-0.9%
29,000 Praxair, Inc. 1,107,800
---------------
INTEGRATED TELECOMMUNICATION SERVICES-1.0%
36,900 Verizon Communications, Inc. 1,294,452
---------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-2.0%
19,100 Goldman Sachs Group, Inc. $ 1,885,743
9,500 Morgan Stanley 549,765
---------------
2,435,508
---------------
LEISURE FACILITIES-1.6%
57,400 Royal Caribbean Cruises Limited 1,996,946
---------------
MOVIES & ENTERTAINMENT-1.7%
23,500 Viacom, Inc. Class B 1,042,930
47,800 Walt Disney Company 1,115,174
---------------
2,158,104
---------------
MULTI-LINE INSURANCE-1.2%
21,600 American International Group, Inc. 1,431,648
---------------
OIL & GAS DRILLING-0.7%
32,700 GlobalSantaFe Corporation 811,941
---------------
OIL & GAS EQUIPMENT & SERVICES-0.9%
26,900 Smith International, Inc.* 1,116,888
---------------
OIL & GAS EXPLORATION & PRODUCTION-0.9%
13,335 Apache Corporation 1,081,469
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.1%
29,066 Citigroup, Inc. 1,410,864
---------------
PERSONAL PRODUCTS-1.3%
39,500 Estee Lauder Companies, Inc. Class A 1,550,770
---------------
PHARMACEUTICALS-3.6%
11,600 Johnson & Johnson 599,256
60,550 Pfizer, Inc. 2,139,232
40,000 Wyeth 1,698,000
---------------
4,436,488
---------------
PUBLISHING-0.8%
19,700 Tribune Company 1,016,520
---------------
RAILROADS-1.8%
31,300 Union Pacific Corporation 2,174,724
---------------
SEMICONDUCTOR EQUIPMENT-0.3%
12,100 Lam Research Corporation* 390,830
---------------
SEMICONDUCTORS-3.5%
37,900 Altera Corporation* 860,330
20,000 Intel Corporation 644,000
41,000 Maxim Integrated Products, Inc. 2,041,800
20,500 Xilinx, Inc.* 794,170
---------------
4,340,300
---------------
SOFT DRINKS-1.1%
27,000 Coca-Cola Company 1,370,250
---------------
SPECIALTY STORES-1.1%
29,700 Tiffany & Company 1,342,440
---------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE-2.7%
4,700 Adobe Systems, Inc. $ 184,710
53,600 Microsoft Corporation 1,476,144
128,800 Oracle Corporation* 1,700,160
---------------
3,361,014
---------------
WIRELESS TELECOMMUNICATION SERVICES-0.8%
34,600 Nextel Communications, Inc.* 970,876
---------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$57,705,169) 68,431,254
---------------
COMMON STOCKS (FOREIGN)-4.2%
APPLICATION SOFTWARE-1.2%
34,550 SAP AG Sponsored ADR (GE) 1,435,898
---------------
HEALTHCARE SUPPLIES-0.3%
5,200 Alcon, Inc. (SZ) 314,808
---------------
IT CONSULTING & OTHER SERVICES-0.5%
24,125 Accenture Limited Class A ADR (BD)* 634,970
---------------
PHARMACEUTICALS-1.3%
28,000 Teva Pharmaceutical Industries Limited Sponsored ADR (IS) 1,587,880
---------------
RAILROADS-0.5%
10,625 Canadian National Railway Company (CA) 672,350
---------------
SEMICONDUCTORS-0.4%
12,925 Marvell Technology Group Limited (BD)* 490,245
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$3,584,610) 5,136,151
---------------
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
CORPORATE BONDS (DOMESTIC)-11.2%
AUTOMOBILE MANUFACTURERS-2.7%
$3,000,000 Toyota Motor Credit Corporation Series MTN
5.65% 1/15/07 $ 3,306,450
---------------
DIVERSIFIED BANKS-2.8%
1,500,000 Bank One Corporation
6.50% 2/1/06 1,628,235
1,540,000 Washington Mutual, Inc.
8.25% 4/1/10 1,851,742
---------------
3,479,977
---------------
HOUSEHOLD PRODUCTS-1.3%
1,500,000 Colgate-Palmolive Company
5.98% 4/25/12 1,645,740
---------------
MOVIES & ENTERTAINMENT-1.8%
2,000,000 Viacom, Inc.
7.75% 6/1/05 2,162,540
---------------
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT MARKET VALUE
- ---------------------------------------------------------------------------------------------------------
PHARMACEUTICALS-2.6%
$3,000,000 Abbott Laboratories
5.625% 7/1/06 $ 3,235,920
---------------
TOTAL CORPORATE BONDS (DOMESTIC)
(COST-$12,796,648) 13,830,627
---------------
U.S. GOVERNMENT SECURITIES-16.9%
AGENCY PASS THROUGH-3.5%
4,042,981 U.S. Small Business Administration Series 10-A
6.64% 2/1/11 4,289,522
---------------
U.S. AGENCIES-8.1%
3,500,000 Federal Home Loan Bank
6.50% 11/15/05 3,797,080
Federal National Mortgage Association:
1,000,000 4.25% 7/15/07 1,044,390
1,500,000 4.375% 10/15/06 1,575,660
2,000,000 Private Export Funding Corporation
3.40% 2/15/08 2,009,480
1,500,000 Tennessee Valley Authority
6.375% 6/15/05 1,598,520
---------------
10,025,130
---------------
U.S. TREASURY NOTES-5.3%
U.S. Treasury Inflation Index Note:
1,167,710 3.375% 1/15/07 1,264,810
1,128,090 3.875% 1/15/09 1,273,700
U.S. Treasury Note:
1,000,000 3.50% 11/15/06 1,033,630
1,250,000 4.375% 5/15/07 1,323,688
1,500,000 6.875% 5/15/06 1,667,520
---------------
6,563,348
---------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST-$20,202,409) 20,878,000
---------------
GOVERNMENT BONDS (FOREIGN)-2.4%
CAD 3,535,000 Province of Quebec
6.50% 12/1/05 (CA) 2,907,245
---------------
TOTAL GOVERNMENT BONDS (FOREIGN)
(COST-$2,374,657) 2,907,245
---------------
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-10.8%
$13,400,000 Federal National Mortgage Association
0.75% 1/2/04 $ 13,399,721
---------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$13,399,721) 13,399,721
---------------
TOTAL INVESTMENTS-100.9%
(TOTAL COST-$110,063,214) $ 124,582,998
OTHER ASSETS AND LIABILITIES-(0.9%) (1,127,154)
---------------
NET ASSETS-100.0% $ 123,455,844
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 110,063,214
---------------
Investment securities, at market 124,582,998
Cash 385,995
Receivables:
Investment securities sold 1,423,166
Capital shares sold 75,702
Dividends and interest 543,599
Other 49,577
---------------
Total Assets 127,061,037
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 2,950,773
Capital shares redeemed 301,325
Advisory fees 68,392
Shareholder servicing fees 6,849
Accounting fees 6,313
Distribution fees 46,121
Transfer agency fees 43,183
Custodian fees 260
Other 181,977
---------------
Total Liabilities 3,605,193
---------------
Net Assets $ 123,455,844
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 312,200,100
Undistributed net investment loss (35,022)
Accumulated net realized loss from security transactions (203,229,268)
Net unrealized appreciation on investments and
foreign currency translation 14,520,034
---------------
Total $ 123,455,844
===============
</Table>
16
<Page>
<Table>
Net Assets--Class A $ 1,571,748
Shares Outstanding--Class A 199,541
Net Asset Value, Redemption Price Per Share $ 7.88
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $ 8.36
Net Assets--Class B $ 1,646,934
Shares Outstanding--Class B 211,081
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 7.80
Net Assets--Class C $ 294,513
Shares Outstanding--Class C 38,308
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 7.69
Net Assets--Class F $ 119,835,077
Shares Outstanding--Class F 15,201,042
Net Asset Value, Offering and Redemption Price Per Share $ 7.88
Net Assets--Class R $ 71,615
Shares Outstanding--Class R 9,115
Net Asset Value, Offering and Redemption Price Per Share $ 7.86
Net Assets--Class T $ 35,957
Shares Outstanding--Class T 4,446
Net Asset Value, Redemption Price Per Share $ 8.09
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 8.47
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 876,954
Interest 2,325,705
Foreign taxes withheld (7,145)
---------------
Total Investment Income 3,195,514
---------------
EXPENSES:
Advisory fees--Note 2 842,158
Shareholder servicing fees--Note 2 84,585
Accounting fees--Note 2 77,736
Distribution fees--Note 2 328,330
Transfer agency fees--Note 2 376,665
Registration fees 58,343
Postage and mailing expenses 74,121
Custodian fees and expenses--Note 2 6,801
Printing expenses 52,393
Legal and audit fees 31,222
Directors' fees and expenses--Note 2 32,730
Other expenses 54,472
---------------
Total Expenses 2,019,556
Earnings Credits (2,209)
Reimbursed/Waived Expenses (1,645)
Expense Offset to Broker Commissions (5,005)
---------------
Net Expenses 2,010,697
---------------
Net Investment Income 1,184,817
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on :
Security transactions (including premiums on options exercised) 7,033,551
Closing and expiration of option contracts written (89,109)
Foreign currency transactions 12,226
---------------
Net Realized Gain 6,956,668
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation 14,224,484
---------------
Net Realized and Unrealized Gain 21,181,152
---------------
Net Increase in Net Assets Resulting from Operations $ 22,365,969
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
--------------- ---------------
OPERATIONS
Net Investment Income $ 1,184,817 $ 2,058,852
Net Realized Gain (Loss) 6,956,668 (35,873,999)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 14,224,484 (8,107,493)
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 22,365,969 (41,922,640)
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (10,100) (7,719)
Class B (1,222) (558)
Class C (17) 0
Class F (1,240,046) (2,156,959)
Class R (159) 0
Class T (12) 0
--------------- ---------------
Net Decrease from Dividends and Distributions (1,251,556) (2,165,236)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 98,293 304,988
Class B 244,827 (28,551)
Class C (6,310) (151,251)
Class F (31,079,380) (123,330,214)
Class R 55,114 294
Class T 19,668 (219,113)
--------------- ---------------
Net Decrease from Capital Share Transactions (30,667,788) (123,423,847)
--------------- ---------------
Net Decrease in Net Assets (9,553,375) (167,511,723)
NET ASSETS
Beginning of year $ 133,009,219 $ 300,520,942
--------------- ---------------
End of year (including undistributed net investment
loss of $35,022 and $0, respectively) $ 123,455,844 $ 133,009,219
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS A SHARES
Net Asset Value, beginning of year $ 6.68 $ 8.18 $ 9.24 $ 10.47
Income from investment operations:
Net investment income 0.05 0.05 0.06 0.13
Net realized and unrealized gains
(losses) on securities 1.20 (1.51) (1.03) (1.18)
--------- --------- --------- ---------
Total from investment
operations 1.25 (1.46) (0.97) (1.05)
Less dividends and distributions:
From net investment income (0.05) (0.04) (0.09) (0.16)
From net realized gains 0.00 0.00 0.00 (0.02)
--------- --------- --------- ---------
Total distributions (0.05) (0.04) (0.09) (0.18)
Net Asset Value, end of year $ 7.88 $ 6.68 $ 8.18 $ 9.24
========= ========= ========= =========
Total return* 18.81% (17.85%) (10.46%) (10.21%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,572 $ 1,243 $ 1,227 $ 699
Net expenses to average net assets# 1.83% 1.89% 1.87% 1.20%
Gross expenses to average net assets# 1.83% 1.89% 1.87% 1.23%
Net investment income to average
net assets 0.63% 0.56% 0.51% 1.48%
Portfolio turnover rate@ 108% 122% 111% 126%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS B SHARES
Net Asset Value, beginning of year $ 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 realized and unrealized gains
(losses) on securities 1.17 (1.47) (1.03) (1.24)
--------- --------- --------- ---------
Total from investment
operations 1.18 (1.48) (1.02) (1.14)
Less dividends and 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 year $ 7.80 $ 6.63 $ 8.11 $ 9.18
========= ========= ========= =========
Total return* 17.76% (18.21%) (11.13%) (11.06%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,647 $ 1,181 $ 1,484 $ 1,008
Net expenses to average net assets# 2.53% 2.54% 2.49% 1.93%
Gross expenses to average net assets# 2.53% 2.54% 2.50% 1.96%
Net investment income (loss) to
average net assets (0.08%) (0.10%) (0.13%) 0.71%
Portfolio turnover rate@ 108% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS C SHARES
Net Asset Value, beginning of year $ 6.54 $ 8.04 $ 9.17 $ 10.47
Income from investment operations:
Net investment income (loss) (0.01) (0.17) (0.05) 0.10
Net realized and unrealized gains
(losses) on securities 1.16 (1.33) (1.03) (1.28)
--------- --------- --------- ---------
Total from investment
operations 1.15 (1.50) (1.08) (1.18)
Less dividends and 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 year $ 7.69 $ 6.54 $ 8.04 $ 9.17
========= ========= ========= =========
Total return* 17.59% (18.66%) (11.80%) (11.36%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 295 $ 248 $ 496 $ 174
Net expenses to average net assets#,+ 2.69% 3.48% 3.96% 1.86%
Gross expenses to average net assets#,+ 2.69% 3.48% 3.96% 1.88%
Net investment income (loss) to
average net assets+ (0.17%) (1.05%) (1.64%) 0.76%
Portfolio turnover rate@ 108% 122% 111% 126%
</Table>
^ Distributions from net investment income for the year ended December 31,
2003 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------- ------------- ------------- ------------- -------------
CLASS F SHARES
Net Asset Value, beginning of year $ 6.69 $ 8.20 $ 9.22 $ 10.47 $ 12.19
Income from investment operations:
Net investment income 0.06 0.07 0.10 0.15 0.32
Net realized and unrealized
gains (losses) on securities 1.20 (1.50) (1.02) (1.23) (0.61)
------------- ------------- ------------- ------------- -------------
Total from investment
operations 1.26 (1.43) (0.92) (1.08) (0.29)
Less dividends and distributions:
From net investment income (0.07) (0.08) (0.10) (0.15) (0.32)
From net realized gains 0.00 0.00 0.00 (0.02) (1.11)
------------- ------------- ------------- ------------- -------------
Total distributions (0.07) (0.08) (0.10) (0.17) (1.43)
Net Asset Value, end of year $ 7.88 $ 6.69 $ 8.20 $ 9.22 $ 10.47
============= ============= ============= ============= =============
Total return 18.96% (17.46%) (9.94%) (10.44%) (2.22%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 119,835 $ 130,314 $ 297,068 $ 552,675 $ 1,055,825
Net expenses to average
net assets# 1.54% 1.42% 1.22% 1.07% 0.97%
Gross expenses to average
net assets# 1.54% 1.43% 1.23% 1.08% 0.98%
Net investment income to
average net assets 0.93% 0.99% 1.20% 1.41% 2.64%
Portfolio turnover rate@ 108% 122% 111% 126% 218%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS R SHARES
Net Asset Value, beginning of year $ 6.68 $ 8.18 $ 9.22 $ 10.47
Income from investment operations:
Net investment income (loss) 0.16 (0.16) 0.09 0.18
Net realized and unrealized gains
(losses) on securities 1.05 (1.34) (1.02) (1.23)
--------- --------- --------- ---------
Total from investment
operations 1.21 (1.50) (0.93) (1.05)
Less dividends and distributions:
From net investment income (0.03) 0.00 (0.11) (0.18)
From net realized gains 0.00 0.00 0.00 (0.02)
--------- --------- --------- ---------
Total distributions (0.03) 0.00 (0.11) (0.20)
Net Asset Value, end of year $ 7.86 $ 6.68 $ 8.18 $ 9.22
========= ========= ========= =========
Total return 18.12% (18.34%) (10.09%) (10.18%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 72 $ 11 $ 14 $ 1
Net expenses to average net assets#,+ 2.37% 4.24% 3.07% 0.80%
Gross expenses to average net assets#,+ 2.37% 4.24% 3.07% 0.81%
Net investment income (loss) to
average net assets+ 0.01% (1.77%) (0.75%) 1.71%
Portfolio turnover rate@ 108% 122% 111% 126%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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 years ended December 31, 2003, 2002 and 2001. Had these fees not
been reimbursed, the net expense ratios would have been 2.62% (2003),
19.52% (2002) and 272.77% (2001). The gross expense ratios would have been
2.62% (2003), 19.52% (2002) and 272.77% (2001). The net investment income
(loss) ratios would have been (0.24%) (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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS T SHARES
Net Asset Value, beginning of year $ 6.88 $ 8.17 $ 9.21 $ 10.47
Income from investment operations:
Net investment income (loss) 0.21 (0.37) 0.08 0.12
Net realized and unrealized gains
(losses) on securities 1.00 (0.92) (1.04) (1.22)
--------- --------- --------- ---------
Total from investment
operations 1.21 (1.29) (0.96) (1.10)
Less dividends and 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 year $ 8.09 $ 6.88 $ 8.17 $ 9.21
========= ========= ========= =========
Total return* 17.65% (15.79%) (10.44%) (10.67%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 36 $ 13 $ 232 $ 9
Net expenses to average net assets#,+ 2.73% 2.59% 3.36% 1.30%
Gross expenses to average net assets#,+ 2.73% 2.60% 3.36% 1.32%
Net investment income (loss) to
average net assets+ (0.29%) (0.31%) (1.12%) 1.22%
Portfolio turnover rate@ 108% 122% 111% 126%
</Table>
^ Distributions from net investment income for the year ended December 31,
2003 aggregated less than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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, waivers, 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 years ended December 31, 2003, 2002 and 2001. Had these fees not
been reimbursed, the net expense ratios would have been 3.18% (2003),
14.62% (2002) and 18.37% (2001). The gross expense ratios would have been
3.18% (2003), 14.63% (2002) and 18.37% (2001). The net investment income
(loss) ratios would have been (0.74%) (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
December 31, 2003
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 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 arises 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
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
27
<Page>
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 of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
28
<Page>
2. FEES AND TRANSACTIONS WITH AFFILIATES
ADVISORY FEES--Founders Asset Management LLC ("Founders") serves as investment
adviser to the Fund. Founders is an indirect 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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $49,444 and $27,599, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares paid DTI and ITC $49,215 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 $13.34, per shareholder account considered to be an
open
29
<Page>
account at any time during a given month, plus out-of-pocket charges.
Class-specific transfer agency fees paid to DTI during the year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 5,636
Class B $ 4,910
Class C $ 1,165
Class R $ 519
Class T $ 294
</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 year ended
December 31, 2003, Class R and Class T were each reimbursed $88, which reduced
the amounts paid to DTI to $431 and $206, 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 or servicing 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 year ended December 31, 2003, Class F shares were charged $316,276 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 3,491
Class B $ 10,201 $ 3,400
Class C $ 1,804 $ 602
Class T $ 49 $ 49
</Table>
During the year ended December 31, 2003, DSC retained $303 and $41 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $6,150, and $2 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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $1,469. The amount paid to Mellon was
reduced by this fee waiver amount.
31
<Page>
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.
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 31,717 $ (12,226) $ (19,491)
</Table>
The tax character of distributions paid during 2003 and 2002 was as follows:
<Table>
<Caption>
2003 2002
---- ----
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 1,251,556 $ 2,165,236
Long-term capital gain $ 0 $ 0
------------ -------------
$ 1,251,556 $ 2,165,236
</Table>
32
<Page>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003 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, 2011.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 200,959,111
Post-October Capital Loss Deferral $ 210,281
Federal Tax Cost $ 112,123,090
Gross Tax Appreciation of Investments $ 13,814,754
Gross Tax Depreciation of Investments $ (1,354,846)
Net Tax Appreciation $ 12,459,908
</Table>
33
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- --------------- ---------------
CLASS A
Sold 42,130 $ 310,574 78,405 $ 605,345
Dividends or Distributions
Reinvested 1,330 $ 9,742 1,046 $ 7,280
Redeemed (29,893) $ (222,023) (43,543) $ (307,637)
NET INCREASE 13,567 $ 98,293 35,908 $ 304,988
CLASS B
Sold 76,899 $ 556,448 38,811 $ 277,704
Dividends or Distributions
Reinvested 138 $ 971 69 $ 461
Redeemed (44,160) $ (312,592) (43,542) $ (306,716)
NET INCREASE (DECREASE) 32,877 $ 244,827 (4,662) $ (28,551)
CLASS C
Sold 18,745 $ 122,311 24,035 $ 171,946
Dividends or Distributions
Reinvested 2 $ 10 0 $ 0
Redeemed (18,304) $ (128,631) (47,882) $ (323,197)
NET INCREASE (DECREASE) 443 $ (6,310) (23,847) $ (151,251)
CLASS F
Sold 2,774,685 $ 19,677,956 3,379,558 $ 25,710,382
Dividends or Distributions
Reinvested 164,539 $ 1,202,840 288,655 $ 2,097,722
Redeemed (7,225,827) $ (51,960,176) (20,429,796) $ (151,138,318)
NET DECREASE (4,286,603) $ (31,079,380) (16,761,583) $ (123,330,214)
CLASS R
Sold 7,391 $ 55,000 5,874 $ 40,000
Dividends or Distributions
Reinvested 15 $ 114 0 $ 0
Redeemed (0) $ (0) (5,874) $ (39,706)
NET INCREASE 7,406 $ 55,114 0 $ 294
CLASS T
Sold 2,530 $ 19,657 365 $ 2,456
Dividends or Distributions
Reinvested 1 $ 11 0 $ 0
Redeemed (0) $ (0) (26,771) $ (221,569)
NET INCREASE (DECREASE) 2,531 $ 19,668 (26,406) $ (219,113)
</Table>
34
<Page>
5. INVESTMENT TRANSACTIONS
For the year ended December 31, 2003, purchases and sales of investment
securities (excluding short-term securities and U.S. government obligations)
were $110,480,479 and $150,034,431, respectively. Purchases and sales of
long-term U.S. government obligations were $18,639,343 and $18,747,960,
respectively.
6. CALL OPTIONS WRITTEN
Transactions in options written during the year ended December 31, 2003 were as
follows:
<Table>
<Caption>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------- ------------
Options outstanding at December 31, 2002 0 $ 0
Options written 1,500 160,440
Options terminated in closing purchase transactions (1,160) (104,512)
Options expired (170) (30,939)
Options exercised (170) (24,989)
----------- ------------
Options outstanding at December 31, 2003 0 $ 0
=========== ============
</Table>
7. 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) $50 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 $50 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 December 31, 2003, the Fund did not have any borrowings under the
LOC.
35
<Page>
8. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
36
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Balanced Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
37
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the year ended December 31, 2003, 73.11% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2003, the Fund designated 67% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
38
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus
Founders Funds. The business and affairs of the Company are managed under the
direction of the Board. The directors serving on the Board perform their
responsibilities in the manner which they reasonably believe to be in the best
interests of the Funds and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
39
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
40
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
41
<Page>
For More Information
DREYFUS FOUNDERS
BALANCED FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
210 University Boulevard, Suite 800
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)2004 Dreyfus Service Corporation 086AR1203
<Page>
Dreyfus Founders
Discovery Fund
Dreyfus Founders Discovery Fund is closed to new investors.
Please see the prospectus for additional information.
ANNUAL REPORT December 31, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
(R) DREYFUS LOGO
A MELLON FINANCIAL COMPANY(SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 12
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Auditors 38
Your Board Representatives 39
</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 3-11
were owned by the Fund on December 31, 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 ROBERT AMMANN]
A DISCUSSION WITH PORTFOLIO MANAGER ROBERT AMMANN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12 MONTHS ENDED
DECEMBER 31, 2003?
For the one-year period ended December 31, 2003, the Dreyfus Founders Discovery
Fund underperformed its benchmark, the Russell 2000 Growth Index. The Index
posted a total return of 48.54% for the period.
WHAT ECONOMIC OR MARKET DYNAMICS SET THE INVESTING ENVIRONMENT DURING THE
PERIOD?
Following the market low set in March, as confidence increased that the Iraqi
conflict would move toward resolution, other market and economic dynamics took
the lead in dictating the market's direction. The favorable dynamics of strong
corporate profit growth, robust economic growth, an accommodative monetary
policy, favorable inflation picture and a favorable dividend and capital gains
tax environment helped drive the market's strong returns. However, some
potential market negatives during the year that were of concern included a
growing budget deficit, weak dollar, market valuation, continued geopolitical
instability and perhaps increasing concern that the Fed's accommodative monetary
policy could reverse in 2004.
[SIDE NOTE]
"THE 2003 MARKET BIAS FAVORED HIGHER RISK, LOWER QUALITY COMPANIES AS STOCKS OF
MONEY-LOSING COMPANIES IN THE INDEX SIGNIFICANTLY OUTPERFORMED STOCKS OF
PROFITABLE COMPANIES."
3
<Page>
The strong market returns this year had an added dynamic which dramatically
favored higher-risk asset classes. Within the small-capitalization market we saw
a continuation of the trend toward a "micro-cap bias." In fact, when analyzing
the returns of the Russell 2000 Growth Index by sorting the Index into quintiles
based on market capitalization, the largest capitalization quintile of the Index
returned 39.69%, while the smallest cap quintile returned 68.29%, or over 28
percentage points of greater relative returns.(1) However, the Fund, with its
large asset base, often finds it difficult to take positions in many of these
extremely small companies, as liquidity prevents it from building a meaningful
position.
The market bias not only favored smaller, but also lower quality, companies.
Stocks of money-losing companies in the Index significantly outperformed stocks
of profitable companies. As a group, stocks priced under $5 posted over 132% in
gains for the year. And, when analyzing
- ----------
(1)Source: Prudential Financial, "Small-Cap and Mid-Cap Perspectives,"
Steven G. DeSanctis, CFA
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - The strong market returns this year had a dynamic which dramatically favored
higher-risk asset classes. The market favored lower quality, lower priced,
money-losing companies, as well as smaller market-cap companies, as was
demonstrated in its micro-cap bias.
- - The Fund enjoyed a considerable overall benefit within the financials sector
due to a significant underweight position in this lagging sector.
- - Strong stock selection within the consumer discretionary sector offset the
Fund's overweight position in this slightly lagging sector versus the Index.
- - Fund performance was negatively impacted by a relatively high cash position.
- - The Fund suffered significant negative relative performance on an overall
basis within the healthcare sector, with the bulk of the underperformance a
result of a select few relatively poor performing stocks.
4
<Page>
the returns of the Russell 2000 Growth Index by sorting the Index into quintiles
based on volatility, the highest beta quintile of stocks posted over a 73%
return. Finally, quality, as measured by return on equity (ROE), significantly
favored the lowest ROE quintile category within the Index.(2)
WHAT MANAGEMENT DECISIONS POSITIVELY CONTRIBUTED TO FUND PERFORMANCE?
The Fund enjoyed a considerable overall benefit within the financials sector due
to a significant underweight position in this lagging sector. While stock
selection in the sector was relatively poor, this impact was significantly
counterbalanced by the Fund's underweight position, which was held due to the
liquidity constraints many of the small-cap financial holdings pose, and also
because of the concern that as we neared the end of an interest rate easing
cycle, financials may underperform.
Strong stock selection within the consumer discretionary sector offset the
Fund's overweight position in this slightly lagging sector versus the Index. In
fact, the Fund's largest positive contributor from an individual stock
perspective came from HARMAN INTERNATIONAL INDUSTRIES, INC. Harman is a provider
of audio and other electronics to the consumer and automobile
- ----------
(2)Source: Prudential Equity Group, Inc., "Fearless Forecast 2004," January 2004
[SIDENOTE]
<Table>
LARGEST EQUITY HOLDINGS (ticker symbol)
1. Fairmont Hotels & Resorts, Inc. (FHR) 1.85%
2. Marvel Enterprises, Inc. (MVL) 1.75%
3. Medicis Pharmaceutical Corporation (MRX) 1.72%
4. Macrovision Corporation (MVSN) 1.69%
5. Advance Auto Parts, Inc. (AAP) 1.61%
6. Brooks Automation, Inc. (BRKS) 1.59%
7. National-Oilwell, Inc. (NOI) 1.57%
8. Harman International Industries, Inc. (HAR) 1.52%
9. Advanced Neuromodulation Systems, Inc. (ANSI) 1.50%
10. Guitar Center, Inc. (GTRC) 1.44%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
original equipment manufacturer (OEM) markets, and appreciated sharply as a
result of high quality earnings results that were driven by automotive OEMs'
adoption of Harman's newer infotainment solutions. Specialty retail was another
bright spot for the Fund, as holdings such as ADVANCE AUTO PARTS, INC. and
Tractor Supply Company performed well. The Fund benefited from strong stock
selection in the restaurant industry as well,
[SIDENOTE]
[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 12/31/93 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>
due in part to the strong performance of RUBY TUESDAY, INC., a leader in the bar
and grill segment, which continued to demonstrate favorable operational results.
Fund holdings in the industrials sector saw some standout performance that
helped neutralize the negative impact of the Fund's relative overweight position
in this slightly lagging sector. Some of the strongest performance was seen
among many of the Fund's for-profit education-related companies
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- ------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 28.59% -- -- (10.20%)
Without sales charge 36.41% -- -- (8.87%)
CLASS B SHARES (12/31/99)
With redemption* 31.05% -- -- (10.30%)
Without redemption 35.05% -- -- (9.67%)
CLASS C SHARES (12/31/99)
With redemption** 34.16% -- -- (9.65%)
Without redemption 35.16% -- -- (9.65%)
CLASS F SHARES (12/29/89) 36.45% 6.03% 9.66% 13.52%
CLASS R SHARES (12/31/99) 36.87% -- -- (8.63%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 29.83% -- -- (10.33%)
Without sales charge 35.98% -- -- (9.29%)
</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 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 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 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.
7
<Page>
such as EDUCATION MANAGEMENT CORPORATION, where strong enrollment growth
translated into strong earnings growth. Stericycle, Inc., a medical waste
management company, also performed well as it continued to see steady customer
demand and new opportunities for selling more value-added service offerings. The
Fund also benefited from strong returns in many transportation-related companies
in the portfolio, namely airfreight and logistics companies UTI WORLDWIDE, INC.
and PACER INTERNATIONAL, INC., as well as from trucking companies such as J.B.
HUNT TRANSPORT SERVICES, INC. and WERNER ENTERPRISES, INC.
Aside from the few disappointments in the healthcare sector as is discussed
below, the Fund generally saw strong stock selection across many of its
healthcare holdings. Fund performance was positively impacted by the strong
performance of SELECT MEDICAL CORPORATION, a long-term acute care hospital and
outpatient rehabilitation services company, as it realized strong growth and the
added tailwind of a more favorable reimbursement environment. TARO
PHARMACEUTICAL INDUSTRIES LIMITED, INTEGRA LIFESCIENCES HOLDINGS, ODYSSEY
HEALTHCARE, INC., and ANDRX CORPORATION were also meaningful contributors during
the period.
[SIDENOTE]
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 25.15%
Consumer Discretionary 21.64%
Healthcare 21.23%
Industrials 18.16%
Energy 4.63%
Financials 2.14%
Materials 1.88%
Consumer Staples 1.77%
Telecommunications Services 1.27%
Cash & Equivalents 2.13%
</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>
Other less-significant positive impacts on performance included a zero
weighting in the utilities sector, which was the weakest performing sector of
the Index. The Fund also benefited from participation in initial public
offerings (IPOs) over the period.
WHAT FACTORS DETRACTED FROM THE FUND'S 12-MONTH PERFORMANCE?
Fund performance was negatively impacted by a relatively high cash position,
which averaged about 9.5% over the period. This had a dampening impact on Fund
performance, as the market returns were quite strong. Progress was made in
reducing the cash position during the fourth quarter of the year.
The Fund suffered significant negative relative performance on an overall
basis within the healthcare sector. While the Fund saw a modest negative impact
from being slightly overweight this sector, the bulk of the relative
underperformance was a result of a select few relatively poor performing stocks.
The most significant of these, and the Fund's largest negative contributor from
an individual stock standpoint, was Accredo Health, Inc., a contract pharmacy
services company, which fell sharply early in the year as it lowered
expectations due to both competition in specific product areas and acquisition
integration challenges. Other poor performers within the sector included AMN
Healthcare Services, Inc., a nurse staffing company, which also fell sharply as
customer demand for temporary nurse staffing slowed. The Fund's holdings within
the hospital industry, namely Lifepoint Hospitals, Inc. and Community Health
Systems, Inc. also performed poorly due to rotation into more economically
sensitive holdings as well as slowing admission trends. Charles River
Laboratories International, Inc., a research models company, lagged after
slightly lowering earnings guidance early in the year.
Despite information technology being a strong-performing sector for the
period, the Fund suffered from an underweight position in this sector, and to a
lesser extent, from stock selection as well. From a stock standpoint, Fund
performance lagged primarily due to the impact of two stocks: Tech Data
Corporation, a technology distributor, which fell early during the period after
revising downward their fiscal year 2003 earnings guidance
9
<Page>
and announcing a large acquisition; and Cree, Inc., a light emitting diode (LED)
company, which exhibited weakness related to a lawsuit filed by the former
founder and brother of the company's current chairman.
The energy sector was another poor relative performer for the Fund primarily
due to weak stock selection and, to a lesser extent, the timing of our
overweight position. The primary detractor within the sector was Tidewater,
Inc., which despite strong commodity prices, did not see this translate into a
significant business recovery for its supply boat services. The Fund also
maintained a slight underweight within the strong-performing exploration and
production industry versus the Index.
Poor stock selection and an underweight position within the telecommunication
services sector, the best performing sector in the Index for the period, also
impeded overall Fund performance. The primary impact came from the performance
of Boston Communications Group, Inc., a provider of billing and processing
services for wireless carriers, which fell after revealing its largest customer,
Verizon Wireless, was considering bringing in-house some services historically
provided by Boston Communications.
While the Fund was underweight the somewhat more defensive and slower growth
materials and consumer staples sectors, weak stock selection more than offset
this potential positive. Within the materials sector, RPM International, Inc.,
an industrial coating and sealant company, performed poorly as a result of
potential asbestos liability concerns. Consumer staples stock selection was
negatively impacted by the performance of Duane Reade, Inc. and American Italian
Pasta Company.
Additional detractors to performance were other stock-specific
disappointments including Alloy, Inc., which proved to be the second-largest
negative contributor from an individual stock perspective. Alloy, a teen direct
marketing and media company, fell sharply after missing earnings expectations
due to unexpected higher fulfillment costs and more promotional activity. Other
significant negative contributors to relative performance include Atlantic Coast
Airlines Holdings, Inc. and Scholastic Corporation.
10
<Page>
WHAT CHANGES WERE MADE TO FUND COMPOSITION DURING THE PERIOD?
We are pleased to have been able to continue to lower the cash position from
recent levels in excess of 10% to a year-end level around 3% of assets. This is
also reflected in the number of holdings in the portfolio having increased from
101 at the beginning of the year to 119 as we ended 2003. Many of these new
holdings were in the technology sector where we have worked hard to identify
smaller or micro-cap companies we believe are more attractively valued than some
larger counterparts.
Our strategy for the Fund remains consistent. We will continue to utilize our
bottom-up process to seek companies we believe are capable of posting strong
future earnings growth and that are valued attractively. While 2003 was not a
year that favored "higher quality" within the small-cap sector, we will continue
to maintain our discipline of remaining "concept stock" averse, preferring to
primarily own companies we can value on earnings rather than stocks that trade
on short-term news and psychology.
/s/ Robert Ammann
Robert Ammann, CFA
Portfolio Manager
11
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-91.5%
AEROSPACE & DEFENSE-1.5%
264,285 KVH Industries, Inc.* $ 7,259,900
191,495 ManTech International Corporation* 4,777,800
--------------
12,037,700
--------------
AIR FREIGHT & LOGISTICS-1.8%
176,000 Forward Air Corporation* 4,840,000
472,120 Pacer International, Inc.* 9,546,266
--------------
14,386,266
--------------
ALTERNATIVE CARRIERS-1.3%
1,177,825 Premiere Technologies, Inc.* 10,376,638
--------------
APPAREL, ACCESSORIES & LUXURY GOODS-1.0%
144,220 Columbia Sportswear Company* 7,859,990
--------------
APPLICATION SOFTWARE-3.1%
211,455 Altiris, Inc.* 7,713,878
104,050 Ansys, Inc.* 4,130,785
200,440 Cadence Design Systems, Inc.* 3,603,911
344,275 Concur Technologies, Inc.* 3,332,582
121,725 Hyperion Solutions Corporation* 3,668,792
110,975 Manhattan Associates, Inc.* 3,067,349
--------------
25,517,297
--------------
BROADCASTING & CABLE TV-1.4%
529,525 Cumulus Media, Inc.* 11,649,550
--------------
BUILDING PRODUCTS-0.7%
151,270 Trex Company, Inc.* 5,745,235
--------------
CASINOS & GAMING-0.3%
75,925 Shuffle Master, Inc.* 2,628,524
--------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-5.8%
942,452 Arris Group, Inc.* $ 6,823,352
246,025 Avocent Corporation* 8,984,833
225,570 Harris Corporation 8,560,382
115,980 NetScreen Technologies, Inc.* 2,870,505
294,975 Polycom, Inc.* 5,757,912
494,730 Powerwave Technologies, Inc.* 3,784,685
73,110 SafeNet, Inc.* 2,249,595
1,847,522 Stratex Networks, Inc.* 7,851,969
--------------
46,883,233
--------------
CONSTRUCTION & ENGINEERING-1.3%
179,800 Chicago Bridge & Iron Company NV NY Shares 5,196,220
111,155 Jacobs Engineering Group, Inc.* 5,336,552
--------------
10,532,772
--------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.5%
242,925 Wabtec Corporation 4,139,442
--------------
CONSUMER ELECTRONICS-1.5%
167,725 Harman International Industries, Inc. 12,408,296
--------------
DISTILLERS & VINTNERS-0.7%
160,840 Constellation Brands, Inc.* 5,296,461
--------------
DIVERSIFIED COMMERCIAL SERVICES-4.1%
86,150 Corinthian Colleges, Inc.* 4,786,494
289,760 Education Management Corporation* 8,994,150
221,390 Kroll, Inc.* 5,756,140
280,089 LECG Corporation* 6,411,237
47,685 Strayer Education, Inc. 5,189,559
71,950 Universal Technical Institute, Inc.* 2,158,500
--------------
33,296,080
--------------
ELECTRICAL COMPONENTS & EQUIPMENT-1.0%
175,050 AMETEK, Inc. 8,447,913
--------------
ELECTRONIC EQUIPMENT MANUFACTURERS-2.1%
487,560 Aeroflex, Inc.* 5,699,576
180,875 FLIR Systems, Inc.* 6,601,938
301,925 RadiSys Corporation* 5,090,456
--------------
17,391,970
--------------
ELECTRONIC MANUFACTURING SERVICES-0.2%
106,525 TTM Technologies, Inc.* 1,798,142
--------------
ENVIRONMENTAL SERVICES-2.1%
174,565 Stericycle, Inc.* 8,152,186
231,100 Waste Connections, Inc.* 8,728,647
--------------
16,880,833
--------------
FOOD RETAIL-0.3%
31,365 Whole Foods Market, Inc.* 2,105,532
--------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.6%
163,585 Tuesday Morning Corporation* $ 4,948,446
--------------
HEALTHCARE DISTRIBUTORS-2.6%
250,925 Fisher Scientific International, Inc.* 10,380,767
154,311 Henry Schein, Inc.* 10,428,337
--------------
20,809,104
--------------
HEALTHCARE EQUIPMENT-3.3%
265,725 Advanced Neuromodulation Systems, Inc.* 12,218,036
559,950 Alaris Medical Systems, Inc.* 8,516,840
117,680 Integra LifeSciences Holdings* 3,369,178
137,400 VISX, Inc.* 3,180,810
--------------
27,284,864
--------------
HEALTHCARE FACILITIES-1.3%
661,635 Select Medical Corporation 10,771,418
--------------
HEALTHCARE SERVICES-2.5%
327,287 Odyssey Healthcare, Inc.* 9,576,418
411,485 SFBC International, Inc.* 10,929,042
--------------
20,505,460
--------------
HEALTHCARE SUPPLIES-1.2%
169,800 Merit Medical Systems, Inc.* 3,779,748
320,510 Sola International, Inc.* 6,025,588
--------------
9,805,336
--------------
HOME ENTERTAINMENT SOFTWARE-0.7%
361,630 Sonic Solutions* 5,532,939
--------------
HOME FURNISHINGS-1.4%
399,800 Furniture Brands International, Inc. 11,726,134
--------------
HOTELS, RESORTS & CRUISE LINES-1.3%
310,125 Choice Hotels International, Inc.* 10,931,906
--------------
INDUSTRIAL MACHINERY-1.0%
225,300 Actuant Corporation* 8,155,860
--------------
INTERNET SOFTWARE & SERVICES-0.7%
123,040 j2 Global Communications, Inc.* 3,047,701
159,057 United Online, Inc.* 2,670,567
--------------
5,718,268
--------------
IT CONSULTING & OTHER SERVICES-1.7%
503,800 CIBER, Inc.* 4,362,908
969,465 Lionbridge Technologies, Inc.* 9,316,559
--------------
13,679,467
--------------
LEISURE PRODUCTS-3.4%
241,850 Leapfrog Enterprises, Inc.* 6,416,281
489,320 Marvel Enterprises, Inc.* 14,244,105
78,000 Polaris Industries, Inc. 6,909,240
--------------
27,569,626
--------------
MANAGED HEALTHCARE-0.9%
180,325 Amerigroup Corporation* 7,690,861
--------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
OIL & GAS DRILLING-0.4%
173,725 Pride International, Inc.* $ 3,238,234
--------------
OIL & GAS EQUIPMENT & SERVICES-2.8%
83,150 Carbo Ceramics, Inc. 4,261,438
572,395 National-Oilwell, Inc.* 12,798,752
635,225 Superior Energy Services, Inc.* 5,971,115
--------------
23,031,305
--------------
OIL & GAS EXPLORATION & PRODUCTION-1.4%
157,235 Pioneer Natural Resources Company* 5,020,514
199,600 Quicksilver Resources, Inc.* 6,447,080
--------------
11,467,594
--------------
PHARMACEUTICALS-7.9%
389,350 Andrx Corporation* 9,359,974
512,880 Impax Laboratories, Inc.* 7,380,343
169,437 K-V Pharmaceuticals Company* 4,320,644
196,876 Medicis Pharmaceutical Corporation Class A 14,037,259
163,290 MGI Pharma, Inc.* 6,719,384
68,575 Pharmaceutical Resources, Inc.* 4,467,661
136,800 Taro Pharmaceutical Industries Limited* 8,823,600
188,050 Salix Pharmaceuticals Limited* 4,263,094
205,100 Valeant Pharmaceuticals International 5,158,265
--------------
64,530,224
--------------
PUBLISHING-0.8%
126,820 Getty Images, Inc.* 6,357,487
--------------
REGIONAL BANKS-0.7%
136,990 Southwest Bancorporation of Texas, Inc. 5,322,062
--------------
RESTAURANTS-2.7%
95,615 Krispy Kreme Doughnuts, Inc.* 3,499,509
262,112 Rare Hospitality International, Inc.* 6,406,017
147,444 Red Robin Gourmet Burgers, Inc.* 4,488,195
279,235 Ruby Tuesday, Inc. 7,955,405
--------------
22,349,126
--------------
SEMICONDUCTOR EQUIPMENT-2.5%
537,620 Brooks Automation, Inc.* 12,994,275
605,030 Entegris, Inc.* 7,774,636
--------------
20,768,911
--------------
SEMICONDUCTORS-5.2%
307,400 Actel Corporation* 7,408,340
463,500 Artisan Components, Inc.* 9,501,750
396,650 Fairchild Semiconductor Corporation Class A* 9,904,351
48,110 OmniVision Technologies, Inc.* 2,658,078
366,200 Semtech Corporation* 8,323,726
180,775 Sigmatel, Inc.* 4,461,527
--------------
42,257,772
--------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
SPECIALTY CHEMICALS-0.9%
145,600 Valspar Corporation $ 7,195,552
--------------
SPECIALTY STORES-5.3%
161,320 Advance Auto Parts, Inc.* 13,131,448
182,665 Cost Plus, Inc.* 7,489,265
361,400 Guitar Center, Inc.* 11,774,412
283,298 Movie Gallery, Inc.* 5,292,007
167,350 PETCO Animal Supplies, Inc.* 5,095,808
--------------
42,782,940
--------------
STEEL-1.0%
599,200 Graftech International Limited* 8,089,200
--------------
SYSTEMS SOFTWARE-2.2%
610,840 Macrovision Corporation* 13,798,876
241,960 Secure Computing Corporation* 4,333,504
--------------
18,132,380
--------------
TECHNOLOGY DISTRIBUTORS-0.9%
384,686 Insight Enterprises, Inc.* 7,232,097
--------------
TRADING COMPANIES & DISTRIBUTORS-1.0%
156,245 Fastenal Company 7,802,875
--------------
TRUCKING-2.5%
184,450 JB Hunt Transport Services, Inc.* 4,981,995
177,150 Knight Transportation, Inc.* 4,543,898
277,945 Overnite Corporation* 6,323,249
249,863 Werner Enterprises, Inc. 4,869,830
--------------
20,718,972
--------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$627,756,535) 745,788,294
--------------
COMMON STOCKS (FOREIGN)-6.4%
AIR FREIGHT & LOGISTICS-0.7%
153,500 UTI Worldwide, Inc. (VI) 5,822,255
--------------
HEALTHCARE EQUIPMENT-0.7%
136,700 ResMed, Inc. (AU)* 5,678,518
--------------
HOTELS, RESORTS & CRUISE LINES-1.9%
556,910 Fairmont Hotels & Resorts, Inc. (CA) 15,114,537
--------------
PHARMACEUTICALS-0.7%
128,120 Angiotech Pharmaceuticals, Inc. ADR (CA)* 5,893,520
--------------
REINSURANCE-1.5%
258,510 Platinum Underwriters Holdings Limited (BD) 7,755,300
210,500 Scottish Re Group Limited (BD) 4,374,190
--------------
12,129,490
--------------
</Table>
16
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
SOFT DRINKS-0.9%
251,675 Cott Corporation (CA)* $ 7,049,417
--------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$46,491,203) 51,687,737
--------------
<Caption>
UNITS MARKET VALUE
- ----------------------------------------------------------------------------------
WARRANTS-0.0%
COMMERCIAL PRINTING-0.0%
2,368 American Banknote Corporation Warrants, expire 2007* 2
2,368 American Banknote Corporation Warrants, expire 2007* 24
--------------
26
--------------
TOTAL WARRANTS
(COST-$0) 26
--------------
TOTAL INVESTMENTS-97.9%
(TOTAL COST-$674,247,738) 797,476,057
OTHER ASSETS AND LIABILITIES-2.1% 17,423,168
--------------
NET ASSETS-100.0% $ 814,899,225
==============
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 674,247,738
---------------
Investment securities, at market 797,476,057
Cash 5,723,519
Receivables:
Investment securities sold 25,333,939
Capital shares sold 1,008,813
Dividends 113,074
Other assets 39,010
---------------
Total Assets 829,694,412
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 8,750,345
Capital shares redeemed 4,719,987
Advisory fees 572,231
Shareholder servicing fees 54,187
Accounting fees 36,339
Distribution fees 87,150
Transfer agency fees 144,171
Custodian fees 380
Other 430,397
---------------
Total Liabilities 14,795,187
---------------
Net Assets $ 814,899,225
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 1,156,411,959
Accumulated net investment loss (99,180)
Accumulated net realized loss from security transactions (464,641,873)
Net unrealized appreciation on investments 123,228,319
---------------
Total $ 814,899,225
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
<Table>
Net Assets--Class A $ 79,629,612
Shares Outstanding--Class A 3,058,369
Net Asset Value, Redemption Price Per Share $ 26.04
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $ 27.63
Net Assets--Class B $ 21,009,189
Shares Outstanding--Class B 836,337
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 25.12
Net Assets--Class C $ 8,352,391
Shares Outstanding--Class C 332,294
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 25.14
Net Assets--Class F $ 638,880,464
Shares Outstanding--Class F 24,587,346
Net Asset Value, Offering and Redemption Price Per Share $ 25.98
Net Assets--Class R $ 65,239,955
Shares Outstanding--Class R 2,478,266
Net Asset Value, Offering and Redemption Price Per Share $ 26.32
Net Assets--Class T $ 1,787,614
Shares Outstanding--Class T 69,973
Net Asset Value, Redemption Price Per Share $ 25.55
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 26.75
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 1,004,000
Interest 712,422
Foreign taxes withheld (4,168)
---------------
Total Investment Income 1,712,254
---------------
EXPENSES:
Advisory fees--Note 2 5,896,047
Shareholder servicing fees--Note 2 606,704
Accounting fees--Note 2 379,728
Distribution fees--Note 2 1,525,567
Transfer agency fees--Note 2 1,317,912
Registration fees 110,464
Postage and mailing expenses 183,101
Custodian fees and expenses--Note 2 18,263
Printing expenses 154,611
Legal and audit fees 177,410
Directors' fees and expenses--Note 2 163,594
Other expenses 281,840
---------------
Total Expenses 10,815,241
Earnings Credits (9,534)
Waived Expenses (4,165)
Expense Offset to Broker Commissions (4,000)
---------------
Net Expenses 10,797,542
---------------
Net Investment Loss (9,085,288)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 13,930,958
Net Change in Unrealized Appreciation/Depreciation of Investments 218,611,635
---------------
Net Realized and Unrealized Gain 232,542,593
---------------
Net Increase in Net Assets Resulting from Operations $ 223,457,305
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
--------------- ---------------
OPERATIONS
Net Investment Loss $ (9,085,288) $ (9,642,274)
Net Realized Gain (Loss) 13,930,958 (254,766,071)
Net Change in Unrealized Appreciation / Depreciation 218,611,635 (84,564,881)
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 223,457,305 (348,973,226)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (9,822,554) (13,346,442)
Class B (3,591,234) (5,807,035)
Class C (1,821,877) (4,278,012)
Class F (36,105,693) (73,946,291)
Class R 5,799,244 2,113,647
Class T 68,669 (329,325)
--------------- ---------------
Net Decrease from Capital Share Transactions (45,473,445) (95,593,458)
--------------- ---------------
Net Increase (Decrease) in Net Assets 177,983,860 (444,566,684)
NET ASSETS
Beginning of year $ 636,915,365 $ 1,081,482,049
--------------- ---------------
End of year (including accumulated net investment
loss of $99,180 and $0, respectively) $ 814,899,225 $ 636,915,365
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS A SHARES
Net Asset Value, beginning of year $ 19.09 $ 28.50 $ 34.79 $ 40.88
Income from investment operations:
Net investment loss (0.36) (0.31) (0.17) (0.03)
Net realized and unrealized gains
(losses) on securities 7.31 (9.10) (6.02) (3.45)
------------ ------------ ------------ ------------
Total from investment
operations 6.95 (9.41) (6.19) (3.48)
Less dividends and 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 year $ 26.04 $ 19.09 $ 28.50 $ 34.79
============ ============ ============ ============
Total return* 36.41% (33.02%) (17.78%) (8.18%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 79,630 $ 67,184 $ 117,773 $ 131,298
Net expenses to average net assets# 1.50% 1.35% 1.18% 1.20%
Gross expenses to average net assets# 1.50% 1.35% 1.19% 1.24%
Net investment loss to average
net assets (1.25%) (1.08%) (0.58%) (0.21%)
Portfolio turnover rate@ 130% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS B SHARES
Net Asset Value, beginning of year $ 18.60 $ 28.03 $ 34.49 $ 40.88
Income from investment operations:
Net investment loss (0.81) (0.69) (0.45) (0.21)
Net realized and unrealized gains
(losses) on securities 7.33 (8.74) (5.91) (3.57)
------------ ------------ ------------ ------------
Total from investment
operations 6.52 (9.43) (6.36) (3.78)
Less dividends and 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 year $ 25.12 $ 18.60 $ 28.03 $ 34.49
============ ============ ============ ============
Total return* 35.05% (33.64%) (18.43%) (8.92%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 21,009 $ 18,804 $ 35,845 $ 50,883
Net expenses to average net assets# 2.56% 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 (2.31%) (1.98%) (1.35%) (1.02%)
Portfolio turnover rate@ 130% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS C SHARES
Net Asset Value, beginning of year $ 18.60 $ 28.05 $ 34.51 $ 40.88
Income from investment operations:
Net investment loss (0.94) (0.86) (0.48) (0.19)
Net realized and unrealized gains
(losses) on securities 7.48 (8.59) (5.88) (3.57)
------------ ------------ ------------ ------------
Total from investment
operations 6.54 (9.45) (6.36) (3.76)
Less dividends and 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 year $ 25.14 $ 18.60 $ 28.05 $ 34.51
============ ============ ============ ============
Total return* 35.16% (33.69%) (18.42%) (8.87%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 8,352 $ 7,794 $ 17,031 $ 25,275
Net expenses to average net assets# 2.52% 2.26% 1.96% 1.94%
Gross expenses to average net assets# 2.52% 2.27% 1.98% 1.97%
Net investment loss to
average net assets (2.28%) (1.99%) (1.36%) (1.01%)
Portfolio turnover rate@ 130% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
CLASS F SHARES
Net Asset Value, beginning of year $ 19.04 $ 28.45 $ 34.74 $ 40.86 $ 24.37
Income from investment operations:
Net investment loss (0.35) (0.36) (0.20) (0.07) (0.08)
Net realized and unrealized gains
(losses) on securities 7.29 (9.05) (5.99) (3.44) 22.72
------------ ------------ ------------ ------------ ------------
Total from investment
operations 6.94 (9.41) (6.19) (3.51) 22.64
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 (0.10) (2.61) (6.15)
------------ ------------ ------------ ------------ ------------
Total distributions 0.00 0.00 (0.10) (2.61) (6.15)
Net Asset Value, end of year $ 25.98 $ 19.04 $ 28.45 $ 34.74 $ 40.86
============ ============ ============ ============ ============
Total return 36.45% (33.08%) (17.81%) (8.26%) 94.59%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 638,880 $ 498,970 $ 847,330 $ 1,066,003 $ 806,152
Net expenses to average
net assets# 1.53% 1.40% 1.24% 1.25% 1.45%
Gross expenses to average
net assets# 1.53% 1.41% 1.25% 1.28% 1.46%
Net investment loss to
average net assets (1.29%) (1.13%) (0.64%) (0.46%) (0.96%)
Portfolio turnover rate@ 130% 128% 110% 108% 157%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS R SHARES
Net Asset Value, beginning of year $ 19.23 $ 28.64 $ 34.87 $ 40.88
Income from investment operations:
Net investment income (loss) (0.17) (0.18) (0.08) 0.00+
Net realized and unrealized gains
(losses) on securities 7.26 (9.23) (6.05) (3.40)
------------ ------------ ------------ ------------
Total from investment
operations 7.09 (9.41) (6.13) (3.40)
Less dividends and 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 year $ 26.32 $ 19.23 $ 28.64 $ 34.87
============ ============ ============ ============
Total return 36.87% (32.86%) (17.57%) (7.98%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 65,240 $ 42,872 $ 61,163 $ 4,693
Net expenses to average net assets# 1.21% 1.10% 0.94% 0.93%
Gross expenses to average net assets# 1.21% 1.10% 0.95% 0.96%
Net investment income (loss) to
average net assets (0.96%) (0.82%) (0.38%) 0.01%
Portfolio turnover rate@ 130% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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.
26
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS T SHARES
Net Asset Value, beginning of year $ 18.79 $ 28.24 $ 34.69 $ 40.88
Income from investment operations:
Net investment loss (0.31) (0.54) (0.33) (0.09)
Net realized and unrealized gains
(losses) on securities 7.07 (8.91) (6.02) (3.49)
------------ ------------ ------------ ------------
Total from investment
operations 6.76 (9.45) (6.35) (3.58)
Less dividends and 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 year $ 25.55 $ 18.79 $ 28.24 $ 34.69
============ ============ ============ ============
Total return* 35.98% (33.46%) (18.30%) (8.43%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,788 $ 1,291 $ 2,341 $ 1,908
Net expenses to average net assets# 1.90% 2.06% 1.82% 1.44%
Gross expenses to average net assets# 1.91% 2.06% 1.83% 1.48%
Net investment loss to
average net assets (1.66%) (1.79%) (1.24%) (0.50%)
Portfolio turnover rate@ 130% 128% 110% 108%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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.
28
<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, if any, is recorded
as foreign currency gain or loss and would be 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 arises 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 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.
29
<Page>
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) 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 an indirect 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
1.00% 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.
30
<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 ("Dreyfus," 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $231,448 and $128,423, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $228,098 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 52,713
Class B $ 73,409
Class C $ 27,414
Class R $ 18,185
Class T $ 3,167
</Table>
31
<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 or servicing 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 year ended December 31, 2003, Class F shares were charged $1,320,188
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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 176,102
Class B $ 143,376 $ 47,792
Class C $ 58,595 $ 19,531
Class T $ 3,408 $ 3,408
</Table>
During the year ended December 31, 2003, DSC retained $2,399 and $8 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $67,480 and $139 of contingent deferred sales charges relating to
redemptions of Class B and Class C shares, respectively.
32
<Page>
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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $4,165. 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.
33
<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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 8,986,108 $ 0 $ (8,986,108)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted
below, if any, as of December 31, 2003, 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, 2011.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 455,702,028
Federal Tax Cost $ 683,187,583
Gross Tax Appreciation of Investments $ 150,381,262
Gross Tax Depreciation of Investments $ (36,092,788)
Net Tax Appreciation $ 114,288,474
</Table>
34
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
CLASS A
Sold 1,201,496 $ 27,097,339 914,819 $ 21,923,140
Redeemed (1,662,688) $ (36,919,893) (1,527,408) $ (35,269,582)
NET DECREASE (461,192) $ (9,822,554) (612,589) $ (13,346,442)
CLASS B
Sold 10,129 $ 212,967 26,778 $ 651,636
Redeemed (184,783) $ (3,804,201) (294,496) $ (6,458,671)
NET DECREASE (174,654) $ (3,591,234) (267,718) $ (5,807,035)
CLASS C
Sold 21,413 $ 428,341 27,424 $ 641,512
Redeemed (108,035) $ (2,250,218) (215,764) $ (4,919,524)
NET DECREASE (86,622) $ (1,821,877) (188,340) $ (4,278,012)
CLASS F
Sold 5,367,437 $ 117,439,063 5,520,185 $ 130,099,247
Redeemed (6,981,197) $ (153,544,756) (9,099,776) $ (204,045,538)
NET DECREASE (1,613,760) $ (36,105,693) (3,579,591) $ (73,946,291)
CLASS R
Sold 500,330 $ 11,153,199 438,891 $ 10,145,622
Redeemed (251,484) $ (5,353,955) (344,725) $ (8,031,975)
NET INCREASE 248,846 $ 5,799,244 94,166 $ 2,113,647
CLASS T
Sold 18,394 $ 420,952 14,612 $ 336,876
Redeemed (17,137) $ (352,283) (28,799) $ (666,201)
NET INCREASE (DECREASE) 1,257 $ 68,669 (14,187) $ (329,325)
</Table>
35
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$831,355,846 and $852,669,256, respectively.
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) $50 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 $50 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 December 31, 2003 the Fund did not have any borrowings under the
LOC.
36
<Page>
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
37
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Discovery Fund
(one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
38
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
39
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
40
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
41
<Page>
For More Information
DREYFUS FOUNDERS
DISCOVERY FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
210 University Boulevard, Suite 800
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)2004 Dreyfus Service Corporation 182AR1203
<Page>
Dreyfus Founders
Growth Fund
ANNUAL REPORT December 31, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
(R) 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
Report of Independent Auditors 35
Your Board Representatives 36
</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 December 31, 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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
Although the beginning of the year was shadowed by uncertainty over a war in
Iraq, investor confidence in the equity markets soon strengthened as a
conclusion to the Iraqi conflict and an improving economy increased the appetite
for less-defensive investment vehicles. Dreyfus Founders Growth Fund fared well
during the period compared to its large-capitalization growth benchmark, the
Russell 1000 Growth Index, which returned 29.75% for the period.
IN WHAT BROAD ECONOMIC AND MARKET ENVIRONMENT DID THE FUND PERFORM IN 2003?
The reporting period began in a market slump, with the uncertainty over a war in
Iraq weighing heavily on investor confidence. Falling equity prices and
continuing corporate malfeasance also goaded investors into looking for less
risky, more defensive securities in which to invest.
However, the second quarter of the year saw markets and the economy begin
their upswing, primarily driven by the conclusion to major hostilities in Iraq
and a renewed sense of confidence in the U.S.'s war on terror. Although economic
statistics supplied by government and other organizations continued to show
[SIDENOTE]
"THIS IMPROVING ECONOMIC ENVIRONMENT LAID THE BACKGROUND FOR THE POSITIVE
PERFORMANCE ACHIEVED BY THE FUND DURING THE PERIOD."
3
<Page>
mixed results, investors' renewed confidence in equity markets, the pace of
economic growth and falling interest rates drew investors' attention toward
less-defensive vehicles.
The domestic market's rise was driven by various economic improvements during
the course of the year. Better-than-expected corporate profit growth, the easing
of geopolitical uncertainty, the Federal Reserve's accommodative monetary policy
and President Bush's fiscal stimulus plan were major factors in the improving
economic trends. Consumer spending was high, especially in the housing and
automobile markets. Capital spending also appeared to strengthen. Productivity
beat expectations during the year, and real gross domestic product (GDP)
increased at an annual rate of 8.2% in the third quarter. And although some
domestic economic concerns still existed at year's end, primarily the weak U.S.
dollar and sluggish job growth numbers, expectations that these may continue to
recover in 2004 remained strong.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - Although some domestic economic concerns still existed at year's end,
primarily the weak U.S. dollar and sluggish job growth numbers, expectations
that these may continue to recover in 2004 remained strong.
- - Some of the most compelling growth and investment opportunities were found in
the consumer discretionary and consumer staples sectors, which benefited from
an increase in consumer spending.
- - While poor stock selection in the technology sector was a drag on overall
performance, a few select stocks in this sector positively contributed to
Fund performance.
- - Cash was relatively high, averaging 8.25% for the year, negatively impacting
the Fund's return in the strong market environment.
4
<Page>
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE FOR THE PERIOD?
This improving economic environment laid the background for the positive
performance achieved by the Fund during the period. Relative performance was
driven by strong stock selection in several sectors.
The healthcare sector was the largest contributor to the Fund's relative
performance, driven by its underweight position versus the benchmark. Although
specific healthcare holdings performed poorly, as discussed below, stock
selection in this sector had an overall positive effect on Fund performance for
the period.
Some of the most compelling growth and investment opportunities were found in
the consumer discretionary and consumer staples sectors. The increase in
consumer confidence, and therefore, consumer spending, drove performance in
these sectors. Strong stock selection also buoyed overall performance with names
such as BEST BUY COMPANY, INC., ROYAL CARIBBEAN CRUISES LIMITED, and ESTEE
LAUDER COMPANIES, INC. Solid execution and market share gains from primary
competitors drove Best Buys annual performance. The company also benefited from
a recovery in consumer spending, and some desirable new product cycles such as
digital
[SIDENOTE]
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. SPDR Trust Series 1 (SPY) 5.70%
2. General Electric Company (GE) 3.99%
3. Microsoft Corporation (MSFT) 2.75%
4. Estee Lauder Companies, Inc. (EL) 2.51%
5. Royal Caribbean Cruises Limited (RCL) 2.42%
6. Intel Corporation (INTC) 2.18%
7. MBNA Corporation (KRB) 2.10%
8. Wells Fargo & Company (WFC) 2.04%
9. Maxim Integrated Products, Inc. (MXIM) 2.02%
10. Cendant Corporation (CD) 1.98%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
photography and HDTV. Performance by Royal Caribbean Cruises, one of the Fund's
largest holdings, was spurred by an improvement in demand for leisure travel,
solid execution and excellent product positioning. Estee Lauder posted better
than expected revenue and earnings growth as the company benefited from a
rebound in high-end consumer demand in the United States and abroad.
[SIDENOTE]
[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 12/31/93 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>
While poor stock selection in the technology sector was a drag on overall
Fund performance, a few select individual stocks in this sector positively
contributed to the Fund's performance, such as INTEL CORPORATION, VERITAS
SOFTWARE CORPORATION, and CISCO SYSTEMS, INC. Intel benefited from robust demand
for personal computers driven primarily by consumers, while Cisco Systems gained
from both product introductions as well as a rebound in enterprise spending on
networking equipment.
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------
Class A Shares (12/31/99)
With sales charge (5.75%) 23.61% -- -- (16.83%)
Without sales charge 31.23% -- -- (15.59%)
Class B Shares (12/31/99)
With redemption* 26.14% -- -- (16.71%)
Without redemption 30.14% -- -- (16.19%)
Class C Shares (12/31/99)
With redemption** 29.04% -- -- (16.24%)
Without redemption 30.04% -- -- (16.24%)
Class F Shares (1/5/62) 31.42% (6.65%) 6.29% N/A
Class R Shares (12/31/99) 31.87% -- -- (15.39%)
Class T Shares (12/31/99)
With sales charge (4.50%) 24.57% -- -- (17.22%)
Without sales charge 30.40% -- -- (16.26%)
</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 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 one-year 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.
7
<Page>
The least compelling area for investment in 2003 was in the long distance and
local telephone industries within the telecommunications sector. These
industries continued to present lackluster performance during the year, so the
Fund limited exposure to this sector, reducing the potential negative impact.
WHAT MANAGEMENT DECISIONS HINDERED FUND PERFORMANCE DURING THE YEAR?
As mentioned above, poor stock selection in the technology sector dampened the
Fund's relative performance, with such names as BMC Software, Inc., a provider
of e-business systems management software, which exhibited sluggish sales trends
for its software products during most of 2003, and revised earnings expectations
lower.
[SIDENOTE]
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 27.76%
Consumer Discretionary 19.15%
Industrials 11.64%
Financials 11.29%
Healthcare 8.47%
Consumer Staples 7.49%
Materials 1.90%
Energy 1.67%
Utilities 0.84%
Telecommunications Services 0.78%
Other 5.70%
Cash & Equivalents 3.31%
</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>
Additional underperformers in the portfolio included Kohl's Corporation,
Medimmune, Inc., and Delta Air Lines, Inc. Kohl's, an operator of specialty
department stores, posted sluggish sales trends and lower margins as consumers
shifted spending to other retailers. Medimmune, a biotechnology company, saw its
stock price drop slightly as the launch of the company's new product, the nasal
flu vaccine FluMist, proved to be disappointing. A relatively high price
combined with restrictive handling requirements and limited distribution
resulted in poor demand for the product.
The Funds cash position, which averaged 8.25% for the year, hampered returns
the Fund might have otherwise seen in the strong market environment.
In 2004, we will continue to evaluate stocks one by one. Our research-driven
approach includes extensive financial modeling and frequent interaction with
company management. We will continue to seek out companies we believe have the
potential to grow faster than market expectations.
/s/ John B. Jares
John B. Jares, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-90.1%
AEROSPACE & DEFENSE-1.1%
31,525 General Dynamics Corporation $ 2,849,535
58,550 Lockheed Martin Corporation 3,009,470
---------------
5,859,005
---------------
AIRLINES-0.9%
186,700 AMR Corporation* 2,417,765
183,760 Northwest Airlines Corporation Class A* 2,319,051
---------------
4,736,816
---------------
ALUMINUM-1.1%
144,950 Alcoa, Inc. 5,508,100
---------------
APPAREL RETAIL-0.7%
146,175 Gap, Inc. 3,392,722
---------------
APPLICATION SOFTWARE-0.6%
139,725 PeopleSoft, Inc.* 3,185,730
---------------
ASSET MANAGEMENT & CUSTODY BANKS-0.9%
158,050 SEI Investments Company 4,815,784
---------------
BIOTECHNOLOGY-2.6%
62,735 Amgen, Inc.* 3,877,023
161,475 Gilead Sciences, Inc.* 9,388,157
---------------
13,265,180
---------------
BROADCASTING & CABLE TV-2.4%
33,150 Clear Channel Communications, Inc. 1,552,415
161,583 Comcast Corporation Special Class A* 5,054,316
162,900 Cox Communications, Inc. Class A* 5,611,905
---------------
12,218,636
---------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
CASINOS & GAMING-0.9%
100,350 Mandalay Resort Group $ 4,487,652
---------------
COMMUNICATIONS EQUIPMENT-1.9%
391,905 Cisco Systems, Inc.* 9,519,372
---------------
COMPUTER & ELECTRONICS RETAIL-0.7%
71,625 Best Buy Company, Inc. 3,741,690
---------------
COMPUTER HARDWARE-1.8%
100,250 International Business Machines Corporation 9,291,170
---------------
COMPUTER STORAGE & PERIPHERALS-0.9%
353,075 EMC Corporation* 4,561,729
---------------
CONSUMER FINANCE-2.1%
436,713 MBNA Corporation 10,852,318
---------------
DATA PROCESSING & OUTSOURCED SERVICES-1.3%
165,370 Fiserv, Inc.* 6,533,769
---------------
DEPARTMENT STORES-1.8%
73,500 Kohl's Corporation* 3,303,090
77,650 Nordstrom, Inc. 2,663,395
71,825 Sears Roebuck & Company 3,267,319
---------------
9,233,804
---------------
DIVERSIFIED BANKS-3.5%
23,300 Bank of America Corporation 1,874,019
125,350 Bank One Corporation 5,714,707
178,275 Wells Fargo & Company 10,498,615
---------------
18,087,341
---------------
DIVERSIFIED COMMERCIAL SERVICES-2.0%
457,350 Cendant Corporation* 10,185,185
---------------
DRUG RETAIL-1.6%
225,175 Walgreen Company 8,191,867
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS-0.3%
49,450 Agilent Technologies, Inc.* 1,445,918
---------------
EXCHANGE TRADED FUNDS-5.7%
264,225 SPDR Trust Series 1 29,405,600
---------------
FOOD RETAIL-0.6%
132,850 Safeway, Inc.* 2,910,744
---------------
GAS UTILITIES-0.8%
73,575 Kinder Morgan, Inc. 4,348,283
---------------
GOLD-0.8%
88,700 Newmont Mining Corporation 4,311,707
---------------
HEALTHCARE EQUIPMENT-0.5%
67,200 Boston Scientific Corporation* 2,470,272
---------------
</Table>
* NON-INCOME PRODUCING.
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL-1.3%
191,675 Home Depot, Inc. $ 6,802,546
---------------
HOTELS, RESORTS & CRUISE LINES-1.1%
135,850 Carnival Corporation 5,397,321
---------------
HOUSEHOLD PRODUCTS-1.3%
64,650 Procter & Gamble Company 6,457,242
---------------
HYPERMARKETS & SUPER CENTERS-0.5%
50,046 Wal-Mart Stores, Inc. 2,654,940
---------------
INDUSTRIAL CONGLOMERATES-4.6%
38,250 3M Company 3,252,398
663,509 General Electric Company 20,555,509
---------------
23,807,907
---------------
INDUSTRIAL MACHINERY-0.6%
38,900 Illinois Tool Works, Inc. 3,264,099
---------------
INTEGRATED OIL & GAS-0.5%
66,375 Exxon Mobil Corporation 2,721,375
---------------
INVESTMENT BANKING & BROKERAGE-2.3%
370,425 Charles Schwab Corporation 4,385,832
52,150 Goldman Sachs Group, Inc. 5,148,770
40,825 Morgan Stanley 2,362,543
---------------
11,897,145
---------------
LEISURE FACILITIES-2.4%
358,300 Royal Caribbean Cruises Limited 12,465,257
---------------
MOVIES & ENTERTAINMENT-4.7%
497,200 Time Warner, Inc.* 8,944,628
145,971 Viacom, Inc. Class B 6,478,193
375,700 Walt Disney Company 8,765,081
---------------
24,187,902
---------------
MULTI-LINE INSURANCE-1.1%
85,424 American International Group, Inc. 5,661,903
---------------
OIL & GAS DRILLING-0.2%
49,800 GlobalSantaFe Corporation 1,236,534
---------------
OIL & GAS EQUIPMENT & SERVICES-0.9%
111,750 Smith International, Inc.* 4,639,860
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.3%
141,717 Citigroup, Inc. 6,878,943
---------------
PERSONAL PRODUCTS-2.5%
329,903 Estee Lauder Companies, Inc. Class A 12,951,992
---------------
PHARMACEUTICALS-4.2%
109,875 Johnson & Johnson 5,676,143
62,850 Merck & Company, Inc. 2,903,670
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
210,213 Pfizer, Inc. $ 7,426,825
139,125 Wyeth 5,905,856
---------------
21,912,494
---------------
PUBLISHING-1.7%
67,975 Gannett Company, Inc. 6,060,651
56,125 Tribune Company 2,896,050
---------------
8,956,701
---------------
RAILROADS-1.8%
130,375 Union Pacific Corporation 9,058,455
---------------
SEMICONDUCTOR EQUIPMENT-1.5%
79,650 KLA-Tencor Corporation* 4,673,066
73,650 Novellus Systems, Inc.* 3,096,983
---------------
7,770,049
---------------
SEMICONDUCTORS-8.2%
49,825 Broadcom Corporation* 1,698,534
349,026 Intel Corporation 11,238,637
233,450 Linear Technology Corporation 9,821,242
209,375 Maxim Integrated Products, Inc. 10,426,875
241,225 Xilinx, Inc.* 9,345,057
---------------
42,530,345
---------------
SOFT DRINKS-1.1%
107,550 Coca-Cola Company 5,458,163
---------------
SPECIALTY STORES-1.5%
107,575 Staples, Inc.* 2,936,798
109,225 Tiffany & Company 4,936,970
---------------
7,873,768
---------------
SYSTEMS SOFTWARE-6.5%
45,750 Adobe Systems, Inc. 1,797,975
515,101 Microsoft Corporation 14,185,882
657,300 Oracle Corporation* 8,676,360
231,635 VERITAS Software Corporation* 8,607,557
---------------
33,267,774
---------------
WIRELESS TELECOMMUNICATION SERVICES-0.8%
142,650 Nextel Communications, Inc.* 4,002,759
---------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$404,092,957) 464,415,868
---------------
COMMON STOCKS (FOREIGN)-6.6%
APPLICATION SOFTWARE-1.7%
214,775 SAP AG Sponsored ADR (GE) 8,926,049
---------------
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.0%
311,500 Nokia Oyj Sponsored ADR (FI) $ 5,295,500
---------------
IT CONSULTING & OTHER SERVICES-1.1%
219,550 Accenture Limited Class A ADR (BD)* 5,778,556
---------------
PHARMACEUTICALS-1.2%
105,900 Teva Pharmaceutical Industries Limited
Sponsored ADR (IS) 6,005,589
---------------
RAILROADS-0.6%
49,450 Canadian National Railway Company (CA) 3,129,196
---------------
SEMICONDUCTOR EQUIPMENT-0.7%
175,750 ASM Lithography Holding NV NY Shares (NE)* 3,523,788
---------------
SEMICONDUCTORS-0.3%
39,875 Marvell Technology Group Limited (BD)* 1,512,459
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$25,637,871) 34,171,137
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-7.2%
$ 37,300,000 Federal National Mortgage Association
0.75% 1/2/04 $ 37,299,223
---------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$37,299,223) 37,299,223
---------------
TOTAL INVESTMENTS-103.9%
(TOTAL COST-$467,030,051) 535,886,228
OTHER ASSETS AND LIABILITIES-(3.9%) (20,243,028)
---------------
NET ASSETS-100.0% $ 515,643,200
===============
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 467,030,051
---------------
Investment securities, at market 535,886,228
Cash 2,334,837
Receivables:
Investment securities sold 8,048,394
Capital shares sold 251,798
Dividends 654,801
Other assets 41,116
---------------
Total Assets 547,217,174
---------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 15,388,864
Capital shares redeemed 15,008,523
Advisory fees 330,906
Shareholder servicing fees 42,522
Accounting fees 26,375
Distribution fees 149,706
Transfer agency fees 157,337
Custodian fees 277
Other 469,464
---------------
Total Liabilities 31,573,974
---------------
Net Assets $ 515,643,200
===============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 1,231,743,673
Accumulated net investment loss (112,853)
Accumulated net realized loss from security transactions (784,843,797)
Net unrealized appreciation on investments 68,856,177
---------------
Total $ 515,643,200
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
Net Assets--Class A $ 6,451,732
Shares Outstanding--Class A 659,072
Net Asset Value, Redemption Price Per Share $ 9.79
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 10.39
Net Assets--Class B $ 13,663,686
Shares Outstanding--Class B 1,438,402
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 9.50
Net Assets--Class C $ 1,774,021
Shares Outstanding--Class C 187,106
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 9.48
Net Assets--Class F $ 484,741,916
Shares Outstanding--Class F 49,336,777
Net Asset Value, Offering and Redemption Price Per Share $ 9.83
Net Assets--Class R $ 8,792,325
Shares Outstanding--Class R 888,576
Net Asset Value, Offering and Redemption Price Per Share $ 9.89
Net Assets--Class T $ 219,520
Shares Outstanding--Class T 23,146
Net Asset Value, Redemption Price Per Share $ 9.48
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 9.93
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 4,905,554
Interest 437,534
Foreign taxes withheld (12,027)
---------------
Total Investment Income 5,331,061
---------------
EXPENSES:
Advisory fees--Note 2 3,724,570
Shareholder servicing fees--Note 2 527,087
Accounting fees--Note 2 297,719
Distribution fees--Note 2 1,293,046
Transfer agency fees--Note 2 962,560
Registration fees 69,290
Postage and mailing expenses 119,941
Custodian fees and expenses--Note 2 12,862
Printing expenses 107,734
Legal and audit fees 94,239
Directors' fees and expenses--Note 2 115,828
Other expenses 182,718
---------------
Total Expenses 7,507,594
Earnings Credits (6,482)
Waived Expenses (3,051)
Expense Offset to Broker Commissions (4,225)
---------------
Net Expenses 7,493,836
---------------
Net Investment Loss (2,162,775)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security Transactions 16,581,469
Net Change in Unrealized Appreciation/Depreciation of Investments 122,368,802
---------------
Net Realized and Unrealized Gain 138,950,271
---------------
Net Increase in Net Assets Resulting from Operations $ 136,787,496
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
-------------- --------------
OPERATIONS
Net Investment Loss $ (2,162,775) $ (3,186,435)
Net Realized Gain (Loss) 16,581,469 (161,500,183)
Net Change in Unrealized Appreciation / Depreciation 122,368,802 (56,838,030)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 136,787,496 (221,524,648)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (258,678) (439,145)
Class B (1,223,196) (2,574,883)
Class C (166,651) (656,249)
Class F (88,319,324) (210,452,943)
Class R 2,736,606 3,376,685
Class T (41,579) (271,640)
-------------- --------------
Net Decrease from Capital Share Transactions (87,272,822) (211,018,175)
-------------- --------------
Net Increase (Decrease) in Net Assets 49,514,674 (432,542,823)
NET ASSETS
Beginning of year $ 466,128,526 $ 898,671,349
-------------- --------------
End of year (including accumulated net investment
loss of $112,853 and $0, respectively) $ 515,643,200 $ 466,128,526
============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of year $ 7.46 $ 10.53 $ 14.02 $ 23.88
Income from investment operations:
Net investment loss (0.06) (0.06) (0.05) (0.05)
Net realized and unrealized gains
(losses) on securities 2.39 (3.01) (3.44) (6.39)
---------- ---------- ---------- ----------
Total from investment
operations 2.33 (3.07) (3.49) (6.44)
Less dividends and 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 year $ 9.79 $ 7.46 $ 10.53 $ 14.02
========== ========== ========== ==========
Total return* 31.23% (29.15%) (24.89%) (27.30%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 6,452 $ 5,149 $ 7,795 $ 8,655
Net expenses to average net assets# 1.66% 1.48% 1.20% 1.05%
Gross expenses to average net assets# 1.66% 1.48% 1.21% 1.08%
Net investment loss to average
net assets (0.59%) (0.56%) (0.47%) (0.54%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of year $ 7.30 $ 10.38 $ 13.91 $ 23.88
Income from investment operations:
Net investment loss (0.17) (0.18) (0.13) (0.11)
Net realized and unrealized gains
(losses) on securities 2.37 (2.90) (3.40) (6.44)
---------- ---------- ---------- ----------
Total from investment
operations 2.20 (3.08) (3.53) (6.55)
Less dividends and 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 year $ 9.50 $ 7.30 $ 10.38 $ 13.91
========== ========== ========== ==========
Total return* 30.14% (29.67%) (25.38%) (27.77%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 13,664 $ 11,603 $ 19,829 $ 25,359
Net expenses to average net assets# 2.48% 2.22% 1.92% 1.80%
Gross expenses to average net assets# 2.48% 2.22% 1.93% 1.82%
Net investment loss to
average net assets (1.41%) (1.30%) (1.20%) (1.29%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of year $ 7.29 $ 10.36 $ 13.92 $ 23.88
Income from investment operations:
Net investment loss (0.19) (0.26) (0.18) (0.10)
Net realized and unrealized gains
(losses) on securities 2.38 (2.81) (3.38) (6.44)
---------- ---------- ---------- ----------
Total from investment
operations 2.19 (3.07) (3.56) (6.54)
Less dividends and 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 year $ 9.48 $ 7.29 $ 10.36 $ 13.92
========== ========== ========== ==========
Total return* 30.04% (29.63%) (25.58%) (27.72%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,774 $ 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 (1.42%) (1.46%) (1.38%) (1.28%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
CLASS F SHARES
Net Asset Value, beginning of year $ 7.48 $ 10.53 $ 14.03 $ 23.87 $ 20.41
Income from investment operations:
Net investment loss (0.17) (0.22) (0.15) (0.21) (0.09)
Net realized and unrealized
gains (losses) on securities 2.52 (2.83) (3.35) (6.21) 7.73
----------- ----------- ----------- ----------- -----------
Total from investment
operations 2.35 (3.05) (3.50) (6.42) 7.64
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00^
From net realized gains 0.00 0.00 0.00 (3.42) (4.18)
----------- ----------- ----------- ----------- -----------
Total distributions 0.00 0.00 0.00 (3.42) (4.18)
Net Asset Value, end of year $ 9.83 $ 7.48 $ 10.53 $ 14.03 $ 23.87
=========== =========== =========== =========== ===========
Total return 31.42% (28.96%) (24.95%) (27.23%) 39.06%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 484,742 $ 443,307 $ 865,425 $ 1,441,466 $ 3,323,606
Net expenses to average
net assets# 1.47% 1.37% 1.30% 1.06% 1.08%
Gross expenses to average
net assets# 1.47% 1.38% 1.31% 1.07% 1.09%
Net investment loss to
average net assets (0.41%) (0.46%) (0.58%) (0.58%) (0.47%)
Portfolio turnover rate@ 124% 139% 152% 182% 117%
</Table>
^ Distributions from net investment income for the year ended December 31, 1999
aggregated less than $0.01 on a per share basis.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of year $ 7.50 $ 10.57 $ 14.07 $ 23.88
Income from investment operations:
Net investment income (loss) 0.01 0.01 (0.02) (0.02)
Net realized and unrealized gains
(losses) on securities 2.38 (3.08) (3.48) (6.37)
---------- ---------- ---------- ----------
Total from investment
operations 2.39 (3.07) (3.50) (6.39)
Less dividends and 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 year $ 9.89 $ 7.50 $ 10.57 $ 14.07
========== ========== ========== ==========
Total return 31.87% (29.04%) (24.88%) (27.08%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 8,792 $ 4,333 $ 2,023 $ 9
Net expenses to average net assets# 1.13% 1.30% 1.46% 0.79%
Gross expenses to average net assets# 1.13% 1.30% 1.46% 0.82%
Net investment income (loss) to
average net assets (0.04%) (0.34%) (0.72%) (0.29%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of year $ 7.27 $ 10.38 $ 14.00 $ 23.88
Income from investment operations:
Net investment loss (0.30) (0.56) (0.19) (0.09)
Net realized and unrealized gains
(losses) on securities 2.51 (2.55) (3.43) (6.37)
---------- ---------- ---------- ----------
Total from investment
operations 2.21 (3.11) (3.62) (6.46)
Less dividends and 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 year $ 9.48 $ 7.27 $ 10.38 $ 14.00
========== ========== ========== ==========
Total return* 30.40% (29.96%) (25.86%) (27.38%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 220 $ 208 $ 621 $ 802
Net expenses to average net assets# 2.22% 2.78% 2.55% 1.29%
Gross expenses to average net assets# 2.22% 2.78% 2.56% 1.32%
Net investment loss to
average net assets (1.15%) (1.89%) (1.83%) (0.80%)
Portfolio turnover rate@ 124% 139% 152% 182%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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
December 31, 2003
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>
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, if any, is recorded
as foreign currency gain or loss and would be 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 arises 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 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.
26
<Page>
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) 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 an indirect 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
1.00% 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>
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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $306,950 and $169,884, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $212,499 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
----------
Class A $ 20,202
Class B $ 52,395
Class C $ 6,820
Class R $ 4,612
Class T $ 1,298
</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 or servicing 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 year ended December 31, 2003, Class F shares were charged $1,186,649
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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
-------------- --------------
Class A N/A $ 14,458
Class B $ 93,926 $ 31,309
Class C $ 11,977 $ 3,992
Class T $ 494 $ 494
</Table>
During the year ended December 31, 2003, DSC retained $622 and $19 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $37,121 and $80 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.
29
<Page>
CUSTODIAN FEES--Mellon Bank N.A., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $3,051. 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.
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
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,
30
<Page>
net operating losses, and capital loss carryovers. Permanent differences
identified during the year ended December 31, 2003 have been reclassified among
the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 2,049,922 $ 0 $ (2,049,922)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003 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. Net capital loss carryovers utilized in 2003 amounted to
$19,881,060.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 766,225,012
Post-October Capital Loss Deferral $ 5,914,879
Federal Tax Cost $ 479,733,957
Gross Tax Appreciation of Investments $ 65,953,511
Gross Tax Depreciation of Investments $ (9,801,240)
Net Tax Appreciation $ 56,152,271
</Table>
31
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------- ---------------
CLASS A
Sold 102,390 $ 863,766 176,909 $ 1,575,474
Issued in Connection with
Acquisition 0 $ 0 8,437 $ 83,443
Redeemed (133,313) $ (1,122,444) (235,763) $ (2,098,062)
NET DECREASE (30,923) $ (258,678) (50,417) $ (439,145)
CLASS B
Sold 95,258 $ 810,696 117,855 $ 1,071,298
Issued in Connection with
Acquisition 0 $ 0 30,576 $ 297,814
Redeemed (245,915) $ (2,033,892) (469,578) $ (3,943,995)
NET DECREASE (150,657) $ (1,223,196) (321,147) $ (2,574,883)
CLASS C
Sold 22,136 $ 191,985 19,428 $ 176,384
Issued in Connection with
Acquisition 0 $ 0 3,774 $ 36,681
Redeemed (44,718) $ (358,636) (100,964) $ (869,314)
NET DECREASE (22,582) $ (166,651) (77,762) $ (656,249)
CLASS F
Sold 5,549,619 $ 46,590,327 6,324,146 $ 57,283,483
Issued in Connection with
Acquisition 0 $ 0 162,005 $ 1,602,235
Redeemed (15,507,433) $ (134,909,651) (29,363,216) $ (269,338,661)
NET DECREASE (9,957,814) $ (88,319,324) (22,877,065) $ (210,452,943)
CLASS R
Sold 388,827 $ 3,417,348 440,296 $ 3,853,596
Issued in Connection with
Acquisition 0 $ 0 48 $ 475
Redeemed (77,669) $ (680,742) (54,408) $ (477,386)
NET INCREASE 311,158 $ 2,736,606 385,936 $ 3,376,685
CLASS T
Sold 856 $ 6,961 1,782 $ 16,192
Issued in Connection with
Acquisition 0 $ 0 791 $ 7,690
Redeemed (6,333) $ (48,540) (33,797) $ (295,522)
NET DECREASE (5,477) $ (41,579) (31,224) $ (271,640)
</Table>
32
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$565,669,867 and $625,074,961, respectively.
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) $50 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 $50 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 December 31, 2003, the Fund did not have any borrowings under the
LOC.
7. 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>
8. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
34
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Growth Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
35
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
36
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
37
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
38
<Page>
For More Information
DREYFUS FOUNDERS
GROWTH FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
210 University Boulevard, Suite 800
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)2004 Dreyfus Service Corporation 213AR1203
<Page>
Dreyfus Founders
Growth and
Income Fund
ANNUAL REPORT December 31, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
(R) 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
Report of Independent Auditors 35
Other Tax Information 36
Your Board Representatives 37
</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 December 31, 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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
The year saw equity markets reinvigorated as uncertainty and an appetite for
lower-risk investments soon gave way to confidence and heightened expectations
in the domestic economy. Dreyfus Founders Growth and Income Fund fared well
during the period when compared to its benchmark, the Standard & Poor's 500
Index, which posted a return of 28.68%.
IN WHAT BROAD ECONOMIC AND MARKET ENVIRONMENT DID THE FUND PERFORM IN 2003?
2003 began sluggishly with falling equity prices, uncertainty over the possible
war in Iraq and continuing corporate malfeasance stunting confidence in the
equity markets as investors searched for lower risk, more defensive securities
in which to invest.
However, by the second quarter of the year, the market experienced an
upswing, spurred by the easing of the uncertainty surrounding the hostilities in
Iraq. Although economic statistics supplied by the government and other
organizations continued to show mixed results, investors' renewed confidence
[SIDENOTE]
"IT WAS IN THE CONSUMER DISCRETIONARY AND CONSUMER STAPLES SECTORS WHERE WE
FOUND THE MOST COMPELLING GROWTH AND INVESTMENT OPPORTUNITIES."
3
<Page>
in equity markets, the pace of economic growth and falling interest rates drew
investors' attention toward less-defensive vehicles and back to the equity
market.
The market's rise was driven by various economic improvements during the
course of the year. Better-than-expected corporate profit growth, the easing of
geopolitical uncertainty, the Federal Reserve's accommodative monetary policy
and President Bush's fiscal stimulus plan were major factors in the improving
economic trends. And although some weights on the economic recovery still
existed during the year, expectations that these may continue to ease in the
coming year remained strong.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE FOR THE PERIOD?
The Fund was able to take advantage of the improving economic environment during
the twelve months ended December 31. It was in the consumer discretionary and
consumer staples sectors where we found
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - By the second quarter of the year, the market experienced an upswing that
continued throughout the year, spurred by the initiation and successful
conclusion to major hostilities in Iraq.
- - Relative performance was driven by Fund holdings in the technology, consumer
staples and consumer discretionary sectors as well as favorable stock
selection and overweight positions in select sectors versus the benchmark.
- - An infusion of consumer capital, driven by the improving economy, bolstered
the consumer discretionary sector's performance. Paired with the Fund's
relative overweight position and strong stock selection in this sector, this
helped boost Fund returns.
- - Weak stock selection in the information technology sector and the Fund's cash
position detracted from overall Fund performance during the year.
4
<Page>
some of the most compelling growth and investment opportunities. An infusion of
consumer capital, driven by the improving economy, bolstered the performance of
these sectors. Strong stock selection buoyed overall Fund performance with names
such as BEST BUY COMPANY, INC., ROYAL CARIBBEAN CRUISES LIMITED, and ESTEE
LAUDER COMPANIES, INC. Best Buy's success was driven by solid execution and
market share gains from primary competitors like Circuit City, Tweeter and
Ultimate Electronics. An improvement in consumer spending also helped company
performance as new product cycles such as HDTV and digital photography sparked
consumer interest. One of the Fund's largest holdings during the period, Royal
Caribbean's performance was helped by an increase in demand for leisure travel,
solid execution and excellent product positioning. Estee Lauder posted
better-than-expected revenue and earnings growth as the company benefited from a
rebound in high-end consumer demand in the United States and abroad.
The healthcare sector was the second largest contributor to the Fund's
relative performance. Although a few specific healthcare holdings underperformed
during the period, strong stock selection paired with an underweight position
versus the benchmark had a positive effect on the Fund's relative return.
[SIDENOTE]
LARGEST EQUITY HOLDINGS (TICKER SYMBOL)
<Table>
1. SPDR Trust Series 1 (SPY) 5.22%
2. General Electric Company (GE) 3.75%
3. Estee Lauder Companies, Inc. (EL) 2.30%
4. Royal Caribbean Cruises Limited (RCL) 2.28%
5. Microsoft Corporation (MSFT) 2.07%
6. MBNA Corporation (KRB) 1.98%
7. Maxim Integrated Products, Inc. (MXIM) 1.94%
8. Nordstrom, Inc. (JWN) 1.86%
9. Wells Fargo & Company (WFC) 1.84%
10. Linear Technology Corporation (LLTC) 1.84%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
Several stock picks within the technology sector also favorably impacted
performance. Notable among these strong performers are names such as INTEL
CORPORATION, VERITAS SOFTWARE CORPORATION, and CISCO SYSTEMS, INC. Intel
benefited from robust demand for personal computers driven primarily by
consumers. VERITAS Software posted excellent revenue
[SIDE NOTE]
[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 12/31/93 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>
and earnings growth as business enterprise spending on storage-related software
rebounded from 2002's very low levels. Cisco Systems gained from both a rebound
in enterprise spending on networking equipment as well as recent product
introductions.
The least compelling area for investment in 2003 was in the long distance and
local telephone industries within the telecommunications sector. These
industries continued to present lackluster performance during the year, so the
Fund limited its exposure to this sector, reducing the potential negative
impact.
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 23.01% -- -- (12.05%)
Without sales charge 30.52% -- -- (10.75%)
CLASS B SHARES (12/31/99)
With redemption* 25.41% -- -- (11.80%)
Without redemption 29.41% -- -- (11.17%)
CLASS C SHARES (12/31/99)
With redemption** 28.34% -- -- (11.58%)
Without redemption 29.34% -- -- (11.58%)
CLASS F SHARES (7/5/38) 30.67% (5.73%) 5.39% N/A
CLASS R SHARES (12/31/99) 30.55% -- -- (10.55%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 23.38% -- -- (12.30%)
Without sales charge 29.20% -- -- (11.28%)
</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 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.
7
<Page>
WHAT MANAGEMENT DECISIONS HINDERED PERFORMANCE DURING THE YEAR?
Weak stock selection in the strong-performing technology sector detracted from
overall Fund performance during the year. BMC Software, Inc., a provider of
e-business systems management software, exhibited sluggish sales trends for
their software products during most of 2003, and revised earnings expectations
lower. By the end of the year the company began to see better trends, however
the Fund had sold the stock before this uptick in sales. Other negative
contributors to Fund performance included KOHL'S CORPORATION, an operator of
specialty department stores, which posted lackluster sales and lower margins as
consumers shifted spending to other, higher-end retailers. Biotechnology
company, Medimmune, Inc. saw its stock price move lower as the company's nasal
flu vaccine, FluMist, proved a disappointing product launch. A relatively high
price combined with restrictive handling requirements and limited distribution
resulted in poor
[SIDENOTE]
[CHART]
PORTFOLIO COMPOSITION
<Table>
Information Technology 23.59%
Consumer Discretionary 19.84%
Industrials 10.82%
Financials 9.55%
Healthcare 7.83%
Consumer Staples 6.89%
Energy 3.81%
Materials 1.79%
Telecommunications Services 1.66%
Other 5.22%
Cash & Equivalents 9.00%
</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>
demand for the product. Wyeth, which partnered with Medimmune on the launch of
FluMist, also suffered poor stock price performance driven by continued concern
over diet drug litigation and the general lackluster performance experienced by
most large pharmaceutical companies.
Our management of the Fund continued to be driven primarily by our bottom-up
intensive research approach rather than macro-economic events. However, a
relatively high cash position in the first two months of the year helped buffer
the decline experienced in equity prices. A lowering of the Fund's cash position
in early March helped Fund performance as the commencement of the war in Iraq
sparked the rally in stock prices.
Even after this reduction, however, the Fund's cash position, which averaged
7.84% for the year, hampered returns the Fund might have otherwise seen in the
strong market environment.
An underweight position in the financials sector impeded Fund performance for
the year. Although some strong stock selection within this sector helped reduce
the negative effect that allocation had on performance, it was not enough to
counter-balance the overall negative impact.
Weak stock selection and an overweight position in the energy sector also
dampened the Fund's relative performance over the 12-month period.
As we move forward into 2004, our overall strategy remains unchanged. We will
continue to rely upon our bottom-up, fundamental-based intensive research
approach to seek 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
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-84.9%
AEROSPACE & DEFENSE-1.0%
13,375 General Dynamics Corporation $ 1,208,959
24,850 Lockheed Martin Corporation 1,277,290
----------------
2,486,249
----------------
AIRLINES-0.9%
80,575 AMR Corporation* 1,043,446
79,400 Northwest Airlines Corporation Class A* 1,002,028
----------------
2,045,474
----------------
ALUMINUM-1.0%
60,950 Alcoa, Inc. 2,316,100
----------------
APPAREL RETAIL-0.6%
62,050 Gap, Inc. 1,440,181
----------------
APPLICATION SOFTWARE-0.6%
58,650 PeopleSoft, Inc.* 1,337,220
----------------
ASSET MANAGEMENT & CUSTODY BANKS-0.9%
67,450 SEI Investments Company 2,055,202
----------------
BIOTECHNOLOGY-2.5%
26,810 Amgen, Inc.* 1,656,858
71,200 Gilead Sciences, Inc.* 4,139,568
----------------
5,796,426
----------------
BROADCASTING & CABLE TV-2.2%
13,950 Clear Channel Communications, Inc. 653,279
68,550 Comcast Corporation Special Class A* 2,144,244
72,050 Cox Communications, Inc. Class A* 2,482,123
----------------
5,279,646
----------------
CASINOS & GAMING-0.8%
43,125 Mandalay Resort Group 1,928,550
----------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.7%
166,038 Cisco Systems, Inc.* $ 4,033,063
----------------
COMPUTER & ELECTRONICS RETAIL-0.7%
31,424 Best Buy Company, Inc. 1,641,590
----------------
COMPUTER HARDWARE-1.7%
42,175 International Business Machines Corporation 3,908,779
----------------
COMPUTER STORAGE & PERIPHERALS-0.9%
156,175 EMC Corporation* 2,017,781
----------------
CONSUMER FINANCE-2.0%
188,456 MBNA Corporation 4,683,132
----------------
DATA PROCESSING & OUTSOURCED SERVICES-1.1%
68,875 Fiserv, Inc.* 2,721,251
----------------
DEPARTMENT STORES-3.1%
31,600 Kohl's Corporation* 1,420,104
128,516 Nordstrom, Inc. 4,408,099
31,000 Sears Roebuck & Company 1,410,190
----------------
7,238,393
----------------
DIVERSIFIED BANKS-3.2%
10,325 Bank of America Corporation 830,440
53,575 Bank One Corporation 2,442,484
74,075 Wells Fargo & Company 4,362,277
----------------
7,635,201
----------------
DIVERSIFIED COMMERCIAL SERVICES-1.8%
191,925 Cendant Corporation* 4,274,170
----------------
DRUG RETAIL-1.5%
96,800 Walgreen Company 3,521,584
----------------
EXCHANGE TRADED FUNDS-5.2%
110,950 SPDR Trust Series 1 12,347,626
----------------
FOOD RETAIL-0.5%
57,100 Safeway, Inc.* 1,251,061
----------------
GOLD-0.8%
39,225 Newmont Mining Corporation 1,906,727
----------------
HEALTHCARE EQUIPMENT-0.4%
28,500 Boston Scientific Corporation* 1,047,660
----------------
HOME IMPROVEMENT RETAIL-1.2%
78,525 Home Depot, Inc. 2,786,852
----------------
HOTELS, RESORTS & CRUISE LINES-1.7%
60,100 Carnival Corporation 2,387,773
44,175 Starwood Hotels & Resorts Worldwide, Inc. 1,588,975
----------------
3,976,748
----------------
</Table>
* NON-INCOME PRODUCING.
SPDR - STANDARD AND POOR'S DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS-1.1%
26,550 Procter & Gamble Company $ 2,651,814
----------------
HYPERMARKETS & SUPER CENTERS-0.5%
22,000 Wal-Mart Stores, Inc. 1,167,100
----------------
INDUSTRIAL CONGLOMERATES-4.3%
15,900 3M Company 1,351,977
286,700 General Electric Company 8,881,966
----------------
10,233,943
----------------
INDUSTRIAL MACHINERY-0.6%
16,075 Illinois Tool Works, Inc. 1,348,853
----------------
INTEGRATED OIL & GAS-1.8%
105,116 Exxon Mobil Corporation 4,309,756
----------------
INTEGRATED TELECOMMUNICATION SERVICES-0.9%
64,225 Verizon Communications, Inc. 2,253,013
----------------
INVESTMENT BANKING & BROKERAGE-1.3%
163,850 Charles Schwab Corporation 1,939,984
17,950 Morgan Stanley 1,038,767
----------------
2,978,751
----------------
LEISURE FACILITIES-2.3%
155,150 Royal Caribbean Cruises Limited 5,397,669
----------------
MOVIES & ENTERTAINMENT-4.3%
208,475 Time Warner, Inc.* 3,750,465
60,675 Viacom, Inc. Class B 2,692,757
159,450 Walt Disney Company 3,719,969
----------------
10,163,191
----------------
MULTI-LINE INSURANCE-1.0%
36,450 American International Group, Inc. 2,415,906
----------------
OIL & GAS DRILLING-0.2%
20,625 GlobalSantaFe Corporation 512,119
----------------
OIL & GAS EQUIPMENT & SERVICES-0.8%
46,950 Smith International, Inc.* 1,949,364
----------------
OIL & GAS EXPLORATION & PRODUCTION-0.9%
27,688 Apache Corporation 2,245,497
----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.2%
58,099 Citigroup, Inc. 2,820,125
----------------
PERSONAL PRODUCTS-2.3%
138,500 Estee Lauder Companies, Inc. Class A 5,437,510
----------------
PHARMACEUTICALS-3.9%
45,625 Johnson & Johnson 2,356,988
26,200 Merck & Company, Inc. 1,210,440
88,434 Pfizer, Inc. 3,124,373
58,950 Wyeth 2,502,428
----------------
9,194,229
----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
PUBLISHING-1.6%
28,500 Gannett Company, Inc. $ 2,541,060
23,775 Tribune Company 1,226,790
----------------
3,767,850
----------------
RAILROADS-1.6%
55,875 Union Pacific Corporation 3,882,195
----------------
SEMICONDUCTOR EQUIPMENT-1.0%
16,150 KLA-Tencor Corporation* 947,521
31,025 Novellus Systems, Inc.* 1,304,601
----------------
2,252,122
----------------
SEMICONDUCTORS-7.0%
20,775 Broadcom Corporation* 708,220
88,803 Intel Corporation 2,859,457
103,250 Linear Technology Corporation 4,343,728
92,025 Maxim Integrated Products, Inc. 4,582,845
106,700 Xilinx, Inc.* 4,133,558
----------------
16,627,808
----------------
SOFT DRINKS-1.0%
44,700 Coca-Cola Company 2,268,525
----------------
SPECIALTY STORES-1.4%
45,650 Staples, Inc.* 1,246,245
45,925 Tiffany & Company 2,075,810
----------------
3,322,055
----------------
SYSTEMS SOFTWARE-5.2%
20,125 Adobe Systems, Inc. 790,913
177,766 Microsoft Corporation 4,895,676
233,725 Oracle Corporation* 3,085,170
93,454 VERITAS Software Corporation* 3,472,751
----------------
12,244,510
----------------
WIRELESS TELECOMMUNICATION SERVICES-0.7%
60,000 Nextel Communications, Inc.* 1,683,600
----------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$175,063,499) 200,804,171
----------------
COMMON STOCKS (FOREIGN)-6.1%
APPLICATION SOFTWARE-1.6%
91,075 SAP AG Sponsored ADR (GE) 3,785,077
----------------
COMMUNICATIONS EQUIPMENT-1.0%
132,100 Nokia Oyj Sponsored ADR (FI) 2,245,700
----------------
IT CONSULTING & OTHER SERVICES-1.0%
94,325 Accenture Limited Class A ADR (BD)* 2,482,634
----------------
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------------------------------------------------
PHARMACEUTICALS-1.0%
44,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS) $ 2,495,240
----------------
RAILROADS-0.6%
20,775 Canadian National Railway Company (CA) 1,314,642
----------------
SEMICONDUCTOR EQUIPMENT-0.6%
74,500 ASM Lithography Holding NV NY Shares (NE)* 1,493,725
----------------
SEMICONDUCTORS-0.3%
17,200 Marvell Technology Group Limited (BD)* 652,396
----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$10,893,933) 14,469,414
----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-5.8%
$ 13,600,000 Federal National Mortgage Association
0.75% 1/2/04 $ 13,599,717
----------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$13,599,717) 13,599,717
----------------
CORPORATE SHORT-TERM NOTES-2.2%
DIVERSIFIED COMMERCIAL SERVICES-2.2%
5,300,000 TransAmerica Finance Corporation
1.04% 1/5/04 5,299,388
----------------
TOTAL CORPORATE SHORT-TERM NOTES
(AMORTIZED COST-$5,299,388) 5,299,388
----------------
TOTAL INVESTMENTS-99.0%
(TOTAL COST-$204,856,537) 234,172,690
OTHER ASSETS AND LIABILITIES-1.0% 2,402,749
----------------
NET ASSETS-100.0% $ 236,575,439
================
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 204,856,537
-------------
Investment securities, at market 234,172,690
Cash 589,837
Receivables:
Investment securities sold 7,565,743
Capital shares sold 31,476
Dividends 315,216
-------------
Total Assets 242,674,962
-------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 5,699,321
Capital shares redeemed 75,929
Advisory fees 127,934
Shareholder servicing fees 24,121
Accounting fees 11,809
Distribution fees 34,790
Transfer agency fees 42,677
Custodian fees 292
Other 82,650
-------------
Total Liabilities 6,099,523
-------------
Net Assets $ 236,575,439
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 332,380,794
Undistributed net investment income 79,859
Accumulated net realized loss from security transactions (125,201,367)
Net unrealized appreciation on investments 29,316,153
-------------
Total $ 236,575,439
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
Net Assets--Class A $ 935,431
Shares Outstanding--Class A 208,566
Net Asset Value, Redemption Price Per Share $ 4.49
Maximum offering price per share (net asset value plus
sales charge of 5.75% of offering price) $ 4.76
Net Assets--Class B $ 1,709,420
Shares Outstanding--Class B 388,523
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.40
Net Assets--Class C $ 356,875
Shares Outstanding--Class C 82,649
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 4.32
Net Assets--Class F $ 233,332,949
Shares Outstanding--Class F 51,002,185
Net Asset Value, Offering and Redemption Price Per Share $ 4.57
Net Assets--Class R $ 211,072
Shares Outstanding--Class R 46,585
Net Asset Value, Offering and Redemption Price Per Share $ 4.53
Net Assets--Class T $ 29,692
Shares Outstanding--Class T 6,774
Net Asset Value, Redemption Price Per Share $ 4.38
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 4.59
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 2,343,606
Interest 177,482
Foreign taxes withheld (12,343)
-------------
Total Investment Income 2,508,745
-------------
EXPENSES:
Advisory fees--Note 2 1,371,576
Shareholder servicing fees--Note 2 302,947
Accounting fees--Note 2 126,598
Distribution fees--Note 2 166,608
Transfer agency fees--Note 2 148,107
Registration fees 61,867
Postage and mailing expenses 48,057
Custodian fees and expenses--Note 2 8,790
Printing expenses 42,990
Legal and audit fees 36,497
Directors' fees and expenses--Note 2 45,305
Other expenses 55,476
-------------
Total Expenses 2,414,818
Earnings Credits (3,392)
Waived Expenses (1,892)
Expense Offset to Broker Commissions (3,896)
-------------
Net Expenses 2,405,638
-------------
Net Investment Income 103,107
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security transactions 8,677,330
Net Change in Unrealized Appreciation/Depreciation
of Investments 48,238,272
-------------
Net Realized and Unrealized Gain 56,915,602
-------------
Net Increase in Net Assets Resulting from Operations $ 57,018,709
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
-------------- --------------
OPERATIONS
Net Investment Income $ 103,107 $ 243,717
Net Realized Gain (Loss) 8,677,330 (45,255,731)
Net Change in Unrealized Appreciation / Depreciation 48,238,272 (25,124,429)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 57,018,709 (70,136,443)
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class F (183,602) (109,803)
-------------- --------------
Net Decrease from Dividends and Distributions (183,602) (109,803)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 408,018 74,186
Class B 407,646 (173,941)
Class C 121,020 (19,371)
Class F (14,678,661) (27,489,605)
Class R 127,592 42,140
Class T (12,373) (60,858)
-------------- --------------
Net Decrease from Capital Share Transactions (13,626,758) (27,627,449)
-------------- --------------
Net Increase (Decrease) in Net Assets 43,208,349 (97,873,695)
NET ASSETS
Beginning of year $ 193,367,090 $ 291,240,785
-------------- --------------
End of year (including undistributed net investment
income of $79,859 and $160,354, respectively) $ 236,575,439 $ 193,367,090
============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of year $ 3.44 $ 4.66 $ 5.73 $ 7.61
Income from investment operations:
Net investment income (loss) 0.03 (0.02) (0.07) 0.00+
Net realized and unrealized gains
(losses) on securities 1.02 (1.20) (1.00) (1.45)
---------- ---------- ---------- ----------
Total from investment
operations 1.05 (1.22) (1.07) (1.45)
Less dividends and 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 year $ 4.49 $ 3.44 $ 4.66 $ 5.73
========== ========== ========== ==========
Total return* 30.52% (26.18%) (18.65%) (19.04%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 935 $ 378 $ 442 $ 318
Net expenses to average net assets# 1.48% 1.87% 2.98% 1.01%
Gross expenses to average net assets# 1.49% 1.87% 2.98% 1.06%
Net investment loss to average
net assets (0.25%) (0.67%) (1.82%) (0.03%)
Portfolio turnover rate@ 123% 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.
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of year $ 3.40 $ 4.61 $ 5.65 $ 7.61
Income from investment operations:
Net investment loss (0.01) (0.05) (0.04) (0.02)
Net realized and unrealized gains
(losses) on securities 1.01 (1.16) (1.00) (1.51)
---------- ---------- ---------- ----------
Total from investment
operations 1.00 (1.21) (1.04) (1.53)
Less dividends and 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 year $ 4.40 $ 3.40 $ 4.61 $ 5.65
========== ========== ========== ==========
Total return* 29.41% (26.25%) (18.38%) (20.09%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,709 $ 1,013 $ 1,599 $ 1,170
Net expenses to average net assets# 2.30% 2.14% 2.19% 1.76%
Gross expenses to average net assets# 2.30% 2.14% 2.20% 1.80%
Net investment loss to average
net assets (1.08%) (0.95%) (1.03%) (0.88%)
Portfolio turnover rate@ 123% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of year $ 3.34 $ 4.55 $ 5.66 $ 7.61
Income from investment operations:
Net investment income (loss) 0.04 (0.07) (0.13) (0.01)
Net realized and unrealized gains
(losses) on securities 0.94 (1.14) (0.98) (1.51)
---------- ---------- ---------- ----------
Total from investment
operations 0.98 (1.21) (1.11) (1.52)
Less dividends and 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 year $ 4.32 $ 3.34 $ 4.55 $ 5.66
========== ========== ========== ==========
Total return* 29.34% (26.59%) (19.58%) (19.96%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 357 $ 186 $ 270 $ 343
Net expenses to average net assets#,+ 2.28% 2.76% 3.16% 1.75%
Gross expenses to average net assets#,+ 2.29% 2.77% 3.17% 1.84%
Net investment loss to average
net assets+ (1.04%) (1.55%) (2.01%) (0.83%)
Portfolio turnover rate@ 123% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of year $ 3.50 $ 4.69 $ 5.69 $ 7.61 $ 7.32
Income from investment operations:
Net investment income (loss) 0.00+ 0.00+ 0.00+ (0.02) (0.00)+
Net realized and unrealized gains
(losses) on securities 1.07 (1.19) (1.00) (1.47) 1.06
---------- ---------- ---------- ---------- ----------
Total from investment
operations 1.07 (1.19) (1.00) (1.49) 1.06
Less dividends and distributions:
From net investment income 0.00^ 0.00^ 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00^ (0.43) (0.77)
---------- ---------- ---------- ---------- ----------
Total distributions 0.00 0.00 0.00 (0.43) (0.77)
Net Asset Value, end of year $ 4.57 $ 3.50 $ 4.69 $ 5.69 $ 7.61
========== ========== ========== ========== ==========
Total return 30.67% (25.33%) (17.55%) (19.57%) 15.03%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 233,333 $ 191,701 $ 288,752 $ 385,816 $ 535,035
Net expenses to average
net assets# 1.13% 1.08% 1.14% 1.10% 1.12%
Gross expenses to average
net assets# 1.13% 1.08% 1.14% 1.12% 1.13%
Net investment income (loss) to
average net assets 0.06% 0.11% 0.02% (0.24%) (0.05%)
Portfolio turnover rate@ 123% 152% 144% 165% 165%
</Table>
+ Net investment income (loss) for the years ended December 31, 2003, 2002,
2001 and 1999 aggregated less than $0.01 on a per share basis.
^ Distributions from net investment income for the years ended December 31,
2003 and 2002 and distributions from net realized gains for the year ended
December 31, 2001 aggregated less than $0.01 on a per share basis.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of year $ 3.47 $ 4.74 $ 5.74 $ 7.61
Income from investment operations:
Net investment income (loss) 0.06 (0.08) (0.01) 0.00+
Net realized and unrealized gains
(losses) on securities 1.00 (1.19) (0.99) (1.44)
---------- ---------- ---------- ----------
Total from investment
operations 1.06 (1.27) (1.00) (1.44)
Less dividends and 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 year $ 4.53 $ 3.47 $ 4.74 $ 5.74
========== ========== ========== ==========
Total return 30.55% (26.79%) (17.39%) (18.91%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 211 $ 57 $ 51 $ 1
Net expenses to average net assets#,+ 1.35% 2.95% 2.72% 0.76%
Gross expenses to average net assets#,+ 1.35% 2.95% 2.73% 0.79%
Net investment income (loss) to average
net assets+ (0.12%) (1.78%) (1.68%) 0.01%
Portfolio turnover rate@ 123% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of year $ 3.39 $ 4.60 $ 5.68 $ 7.61
Income from investment operations:
Net investment loss (0.23) (0.30) (0.09) (0.01)
Net realized and unrealized gains
(losses) on securities 1.22 (0.91) (0.99) (1.49)
---------- ---------- ---------- ----------
Total from investment
operations 0.99 (1.21) (1.08) (1.50)
Less dividends and 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 year $ 4.38 $ 3.39 $ 4.60 $ 5.68
========== ========== ========== ==========
Total return* 29.20% (26.30%) (18.99%) (19.69%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 30 $ 33 $ 127 $ 82
Net expenses to average net assets#,+ 2.26% 2.46% 3.13% 1.25%
Gross expenses to average net assets#,+ 2.27% 2.47% 3.14% 1.28%
Net investment loss to average
net assets+ (1.11%) (1.29%) (1.96%) (0.40%)
Portfolio turnover rate@ 123% 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.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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
December 31, 2003
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>
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, if any, is recorded
as foreign currency gain or loss and would be 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 arises 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 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.
26
<Page>
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) 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 an indirect 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.
27
<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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $191,030 and $107,055, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $84,757 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 $12.84, 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 year ended December
31, 2003, were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 2,219
Class B $ 5,091
Class C $ 875
Class R $ 518
Class T $ 324
</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 or servicing 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 year ended December 31, 2003, Class F shares were charged $156,391 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 1,398
Class B $ 8,603 $ 2,867
Class C $ 1,525 $ 508
Class T $ 89 $ 89
</Table>
During the year ended December 31, 2003, DSC retained $1,157 in sales
commissions from the sales of Class A shares. DSC also retained $8,955 and $163
of contingent deferred sales charges relating to redemptions of Class B and
Class C shares, respectively.
29
<Page>
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., a wholly owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $1,892. 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, if any, would be 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.
30
<Page>
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 0 $ 0 $ 0
</Table>
The tax character of distributions paid during 2003 and 2002 was as follows:
<Table>
<Caption>
2003 2002
---- ----
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 183,602 $ 109,803
Long-term capital gain $ 0 $ 0
--------- ---------
$ 183,602 $ 109,803
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted
below, if any, as of December 31, 2003, 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. Net capital loss carryovers
utilized in 2003 amounted to $9,321,497.
31
<Page>
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 110,145
Accumulated Capital Losses $ 120,320,075
Federal Tax Cost $ 209,737,830
Gross Tax Appreciation of Investments $ 28,426,754
Gross Tax Depreciation of Investments $ (3,991,894)
Net Tax Appreciation $ 24,434,860
</Table>
32
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
CLASS A
Sold 127,097 $ 521,827 71,858 $ 288,084
Redeemed (28,494) $ (113,809) (56,813) $ (213,898)
NET INCREASE 98,603 $ 408,018 15,045 $ 74,186
CLASS B
Sold 164,031 $ 669,282 42,856 $ 174,005
Redeemed (73,231) $ (261,636) (92,065) $ (347,946)
NET INCREASE (DECREASE) 90,800 $ 407,646 (49,209) $ (173,941)
CLASS C
Sold 55,885 $ 224,519 29,530 $ 112,098
Redeemed (28,811) $ (103,499) (33,351) $ (131,469)
NET INCREASE (DECREASE) 27,074 $ 121,020 (3,821) $ (19,371)
CLASS F
Sold 1,278,819 $ 5,147,869 1,166,742 $ 4,906,800
Dividends or Distributions
Reinvested 34,819 $ 159,122 27,018 $ 94,563
Redeemed (5,079,072) $ (19,985,652) (7,977,540) $ (32,490,968)
NET DECREASE (3,765,434) $ (14,678,661) (6,783,780) $ (27,489,605)
CLASS R
Sold 70,118 $ 283,426 26,221 $ 110,661
Redeemed (39,808) $ (155,834) (20,676) $ (68,521)
NET INCREASE 30,310 $ 127,592 5,545 $ 42,140
CLASS T
Sold 709 $ 2,660 1,045 $ 4,157
Redeemed (3,604) $ (15,033) (18,930) $ (65,015)
NET DECREASE (2,895) $ (12,373) (17,885) $ (60,858)
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$238,342,170 and $251,269,998, respectively.
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
33
<Page>
(a) $50 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 $50 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 December 31, 2003, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
34
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Growth and Income
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
35
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the period ended December 31, 2003, 76.0% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2003, the Fund designated 0.0% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
36
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
37
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
38
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
39
<Page>
For More Information
DREYFUS FOUNDERS
GROWTH AND INCOME FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
210 University Boulevard, Suite 800
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)2004 Dreyfus Service Corporation 275AR1203
<Page>
Dreyfus Founders
International
Equity Fund
ANNUAL REPORT December 31, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
(R) 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
Report of Independent Auditors 35
Other Tax Information 36
Your Board Representatives 37
</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 December 31, 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]
A DISCUSSION WITH CO-PORTFOLIO MANAGERS REMI J. BROWNE, CFA, LEFT, AND
DANIEL B. LEVAN, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12 MONTHS ENDED
DECEMBER 31, 2003?
Dreyfus Founders International Equity Fund showed strong absolute performance
for the year ended December 31, 2003, although it lagged the 39.42% return of
its benchmark, the Morgan Stanley Capital International (MSCI) World ex U.S.
Index.
TO WHAT DO YOU ATTRIBUTE THE MARKET'S OVERALL PERFORMANCE IN 2003?
Initially weighing sluggishly on market performance, the successful military
action in Iraq led to increased investor confidence and a resurgence in equity
markets. Likewise, although the onset of Severe Acute Respiratory Syndrome
(SARS) in Asia taxed an already stressed global marketplace during the beginning
months of 2003, the subsequent containment and seeming defeat of the viral
illness provided Asia with an economic boost through the middle of the year.
As 2003 progressed, many positive economic surprises from various regions
translated into increased global earnings expectations. Markets worldwide
climbed on the basis of this news with nearly every industry in every
[SIDENOTE]
"THE LARGEST POSITIVE SECTOR IMPACT ON THE FUND'S ANNUAL PERFORMANCE CAME FROM
MATERIALS, AS FUND HOLDINGS IN THIS SECTOR WERE UP STRONGLY FOR THE PERIOD."
3
<Page>
region experiencing broad gains. Companies were cutting costs and reining in
debt. Interest rates were falling in various major countries, stunting deflation
and helping to keep the rally alive.
The global fear of deflation saw many central banks keep rates at historic
lows. In the United States, tax rebate checks provided many families with extra
money to spend, helping the domestic economy grow at an annual rate of 8.2% for
the third quarter. The continued weakness of the U.S. dollar aided the unhedged
U.S. investor as the euro, British pound and yen all gained relative to U.S.
currency.
In the Asian region, the emergence of China as a secondary growth engine to
the global economic recovery came at an appropriate time. In general, as the
global economic picture began improving, it provided a solid backdrop for
quality performance by equity markets, more than offsetting any sell-off
experienced in the year's opening months.
HOW DID YOU POSITION THE FUND AFTER ASSUMING PORTFOLIO MANAGEMENT
RESPONSIBILITIES IN MARCH?
Upon assuming portfolio management responsibilities for the Fund, we
sold 65% of the companies previously held and increased the number of holdings
from 56 to 117 by the end of March. We also reduced the weighted
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - Initially weighing sluggishly on market performance, the successful military
action in Iraq led to increased investor confidence and a resurgence in
equity markets.
- - The largest positive sector impact on the Fund's annual performance came from
strong performance in the materials sector.
- - A slightly underweight position coupled with some poor stock selection in the
financials sector impeded relative Fund returns during the period.
- - During the 12-month period, the Fund performed well within the Europe
ex-United Kingdom region.
4
<Page>
average price-to-earnings ratio of the portfolio from 14 times to 12 times, and
increased the weighted average earnings growth from 9% to 13%. Finally, the
weighted average market capitalization of the Fund decreased from $38.8 billion
to $25.3 billion. These changes had a positive impact on the Fund's performance.
Since these initial adjustments were made, we have not made significant changes
to sector and country weightings.
During the year, the Fund was overweight the technology, telecommunications
and healthcare sectors relative to the benchmark. Conversely, the Fund was
underweight financials, industrials and materials relative to the benchmark.
When examining country weightings, the Fund was slightly overweight the
benchmark in the United Kingdom and France, and underweight in Japan.
IN WHICH COUNTRIES, SECTORS OR COMPANIES DID YOU FIND THE MOST COMPELLING GROWTH
OPPORTUNITIES?
During the 12-month period, the Fund performed well within the Europe ex-United
Kingdom region. Our overweight position in Greece, when paired with the
country's overall return, proved to be a substantial boon to relative Fund
performance.
[SIDENOTE]
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Vodafone Group PLC (United Kingdom; VOD) 3.19%
2. Barclays PLC (United Kingdom; BARC) 2.19%
3. Alpha Bank AE (Greece; ALPHA) 2.10%
4. SAP AG (Germany; SAP) 2.05%
5. BP PLC (United Kingdom; BP) 1.88%
6. Anglo Irish Bank Corporation PLC (Ireland; ANB) 1.72%
7. Royal Bank of Scotland Group PLC (United Kingdom; RBS) 1.69%
8. QBE Insurance Group Limited (Australia; QBE) 1.65%
9. Novartis AG (Switzerland; NOV.N) 1.64%
10. HBOS PLC (United Kingdom; HBOS) 1.49%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
The largest positive sector impact on the Fund's annual performance came from
strong performance in the materials sector. Three Fund holdings in the materials
sector that helped propel performance were Japanese chemical company NOK
CORPORATION, which increased nearly 230% for the year; THYSSENKRUPP AG, a steel,
capital goods and services company that
[SIDENOTE]
[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. 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 December 31, 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>
posted strong performance; and resource company BHP BILLITON PLC, which also had
a strong year. NOK Corporation rose following a strong shift into consumer
electronics and a continued increase in earnings expectations.
In an improving market such as was experienced in 2003, companies in the
consumer staples sector, which is defensive by nature, tend to lag the
overall market. This year was no exception. Although the consumer staples
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 28.95% -- -- (14.64%)
Without sales charge 36.84% -- -- (13.37%)
CLASS B SHARES (12/31/99)
With redemption* 31.95% -- -- (14.59%)
Without redemption 35.95% -- -- (14.01%)
CLASS C SHARES (12/31/99)
With redemption** 34.76% -- -- (14.07%)
Without redemption 35.76% -- -- (14.07%)
CLASS F SHARES (12/29/95) 37.17% (2.19%) -- 4.69%
CLASS R SHARES (12/31/99) 37.27% -- -- (13.17%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 30.37% -- -- (14.58%)
Without sales charge 36.58% -- -- (13.59%)
</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 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.
7
<Page>
sector rose 23.20% for the entire year, it was the Index's worst performer of
the ten economic sectors. However, due to the Fund's allocation in this sector,
as well as its strong stock selection, the consumer staples sector proved to be
a meaningful contributor to the Fund's overall performance.
Other individual holdings also greatly contributed to the Fund's overall
performance. One such example was German software company SAP AG, which rose
nearly 112% for the year. SAP, the main beneficiary of the proposed deal between
Oracle and PeopleSoft, appropriated customers and increased its market share in
the highly profitable enterprise software business. The company also reported
strong earnings throughout the year and was well positioned to take advantage of
the economic recovery. The Fund's large position in SAP was the largest positive
contributor to performance for the year on an individual stock basis.
[SIDENOTE]
[CHART]
PORTFOLIO COMPOSITION
<Table>
United Kingdom 22.88%
Japan 21.02%
Germany 7.03%
France 6.89%
Switzerland 6.49%
Canada 5.28%
Spain 4.43%
Netherlands 3.87%
Other Countries 21.23%
Cash & Equivalents 0.88%
</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>
WHAT FACTORS NEGATIVELY IMPACTED FUND PERFORMANCE DURING THE PERIOD?
Some of the biggest detractors on a relative basis came from holdings within
Hong Kong and Canada, which significantly underperformed the Fund's benchmark
for the annual period.
A slightly underweight position coupled with some poor stock selection in the
financials sector also impeded relative Fund returns during the period. One such
selection was Kingsway Financial Services, Inc., a Canadian property and
casualty company, which released a profit warning days before the end of the
third quarter, leading to a sell-off in the company's shares.
Three stocks that were held by the Fund when we assumed management in March
proved to be significant drags on performance relative to the benchmark.
Amvescap PLC, one of the largest independent global investment managers; Satyam
Computer Services Limited, a leading global information technology services and
consulting company; and Fast Retailing Company, a Japanese retailing company,
were all down in excess of 30% in the first quarter, with active exposures in
the Fund between 1.7% to 2% for each holding. We sold all three of these
securities in March.
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.
Therefore, we 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
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-99.1%
AEROSPACE & DEFENSE-0.6%
7,400 Gamesa Corporacion Tecnologica SA (SP) $ 243,521
-----------------
APPLICATION SOFTWARE-2.1%
4,670 SAP AG (GE) 788,151
-----------------
AUTO PARTS & EQUIPMENT-1.2%
6,500 Canadian Tire Corporation Limited Class A (CA) 198,425
7,000 NOK Corporation (JA) 254,735
-----------------
453,160
-----------------
AUTOMOBILE MANUFACTURERS-3.1%
38,600 Nissan Motor Company Limited (JA) 440,855
4,700 Renault SA (FR) 324,281
12,200 Toyota Motor Corporation (JA) 412,093
-----------------
1,177,229
-----------------
BIOTECHNOLOGY-1.5%
2,900 Actelion Limited (SZ)* 313,026
12,800 QLT, Inc. (CA)* 242,668
-----------------
555,694
-----------------
BREWERS-1.9%
28,000 Asahi Breweries Limited (JA) 255,258
35,400 Fraser & Neave Limited (SG) 262,639
9,000 Orkla ASA (NW) 201,569
-----------------
719,466
-----------------
BROADCASTING & CABLE TV-1.1%
15,400 Mediaset SPA (IT) 182,982
52,900 Seven Network Limited (AU) 244,332
-----------------
427,314
-----------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.5%
12,000 Nokia Oyj (FI) $ 207,518
3,383 Sagem SA (FR) 362,495
-----------------
570,013
-----------------
COMPUTER STORAGE & PERIPHERALS-1.9%
18,300 ATI Technologies, Inc. (CA)* 275,994
4,300 Logitech International SA (SZ)* 186,004
5,900 Seiko Epson Corporation (JA) 275,264
-----------------
737,262
-----------------
CONSTRUCTION & ENGINEERING-0.6%
4,900 ACS, Actividades de Construccion y Servicios SA (SP) 239,190
-----------------
CONSTRUCTION MATERIALS-0.6%
60,700 Boral Limited (AU) 232,336
-----------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.7%
8,000 Volvo AB Class B (SW) 244,604
-----------------
CONSUMER ELECTRONICS-2.7%
30,000 Casio Computer Company Limited (JA) 317,440
5,800 Koninklijke (Royal) Philips Electronics NV (NE) 169,362
34,000 Sharp Corporation (JA) 536,475
-----------------
1,023,277
-----------------
DIVERSIFIED BANKS-15.2%
8,800 ABN AMRO Holding NV (NE) 205,903
26,700 Alpha Bank AE (GR) 807,601
42,000 Anglo Irish Bank Corporation PLC (IE) 662,740
95,107 Banca Intesa SPA (IT) 371,887
94,519 Barclays PLC (UK) 843,074
8,807 BNP Paribas SA (FR) 554,548
44,100 HBOS PLC (UK) 571,184
5,300 Jyske Bank SA (DE)* 280,119
52 Mitsubishi Tokyo Financial Group, Inc. (JA) 405,636
22,034 Royal Bank of Scotland Group PLC (UK) 649,265
17,600 Skandinaviska Enskilda Banken (SW) 259,280
2,800 Societe Generale (FR) 247,225
-----------------
5,858,462
-----------------
DIVERSIFIED CAPITAL MARKETS-1.7%
11,200 Credit Suisse Group (SZ) 409,767
3,770 UBS AG (SZ) 258,182
-----------------
667,949
-----------------
DIVERSIFIED METALS & MINING-0.8%
34,000 BHP Billiton PLC (UK) 297,028
-----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
ELECTRIC UTILITIES-2.8%
6,300 E.ON AG (GE) $ 412,663
14,738 Endesa SA (SP) 283,495
37,900 Fortum Oyj (FI) 391,047
-----------------
1,087,205
-----------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.5%
23,000 Sumitomo Electric Industries Limited (JA) 205,599
-----------------
ELECTRONIC EQUIPMENT MANUFACTURERS-2.4%
2,000 Keyence Corporation (JA) 421,573
7,100 TDK Corporation (JA) 511,449
-----------------
933,022
-----------------
FOOD RETAIL-2.4%
7,000 Delhaize Group (BE) 360,066
16,900 Metro, Inc. Class A (CA) 286,396
61,200 Tesco PLC (UK) 282,390
-----------------
928,852
-----------------
HEALTHCARE DISTRIBUTORS-0.7%
8,700 Suzuken Company Limited (JA) 282,504
-----------------
HEALTHCARE EQUIPMENT-0.7%
28,500 Getinge AB Class B (SW) 273,303
-----------------
HOME FURNISHINGS-0.6%
5,200 Hunter Douglas NV (NE) 243,406
-----------------
HOMEBUILDING-0.8%
33,400 Barratt Developments PLC (UK) 324,672
-----------------
HOUSEHOLD PRODUCTS-0.9%
15,700 Reckitt Benckiser PLC (UK) 355,260
-----------------
HOUSEWARES & SPECIALTIES-1.5%
6,200 Citizen Electronics Company Limited (JA) 564,057
-----------------
HYPERMARKETS & SUPER CENTERS-1.3%
11,500 Metro AG (GE) 507,694
-----------------
INDUSTRIAL CONGLOMERATES-0.7%
71,000 Keppel Corporation Limited (SG) 255,020
-----------------
INDUSTRIAL MACHINERY-0.8%
7,200 Saurer AG (SZ)* 319,599
-----------------
INTEGRATED OIL & GAS-6.0%
89,319 BP PLC (UK) 724,338
1,960 OMV AG (AT) 291,923
19,800 Repsol YPF SA (SP) 386,110
59,050 Shell Transport & Trading Company PLC (UK) 439,228
2,578 Total SA (FR) 479,310
-----------------
2,320,909
-----------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-5.6%
59,700 BT Group PLC (UK) $ 201,191
15,800 Deutsche Telekom AG (GE)* 289,773
41,900 Koninklijke NV (NE)* 323,446
12,100 TDC AS Class B (DE) 436,594
23,100 Telefonica SA (SP) 339,157
60,900 Telenor ASA (NW) 398,201
34,100 TeliaSonera AB (SW) 178,194
-----------------
2,166,556
-----------------
INVESTMENT BANKING & BROKERAGE-0.8%
19,000 Nomura Holdings, Inc. (JA) 323,551
-----------------
IT CONSULTING & OTHER SERVICES-0.5%
38,000 LogicaCMG PLC (UK) 174,320
-----------------
OIL & GAS EXPLORATION & PRODUCTION-3.8%
65,900 Cairn Energy PLC (UK)* 473,074
5,800 Canadian National Resources Limited (CA) 293,389
10,400 Eni SPA (IT) 196,246
3,100 Norsk Hydro ASA (NW) 191,280
8,600 Penn West Petroleum Limited (CA) 320,562
-----------------
1,474,551
-----------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.1%
10,500 ING Groep NV (NE) 244,885
7,300 Sun Life Financial, Inc. (CA) 182,458
-----------------
427,343
-----------------
PACKAGED FOODS & MEATS-1.8%
1,900 Groupe Danone (FR) 310,116
21,000 Nisshin Seifun Group, Inc. (JA) 186,937
193,000 Want Want Holdings Limited (SG) 183,350
-----------------
680,403
-----------------
PHARMACEUTICALS-10.0%
6,950 AstraZeneca Group PLC (UK) 333,441
5,600 Aventis SA (FR) 370,131
14,600 Axcan Pharma, Inc. (CA)* 228,778
12,600 Eisai Company Limited (JA) 339,778
38,100 Galen Holdings PLC (UK) 487,675
24,818 GlaxoSmithKline PLC (UK) 568,690
13,859 Novartis AG (SZ) 629,191
10,000 Ono Pharmaceuticals Company Limited (JA) 376,038
32,600 Shire Pharmaceuticals Group PLC (UK)* 316,604
4,700 Takeda Chemical Industries Limited (JA) 186,386
-----------------
3,836,712
-----------------
PRECIOUS METALS & MINERALS-0.9%
17,600 ThyssenKrupp AG (GE) 348,537
-----------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- --------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-1.7%
79,600 QBE Insurance Group Limited (AU) $ 635,744
-----------------
PUBLISHING-0.6%
26,200 Johnston Press PLC (UK) 218,451
-----------------
REAL ESTATE INVESTMENT TRUSTS-1.4%
100 Sumitomo Mitsui Financial Group, Inc. (JA) 532,798
-----------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.8%
4,000 Wereldhave NV (NE) 299,445
-----------------
SEMICONDUCTORS-1.0%
8,900 Micronas Semiconductor Holding AG (SZ)* 381,028
-----------------
THRIFTS & MORTGAGE FINANCE-0.8%
24,200 Northern Rock PLC (UK) 309,107
-----------------
TIRES & RUBBER-0.9%
9,400 Continental AG (GE) 357,836
-----------------
TRADING COMPANIES & DISTRIBUTORS-0.9%
31,000 Mitsubishi Corporation (JA) 328,599
-----------------
TRUCKING-0.6%
28,000 Seino Transportation Company Limited (JA) 231,483
-----------------
WIRELESS TELECOMMUNICATION SERVICES-6.6%
72 KDDI Corporation (JA) 412,503
123 NTT DoCoMo, Inc. (JA) 278,893
75,800 Telecom Italia Mobile SPA (IT) 412,081
20,300 Telefonica Moviles SA (SP)* 212,013
494,575 Vodafone Group PLC (UK) 1,226,256
-----------------
2,541,746
-----------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$27,435,980) 38,103,968
-----------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- --------------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-2.3%
$ 900,000 Federal National Mortgage Association 0.75% 1/2/04 $ 899,981
-----------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$899,981) 899,981
-----------------
TOTAL INVESTMENTS-101.4%
(TOTAL COST-$28,335,961) 39,003,949
OTHER ASSETS AND LIABILITIES-(1.4%) (562,284)
-----------------
NET ASSETS-100.0% $ 38,441,665
=================
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 28,335,961
-----------------
Investment securities, at market 39,003,949
Cash 31,325
Foreign currency (cost $810) 816
Receivables:
Capital shares sold 14,775
Dividends 35,406
Due from adviser 22,753
Other assets 31,704
-----------------
Total Assets 39,140,728
-----------------
LIABILITIES
Payables and other liabilities:
Capital shares redeemed 489,303
Advisory fees 24,009
Shareholder servicing fees 7,880
Accounting fees 3,201
Distribution fees 4,543
Transfer agency fees 12,415
Custodian fees 5,172
Line of credit 100,000
Other 52,540
-----------------
Total Liabilities 699,063
-----------------
Net Assets $ 38,441,665
=================
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 67,485,335
Accumulated net investment loss (2,753)
Accumulated net realized loss from security transactions (39,714,354)
Net unrealized appreciation on investments
and foreign currency translation 10,673,437
-----------------
Total $ 38,441,665
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
Net Assets--Class A $ 22,432,457
Shares Outstanding--Class A 2,296,158
Net Asset Value, Redemption Price Per Share $ 9.77
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $ 10.37
Net Assets--Class B $ 2,372,245
Shares Outstanding--Class B 248,502
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 9.55
Net Assets--Class C $ 481,889
Shares Outstanding--Class C 50,543
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 9.53
Net Assets--Class F $ 9,837,083
Shares Outstanding--Class F 1,006,074
Net Asset Value, Offering and Redemption Price Per Share $ 9.78
Net Assets--Class R $ 3,145,614
Shares Outstanding--Class R 320,219
Net Asset Value, Offering and Redemption Price Per Share $ 9.82
Net Assets--Class T $ 172,377
Shares Outstanding--Class T 17,764
Net Asset Value, Redemption Price Per Share $ 9.70
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 10.16
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 807,676
Interest 15,315
Foreign taxes withheld (89,599)
-----------------
Total Investment Income 733,392
-----------------
EXPENSES:
Advisory fees--Note 2 333,061
Shareholder servicing fees--Note 2 83,857
Accounting fees--Note 2 33,305
Distribution fees--Note 2 41,570
Transfer agency fees--Note 2 108,819
Registration fees 66,579
Postage and mailing expenses 3,444
Custodian fees and expenses--Note 2 76,660
Printing expenses 33,880
Legal and audit fees 6,261
Directors' fees and expenses--Note 2 8,127
Other expenses 40,235
-----------------
Total Expenses 835,798
Earnings Credits (957)
Reimbursed/Waived Expenses (356,021)
Expense Offset to Broker Commissions (70)
-----------------
Net Expenses 478,750
-----------------
Net Investment Income 254,642
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY TRANSACTIONS AND
FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on :
Security transactions (5,301,870)
Foreign currency transactions 5,330
-----------------
Net Realized Loss (5,296,540)
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation 16,056,126
-----------------
Net Realized and Unrealized Gain 10,759,586
-----------------
Net Increase in Net Assets Resulting from Operations $ 11,014,228
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
----------------- -----------------
OPERATIONS
Net Investment Income $ 254,642 $ 32,165
Net Realized Loss (5,296,540) (5,583,604)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 16,056,126 (8,376,964)
----------------- -----------------
Net Increase (Decrease) in Net Assets Resulting from Operations 11,014,228 (13,928,403)
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income
Class A (156,488) (32,238)
Class B (1,759) 0
Class F (71,823) (15,146)
Class R (28,532) (9,276)
Class T (910) 0
----------------- -----------------
Net Decrease from Dividends and Distributions (259,512) (56,660)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS
Net Decrease--Note 4
Class A (1,959,586) (3,344,747)
Class B (450,587) (592,334)
Class C (190,274) (629,053)
Class F (2,350,311) (3,309,006)
Class R (204,031) (2,588,838)
Class T (57,906) (102,473)
----------------- -----------------
Net Decrease from Capital Share Transactions (5,212,695) (10,566,451)
----------------- -----------------
Net Increase (Decrease) in Net Assets 5,542,021 (24,551,514)
NET ASSETS
Beginning of year $ 32,899,644 $ 57,451,158
----------------- -----------------
End of year (including accumulated net investment
loss of $2,753 and $7,832, respectively) $ 38,441,665 $ 32,899,644
================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of year $ 7.19 $ 10.03 $ 14.42 $ 19.88
Income from investment operations:
Net investment income (loss) 0.06 0.01 (0.00)+ (0.03)
Net realized and unrealized gains (losses)
on securities 2.59 (2.84) (4.39) (3.53)
---------- ---------- ---------- ----------
Total from investment operations 2.65 (2.83) (4.39) (3.56)
Less dividends and distributions:
From net investment income (0.07) (0.01) 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90)
---------- ---------- ---------- ----------
Total distributions (0.07) (0.01) 0.00 (1.90)
Net Asset Value, end of year $ 9.77 $ 7.19 $ 10.03 $ 14.42
========== ========== ========== ==========
Total return* 36.84% (28.19%) (30.44%) (17.60%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 22,432 $ 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+ 0.80% 0.13% (0.74%) (0.36%)
Portfolio turnover rate@ 144% 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.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 2.47% (2003), 2.18% (2002) and 1.76% (2001). The gross expense ratios
would have been 2.48% (2003), 2.18% (2002) and 1.78% (2001). The net
investment income (loss) ratios would have been (0.27%) (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.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of year $ 7.03 $ 9.87 $ 14.29 $ 19.88
Income from investment operations:
Net investment loss (0.08) (0.11) (0.12) (0.09)
Net realized and unrealized gains (losses)
on securities 2.61 (2.73) (4.30) (3.60)
---------- ---------- ---------- ----------
Total from investment operations 2.53 (2.84) (4.42) (3.69)
Less dividends and distributions:
From net investment income (0.01) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90)
---------- ---------- ---------- ----------
Total distributions (0.01) 0.00 0.00 (1.90)
Net Asset Value, end of year $ 9.55 $ 7.03 $ 9.87 $ 14.29
========== ========== ========== ==========
Total return* 35.95% (28.77%) (30.93%) (18.27%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 2,372 $ 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+ 0.07% (0.61%) (1.03%) (1.18%)
Portfolio turnover rate@ 144% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 3.31% (2003), 2.90% (2002) and 2.65%. (2001) . The gross expense
ratios would have been 3.32% (2003), 2.91% (2002) and 2.67% (2001). The net
investment loss ratios would have been (1.09%) (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.
20
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of year $ 7.02 $ 9.86 $ 14.27 $ 19.88
Income from investment operations:
Net investment loss (0.26) (0.29) (0.16) (0.07)
Net realized and unrealized
gains (losses) on securities 2.77 (2.55) (4.25) (3.64)
---------- ---------- ---------- ----------
Total from investment operations 2.51 (2.84) (4.41) (3.71)
Less dividends and 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 year $ 9.53 $ 7.02 $ 9.86 $ 14.27
========== ========== ========== ==========
Total return* 35.76% (28.80%) (30.90%) (18.37%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 482 $ 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+ 0.08% (0.63%) (0.99%) (1.18%)
Portfolio turnover rate@ 144% 220% 213% 184%
</Table>
* Sales charges are not reflected in the total return.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 3.24% (2003), 3.10% (2002) and 2.83% (2001). The gross expense ratios
would have been 3.25% (2003), 3.11% (2002) and 2.85% (2001). The net
investment income (loss) ratios would have been (1.01%) (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.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of year $ 7.18 $ 10.03 $ 14.40 $ 19.87 $ 14.03
Income from investment operations:
Net investment loss (0.01) (0.05) (0.07) (0.08) (0.05)
Net realized and unrealized gains (losses)
on securities 2.68 (2.79) (4.30) (3.49) 8.07
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.67 (2.84) (4.37) (3.57) 8.02
Less dividends and distributions:
From net investment income (0.07) (0.01) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90) (2.18)
---------- ---------- ---------- ---------- ----------
Total distributions (0.07) (0.01) 0.00 (1.90) (2.18)
Net Asset Value, end of year $ 9.78 $ 7.18 $ 10.03 $ 14.40 $ 19.87
========== ========== ========== ========== ==========
Total return 37.17% (28.30%) (30.35%) (17.65%) 58.71%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 9,837 $ 9,321 $ 16,640 $ 30,040 $ 35,607
Net expenses to average net assets#,+ 1.40% 1.40% 1.52% 1.80% 1.80%
Gross expenses to average net assets#,+ 1.40% 1.40% 1.55% 1.84% 1.82%
Net investment income (loss) to average net
assets+ 0.80% 0.12% (0.26%) (0.55%) (0.36%)
Portfolio turnover rate@ 144% 220% 213% 184% 205%
</Table>
# 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 or waived by the management company and its
affiliates. Had these fees not been reimbursed and/or waived, the net
expense ratios would have been 2.52% (2003), 2.13% (2002), 1.96% (2001),
1.91% (2000), and 1.97% (1999). The gross expense ratios would have been
2.52% (2003), 2.13% (2002), 1.99% (2001), 1.95% (2000), and 1.99% (1999).
The net investment income (loss) ratios would have been (0.32%) (2003),
(0.61%) (2002), (0.70%) (2001), (0.66%) (2000), and (0.53%) (1999).
@ 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of year $ 7.22 $ 10.08 $ 14.45 $ 19.88
Income from investment operations:
Net investment income (loss) 0.09 0.02 (0.00)+ (0.01)
Net realized and unrealized gains (losses)
on securities 2.60 (2.85) (4.37) (3.52)
---------- ---------- ---------- ----------
Total from investment operations 2.69 (2.83) (4.37) (3.53)
Less dividends and distributions:
From net investment income (0.09) (0.03) 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90)
---------- ---------- ---------- ----------
Total distributions (0.09) (0.03) 0.00 (1.90)
Net Asset Value, end of year $ 9.82 $ 7.22 $ 10.08 $ 14.45
========== ========== ========== ==========
Total return 37.27% (28.10%) (30.24%) (17.45%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 3,146 $ 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+ 1.03% 0.27% (0.04%) (0.40%)
Portfolio turnover rate@ 144% 220% 213% 184%
</Table>
+ Net investment loss for the year ended December 31, 2001 aggregated less
than $0.01 on a per share basis.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 1.95% (2003), 1.70% (2002) and 1.55% (2001). The gross expense ratios
would have been 1.95% (2003), 1.71% (2002) and 1.57% (2001). The net
investment income (loss) ratios would have been 0.23% (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.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of year $ 7.14 $ 9.97 $ 14.37 $ 19.88
Income from investment operations:
Net investment income (loss) 0.00+ (0.10) (0.09) (0.06)
Net realized and unrealized gains (losses)
on securities 2.61 (2.73) (4.31) (3.55)
---------- ---------- ---------- ----------
Total from investment operations 2.61 (2.83) (4.40) (3.61)
Less dividends and distributions:
From net investment income (0.05) 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.90)
---------- ---------- ---------- ----------
Total distributions (0.05) 0.00 0.00 (1.90)
Net Asset Value, end of year $ 9.70 $ 7.14 $ 9.97 $ 14.37
========== ========== ========== ==========
Total return* 36.58% (28.39%) (30.62%) (17.85%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 172 $ 158 $ 343 $ 654
Net expenses to average net assets#,+ 1.65% 1.65% 1.77% 1.98%
Gross expenses to average net assets#,+ 1.65% 1.65% 1.80% 2.03%
Net investment income (loss) to average net
assets+ 0.67% (0.12%) (0.53%) (0.70%)
Portfolio turnover rate@ 144% 220% 213% 184%
</Table>
+ Net investment income for the year ended December 31, 2003 aggregated less
than $0.01 on a per share basis.
* Sales charges are not reflected in the total return.
# 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 or waived by the management company and its
affiliates for the years ended December 31, 2003, 2002 and 2001. Had these
fees not been reimbursed and/or waived, the net expense ratios would have
been 2.88% (2003), 4.00% (2002) and 2.83% (2001). The gross expense ratios
would have been 2.88% (2003), 4.00% (2002) and 2.86% (2001). The net
investment income (loss) ratios would have been (0.56%) (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.
24
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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.
25
<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 December 31, 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 arises 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 distributions
26
<Page>
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) 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 an indirect 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
1.00% of the
27
<Page>
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 year
ended December 31, 2003, $342,377 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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $19,110 and $10,586, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $5,685 and $3,228,
respectively, for out-of-pocket transfer agent charges.
28
<Page>
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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 73,674
Class B $ 9,767
Class C $ 1,981
Class R $ 3,110
Class T $ 817
</Table>
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 or servicing 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 year ended December 31, 2003, Class F shares were charged $22,388 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.
29
<Page>
Distribution and shareholder servicing fees paid to DSC by the Fund's Class
A, B, C, and T shares for the year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 47,482
Class B $ 15,145 $ 5,048
Class C $ 3,610 $ 1,204
Class T $ 427 $ 427
</Table>
During the year ended December 31, 2003, DSC retained $94 and $10 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $10,862 and $85 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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $13,644. The amount paid to Mellon was
reduced by this fee waiver amount.
30
<Page>
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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 9,949 $ 54,218 $ (64,167)
</Table>
The tax character of distributions paid during 2003 and 2002 was as follows:
<Table>
<Caption>
2003 2002
--------- ---------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 259,512 $ 56,660
Long-term capital gain $ 0 $ 0
--------- ---------
$ 259,512 $ 56,660
</Table>
31
<Page>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003, 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, 2011.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Undistributed Ordinary Income $ 2,512
Accumulated Capital Losses $ 39,617,964
Post-October Currency Loss Deferral $ 838
Federal Tax Cost $ 28,432,349
Gross Tax Appreciation of Investments $ 10,576,208
Gross Tax Depreciation of Investments $ (4,608)
Net Tax Appreciation $ 10,571,600
</Table>
32
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
CLASS A
Sold 724,401 $ 5,318,119 4,149,772 $ 34,712,760
Dividends or Distributions Reinvested 15,239 $ 147,964 4,234 $ 30,237
Redeemed (978,731) $ (7,425,669) (4,523,803) $ (38,087,744)
NET DECREASE (239,091) $ (1,959,586) (369,797) $ (3,344,747)
CLASS B
Sold 72,988 $ 520,427 144,790 $ 1,041,200
Dividends or Distributions Reinvested 146 $ 1,391 0 $ 0
Redeemed (137,735) $ (972,405) (215,227) $ (1,633,534)
NET DECREASE (64,601) $ (450,587) (70,437) $ (592,334)
CLASS C
Sold 165,203 $ 1,132,327 27,418 $ 241,026
Redeemed (190,526) $ (1,322,601) (96,541) $ (870,079)
NET DECREASE (25,323) $ (190,274) (69,123) $ (629,053)
CLASS F
Sold 1,515,865 $ 11,180,704 1,879,837 $ 15,539,534
Dividends or Distributions Reinvested 6,797 $ 66,066 1,997 $ 14,235
Redeemed (1,814,806) $ (13,597,081) (2,242,842) $ (18,862,775)
NET DECREASE (292,144) $ (2,350,311) (361,008) $ (3,309,006)
CLASS R
Sold 146,346 $ 1,105,834 280,113 $ 2,397,887
Dividends or Distributions Reinvested 2,764 $ 26,981 1,130 $ 8,099
Redeemed (170,854) $ (1,336,846) (544,644) $ (4,994,824)
NET DECREASE (21,744) $ (204,031) (263,401) $ (2,588,838)
CLASS T
Sold 97,501 $ 651,910 291 $ 2,419
Dividends or Distributions Reinvested 91 $ 882 0 $ 0
Redeemed (101,973) $ (710,698) (12,536) $ (104,892)
NET DECREASE (4,381) $ (57,906) (12,245) $ (102,473)
</Table>
33
<Page>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$46,409,480 and $50,639,763, respectively.
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) $50 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 $50 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 December 31, 2003, the Fund had borrowings in the amount of $100,000
pursuant to this LOC arrangement.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
34
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders International
Equity Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc.,
hereafter referred to as the "Fund") at December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2003 by correspondence with the custodian, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
35
<Page>
OTHER TAX INFORMATION
(UNAUDITED)
CORPORATE DIVIDENDS RECEIVED DEDUCTION
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal tax purposes, taxable as
ordinary income to shareholders. Of the ordinary income distributions declared
for the period ended December 31, 2003, 0.0% qualified for the dividends
received deduction available to the Fund's corporate shareholders.
QUALIFIED DIVIDEND INCOME
For the year ended December 31, 2003, the Fund designated 100% of the ordinary
income distributions paid as qualified dividend income subject to reduced income
tax rates for taxpayers with taxable accounts.
36
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
37
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
38
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
39
<Page>
For More Information
DREYFUS FOUNDERS
INTERNATIONAL EQUITY FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
210 University Boulevard, Suite 800
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)2004 Dreyfus Service Corporation 360AR1203
<Page>
Dreyfus Founders
Mid-Cap Growth Fund
ANNUAL REPORT December 31, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
(R) 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
Report of Independent Auditors 34
Your Board Representatives 35
</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 December 31, 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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
While we were pleased with the Fund's performance relative to its mid-cap growth
fund peers in 2003, the Fund's gains trailed its benchmark, the Russell Midcap
Growth Index, which rose 42.71% during the period.
Despite the fact that riskier stocks were the strongest performers in 2003,
we adhered to our core process, continuing to search for companies with superior
long-term profit growth prospects led by exceptional management teams. We also
continued to maintain a strong valuation discipline, investing when we felt
stocks were trading below our fair value estimation. Good stock picking helped
offset the headwind of the Fund's lower beta in this very strong market,
providing an even better risk-adjusted return.
The Fund's lower relative return versus the benchmark was largely due to
its lower beta investments, higher weighted-average market capitalization, an
underweight position in the technology sector and average cash position of about
2.7% compared to the fully invested Index.
DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE PERIOD.
Stock markets worldwide generally posted double-digit gains during
the year, with the U.S. market ending 2003 in the black for the first time
in the last four years. Rapidly improving economic conditions following
[SIDENOTE]
"BETTER SALES FROM A STRONGER ECONOMY COUPLED WITH EXTRAORDINARY PRODUCTIVITY
GAINS LED TO DOUBLE-DIGIT PROFIT GROWTH FROM MANY PUBLIC COMPANIES."
3
<Page>
the conclusion of major hostilities in Iraq, higher corporate profits and benign
inflation contributed to market gains. Powerful fiscal and monetary stimuli in
the form of tax cuts, government spending and lower interest rates also assisted
the boost in economic activity. Better sales from a stronger economy coupled
with extraordinary productivity gains led to double-digit profit growth from
many public companies. Higher profits, confidence in a stronger economic future
and poor alternative investment options--for example, 10-year Treasury bond
yields ranged from 3.5-4.5% for most of the year while money market funds paid
even less--also contributed to higher share prices.
WHAT CHANGES WERE MADE TO THE FUND DURING THE PERIOD?
Our individual stock selection and the market's strong gains in 2003 resulted in
changes in Fund composition. The weighted average market capitalization grew
from $5.7 billion at the beginning of the year to $6.8 billion by year's end.
The forward price-to-earnings ratio (P/E) of the Fund also rose, from 19 times
forward earnings at the end of 2002 to 24 times by the end of 2003. And while
the P/E of the Fund remained lower than that of its benchmark, the consensus
estimates of the long-term
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - Stock markets worldwide generally posted double-digit gains for the year,
with the U.S. market ending 2003 in the black for the first time in the
last four years.
- - Our individual stock selection and the market's strong gains in 2003 led to
some changes in Fund composition.
- - Among the positive relative impacts were the returns experienced by Fund
holdings in the financials, consumer staples and energy sectors.
- - The Fund was generally underweight such strong performing industries as
communications equipment, Internet software, semiconductors and
semiconductor equipment. However, strong selection in the Fund's largest
technology industry, systems software, helped mitigate the Fund's relative
underperformance in the technology sector.
4
<Page>
profit growth of the stocks in the Fund were slighter higher. Further, we
invested in very few companies that are forecasted to lose money in the coming
year, while such holdings comprised about 3% of the benchmark.
In the midst of an improving economy and a rebound in business capital
spending, we found many attractive opportunities among technology stocks, and as
a result of new buys and strong gains from the sector, the Fund's weighting in
technology nearly doubled, largely at the expense of the healthcare and
industrials sectors.
Also of note, the Fund had significant weightings in the consumer
discretionary, technology and healthcare sectors by the end of the period, the
three largest sectors in which we generally invest.
WHAT POSITIVELY CONTRIBUTED TO FUND PERFORMANCE DURING THE PERIOD?
Strong stock performance and favorable weightings versus the benchmark in the
financials and consumer staples sectors positively impacted relative Fund
performance for the year. Our energy holdings also advanced relative
performance, with oil and gas exploration and development company APACHE
CORPORATION leading the sector. The Fund benefited from participation in initial
public offerings (IPOs) over the period as well.
Strong stock selection in the healthcare sector also positively impacted
overall performance. BARR PHARMACEUTICALS, INC., for example, rose 77% for the
year, driven by its strong generic and proprietary drug sales in markets such as
women's health. Barr was the single largest positive contributor to Fund
performance for the reporting period on an individual stock basis. In
[SIDENOTE]
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. Getty Images, Inc.(GYI) 2.06%
2. Maxim Integrated Products, Inc.(MXIM) 2.03%
3. Teva Pharmaceutical Industries Limited (TEVA) 1.96%
4. Barr Pharmaceuticals, Inc. (BRL.A) 1.92%
5. Amdocs Limited (DOX) 1.87%
6. Corinthian Colleges, Inc. (COCO) 1.85%
7. Danaher Corporation (DHR) 1.82%
8. Gilead Sciences, Inc. (GILD) 1.81%
9. Fastenal Company (FAST) 1.81%
10. TJX Companies, Inc. (TJX) 1.80%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
addition, generic pharmaceutical company TEVA PHARMACEUTICAL INDUSTRIES LIMITED,
and pharmacy benefit manager CAREMARK RX, INC., also greatly boosted Fund
performance in this sector.
Trucking company J.B. HUNT TRANSPORT SERVICES, INC. experienced an
exceptional increase during the period, rising 84%. The company's business
performance was aided by the strengthening economy as well as a favorable
industry environment in which many smaller trucking companies grappled with
limited capital and a tight driver supply. However, real profit gains came from
Hunt's efforts to reduce its operating expenses and increase its productivity.
As a result of these strides, Wall Street forecasts for the company rose and
became more closely aligned with our estimates.
[SIDENOTE]
[CHART]
GROWTH OF $10,000 INVESTMENT
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 12/31/93 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>
INTERNATIONAL GAME TECHNOLOGY, the leading maker of games for casinos,
appreciated nearly 90% during the period, powered by very strong sales of
cashless slot machines and profit growth of over 30%.
Strong stock performance by HARMAN INTERNATIONAL INDUSTRIES, INC., a
provider of audio and other electronics to the consumer and automobile original
equipment manufacturer (OEM) markets, and CADENCE DESIGN SYSTEMS, INC., a
supplier of electronic design automation (EDA) and engineering services, also
buoyed relative Fund performance during the period.
Other standout individual performers during the period included financial
holdings FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. and NEW YORK COMMUNITY BANCORP,
INC.
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- -----------------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 28.47% -- -- (12.72%)
Without sales charge 36.43% -- -- (11.42%)
CLASS B SHARES (12/31/99)
With redemption* 31.04% -- -- (12.34%)
Without redemption 35.04% -- -- (11.91%)
CLASS C SHARES (12/31/99)
With redemption** 34.20% -- -- (12.23%)
Without redemption 35.20% -- -- (12.23%)
CLASS F SHARES (9/8/61) 36.64% (2.27%) 3.47% N/A
CLASS R SHARES (12/31/99) 36.40% -- -- (11.19%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 28.90% -- -- (13.22%)
Without sales charge 35.06% -- -- (12.22%)
</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 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
one-year 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.
7
<Page>
WHAT FACTORS DETRACTED FROM FUND PERFORMANCE?
The Fund's technology investments significantly trailed the benchmark's return
in this sector. For example, one of the world's largest distributors of
technology equipment, Technology Data Corporation, declined early in the year as
pricing and volumes for the industry remained weak. Additionally, the Fund was
generally underweight such strong performing industries as communications
equipment, Internet software, semiconductors and semiconductor equipment.
However, strong selection in the Fund's largest technology industry, systems
software, helped mitigate underperformance in the sector.
An underweight position coupled with weak stock selection in the consumer
discretionary sector weighed heavily on relative Fund performance, with such
holdings as Darden Restaurants, Inc., parent company of such casual restaurants
as Red Lobster and Olive Garden, producing a significant drag on performance
during the period.
The Fund's overweight position in the industrials sector also impeded
relative performance. Poor performance by individual industrials holdings such
as L-3 Communications Corporation, a merchant supplier of intelligence,
surveillance and reconnaissance systems and products, and uniform specialist
Cintas Corporation, negatively impacted the Fund's overall performance in this
sector.
[SIDENOTE]
[CHART]
<Table>
PORTFOLIO COMPOSITION
Information Technology 26.27%
Consumer Discretionary 21.26%
Healthcare 17.04%
Industrials 10.62%
Financials 8.80%
Energy 4.57%
Materials 2.61%
Consumer Staples 2.22%
Other 4.05%
Cash & Equivalents 2.56%
</Table>
The Funds 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>
The Fund underperformed in the materials sector relative to the benchmark
due to poor stock selection. Crown Holdings, Inc., manufacturer of packaging
products to consumer marketing companies, was the Fund's second-worst individual
performer for the period.
Some additional individual holdings should be singled out for poor
performance during the period. Cephalon, Inc., a biotechnology company
specializing in narcolepsy and pain products, dropped during the period when
sales of the company's leading daytime wakefulness drug, Provigil, fell short of
expectations and led to weaker-than-expected profits. Biotechnology holding
Medimmune, Inc. likewise fell after a disappointing launch of its new nasal
influenza vaccine, FluMist, which failed to generate enough use to meet the
investment community's expectations.
Additional detractors from relative Fund performance were other
stock-specific disappointments, such as The Pepsi Bottling Group, Inc., MGM
Mirage and Quest Diagnostics, Inc.
Some of these positions were sold during the first few months of 2003,
unfortunately locking in losses before the market rebounded. However, the
capital raised with these sales was quickly re-deployed into other investments
that provided the Fund with more attractive alternatives.
We will continue to seek companies we feel possess the best opportunity for
superior long-term profit growth, led by management teams we believe may execute
the plan and deliver on that potential. As we move into 2004, our Fund strategy
remains consistent. We will continue to focus on our bottom-up investment
process to identify the most attractive mix of potential reward and limited
risk.
/s/ Kevin Sonnett
Kevin Sonnett, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-92.2%
AIR FREIGHT & LOGISTICS-0.5%
20,475 C.H. Robinson Worldwide, Inc. $ 776,200
--------------
APPAREL RETAIL-3.1%
82,594 Ross Stores, Inc. 2,182,959
132,800 TJX Companies, Inc. 2,928,240
--------------
5,111,199
--------------
APPAREL, ACCESSORIES & LUXURY GOODS-0.9%
36,375 Coach, Inc.* 1,373,157
--------------
APPLICATION SOFTWARE-3.4%
101,425 Cadence Design Systems, Inc.* 1,823,621
64,900 Citrix Systems, Inc.* 1,376,529
47,425 Mercury Interactive Corporation* 2,306,752
--------------
5,506,902
--------------
ASSET MANAGEMENT & CUSTODY BANKS-2.1%
40,500 Federated Investors, Inc. Class B 1,189,080
74,800 SEI Investments Company 2,279,156
--------------
3,468,236
--------------
BIOTECHNOLOGY-1.8%
50,700 Gilead Sciences, Inc.* 2,947,698
--------------
BROADCASTING & CABLE TV-0.8%
50,375 Cox Radio, Inc. Class A* 1,270,961
--------------
CASINOS & GAMING-1.1%
47,850 International Game Technology 1,708,245
--------------
COMMUNICATIONS EQUIPMENT-1.2%
42,050 Foundry Networks, Inc.* 1,150,488
38,025 Polycom, Inc.* 742,248
--------------
1,892,736
--------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
COMPUTER & ELECTRONICS RETAIL-1.0%
31,425 Best Buy Company, Inc. $ 1,641,642
--------------
COMPUTER STORAGE & PERIPHERALS-2.2%
136,675 Maxtor Corporation* 1,517,093
39,600 QLogic Corporation* 2,043,360
--------------
3,560,453
--------------
CONSUMER ELECTRONICS-0.7%
15,475 Harman International Industries, Inc. 1,144,841
--------------
DATA PROCESSING & OUTSOURCED SERVICES-3.4%
47,635 Affiliated Computer Services, Inc. Class A* 2,594,202
73,000 Fiserv, Inc.* 2,884,230
--------------
5,478,432
--------------
DIVERSIFIED COMMERCIAL SERVICES-3.8%
10,075 Apollo Group, Inc. Class A* 685,100
92,439 ARAMARK Corporation Class B 2,534,677
54,049 Corinthian Colleges, Inc.* 3,002,962
--------------
6,222,739
--------------
ELECTRONIC EQUIPMENT MANUFACTURERS-2.2%
166,500 Symbol Technologies, Inc. 2,812,185
23,575 Waters Corporation* 781,747
--------------
3,593,932
--------------
EMPLOYMENT SERVICES-1.1%
39,200 Manpower, Inc. 1,845,536
--------------
EXCHANGE TRADED FUNDS-4.1%
34,100 Internet Architecture HOLDRS Trust 1,227,941
17,300 Internet HOLDRS Trust 868,287
29,575 iShares Goldman Sachs Networking Index Fund* 816,566
32,400 iShares Goldman Sachs Software Index Fund* 1,223,424
41,225 iShares Russell 2000 Growth Fund 2,442,581
--------------
6,578,799
--------------
FOOD DISTRIBUTORS-0.9%
37,150 Sysco Corporation 1,383,095
--------------
FOOD RETAIL-0.9%
20,750 Whole Foods Market, Inc.* 1,392,948
--------------
GENERAL MERCHANDISE STORES-1.1%
60,175 Dollar Tree Stores, Inc.* 1,808,861
--------------
HEALTHCARE DISTRIBUTORS-0.4%
10,900 Patterson Dental Company* 699,344
--------------
</Table>
* NON-INCOME PRODUCING.
HOLDRS - HOLDING COMPANY DEPOSITARY RECEIPTS
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT-4.0%
43,875 Biomet, Inc. $ 1,597,489
32,900 Boston Scientific Corporation* 1,209,404
44,987 DENTSPLY International, Inc. 2,032,063
28,025 St. Jude Medical, Inc.* 1,719,334
--------------
6,558,290
--------------
HEALTHCARE SERVICES-1.3%
31,400 Caremark Rx, Inc.* 795,362
18,750 Express Scripts, Inc. Class A* 1,245,563
--------------
2,040,925
--------------
HOME ENTERTAINMENT SOFTWARE-0.6%
50,625 Activision, Inc.* 921,375
--------------
HOME FURNISHINGS-1.3%
32,150 Leggett & Platt, Inc. 695,405
19,075 Mohawk Industries, Inc.* 1,345,551
--------------
2,040,956
--------------
HOMEBUILDING-0.5%
9,175 Lennar Corporation Class A 880,800
--------------
HOTELS, RESORTS & CRUISE LINES-1.0%
95,625 Hilton Hotels Corporation 1,638,056
--------------
INDUSTRIAL CONGLOMERATES-1.8%
32,130 Danaher Corporation 2,947,927
--------------
INDUSTRIAL GASES-0.8%
32,775 Praxair, Inc. 1,252,005
--------------
INVESTMENT BANKING & BROKERAGE-1.8%
205,000 Ameritrade Holding Corporation* 2,884,350
--------------
LEISURE FACILITIES-0.9%
43,300 Royal Caribbean Cruises Limited 1,506,407
--------------
MANAGED HEALTHCARE-2.4%
16,225 Anthem, Inc.* 1,216,875
15,000 PacifiCare Health Systems, Inc.* 1,014,000
18,000 WellPoint Health Networks, Inc.* 1,745,820
--------------
3,976,695
--------------
METAL & GLASS CONTAINERS-1.0%
28,225 Ball Corporation 1,681,363
--------------
OIL & GAS EQUIPMENT & SERVICES-2.9%
68,225 BJ Services Company* 2,449,278
55,600 Smith International, Inc.* 2,308,512
--------------
4,757,790
--------------
OIL & GAS EXPLORATION & PRODUCTION-1.6%
32,801 Apache Corporation 2,660,161
--------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-2.2%
37,775 Ambac Financial Group, Inc. $ 2,621,207
41,775 Friedman, Billings, Ramsey Group, Inc. 964,167
--------------
3,585,374
--------------
PERSONAL PRODUCTS-0.5%
21,150 Estee Lauder Companies, Inc. Class A 830,349
--------------
PHARMACEUTICALS-5.1%
73,700 Andrx Corporation* 1,771,748
40,550 Barr Pharmaceuticals, Inc.* 3,120,323
30,425 MGI Pharma, Inc.* 1,251,989
46,300 Watson Pharmaceuticals, Inc.* 2,129,800
--------------
8,273,860
--------------
PROPERTY & CASUALTY INSURANCE-0.8%
40,275 Infinity Property & Casualty Corporation 1,331,089
--------------
PUBLISHING-3.7%
66,650 Getty Images, Inc.* 3,341,165
22,875 McClatchy Company Class A 1,573,800
23,600 New York Times Company Class A 1,127,844
--------------
6,042,809
--------------
RESTAURANTS-1.5%
72,925 Brinker International, Inc.* 2,418,193
--------------
SEMICONDUCTOR EQUIPMENT-1.5%
81,800 MKS Instruments, Inc.* 2,372,200
--------------
SEMICONDUCTORS-5.2%
65,650 Fairchild Semiconductor Corporation Class A* 1,639,281
32,450 Intersil Corporation Class A 806,383
66,250 Maxim Integrated Products, Inc. 3,299,250
29,350 Microchip Technology, Inc. 979,116
76,675 Semtech Corporation* 1,742,823
--------------
8,466,853
--------------
SPECIALIZED FINANCE-0.4%
10,475 Moody's Corporation 634,261
--------------
SPECIALTY STORES-3.7%
9,175 AutoZone, Inc.* 781,802
58,875 Bed Bath & Beyond, Inc.* 2,552,231
95,825 Staples, Inc.* 2,616,023
--------------
5,950,056
--------------
STEEL-0.8%
33,675 International Steel Group, Inc.* 1,311,641
--------------
SYSTEMS SOFTWARE-2.2%
19,600 Adobe Systems, Inc. 770,280
45,550 Macrovision Corporation* 1,028,975
50,750 Symantec Corporation* 1,758,488
--------------
3,557,743
--------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-1.6%
44,400 CDW Corporation $ 2,564,544
--------------
THRIFTS & MORTGAGE FINANCE-1.1%
46,406 New York Community Bancorp, Inc. 1,765,748
--------------
TRADING COMPANIES & DISTRIBUTORS-1.8%
58,875 Fastenal Company 2,940,218
--------------
TRUCKING-1.5%
92,850 JB Hunt Transport Services, Inc.* 2,507,879
--------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$124,593,270) 149,705,873
--------------
COMMON STOCKS (FOREIGN)-5.2%
APPLICATION SOFTWARE-1.9%
135,100 Amdocs Limited (CI)* 3,037,048
--------------
IT CONSULTING & OTHER SERVICES-1.0%
64,825 Accenture Limited Class A ADR (BD)* 1,706,194
--------------
PHARMACEUTICALS-1.9%
56,000 Teva Pharmaceutical Industries Limited Sponsored
ADR (IS) 3,175,760
--------------
THRIFTS & MORTGAGE FINANCE-0.4%
19,350 Doral Financial Corporation (PU) 624,618
--------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$6,728,305) 8,543,620
--------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ---------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-1.8%
$ 2,900,000 Federal National Mortgage Association
0.75% 1/2/04 $ 2,899,940
--------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$2,899,940) 2,899,940
--------------
TOTAL INVESTMENTS-99.2%
(TOTAL COST-$134,221,515) 161,149,433
OTHER ASSETS AND LIABILITIES-0.8% 1,265,074
--------------
NET ASSETS-100.0% $ 162,414,507
==============
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 134,221,515
--------------
Investment securities, at market 161,149,433
Cash 110,890
Receivables:
Investment securities sold 5,704,748
Capital shares sold 27,019
Dividends 38,808
Other assets 15,139
--------------
Total Assets 167,046,037
--------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 4,191,296
Capital shares redeemed 107,777
Advisory fees 109,135
Shareholder servicing fees 15,071
Accounting fees 8,221
Distribution fees 31,678
Transfer agency fees 24,445
Custodian fees 490
Other 143,417
--------------
Total Liabilities 4,631,530
--------------
Net Assets $ 162,414,507
==============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 218,073,564
Accumulated net investment loss (15,164)
Accumulated net realized loss from security transactions (82,571,811)
Net unrealized appreciation on investments 26,927,918
--------------
Total $ 162,414,507
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
Net Assets--Class A $ 1,190,590
Shares Outstanding--Class A 338,414
Net Asset Value, Redemption Price Per Share $ 3.52
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 3.73
Net Assets--Class B $ 1,586,902
Shares Outstanding--Class B 463,226
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.43
Net Assets--Class C $ 323,067
Shares Outstanding--Class C 95,669
Net Asset Value, Offering and Redemption Price (excluding
applicable contingent deferred sales charge) Per Share $ 3.38
Net Assets--Class F $ 159,160,902
Shares Outstanding--Class F 44,456,647
Net Asset Value, Offering and Redemption Price Per Share $ 3.58
Net Assets--Class R $ 119,048
Shares Outstanding--Class R 33,476
Net Asset Value, Offering and Redemption Price Per Share $ 3.56
Net Assets--Class T $ 33,998
Shares Outstanding--Class T 10,038
Net Asset Value, Redemption Price Per Share $ 3.39
Maximum offering price per share (net asset value plus sales
charge of 4.50% of offering price) $ 3.55
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 615,664
Interest 37,699
Foreign taxes withheld (2,821)
--------------
Total Investment Income 650,542
--------------
EXPENSES:
Advisory fees--Note 2 1,067,149
Shareholder servicing fees--Note 2 187,467
Accounting fees--Note 2 79,360
Distribution fees--Note 2 327,456
Transfer agency fees--Note 2 120,174
Registration fees 75,381
Postage and mailing expenses 25,652
Custodian fees and expenses--Note 2 10,187
Printing expenses 45,011
Legal and audit fees 18,276
Directors' fees and expenses--Note 2 29,908
Other expenses 29,034
--------------
Total Expenses 2,015,055
Earnings Credits (2,314)
Waived Expenses (1,996)
Expense Offset to Broker Commissions (3,995)
--------------
Net Expenses 2,006,750
--------------
Net Investment Loss (1,356,208)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
SECURITY TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on Security transactions 20,810,975
Net Change in Unrealized Appreciation/Depreciation of Investments 25,868,151
--------------
Net Realized and Unrealized Gain 46,679,126
--------------
Net Increase in Net Assets Resulting from Operations $ 45,322,918
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
------------- -------------
OPERATIONS
Net Investment Loss $ (1,356,208) $ (1,349,450)
Net Realized Gain (Loss) 20,810,975 (27,913,078)
Net Change in Unrealized Appreciation / Depreciation 25,868,151 (1,680,486)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 45,322,918 (30,943,014)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 542,198 66,609
Class B 264,005 150,527
Class C (52,492) (6,389)
Class F 24,535,977 620,840
Class R 9,780 57,755
Class T 5,472 6,135
------------- -------------
Net Increase from Capital Share Transactions 25,304,940 895,477
------------- -------------
Net Increase (Decrease) in Net Assets 70,627,858 (30,047,537)
NET ASSETS
Beginning of year $ 91,786,649 $ 121,834,186
------------- -------------
End of year (including accumulated net investment
loss of $15,164 and $0, respectively) $ 162,414,507 $ 91,786,649
============= =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS A SHARES
Net Asset Value, beginning of year $ 2.58 $ 3.44 $ 4.38 $ 8.68
Income from investment operations:
Net investment income (loss) 0.03 (0.04) (0.06) (0.02)
Net realized and unrealized
gains (losses)on securities 0.91 (0.82) (0.88) (2.05)
--------- --------- --------- ---------
Total from investment
operations 0.94 (0.86) (0.94) (2.07)
Less dividends and 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 year $ 3.52 $ 2.58 $ 3.44 $ 4.38
========= ========= ========= =========
Total return* 36.43% (25.00%) (21.46%) (23.40%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,191 $ 476 $ 538 $ 625
Net expenses to average net assets# 1.86% 2.15% 2.46% 1.25%
Gross expenses to average net assets# 1.87% 2.15% 2.47% 1.29%
Net investment loss to average
net assets (1.38%) (1.81%) (1.93%) (0.74%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS B SHARES
Net Asset Value, beginning of year $ 2.54 $ 3.39 $ 4.32 $ 8.68
Income from investment operations:
Net investment loss (0.03) (0.05) (0.05) (0.04)
Net realized and unrealized
gains (losses)on securities 0.92 (0.80) (0.88) (2.09)
--------- --------- --------- ---------
Total from investment
operations 0.89 (0.85) (0.93) (2.13)
Less dividends and 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 year $ 3.43 $ 2.54 $ 3.39 $ 4.32
========= ========= ========= =========
Total return* 35.04% (25.07%) (21.53%) (24.14%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,587 $ 969 $ 1,138 $ 1,047
Net expenses to average net assets# 2.64% 2.67% 2.58% 1.99%
Gross expenses to average net assets# 2.65% 2.68% 2.59% 2.04%
Net investment loss to average
net assets (2.16%) (2.33%) (2.06%) (1.47%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS C SHARES
Net Asset Value, beginning of year $ 2.50 $ 3.36 $ 4.32 $ 8.68
Income from investment operations:
Net investment loss (0.10) (0.08) (0.08) (0.04)
Net realized and unrealized
gains (losses)on securities 0.98 (0.78) (0.88) (2.09)
--------- --------- --------- ---------
Total from investment
operations 0.88 (0.86) (0.96) (2.13)
Less dividends and 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 year $ 3.38 $ 2.50 $ 3.36 $ 4.32
========= ========= ========= =========
Total return* 35.20% (25.60%) (22.22%) (24.14%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 323 $ 274 $ 380 $ 422
Net expenses to average net assets#,+ 2.51% 2.98% 3.93% 2.00%
Gross expenses to average net
assets#,+ 2.51% 2.99% 3.94% 2.04%
Net investment loss to
average net assets+ (2.02%) (2.65%) (3.41%) (1.46%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of year $ 2.62 $ 3.47 $ 4.36 $ 8.68 $ 7.44
Income from investment operations:
Net investment income (loss) 0.02 (0.04) (0.05) (0.03) (0.08)
Net realized and unrealized gains
(losses)on securities 0.94 (0.81) (0.84) (2.06) 3.12
---------- ---------- ---------- ---------- ----------
Total from investment
operations 0.96 (0.85) (0.89) (2.09) 3.04
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00^
From net realized gains 0.00 0.00 0.00 (2.23) (1.80)
---------- ---------- ---------- ---------- ----------
Total distributions 0.00 0.00 0.00 (2.23) (1.80)
Net Asset Value, end of year $ 3.58 $ 2.62 $ 3.47 $ 4.36 $ 8.68
========== ========== ========== ========== ==========
Total return 36.64% (24.50%) (20.41%) (23.69%) (42.27%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 159,161 $ 89,970 $ 119,708 $ 166,365 $ 253,385
Net expenses to average
net assets# 1.50% 1.56% 1.37% 1.36% 1.40%
Gross expenses to average
net assets# 1.51% 1.56% 1.39% 1.39% 1.42%
Net investment loss to
average net assets (1.01%) (1.22%) (0.84%) (0.92%) (0.98%)
Portfolio turnover rate@ 160% 216% 214% 226% 186%
</Table>
^ Distributions from net investment income for the year ended December 31, 1999
aggregated less than $0.01 on a per share basis.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS R SHARES
Net Asset Value, beginning of year $ 2.61 $ 3.48 $ 4.39 $ 8.68
Income from investment operations:
Net investment income (loss) (0.03) (0.04) 0.01 (0.03)
Net realized and unrealized
gains (losses) on securities 0.98 (0.83) (0.92) (2.03)
--------- --------- --------- ---------
Total from investment
operations 0.95 (0.87) (0.91) (2.06)
Less dividends and 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 year $ 3.56 $ 2.61 $ 3.48 $ 4.39
========= ========= ========= =========
Total return 36.40% (25.00%) (20.73%) (23.28%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 119 $ 77 $ 49 $ 7
Net expenses to average net assets#,+ 1.64% 1.97% 2.89% 1.00%
Gross expenses to average net
assets#,+ 1.64% 1.97% 2.91% 1.03%
Net investment loss to average
net assets+ (1.15%) (1.63%) (2.40%) (0.55%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000
--------- --------- --------- ---------
CLASS T SHARES
Net Asset Value, beginning of year $ 2.51 $ 3.39 $ 4.35 $ 8.68
Income from investment operations:
Net investment loss (0.02) (0.06) (0.11) (0.02)
Net realized and unrealized
gains (losses) on securities 0.90 (0.82) (0.85) (2.08)
--------- --------- --------- ---------
Total from investment
operations 0.88 (0.88) (0.96) (2.10)
Less dividends and 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 year $ 3.39 $ 2.51 $ 3.39 $ 4.35
========= ========= ========= =========
Total return* 35.06% (25.96%) (22.07%) (23.80%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 34 $ 20 $ 20 $ 29
Net expenses to average net assets#,+ 2.76% 3.63% 3.11% 1.50%
Gross expenses to average net
assets#,+ 2.76% 3.64% 3.13% 1.55%
Net investment loss to average
net assets+ (2.27%) (3.29%) (2.57%) (0.98%)
Portfolio turnover rate@ 160% 216% 214% 226%
</Table>
* Sales charges are not reflected in the total return.
# Ratio of Net Expenses to Average Net Assets reflects reductions in a Fund's
expenses through the use of brokerage commissions, waivers, 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,
waivers, 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
December 31, 2003
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>
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, if any, is recorded
as foreign currency gain or loss and would be 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 arises 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 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.
26
<Page>
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) 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 an indirect 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
1.00% 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>
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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $116,874 and $65,407, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $43,721 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-------------
Class A $ 3,179
Class B $ 6,585
Class C $ 1,404
Class R $ 549
Class T $ 324
</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 or servicing 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 year ended December 31, 2003, Class F shares were charged $316,409 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 1,458
Class B $ 8,578 $ 2,859
Class C $ 2,401 $ 801
Class T $ 68 $ 68
</Table>
During the year ended December 31, 2003, DSC retained $572 and $33 in sales
commissions from the sales of Class A and Class T shares, respectively. DSC also
retained $2,629 and $269 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.
29
<Page>
CUSTODIAN FEES--Mellon Bank N.A., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $1,996. 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.
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
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
30
<Page>
for items such as deferral of wash sale losses, foreign currency transactions,
net operating losses, and capital loss carryovers. Permanent differences
identified during the year ended December 31, 2003 have been reclassified among
the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 1,341,044 $ 0 $ (1,341,044)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted
below, if any, as of December 31, 2003, 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. Net capital loss carryovers
utilized in 2003 amounted to $17,249,198.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 82,241,465
Federal Tax Cost $ 134,551,861
Gross Tax Appreciation of Investments $ 27,113,453
Gross Tax Depreciation of Investments $ (515,881)
Net Tax Appreciation $ 26,597,572
</Table>
31
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
CLASS A
Sold 244,735 $ 828,175 282,153 $ 757,701
Redeemed (90,696) $ (285,977) (254,287) $ (691,092)
NET INCREASE 154,039 $ 542,198 27,866 $ 66,609
CLASS B
Sold 145,154 $ 449,120 156,797 $ 474,952
Redeemed (63,928) $ (185,115) (110,190) $ (324,425)
NET INCREASE 81,226 $ 264,005 46,607 $ 150,527
CLASS C
Sold 56,880 $ 169,451 29,342 $ 92,484
Redeemed (70,756) $ (221,943) (32,951) $ (98,873)
NET DECREASE (13,876) $ (52,492) (3,609) $ (6,389)
CLASS F
Sold 19,131,927 $ 50,872,801 15,890,407 $ 45,272,617
Redeemed (8,999,875) $ (26,336,824) (16,090,739) $ (44,651,777)
NET INCREASE (DECREASE) 10,132,052 $ 24,535,977 (200,332) $ 620,840
CLASS R
Sold 15,172 $ 45,615 41,636 $ 135,210
Redeemed (11,397) $ (35,835) (26,128) $ (77,455)
NET INCREASE 3,775 $ 9,780 15,508 $ 57,755
CLASS T
Sold 2,448 $ 6,710 4,300 $ 13,887
Redeemed (403) $ (1,238) (2,324) $ (7,752)
NET INCREASE 2,045 $ 5,472 1,976 $ 6,135
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$227,564,229 and $204,928,042, respectively.
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
32
<Page>
(a) $50 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 $50 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 December 31, 2003, the Fund did not have any borrowings under the
LOC.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
33
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Mid-Cap Growth
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
34
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
35
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
36
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
37
<Page>
For More Information
DREYFUS FOUNDERS
MID-CAP GROWTH FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
210 University Boulevard, Suite 800
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)2004 Dreyfus Service Corporation 291AR1203
<Page>
Dreyfus Founders
Passport Fund
ANNUAL REPORT December 31, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
(R) DREYFUS LOGO
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 18
Statement of Operations 20
Statements of Changes in Net Assets 21
Financial Highlights 22
Notes to Financial Statements 28
Report of Independent Auditors 37
Your Board Representatives 38
</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 December 31, 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]
A DISCUSSION WITH PORTFOLIO MANAGER TRACY STOUFFER, CFA
HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
Dreyfus Founders Passport Fund had a very impressive year, significantly
outperforming its international small-cap benchmark, the Morgan Stanley Capital
International (MSCI) World ex U.S. Small Cap Index, which returned 61.81% for
the period. The Fund also bested the large-cap MSCI World ex U.S. Index, which
returned 39.42% for the year.
WHAT DYNAMICS AFFECTED INTERNATIONAL SMALL-CAP STOCKS DURING THE YEAR?
Uncertainty plagued the year's opening, due in large part to the impending
conflict in Iraq. Corporate spending remained sluggish and consumer spending
proved to be the main driver. However as the Iraqi conflict moved toward a
resolution, investors regained confidence in an emerging economic recovery and
began increasing their risk appetite.
2003 saw the global stock markets experiencing their first broad-based rally
in four years. Several factors revived the markets after their
[SIDENOTE]
"THERE WERE NUMEROUS COMPELLING GROWTH OPPORTUNITIES DURING THE YEAR, MOST OF
WHICH REVOLVED AROUND THE ASIAN GROWTH STORY, WITH CHINA AS THE GREAT GROWTH
ENGINE OF 2003 CAUSING A SURGE IN COMMODITY PRICES".
3
<Page>
three-year lull: a global easing of interest rates, improved corporate earnings
spurred by cost-cutting measures and debt reduction, and the emergence of China
as a secondary growth engine for the world. While the developed markets achieved
impressive gains, the rally was most pronounced in the emerging markets sector.
Unlike its small-cap benchmark, the Fund benefited from exposure in the emerging
markets, maintaining about a 22% weighting in the emerging markets throughout
the year, garnering bountiful gains specifically from Asia and Latin America.
WHAT FACTORS BENEFITED FUND PERFORMANCE DURING THE PERIOD?
There were numerous compelling growth opportunities during the year, most of
which revolved around the Asian growth story, with China as the great growth
engine of 2003 causing a surge in commodity prices. As a result, commodity
companies around the world profited from China's increasing demand for metal and
other raw materials. Japanese heavy equipment manufacturers benefited from the
building boom in China, as they were a large supplier of construction equipment.
[SIDENOTE]
PERFORMANCE HIGHLIGHTS
- - 2003 saw the global stock markets experiencing their first broad-based rally
in four years.
- - The Fund significantly outperformed its benchmarks for the year.
- - The Fund's holdings in numerous Asian domestic engineering and construction
companies reaped the benefits of a tremendous infrastructure boom throughout
Asia.
- - The Fund's large weighting in Japan was the principal contributor to
performance for the period, as after years of restructuring, the Japanese
economy was finally poised to benefit from some improvement.
- - The Fund's overweight positions in Israel and Taiwan, and its underweight
position in Canada dampened relative returns for the period.
4
<Page>
A tremendous infrastructure expansion continued to evolve throughout Asia in
2003. In the industrials sector, numerous Asian domestic engineering and
construction companies reaped the benefits of this growth, posting excellent
returns. The Fund was well positioned to garner the gains seen in this sector.
The Fund's large weighting in Japan was the principal contributor to
performance for the period. After years of restructuring, the Japanese economy
was finally poised to benefit from some improvement. The recovery has largely
presented itself in Japan's small-capitalization stocks, which far outperformed
the country's large-cap issues. For example, the JASDAQ(1) exchange, similar to
the United States' Nasdaq, was up 77% for 2003, while the Topix Small Cap
Index(2) saw a gain of 36% for the same period. These smaller companies have
been better positioned to restructure for profitability as they do not
participate in the common practice of holding shares in other institutions. This
cross-share holding practice has proven to be a burden to large Japanese
companies' restructuring efforts.
[SIDENOTE]
LARGEST EQUITY HOLDINGS (country of origin; ticker symbol)
<Table>
1. Fast Search & Transfer ASA (Norway; FAST) 1.40%
2. Andritz AG (Austria; ANDR) 1.35%
3. SBS Broadcasting SA (Luxembourg; SBTV) 1.26%
4. Siemens India Limited (India; SIEI) 1.25%
5. Fullcast Company Limited (Japan; 4848) 1.18%
6. ABB Limited (India; ABB) 1.18%
7. Jeronimo Martins SGPS SA (Portugal; JMT) 1.16%
8. Kemira Oyj (Finland; KRA) 1.15%
9. JGC Corporation (Japan; 1963) 1.12%
10. Grande Holdings Limited (Hong Kong; 186) 1.10%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
- ----------
(1) The JASDAQ market is the Japanese share trading market geared to small and
medium companies and mid-size ventures.
(2) The Topix Small Cap Index is a capitalization-weighted index designed to
measure the performance of the stocks not included in the larger-cap Topix 500
Index that are listed on the First Section of the Tokyo Stock Exchange.
5
<Page>
Although Japan still represented the Fund's largest country weighting at
year-end, we began to pare back holdings as we felt earnings momentum for
restructuring stocks was peaking for the near term. We instead added positions
in India, whose domestic economy is booming due to a good monsoon season and its
growing status as a business processing outsourcing
[SIDENOTE]
[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 12/31/93 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 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. 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>
market. Indian construction and engineering firms have profited from energy and
other civil infrastructure projects. These factors have assisted the country's
burgeoning economy and the success of its stock market over the past year. Fund
holdings involved in Indian infrastructure and domestic demand were strong
contributors to the Fund's annual return.
Examining the effect individual holdings had on Fund performance, it becomes
obvious that 2003 was also the year in which Internet companies possessing valid
business models became profitable. The Fund's best
[SIDENOTE]
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------
CLASS A SHARES (12/31/99)
With sales charge (5.75%) 64.81% -- -- (9.66%)
Without sales charge 74.94% -- -- (8.31%)
CLASS B SHARES (12/31/99)
With redemption* 69.46% -- -- (9.63%)
Without redemption 73.46% -- -- (9.02%)
CLASS C SHARES (12/31/99)
With redemption** 72.52% -- -- (9.07%)
Without redemption 73.52% -- -- (9.07%)
CLASS F SHARES (11/16/93) 75.15% 5.79% 7.33% 7.79%
CLASS R SHARES (12/31/99) 75.60% -- -- (9.00%)
CLASS T SHARES (12/31/99)
With sales charge (4.50%) 66.26% -- -- (10.22%)
Without sales charge 74.08% -- -- (9.18%)
</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 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.
7
<Page>
example of this, as well as its best performer, was lastminute.com PLC, a
British-based web company offering last minute entertainment and vacation
opportunities. Filling a niche in the online travel market, lastminute.com has
been very successful, offering more flexibility than traditional travel
arrangement sources.
Thai-based Italian-Thai Development, a designer and constructor of civil
engineering projects, was the Fund's second best performing stock for the year.
The company was well positioned to gain from the Thai government's push for
infrastructure projects during the year.
The Fund also benefited from participation in initial public offerings (IPOs)
over the period.
Direct Fund exposure to the local markets in China was minimal as the Fund
mainly invested in companies outside the country that benefited from its growth.
As most of the Chinese markets did not fare as well as the majority of world
regions in 2003, this positioning proved to be beneficial
[SIDENOTE]
PORTFOLIO COMPOSITION
[CHART]
<Table>
Japan 13.63%
India 11.94%
Hong Kong 8.89%
Canada 6.80%
United Kingdom 6.74%
Thailand 5.38%
Sweden 5.31%
Germany 4.38%
Other Countries 34.86%
Cash & Equivalents 2.07%
</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>
to Fund performance. Many local Chinese companies are poorly run former
government-owned institutions, and there is an abundance of highly speculative
investment in China. The Chinese government, however, is gradually trying to
improve the Chinese corporate culture.
WHAT FACTORS NEGATIVELY IMPACTED FUND PERFORMANCE?
The Fund's overweight positions in Israel and Taiwan, and its underweight
position in Canada, dampened relative returns for the period. Poor stock
selection in the Taiwanese market also produced a drag on overall Fund
performance. Additionally, the Fund's average cash allocation of 5.90% produced
a negative effect on Fund performance as compared to the fully invested Indexes.
When looking at holdings that underperformed, there are two companies that
stand out: M-Systems Flash Disk Pioneers Limited, a developer, manufacturer and
marketer of data storage products, and TOMRA Systems ASA, a Norwegian
manufacturer of vending machines for recycling beverage containers. M-Systems'
earnings came in below expectations and ongoing delays in the German recycling
market's regulatory environment led to TOMRA's sluggish performance. The Fund's
positions in both companies were liquidated.
As we enter 2004, our strategy remains constant: we remain committed to our
fundamental-based investment strategy to seek international small-capitalization
companies with the strongest growth potential.
/s/ Tracy P. Stouffer
Tracy Stouffer, CFA
Portfolio Manager
9
<Page>
STATEMENT OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS (FOREIGN)-94.2%
ADVERTISING-1.6%
10,875 Ipsos (FR) $ 1,015,072
23,800 LG Ad, Inc. (KR) 417,474
38,070 Phoenix Communications, Inc. (KR)* 686,953
---------------
2,119,499
---------------
AGRICULTURAL PRODUCTS-0.8%
97,900 Agricore United (CA) 689,383
592,800 Univanich Palm Oil Public Company Limited NVDR Shares (TH)* 460,057
---------------
1,149,440
---------------
AIR FREIGHT & LOGISTICS-0.7%
2,112,000 Goodpack Limited (SG) 1,013,531
---------------
ALTERNATIVE CARRIERS-0.8%
312,875 QSC AG (GE)* 1,124,740
---------------
APPAREL, ACCESSORIES & LUXURY GOODS-1.0%
51,925 Hockey Company Holdings, Inc. 144A (CA)*,+ 602,704
291,875 Titan Industries Limited (IN) 827,166
---------------
1,429,870
---------------
APPLICATION SOFTWARE-2.5%
184,450 Aldata Solution Oyj (FI)* 451,353
679,452 Intec Telecom Systems PLC (UK)* 719,227
56,850 Mphasis BFL Limited (IN) 946,981
77,546 Subex Systems Limited (IN) 678,666
395,575 Telelogic AB (SW)* 632,234
---------------
3,428,461
---------------
ASSET MANAGEMENT & CUSTODY BANKS-0.5%
18,800 AWD Holding AG (GE) 652,593
---------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kngdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT-1.3%
197,200 Aapico Hitech Public Company Limited Foreign Shares (TH) $ 776,408
63,725 Decoma International, Inc. Class A (CA) 654,854
44,000 Suncall Corporation (JA) 351,442
---------------
1,782,704
---------------
AUTOMOBILE MANUFACTURERS-0.7%
114,300 Mahindra & Mahindra Limited (IN) 974,650
---------------
BIOTECHNOLOGY-0.5%
27,100 Q-Med AB (SW)* 642,162
---------------
BROADCASTING & CABLE TV-2.0%
166,975 Balaji Telefilms Limited (IN) 367,071
110,000 Naspers Limited (SA) 684,225
52,300 SBS Broadcasting SA (LU)* 1,704,980
---------------
2,756,276
---------------
BUILDING PRODUCTS-0.4%
2,082,500 PT Asahimas Flat Glass Tbk (ID) 488,327
---------------
COMMERCIAL PRINTING-0.5%
1,504,000 Next Media Limited (HK)* 711,938
---------------
COMMUNICATIONS EQUIPMENT-2.8%
62,800 Alvarion Limited ADR (IS)* 725,340
268,025 Carphone Warehouse PLC (UK) 707,728
157,875 ECI Telecom Limited (IS)* 904,624
33,837 Sirti SPA (IT) 71,490
308,100 Tandberg Television ASA (NW)* 1,352,291
---------------
3,761,473
---------------
COMPUTER HARDWARE-0.6%
1,790,000 GES International Limited (SG) 748,337
---------------
CONSTRUCTION & ENGINEERING-6.2%
108,050 ABB Limited (IN) 1,595,588
229,000 Chiyoda Corporation (JA)* 1,406,009
4,334,000 Guangzhou Shipyard International Company Limited (CN)* 1,021,590
146,000 JGC Corporation (JA) 1,523,075
72,270 Kyeryong Construction Industrial Company Limited (KR) 679,332
120,925 Larsen & Toubro Limited (IN) 1,397,694
1,154,400 TRC Synergy Berhad (MA) 768,587
---------------
8,391,875
---------------
CONSTRUCTION MATERIALS-1.2%
2,312,000 Chia Hsin Cement Greater China Holding Corporation (HK)* 589,644
1,000,000 China Resources Cement Holding Limited (HK)* 322,016
41,300 NIBE Industrier AB (SW) 731,832
---------------
1,643,492
---------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A OF THE SECURITIES ACT OF 1933 AND
MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
ADR - AMERICAN DEPOSITARY RECEIPT
NVDR - NON-VOTING DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.5%
2,500,000 First Tractor Company Limited Class H (CN)* $ 676,233
---------------
CONSUMER ELECTRONICS-1.4%
1,162,000 Grande Holdings Limited (HK) 1,489,245
500,000 Mida Assets Public Company Limited Foreign Shares (TH)* 350,180
---------------
1,839,425
---------------
DATA PROCESSING & OUTSOURCED SERVICES-0.4%
44,100 Dicom Group PLC (UK) 541,342
---------------
DIVERSIFIED BANKS-0.9%
1,565,700 Bank of Ayudhya Public Company Limited Foreign Shares (TH)* 557,168
4,585,500 DBS Thai Danu Bank Public Company Limited Foreign Shares (TH)* 601,794
---------------
1,158,962
---------------
DIVERSIFIED CHEMICALS-1.1%
134,200 Kemira Oyj (FI) 1,557,316
---------------
DIVERSIFIED COMMERCIAL SERVICES-4.4%
17,425 Acadomia (FR) 755,860
930 Big Group Company Limited (JA) 1,240,926
92,320 Hexaware Technologies Limited (IN) 840,036
791,425 PHS Group PLC (UK) 1,186,571
49,575 Sixt AG (GE) 744,125
3,597 Telegate AG (GE)* 39,427
90,000 Tribal Group PLC (UK) 539,742
10,200 USS Company Limited (JA) 721,433
---------------
6,068,120
---------------
DIVERSIFIED METALS & MINING-5.1%
183,000 Amerigo Resources Limited (CA)* 283,216
511,975 Dynatec Corporation (CA)* 697,265
40,075 Fording Canadian Coal Trust (CA) 1,426,488
27,275 Inmet Mining Corporation (CA)* 368,296
27,640 Korea Zinc Company Limited (KR) 728,406
504,850 Mincor Resources NL (AU) 342,349
853,575 Oxiana Limited (AU)* 675,297
25,000,000 PT Bumi Resources Tbk (ID) 1,484,120
64,900 Sumitomo Titanium Corporation (JA) 935,621
---------------
6,941,058
---------------
ELECTRICAL COMPONENTS & EQUIPMENT-1.2%
72,025 Siemens India Limited (IN) 1,694,896
---------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.2%
1,130,000 Harbin Power Equipment Company Limited (CN) 331,129
114,400 Micronic Laser Systems AB (SW)* 1,327,589
---------------
1,658,718
---------------
EMPLOYMENT SERVICES-1.2%
516 Fullcast Company Limited (JA) 1,598,507
---------------
EXCHANGE TRADED FUNDS-0.5%
41,550 iShares MSCI Brazil Index Fund (BR) 706,350
---------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
FOOD RETAIL-2.2%
846,900 Dairy Farm International Holdings Limited (HK) $ 1,448,199
118,700 Jeronimo Martins SGPS SA (PT)* 1,566,097
---------------
3,014,296
---------------
FOREST PRODUCTS-0.3%
101,425 Sino-Forest Corporation (CA)* 404,978
---------------
GAS UTILITIES-0.7%
24,650 Gujarat Gas Company Limited (IN) 329,567
1,114,000 Xinao Gas Holdings Limited (CN)* 620,595
---------------
950,162
---------------
GENERAL MERCHANDISE STORES-0.6%
22,500 Ryohin Keikaku Company Limited (JA) 760,007
---------------
HEALTHCARE DISTRIBUTORS-0.5%
252,350 United Drug PLC (IE) 732,095
---------------
HEALTHCARE EQUIPMENT-1.0%
44,000 Carl Zeiss Meditec AG (GE)* 699,294
13,450 Tecan AG (SZ) 650,315
---------------
1,349,609
---------------
HEALTHCARE FACILITIES-1.0%
480,948 NHP PLC (UK) 1,330,227
---------------
HEALTHCARE SUPPLIES-1.3%
66,000 Fujirebio, Inc. (JA) 760,567
378,750 Whatman PLC (UK) 1,050,953
---------------
1,811,520
---------------
HEAVY ELECTRICAL EQUIPMENT-0.3%
760,000 Dongfang Electrical Machinery Company Limited (CN)* 362,203
---------------
HOME FURNISHINGS-0.1%
164,450 Steinhoff International Holdings Limited (SA) 188,471
---------------
HOME IMPROVEMENT RETAIL-0.9%
49,100 Rona, Inc. (CA)* 1,185,041
---------------
HOMEBUILDING-1.1%
123,025 Fleetwood Corporation (AU) 574,710
19,000 Goldcrest Company Limited (JA) 904,171
---------------
1,478,881
---------------
HOTELS, RESORTS & CRUISE LINES-3.7%
146,360 De Vere Group PLC (UK) 1,069,665
580,150 Hotel Leelaventure Limited (IN) 790,911
136,500 Hotel Shilla Company Limited (KR) 628,943
7,100 Pierre & Vacances (FR) 716,448
3,070,000 Star Cruises Limited (HK)* 890,300
87,300 Thomas Cook Limited (IN) 880,558
---------------
4,976,825
---------------
HYPERMARKETS & SUPER CENTERS-0.8%
979,600 Siam Makro Public Company Limited Foreign Shares (TH) 1,137,273
---------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-0.8%
130,980 Hanwha Corporation (KR) $ 654,076
750,000 United Industrial Corporation Limited (SG) 370,959
---------------
1,025,035
---------------
INDUSTRIAL MACHINERY-3.1%
38,225 Andritz AG (AT) 1,829,766
72,750 Bharat Forge Limited (IN) 1,266,288
67,094 Deutz AG New Shares (GE)* 260,658
331,000 Ishikawajima-Harima Heavy Industries Company Limited (JA) 472,548
25,400 Nidec Tosok Corporation (JA) 356,221
---------------
4,185,481
---------------
INTEGRATED OIL & GAS-1.0%
29,800 PetroKazakhstan, Inc. (CA)* 674,956
294,700 Picnic Gas & Engineering Public Company Limited Foreign Shares (TH)* 647,079
---------------
1,322,035
---------------
INTEGRATED TELECOMMUNICATION SERVICES-1.0%
137,800 Song Networks Holding AB (SW)* 1,292,719
52,500 Yangtze Telecom Corporation (CA)* 80,844
---------------
1,373,563
---------------
INTERNET SOFTWARE & SERVICES-6.0%
120,000 Certicom Corporation 144A (CA)*,+ 254,430
271,825 Emblaze Systems Limited (IS)* 598,541
866,000 Fast Search & Transfer ASA (NW)* 1,900,493
18,225 Freenet.de AG (GE)* 1,280,440
117 Index Corporation (JA) 687,786
40 Kakaku.com, Inc. (JA)* 285,528
160 Kakaku.com, Inc. New Shares (JA)* 919,660
366,100 Points International Limited (CA)* 283,293
1,228,075 SwitchCore AB (SW)* 757,808
47,125 United Internet AG (GE) 1,132,355
---------------
8,100,334
---------------
LEISURE PRODUCTS-1.6%
26,750 Amer Group Limited (FI) 1,159,009
246,525 lastminute.com PLC (UK)* 981,952
---------------
2,140,961
---------------
MARINE-0.5%
1,000 DS Norden AS (DE) 223,608
99,400 Shipping Corporation of India (IN) 393,570
---------------
617,178
---------------
MOVIES & ENTERTAINMENT-0.7%
250,075 Gameloft.com (FR)* 977,841
---------------
OFFICE SERVICES & SUPPLIES-0.6%
21,300 Glory Limited (JA) 785,061
---------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
OIL & GAS DRILLING-1.0%
2,118,000 China Oilfield Services Limited (CN) $ 750,232
312,100 Crest Petroleum Berhad (MA) 657,053
---------------
1,407,285
---------------
OIL & GAS EQUIPMENT & SERVICES-2.1%
50,000 ProSafe ASA (NW) 1,007,095
186,000 Scomi Group Berhad (MA) 704,842
48,700 TGS Nopec Geophysical Company ASA (NW)* 666,141
359,000 Toyo Kanetsu KK (JA)* 445,526
---------------
2,823,604
---------------
OIL & GAS EXPLORATION & PRODUCTION-0.6%
170,675 Lundin Petroleum AB (SW)* 813,608
---------------
OIL & GAS REFINING, MARKETING, & TRANSPORTATION-2.0%
413,000 Formosa Petrochemical Corporation (TW)* 614,330
47,000 Golar LNG Limited (NW)* 674,678
251,175 Indraprastha Gas Limited (IN)* 816,697
3,110,000 PT Perusahaan Gas Negara 144A (ID)*,+ 572,336
---------------
2,678,041
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.6%
295,140 AMMB Holdings Berhad (MA) 240,772
5,536,000 First Shanghai Investments Limited (HK) 584,718
---------------
825,490
---------------
PACKAGED FOODS & MEATS-1.6%
129,750 Balrampur Chini Mills Limited (IN) 793,288
50,000 CoolBrands International, Inc. (CA)* 655,807
16,680 Crown Confectionery Company Limited (KR) 713,957
---------------
2,163,052
---------------
PERSONAL PRODUCTS-2.0%
3,783,000 Beauty China Holdings Limited (HK)* 1,303,100
51,800 Milbon Company Limited (JA) 1,379,948
---------------
2,683,048
---------------
PHARMACEUTICALS-0.5%
382,000 Tong Ren Tang Technologies Company Limited (CN) 671,634
---------------
PHOTOGRAPHIC PRODUCTS-1.2%
146,000 Pentax Corporation (JA) 882,784
333,125 Photo-Me International PLC (UK)* 691,774
---------------
1,574,558
---------------
PUBLISHING-1.0%
79,200 Elanders AB (SW)* 996,150
299,325 Future Network PLC (UK)* 317,812
---------------
1,313,962
---------------
</Table>
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A OF THE SECURITIES ACT OF 1933 AND
MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- -------------------------------------------------------------------------------------------------------
RAILROADS-0.6%
55,375 Container Corporation of India Limited (IN) $ 807,656
---------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-5.1%
2,223,800 Amata Corporation Public Company Limited Foreign Shares (TH) 836,258
1,054,200 Asas Dunia Berhad (MA) 266,324
1,468,000 Asia Orient Holdings Limited (HK)* 444,356
3,468,000 China Overseas Land & Investment Limited (HK) 634,314
42,800 First Juken Company Limited (JA) 918,541
432,150 Immsi SPA (IT) 613,775
250,400 MBK Public Company Limited NVDR Shares (TH) 319,142
1,812,000 Midland Realty Holdings Limited (HK) 495,968
1,734,000 New World Development Company Limited (HK) 1,395,937
4,089,100 Ticon Industrial Connection Public Company Limited Foreign Shares (TH) 1,021,694
---------------
6,946,309
---------------
SEMICONDUCTOR EQUIPMENT-0.7%
167,308 Richtek Technology Corporation (TW)* 911,693
---------------
SEMICONDUCTORS-0.4%
152,600 Anam Semiconductor, Inc. (KR)* 523,182
---------------
SPECIALTY CHEMICALS-0.8%
185,000 Chugoku Marine Paints Limited (JA) 1,134,133
---------------
SPECIALTY STORES-1.3%
748,000 Dickson Concepts International Limited (HK)* 611,804
3,000,000 Luk Fook Holdings (International) Limited (HK) 564,171
2,000,000 Sa Sa International Holdings Limited (HK) 560,307
---------------
1,736,282
---------------
STEEL-0.6%
122,425 Saw Pipes Limited (IN) 775,336
---------------
SYSTEMS SOFTWARE-0.3%
51,500 Temenos Group AG (SZ)* 370,593
---------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$115,966,406) 127,628,838
---------------
PREFERRED STOCKS (FOREIGN)-2.1%
COMMODITY CHEMICALS-0.3%
16,000 Braskem SA Class A (BR)* 370,468
---------------
PAPER PRODUCTS-0.8%
82,000 Companhia Suzano de Papel e Celulose (BR) 360,686
531,000 Klabin SA (BR) 692,049
---------------
1,052,735
---------------
STEEL-1.0%
115,900 Usinas Siderurgicas de Minas Gerais SA Class A (BR) 1,363,884
---------------
TOTAL PREFERRED STOCKS (FOREIGN)
(COST-$2,606,095) 2,787,087
---------------
</Table>
16
<Page>
<Table>
<Caption>
UNITS MARKET VALUE
- -------------------------------------------------------------------------------------------------------
FOREIGN RIGHTS AND WARRANTS-1.0%
INTEGRATED TELECOMMUNICATION SERVICES-0.4%
2,786,000 Jasmine International Public Company Limited Rights (TH)* $ 481,648
---------------
OIL & GAS DRILLING-0.5%
411,815 Crest Petroleum Berhad Rights (MA)* 704,420
---------------
INTEGRATED OIL & GAS-0.1%
73,675 Picnic Gas & Engineering Public Company Limited Warrants (TH)* 105,987
---------------
TOTAL FOREIGN RIGHTS AND WARRANTS
(COST-$895,484) 1,292,055
---------------
OTHER SECURITIES-0.7%
INDUSTRIAL CONGLOMERATES-0.0%
204,677 Media Prima Berhad ICULS (MA) 40,397
---------------
INTEGRATED TELECOMMUNICATION SERVICES-0.7%
600,000 Yangtze Telecom Corporation Units 144A (CA)*,+, ^,# 958,988
---------------
TOTAL OTHER SECURITIES
(COST-$623,934) 999,385
---------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- -------------------------------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-3.3%
$ 4,500,000 Federal National Mortgage Association
0.75% 1/2/04 $ 4,499,906
---------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$4,499,906) 4,499,906
---------------
TOTAL INVESTMENTS-101.3%
(TOTAL COST-$124,591,825) 137,207,271
OTHER ASSETS AND LIABILITIES-(1.3%) (1,694,806)
---------------
NET ASSETS-100.0% $ 135,512,465
===============
</Table>
* NON-INCOME PRODUCING.
+ SECURITY WAS ACQUIRED PURSUANT TO RULE 144A OF THE SECURITIES ACT OF 1933 AND
MAY BE DEEMED TO BE RESTRICTED FOR RESALE.
^ SECURITY IS CONSIDERED TO BE RESTRICTED AND ILLIQUID. ACQUIRED ON 11/4/03 FOR
$570,000. THE AGGREGATE VALUE OF RESTRICTED SECURITIES AT DECEMBER 31, 2003
WAS $958,988, WHICH WAS 0.7% OF NET ASSETS.
# FAIR VALUED SECURITY.
ICULS - IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCK
NVDR - NON-VOTING DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 124,591,825
-------------
Investment securities, at market 137,207,271
Cash 831,254
Foreign currency (cost $1,262,826) 1,287,629
Receivables:
Investment securities sold 3,407,455
Capital shares sold 107,016
Dividends 235,598
From transfer agent 14,242
Other assets 111,708
-------------
Total Assets 143,202,173
-------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 5,878,110
Capital shares redeemed 173,575
Advisory fees 112,003
Shareholder servicing fees 18,730
Accounting fees 11,200
Distribution fees 38,586
Transfer agency fees 56,267
Custodian fees 28,658
India and Thailand taxes 1,000,403
To custodian 77,096
Other 295,080
-------------
Total Liabilities 7,689,708
-------------
Net Assets $ 135,512,465
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 283,821,637
Accumulated net investment loss (10,037)
Accumulated net realized loss from security transactions (159,918,362)
Net unrealized appreciation on investments and
foreign currency translation 11,619,227
-------------
Total $ 135,512,465
=============
</Table>
18
<Page>
<Table>
Net Assets--Class A $ 27,252,014
Shares Outstanding--Class A 1,913,868
Net Asset Value, Redemption Price Per Share $ 14.24
Maximum offering price per share (net asset value plus
sales charge of 5.75% of offering price) $ 15.11
Net Assets--Class B $ 18,198,180
Shares Outstanding--Class B 1,319,868
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share $ 13.79
Net Assets--Class C $ 10,638,983
Shares Outstanding--Class C 773,004
Net Asset Value, Offering and Redemption Price
(excluding applicable contingent deferred sales
charge) Per Share $ 13.76
Net Assets--Class F $ 78,759,006
Shares Outstanding--Class F 5,532,377
Net Asset Value, Offering and Redemption Price Per Share $ 14.24
Net Assets--Class R $ 142,464
Shares Outstanding--Class R 10,306
Net Asset Value, Offering and Redemption Price Per Share $ 13.82
Net Assets--Class T $ 521,818
Shares Outstanding--Class T 38,099
Net Asset Value, Redemption Price Per Share $ 13.70
Maximum offering price per share (net asset value plus
sales charge of 4.50% of offering price) $ 14.35
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 1,884,523
Interest 43,180
Foreign taxes withheld (169,952)
-------------
Total Investment Income 1,757,751
-------------
EXPENSES:
Advisory fees--Note 2 971,277
Shareholder servicing fees--Note 2 172,480
Accounting fees--Note 2 97,094
Distribution fees--Note 2 306,016
Transfer agency fees--Note 2 244,697
Registration fees 75,038
Postage and mailing expenses 29,582
Custodian fees and expenses--Note 2 430,741
Printing expenses 54,034
Legal and audit fees 29,714
Directors' fees and expenses--Note 2 24,516
Other expenses 128,024
-------------
Total Expenses 2,563,213
Earnings Credits (3,042)
Waived Expenses (83,808)
Expense Offset to Broker Commissions (4,771)
-------------
Net Expenses 2,471,592
-------------
Net Investment Loss (713,841)
-------------
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 $915,957) 41,089,342
Foreign currency transactions (211,706)
-------------
Net Realized Gain 40,877,636
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 14,435,879
-------------
Net Realized and Unrealized Gain 55,313,515
-------------
Net Increase in Net Assets Resulting from Operations $ 54,599,674
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
-------------- --------------
OPERATIONS
Net Investment Loss $ (713,841) $ (1,023,871)
Net Realized Gain (Loss) 40,877,636 (12,388,968)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 14,435,879 (2,075,681)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 54,599,674 (15,488,520)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A 8,132,869 (2,916,773)
Class B (2,705,719) (4,098,985)
Class C 1,905,536 (2,563,176)
Class F (4,988,538) (17,949,856)
Class R 23,012 (21,426)
Class T (77,846) (148,171)
------------- -------------
Net Increase (Decrease) from Capital Share Transactions 2,289,314 (27,698,387)
------------- -------------
Net Increase (Decrease) in Net Assets 56,888,988 (43,186,907)
NET ASSETS
Beginning of year $ 78,623,477 $ 121,810,384
------------- -------------
End of year (including accumulated net investment
loss of $10,037 and $1,836, respectively) $ 135,512,465 $ 78,623,477
============= =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS A SHARES
Net Asset Value, beginning of year $ 8.14 $ 9.68 $ 14.18 $ 22.93
Income from investment operations:
Net investment income (loss) 0.10 (0.16) (0.14) (0.13)
Net realized and unrealized gains
(losses) on securities 6.00 (1.38) (4.36) (6.65)
------------ ------------ ------------ ------------
Total from investment operations 6.10 (1.54) (4.50) (6.78)
Less dividends and 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 year $ 14.24 $ 8.14 $ 9.68 $ 14.18
============ ============ ============ ============
Total return* 74.94% (15.91%) (31.74%) (29.61%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 27,252 $ 9,422 $ 14,033 $ 36,353
Net expenses to average net assets#,+ 2.45% 2.24% 1.87% 1.59%
Gross expenses to average net assets#,+ 2.45% 2.24% 1.88% 1.61%
Net investment loss to average net assets+ (0.83%) (0.80%) (0.26%) (0.80%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31, 2003
and 2002. Had these fees not been waived, the net expense ratios would have
been 2.54% (2003) and 2.27% (2002). The gross expense ratios would have been
2.54% (2003) and 2.27% (2002). The net investment loss ratios would have been
(0.92%) (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.
22
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS B SHARES
Net Asset Value, beginning of year $ 7.95 $ 9.54 $ 14.08 $ 22.93
Income from investment operations:
Net investment loss (0.31) (0.29) (0.18) (0.23)
Net realized and unrealized gains
(losses) on securities 6.15 (1.30) (4.36) (6.65)
------------ ------------ ------------ ------------
Total from investment operations 5.84 (1.59) (4.54) (6.88)
Less dividends and 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 year $ 13.79 $ 7.95 $ 9.54 $ 14.08
============ ============ ============ ============
Total return* 73.46% (16.67%) (32.24%) (30.05%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 18,198 $ 12,810 $ 19,661 $ 35,000
Net expenses to average net assets#,+ 3.29% 3.09% 2.64% 2.35%
Gross expenses to average net assets#,+ 3.30% 3.09% 2.66% 2.38%
Net investment loss to average net assets+ (1.44%) (1.64%) (1.06%) (1.50%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31, 2003
and 2002. Had these fees not been waived, the net expense ratios would have
been 3.37% (2003) and 3.12% (2002). The gross expense ratios would have been
3.38% (2003) and 3.12% (2002). The net investment loss ratios would have been
(1.52%) (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.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS C SHARES
Net Asset Value, beginning of year $ 7.93 $ 9.52 $ 14.06 $ 22.93
Income from investment operations:
Net investment loss (0.01) (0.35) (0.22) (0.21)
Net realized and unrealized gains
(losses) on securities 5.84 (1.24) (4.32) (6.69)
------------ ------------ ------------ ------------
Total from investment operations 5.83 (1.59) (4.54) (6.90)
Less dividends and 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 year $ 13.76 $ 7.93 $ 9.52 $ 14.06
============ ============ ============ ============
Total return* 73.52% (16.70%) (32.29%) (30.13%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 10,639 $ 5,268 $ 8,928 $ 17,925
Net expenses to average net assets#,+ 3.25% 3.05% 2.65% 2.35%
Gross expenses to average net assets#,+ 3.25% 3.06% 2.67% 2.38%
Net investment loss to average net assets+ (1.43%) (1.58%) (1.08%) (1.50%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31,
2003 and 2002. Had these fees not been waived, the net expense ratios would
have been 3.34% (2003) and 3.07% (2002). The gross expense ratios would have
been 3.34% (2003) and 3.08% (2002). The net investment loss ratios would have
been (1.52%) (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.
24
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
CLASS F SHARES
Net Asset Value, beginning of year $ 8.13 $ 9.67 $ 14.17 $ 22.93 $ 14.93
Income from investment operations:
Net investment loss (0.14) (0.23) (0.22) (0.19) (0.11)
Net realized and unrealized gains
(losses) on securities 6.25 (1.31) (4.28) (6.60) 12.94
----------- ----------- ----------- ----------- -----------
Total from investment operations 6.11 (1.54) (4.50) (6.79) 12.83
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (1.97) (4.83)
----------- ----------- ----------- ----------- -----------
Total distributions 0.00 0.00 0.00 (1.97) (4.83)
Net Asset Value, end of year $ 14.24 $ 8.13 $ 9.67 $ 14.17 $ 22.93
=========== =========== =========== =========== ===========
Total return 75.15% (15.93%) (31.76%) (29.65%) 87.44%
Ratios/Supplemental Data
Net assets, end of year
(000s) $ 78,759 $ 50,742 $ 78,574 $ 182,036 $ 261,437
Net expenses to average
net assets#,+ 2.31% 2.18% 1.90% 1.59% 1.63%
Gross expenses to average
net assets#,+ 2.31% 2.18% 1.92% 1.61% 1.64%
Net investment loss to
average net assets+ (0.45%) (0.74%) (0.30%) (0.88%) (0.91%)
Portfolio turnover rate@ 707% 495% 704% 535% 330%
</Table>
# 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 years ended December 31,
2003 and 2002. Had these fees not been waived, the net expense ratios would
have been 2.40% (2003) and 2.21% (2002). The gross expense ratios would have
been 2.40% (2003) and 2.21% (2002). The net investment loss ratios would have
been (0.54%) (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.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS R SHARES
Net Asset Value, beginning of year $ 7.87 $ 9.56 $ 14.22 $ 22.93
Income from investment operations:
Net investment income (loss) 0.54 (0.81) (0.17) (0.09)
Net realized and unrealized gains
(losses) on securities 5.41 (0.88) (4.49) (6.65)
------------ ------------ ------------ ------------
Total from investment operations 5.95 (1.69) (4.66) (6.74)
Less dividends and 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 year $ 13.82 $ 7.87 $ 9.56 $ 14.22
============ ============ ============ ============
Total return 75.60% (17.68%) (32.77%) (29.44%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 142 $ 37 $ 76 $ 241
Net expenses to average net assets#,+ 2.07% 3.91% 1.84% 1.31%
Gross expenses to average net assets#,+ 2.08% 3.94% 1.86% 1.33%
Net investment loss to average net assets+ (0.32%) (2.20%) (0.08%) (0.55%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
# 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 years ended December 31, 2003, 2002 and 2001. Had these fees
not been waived or reimbursed, the net expense ratios would have been 2.16%
(2003), 4.62% (2002), and 2.76% (2001). The gross expense ratios would have
been 2.17% (2003), 4.65% (2002), and 2.78% (2001). The net investment loss
ratios would have been (0.41%) (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.
26
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000
------------ ------------ ------------ ------------
CLASS T SHARES
Net Asset Value, beginning of year $ 7.87 $ 9.50 $ 14.14 $ 22.93
Income from investment operations:
Net investment loss (0.24) (0.45) (0.22) (0.16)
Net realized and unrealized gains
(losses) on securities 6.07 (1.18) (4.42) (6.66)
------------ ------------ ------------ ------------
Total from investment operations 5.83 (1.63) (4.64) (6.82)
Less dividends and 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 year $ 13.70 $ 7.87 $ 9.50 $ 14.14
============ ============ ============ ============
Total return * 74.08% (17.16%) (32.82%) (29.79%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 522 $ 345 $ 538 $ 869
Net expenses to average net assets#,+ 3.07% 4.03% 3.14% 1.84%
Gross expenses to average net assets#,+ 3.07% 4.03% 3.16% 1.87%
Net investment loss to average net assets+ (1.06%) (2.69%) (1.60%) (1.00%)
Portfolio turnover rate@ 707% 495% 704% 535%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31,
2003 and 2002. Had these fees not been waived, the net expense ratios would
have been 3.16% (2003) and 4.05% (2002). The gross expense ratios would have
been 3.16% (2003) and 4.05% (2002). The net investment loss ratios would have
been (1.15%) (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.
27
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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. Thai foreign shares are
valued at the local share price when current foreign share prices are not
available or reflective of fair market value. 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.
28
<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 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 December 31, 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 arises 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 distributions
29
<Page>
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) 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 an indirect 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
1.00% 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.
30
<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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $49,740 and $26,862, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares were charged $28,095 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
-----------
Class A $ 56,982
Class B $ 64,563
Class C $ 26,004
Class R $ 322
Class T $ 2,948
</Table>
31
<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 or servicing 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 year ended December 31, 2003, Class F shares were charged $146,612 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 42,063
Class B $ 109,094 $ 36,365
Class C $ 49,289 $ 16,429
Class T $ 1,021 $ 1,021
</Table>
During the year ended December 31, 2003, DSC retained $6,036 and $304 in
sales commissions from the sales of Class A and Class T shares, respectively.
DSC also retained $60,309 and $3,283 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
32
<Page>
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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $83,808. 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,
33
<Page>
net operating losses, and capital loss carryovers. Permanent differences
identified during the year ended December 31, 2003 have been reclassified among
the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 705,640 $ 573,347 $ (1,278,987)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003, 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. Net capital loss carryovers utilized in 2003 amounted to
$39,960,650.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 159,719,747
Post-October Capital Loss Deferral $ 116,722
Post-October Currency Loss Deferral $ 8,045
Federal Tax Cost $ 124,673,718
Gross Tax Appreciation of Investments $ 15,100,571
Gross Tax Depreciation of Investments $ (2,567,018)
Net Tax Appreciation $ 12,533,553
</Table>
34
<Page>
4. CAPITAL 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>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
CLASS A
Sold 3,502,478 $ 36,560,507 5,383,012 $ 50,430,851
Redeemed (2,746,760) $ (28,427,638) (5,673,919) $ (53,347,624)
NET INCREASE (DECREASE) 755,718 $ 8,132,869 (290,907) $ (2,916,773)
CLASS B
Sold 58,678 $ 685,415 41,666 $ 391,779
Redeemed (350,900) $ (3,391,134) (489,773) $ (4,490,764)
NET DECREASE (292,222) $ (2,705,719) (448,107) $ (4,098,985)
CLASS C
Sold 1,047,656 $ 9,859,862 481,390 $ 4,684,798
Redeemed (938,988) $ (7,954,326) (754,486) $ (7,247,974)
NET INCREASE (DECREASE) 108,668 $ 1,905,536 (273,096) $ (2,563,176)
CLASS F
Sold 3,504,087 $ 34,110,158 9,855,244 $ 92,121,343
Redeemed (4,216,077) $ (39,098,696) (11,734,716) $ (110,071,199)
NET DECREASE (711,990) $ (4,988,538) (1,879,472) $ (17,949,856)
CLASS R
Sold 88,378 $ 927,946 315,313 $ 3,139,336
Redeemed (82,802) $ (904,934) (318,502) $ (3,160,762)
NET INCREASE (DECREASE) 5,576 $ 23,012 (3,189) $ (21,426)
CLASS T
Sold 154,521 $ 1,219,197 371,045 $ 3,559,032
Redeemed (160,244) $ (1,297,043) (383,873) $ (3,707,203)
NET DECREASE (5,723) $ (77,846) (12,828) $ (148,171)
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$652,404,866 and $651,427,303, respectively.
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
35
<Page>
(a) $50 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 $50
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
December 31, 2003, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
36
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Passport Fund (one
of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter referred
to as the "Fund") at December 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
37
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
38
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
39
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President-Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
40
<Page>
For More Information
DREYFUS FOUNDERS
PASSPORT FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
210 University Boulevard, Suite 800
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)2004 Dreyfus Service Corporation 281AR1203
<Page>
Dreyfus Founders
Worldwide
Growth Fund
ANNUAL REPORT December 31, 2003
[GRAPHIC]
YOU, YOUR ADVISOR AND
(R) DREYFUS LOGO
A MELLON FINANCIAL COMPANY (SM)
<Page>
TABLE OF CONTENTS
<Table>
Management Overview 3
Statement of Investments 10
Statement of Assets and Liabilities 17
Statement of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 27
Report of Independent Auditors 36
Your Board Representatives 37
</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 December 31, 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
[PHOTOS OF REMI J. BROWNE, JOHN B. JARES AND 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 FOR THE 12-MONTH PERIOD ENDED
DECEMBER 31, 2003?
2003 has proven to be a substantially positive year for equity markets. Dreyfus
Founders Worldwide Growth Fund exhibited strong performance for the year, with
returns comparing favorably with the Fund's benchmark, the Morgan Stanley
Capital International (MSCI) World Index, which posted a 33.11% return for the
12-month period.
DESCRIBE THE MARKET FACTORS DURING THE PERIOD.
Equity markets worldwide rallied in 2003, after a slow start. The successful
military action in Iraq led to increased investor confidence and a resurgence in
equity markets. Corporate cost-cutting and debt containment coupled with the
historically low interest rates of many central banks helped spark a growing
appetite for higher risk, less defensive investment vehicles. In the United
States, tax rebate checks provided many families with extra spending money,
helping the domestic economy to grow at an annualized rate of 8.2% during the
third quarter. The continued
[SIDENOTE]
"THE IMPROVING ECONOMIC ENVIRONMENT LAID THE BACKGROUND FOR THE POSITIVE
PERFORMANCE ACHIEVED BY THE FUND."
3
<Page>
PERFORMANCE HIGHLIGHTS
- - As the global economic picture began improving during the course of the year,
it provided a solid backdrop for quality performance by equity markets, more
than offsetting any sell-off activity experienced in the year's opening
months.
- - Good overall stock selection in the United States assisted the Fund's
relative performance as these holdings strongly outperformed the benchmark
for the period.
- - Relative performance was primarily driven by Fund holdings in the healthcare,
consumer staples, consumer discretionary and telecommunications sectors.
- - Although the securities in the international portion of the Fund were
repositioned in March, three stocks proved to be among the most detrimental
to the Fund's annual performance relative to the benchmark.
weakness of the U.S. dollar aided the unhedged U.S. investor as the euro,
British pound and yen all gained relative to U.S. currency by year's end.
In Asia, the containment and seeming defeat of the viral illness, Severe
Acute Respiratory Syndrome (SARS), provided the region with an economic boost
through the middle of the year. The emergence of China as a secondary growth
engine to the global economic recovery also came at an appropriate time,
lowering the cost of many goods purchased in the western world, and offering
outsourcing services that have helped boost corporate profits in more developed
countries. China's burgeoning middle class also aided Chinese companies and
markets during the period. And finally, after years of restructuring, the
Japanese economy appeared poised to benefit from some improvement.
The domestic market's rise was driven by various economic improvements during
the course of the year. Better-than-expected corporate profit growth, the easing
of geopolitical uncertainty, the Federal Reserve's accommodative monetary policy
and President Bush's fiscal stimulus plan were major factors in the improving
economic trends. Consumer spending was high, felt especially in the housing and
automobile markets, and productivity beat
4
<Page>
expectations during the year. Although some domestic economic concerns still
existed at year's end, expectations that these will continue to recover in 2004
remained strong.
In general, as the global economic picture began improving, it provided a
solid backdrop for quality performance by equity markets, more than offsetting
any sell-off activity experienced in the year's opening months.
WHAT MANAGEMENT DECISIONS POSITIVELY IMPACTED FUND PERFORMANCE FOR THE PERIOD?
This improving economic environment laid the background for the positive
performance achieved by the Fund during the period. Relative performance was
primarily driven by Fund holdings in the healthcare, consumer staples, consumer
discretionary and telecommunication services sectors.
Good overall stock selection in the United States assisted the Fund's
relative performance as these holdings strongly outperformed the benchmark for
the period.
Gains in Greece, Ireland and Belgium assisted in counterbalancing the
disappointing relative contributions experienced in Switzerland, Canada and the
Netherlands.
One of the largest positive contributors to the Fund's performance for the
year was Greek financial company, ALPHA BANK AE. Alpha Bank reported strong
third quarter results and issued positive profit growth projections.
LARGEST EQUITY HOLDINGS (ticker symbol)
<Table>
1. General Electric Company (GE) 2.27%
2. Royal Caribbean Cruises Limited (RCL) 2.25%
3. Maxim Integrated Products, Inc. (MXIM) 2.03%
4. MBNA Corporation (KRB) 1.97%
5. Intel Corporation (INTC) 1.89%
6. Oracle Corporation (ORCL) 1.81%
7. Gilead Sciences, Inc. (GILD) 1.74%
8. Estee Lauder Companies, Inc. (EL) 1.67%
9. Union Pacific Corporation (UNP) 1.63%
10. International Business Machines Corporation (IBM) 1.57%
</Table>
Portfolio holdings are subject to change, and should not be construed as a
recommendation of any security.
5
<Page>
Another positive contributor to the overall return was German software
company SAP AG. SAP reaped benefits from an improved environment for software
spending as well as from a general improvement in the business pace of the
software industry.
The most compelling domestic investment opportunities were found in the
consumer discretionary and technology sectors. The increase in consumer
confidence, and therefore consumer spending, drove performance in these
[CHART]
GROWTH OF $10,000 INVESTMENT
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 12/31/93 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>
sectors. Strong stock selection buoyed overall Fund performance with names such
as BEST BUY COMPANY, INC., ROYAL CARIBBEAN CRUISES LIMITED, and ESTEE LAUDER
COMPANIES, INC. among the top contributors. Solid execution and market share
gains from primary competitors drove Best Buy's success. The company also
benefited from a recovery in consumer spending and some desirable new product
cycles such as digital photography and HDTV. Performance by Royal Caribbean
Cruises, one of the Fund's largest holdings, was spurred by an improvement in
demand for leisure travel, solid execution and excellent product positioning.
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03
<Table>
<Caption>
1 5 10 SINCE
CLASS (INCEPTION DATE) YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------------
Class A Shares (12/31/99)
With sales charge (5.75%) 28.88% -- -- (14.62%)
Without sales charge 36.78% -- -- (13.35%)
Class B Shares (12/31/99)
With redemption* 31.71% -- -- (14.51%)
Without redemption 35.71% -- -- (13.99%)
Class C Shares (12/31/99)
With redemption** 34.80% -- -- (14.39%)
Without redemption 35.80% -- -- (14.39%)
Class F Shares (12/29/89) 36.97% (3.37%) 3.22% 7.07%
Class R Shares (12/31/99) 37.44% -- -- (12.92%)
Class T Shares (12/31/99)
With sales charge (4.50%) 29.90% -- -- (15.56%)
Without sales charge 35.99% -- -- (14.58%)
</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 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.
7
<Page>
Additionally, some domestic holdings within the technology sector favorably
impacted performance with companies such as INTEL CORPORATION, VERITAS SOFTWARE
CORPORATION and CISCO SYSTEMS, INC., positively contributing to the Fund's
overall return. Intel benefited from robust demand for personal computers driven
primarily by consumers, while Cisco Systems gained from both product
introductions and a rebound in enterprise spending on networking equipment.
WHAT MANAGEMENT DECISIONS HINDERED PERFORMANCE DURING THE YEAR?
Three stocks proved to be among the most detrimental to the Fund's annual
performance relative to the benchmark, even though they were sold shortly after
Messrs. Browne and LeVan assumed management of the international portion of the
portfolio in March: Amvescap PLC, Satyam Computer Services Limited and Fast
Retailing Company Limited. Britain's Amvescap, one of the largest independent
global investment managers; Satyam Computer Services Limited, a leading global
information technology services and consulting company based in India; and Fast
Retailing, a Japanese retailing company, were all down in excess of 30% in the
first quarter, with active exposures in the Fund between 1.7% to 2% for each
holding.
[CHART]
PORTFOLIO COMPOSITION
<Table>
United States 51.87%
Japan 9.48%
United Kingdom 9.32%
Germany 4.33%
France 3.09%
Canada 2.90%
Switzerland 2.26%
Netherlands 2.25%
Other Countries 11.70%
Cash & Equivalents 2.80%
</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>
Domestically, weak stock selection in various sectors detracted from overall
Fund performance during the year, with BMC Software, Inc., Kohl's Corporation,
and Medimmune, Inc. creating some of the largest hits. A provider of e-business
systems management software, BMC Software exhibited sluggish sales trends for
their software products during most of 2003, and revised earnings expectations
lower. An operator of specialty department stores, Kohl's also posted sluggish
sales trends and lower margins as consumers shifted spending to other retailers.
Biotechnology issue Medimmune saw its stock price drop slightly as the launch of
the company's new product, the nasal flu vaccine FluMist, proved to be
disappointing. A relatively high price combined with restrictive handling
requirements and limited distribution resulted in poor demand for the product.
In conclusion, 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
December 31, 2003
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
COMMON STOCKS (DOMESTIC)-51.9%
AEROSPACE & DEFENSE-1.0%
5,275 General Dynamics Corporation $ 476,804
9,725 Lockheed Martin Corporation 499,865
------------
976,669
------------
AIRLINES-1.0%
32,075 AMR Corporation* 415,371
39,300 Northwest Airlines Corporation Class A* 495,966
------------
911,337
------------
ALUMINUM-1.0%
23,625 Alcoa, Inc. 897,750
------------
APPAREL RETAIL-0.6%
24,400 Gap, Inc. 566,324
------------
BIOTECHNOLOGY-1.7%
28,375 Gilead Sciences, Inc.* 1,649,723
------------
BROADCASTING & CABLE TV-1.2%
20,450 Comcast Corporation Special Class A* 639,676
13,875 Cox Communications, Inc. Class A* 477,994
------------
1,117,670
------------
CASINOS & GAMING-0.8%
17,175 Mandalay Resort Group 768,066
------------
COMMUNICATIONS EQUIPMENT-0.9%
35,375 Cisco Systems, Inc.* 859,259
------------
COMPUTER & ELECTRONICS RETAIL-0.7%
12,562 Best Buy Company, Inc. 656,239
------------
COMPUTER HARDWARE-1.6%
16,100 International Business Machines Corporation 1,492,148
------------
COMPUTER STORAGE & PERIPHERALS-0.3%
25,325 EMC Corporation* 327,199
------------
</Table>
[SIDENOTE]
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:
AU Australia
AT Austria
BD Bermuda
BE Belgium
BR Brazil
CA Canada
CI Channel Islands
CN China
DE Denmark
FI Finland
FR France
GE Germany
GR Greece
HK Hong Kong
ID Indonesia
IE Ireland
IN India
IS Israel
IT Italy
JA Japan
KR South Korea
LU Luxembourg
MA Malaysia
NE Netherlands
NW Norway
PT Portugal
PU Puerto Rico
SA South Africa
SG Singapore
SP Spain
SW Sweden
SZ Switzerland
TH Thailand
TW Taiwan
UK United Kingdom
VI Virgin Islands
10
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
CONSUMER FINANCE-2.0%
75,000 MBNA Corporation $ 1,863,750
------------
DATA PROCESSING & OUTSOURCED SERVICES-1.1%
26,450 Fiserv, Inc.* 1,045,040
------------
DEPARTMENT STORES-1.7%
12,550 Kohl's Corporation* 563,997
13,850 Nordstrom, Inc. 475,055
12,325 Sears Roebuck & Company 560,664
------------
1,599,716
------------
DIVERSIFIED BANKS-2.0%
21,200 Bank One Corporation 966,508
15,125 Wells Fargo & Company 890,711
------------
1,857,219
------------
DRUG RETAIL-1.5%
38,425 Walgreen Company 1,397,902
------------
GOLD-0.8%
15,650 Newmont Mining Corporation 760,747
------------
HEALTHCARE EQUIPMENT-0.7%
19,400 Boston Scientific Corporation* 713,144
------------
HOME IMPROVEMENT RETAIL-0.6%
15,325 Home Depot, Inc. 543,884
------------
HOTELS, RESORTS & CRUISE LINES-0.5%
12,150 Carnival Corporation 482,720
------------
HYPERMARKETS & SUPER CENTERS-0.5%
8,750 Wal-Mart Stores, Inc. 464,188
------------
INDUSTRIAL CONGLOMERATES-2.3%
69,325 General Electric Company 2,147,689
------------
INDUSTRIAL GASES-1.4%
33,700 Praxair, Inc. 1,287,340
------------
INDUSTRIAL MACHINERY-0.9%
10,250 Illinois Tool Works, Inc. 860,078
------------
INVESTMENT BANKING & BROKERAGE-0.6%
6,125 Goldman Sachs Group, Inc. 604,721
------------
LEISURE FACILITIES-2.3%
61,225 Royal Caribbean Cruises Limited 2,130,018
------------
MOVIES & ENTERTAINMENT-1.5%
62,400 Walt Disney Company 1,455,792
------------
MULTI-LINE INSURANCE-1.0%
14,375 American International Group, Inc. 952,775
------------
OIL & GAS EQUIPMENT & SERVICES-0.8%
18,325 Smith International, Inc.* 760,854
------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.1%
21,583 Citigroup, Inc. 1,047,639
------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
PERSONAL PRODUCTS-1.7%
40,200 Estee Lauder Companies, Inc. Class A $ 1,578,252
------------
PHARMACEUTICALS-2.5%
8,650 Johnson & Johnson 446,859
28,137 Pfizer, Inc. 994,080
22,950 Wyeth 974,228
------------
2,415,167
------------
RAILROADS-1.6%
22,200 Union Pacific Corporation 1,542,456
------------
SEMICONDUCTOR EQUIPMENT-0.7%
11,300 KLA-Tencor Corporation* 662,971
------------
SEMICONDUCTORS-6.6%
55,550 Intel Corporation 1,788,710
35,025 Linear Technology Corporation 1,473,502
38,575 Maxim Integrated Products, Inc. 1,921,035
28,125 Xilinx, Inc.* 1,089,563
------------
6,272,810
------------
SOFT DRINKS-0.5%
9,725 Coca-Cola Company 493,544
------------
SPECIALTY STORES-1.0%
20,375 Tiffany & Company 920,950
------------
SYSTEMS SOFTWARE-3.2%
8,000 Adobe Systems, Inc. 314,400
130,275 Oracle Corporation* 1,719,630
28,125 VERITAS Software Corporation* 1,045,125
------------
3,079,155
------------
TOTAL COMMON STOCKS (DOMESTIC)
(COST-$40,563,804) 49,162,905
------------
COMMON STOCKS (FOREIGN)-45.3%
AEROSPACE & DEFENSE-0.3%
9,800 Gamesa Corporacion Tecnologica SA (SP) 322,505
------------
APPLICATION SOFTWARE-2.2%
4,520 SAP AG (GE) 762,836
30,975 SAP AG Sponsored ADR (GE) 1,287,321
------------
2,050,157
------------
AUTO PARTS & EQUIPMENT-0.5%
8,400 Canadian Tire Corporation Limited Class A (CA) 256,427
7,000 NOK Corporation (JA) 254,735
------------
511,162
------------
AUTOMOBILE MANUFACTURERS-1.3%
32,400 Nissan Motor Company Limited (JA) 370,044
4,900 Renault SA (FR) 338,080
15,100 Toyota Motor Corporation (JA) 510,049
------------
1,218,173
------------
</Table>
12
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
BIOTECHNOLOGY-0.6%
2,900 Actelion Limited (SZ)* $ 313,026
11,800 QLT, Inc. (CA)* 223,710
------------
536,736
------------
BREWERS-0.7%
21,000 Asahi Breweries Limited (JA) 191,444
27,000 Fraser & Neave Limited (SG) 200,318
11,400 Orkla ASA (NW) 255,321
------------
647,083
------------
BROADCASTING & CABLE TV-0.5%
18,800 Mediaset SPA (IT) 223,380
57,500 Seven Network Limited (AU) 265,578
------------
488,958
------------
COMMUNICATIONS EQUIPMENT-1.2%
16,300 Nokia Oyj (FI) 281,878
28,300 Nokia Oyj Sponsored ADR (FI) 481,100
3,616 Sagem SA (FR) 387,461
------------
1,150,439
------------
COMPUTER STORAGE & PERIPHERALS-1.0%
23,100 ATI Technologies, Inc. (CA)* 348,386
5,300 Logitech International SA (SZ)* 229,261
8,500 Seiko Epson Corporation (JA) 396,566
------------
974,213
------------
CONSTRUCTION & ENGINEERING-0.1%
2,600 ACS, Actividades de Construccion y Servicios SA (SP) 126,917
------------
CONSTRUCTION MATERIALS-0.2%
50,500 Boral Limited (AU) 193,294
------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.3%
10,200 Volvo AB Class B (SW) 311,870
------------
CONSUMER ELECTRONICS-1.2%
25,000 Casio Computer Company Limited (JA) 264,533
10,300 Koninklijke (Royal) Philips Electronics NV (NE) 300,763
36,000 Sharp Corporation (JA) 568,032
------------
1,133,328
------------
DIVERSIFIED BANKS-7.3%
10,700 ABN AMRO Holding NV (NE) 250,359
38,000 Alpha Bank AE (GR) 1,149,395
42,400 Anglo Irish Bank Corporation PLC (IE) 669,051
90,302 Banca Intesa SPA (IT) 353,098
116,271 Barclays PLC (UK) 1,037,093
10,589 BNP Paribas SA (FR) 666,754
45,100 HBOS PLC (UK) 584,136
7,600 Jyske Bank SA (DE)* 401,680
69 Mitsubishi Tokyo Financial Group, Inc. (JA) 538,248
25,088 Royal Bank of Scotland Group PLC (UK) 739,256
</Table>
* NON-INCOME PRODUCING.
ADR - AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
DIVERSIFIED BANKS (CONTINUED)
17,400 Skandinaviska Enskilda Banken (SW) $ 256,334
2,800 Societe Generale (FR) 247,225
------------
6,892,629
------------
DIVERSIFIED CAPITAL MARKETS-0.8%
13,900 Credit Suisse Group (SZ) 508,550
3,744 UBS AG (SZ) 256,401
------------
764,951
------------
DIVERSIFIED METALS & MINING-0.3%
28,000 BHP Billiton PLC (UK) 244,612
------------
ELECTRIC UTILITIES-1.0%
6,900 E.ON AG (GE) 451,964
13,073 Endesa SA (SP) 251,467
24,300 Fortum Oyj (FI) 250,724
------------
954,155
------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.3%
29,000 Sumitomo Electric Industries Limited (JA) 259,233
------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.0%
1,700 Keyence Corporation (JA) 358,337
8,300 TDK Corporation (JA) 597,891
------------
956,228
------------
FOOD RETAIL-1.0%
8,400 Delhaize Group (BE) 432,079
16,100 Metro, Inc. Class A (CA) 272,839
57,900 Tesco PLC (UK) 267,163
------------
972,081
------------
HEALTHCARE DISTRIBUTORS-0.3%
8,100 Suzuken Company Limited (JA) 263,021
------------
HEALTHCARE EQUIPMENT-0.3%
32,800 Getinge AB Class B (SW) 314,539
------------
HOME FURNISHINGS-0.3%
6,300 Hunter Douglas NV (NE) 294,895
------------
HOMEBUILDING-0.3%
26,600 Barratt Developments PLC (UK) 258,571
------------
HOUSEHOLD PRODUCTS-0.2%
9,550 Reckitt Benckiser PLC (UK) 216,097
------------
HOUSEWARES & SPECIALTIES-0.7%
7,600 Citizen Electronics Company Limited (JA) 691,425
------------
HYPERMARKETS & SUPER CENTERS-0.5%
11,700 Metro AG (GE) 516,524
------------
INDUSTRIAL CONGLOMERATES-0.3%
71,700 Keppel Corporation Limited (SG) 257,534
------------
INDUSTRIAL MACHINERY-0.4%
7,400 Saurer AG (SZ)* 328,477
------------
</Table>
14
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
INTEGRATED OIL & GAS-2.2%
75,642 BP PLC (UK) $ 613,423
1,300 OMV AG (AT) 193,623
9,200 Repsol YPF SA (SP) 179,405
62,100 Shell Transport & Trading Company PLC (UK) 461,915
3,500 Total SA (FR) 650,732
------------
2,099,098
------------
INTEGRATED TELECOMMUNICATION SERVICES-2.5%
72,300 BT Group PLC (UK) 243,653
20,100 Deutsche Telekom AG (GE)* 368,635
29,300 Koninklijke NV (NE)* 226,181
11,000 TDC AS Class B (DE) 396,903
25,600 Telefonica SA (SP) 375,863
78,400 Telenor ASA (NW) 512,626
49,300 TeliaSonera AB (SW) 257,624
------------
2,381,485
------------
INVESTMENT BANKING & BROKERAGE-0.5%
28,000 Nomura Holdings, Inc. (JA) 476,813
------------
IT CONSULTING & OTHER SERVICES-0.2%
48,100 LogicaCMG PLC (UK) 220,652
------------
OIL & GAS EXPLORATION & PRODUCTION-1.8%
75,900 Cairn Energy PLC (UK)* 544,860
5,200 Canadian National Resources Limited (CA) 263,038
12,700 Eni SPA (IT) 239,647
3,900 Norsk Hydro ASA (NW) 240,643
10,300 Penn West Petroleum Limited (CA) 383,929
------------
1,672,117
------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.5%
11,000 ING Groep NV (NE) 256,546
9,200 Sun Life Financial, Inc. (CA) 229,947
------------
486,493
------------
PACKAGED FOODS & MEATS-0.7%
1,500 Groupe Danone (FR) 244,828
20,000 Nisshin Seifun Group, Inc. (JA) 178,035
243,000 Want Want Holdings Limited (SG) 230,850
------------
653,713
------------
PHARMACEUTICALS-4.3%
7,100 AstraZeneca Group PLC (UK) 340,637
6,000 Aventis SA (FR) 396,569
18,200 Axcan Pharma, Inc. (CA)* 285,189
17,800 Eisai Company Limited (JA) 480,004
47,900 Galen Holdings PLC (UK) 613,113
19,152 GlaxoSmithKline PLC (UK) 438,857
11,088 Novartis AG (SZ) 503,389
13,000 Ono Pharmaceuticals Company Limited (JA) 488,849
27,000 Shire Pharmaceuticals Group PLC (UK)* 262,218
5,900 Takeda Chemical Industries Limited (JA) 233,974
------------
4,042,799
------------
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
SHARES MARKET VALUE
- ----------------------------------------------------------------------------------
PRECIOUS METALS & MINERALS-0.4%
17,300 ThyssenKrupp AG (GE) $ 342,596
------------
PROPERTY & CASUALTY INSURANCE-0.9%
101,600 QBE Insurance Group Limited (AU) 811,453
------------
PUBLISHING-0.2%
27,700 Johnston Press PLC (UK) 230,957
------------
RAILROADS-0.5%
7,700 Canadian National Railway Company (CA) 487,256
------------
REAL ESTATE INVESTMENT TRUSTS-0.6%
110 Sumitomo Mitsui Financial Group, Inc. (JA) 586,078
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.2%
2,900 Wereldhave NV (NE) 217,098
------------
SEMICONDUCTOR EQUIPMENT-0.6%
29,075 ASM Lithography Holding NV NY Shares (NE)* 582,954
------------
THRIFTS & MORTGAGE FINANCE-0.3%
23,000 Northern Rock PLC (UK) 293,779
------------
TIRES & RUBBER-0.4%
9,900 Continental AG (GE) 376,869
------------
TRADING COMPANIES & DISTRIBUTORS-0.3%
23,000 Mitsubishi Corporation (JA) 243,800
------------
TRUCKING-0.3%
37,000 Seino Transportation Company Limited (JA) 305,888
------------
WIRELESS TELECOMMUNICATION SERVICES-2.8%
79 KDDI Corporation (JA) 452,608
121 NTT DoCoMo, Inc. (JA) 274,358
71,200 Telecom Italia Mobile SPA (IT) 387,074
25,100 Telefonica Moviles SA (SP)* 262,144
491,975 Vodafone Group PLC (UK) 1,219,809
------------
2,595,993
------------
TOTAL COMMON STOCKS (FOREIGN)
(COST-$31,000,664) 42,957,698
------------
<Caption>
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------------------
U.S. AGENCY DISCOUNT NOTES-3.1%
$ 2,900,000 Federal National Mortgage Association
0.75% 1/2/04 $ 2,899,940
------------
TOTAL U.S. AGENCY DISCOUNT NOTES
(AMORTIZED COST-$2,899,940) 2,899,940
------------
TOTAL INVESTMENTS-100.3%
(TOTAL COST-$74,464,408) 95,020,543
OTHER ASSETS AND LIABILITIES-(0.3%) (241,807)
------------
NET ASSETS-100.0% $ 94,778,736
============
</Table>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investment securities, at cost $ 74,464,408
--------------
Investment securities, at market 95,020,543
Cash 289,685
Foreign currency (cost $1,021) 1,029
Receivables:
Capital shares sold 141,932
Dividends 101,875
Other assets 74,529
--------------
Total Assets 95,629,593
--------------
LIABILITIES
Payables and other liabilities:
Investment securities purchased 401,335
Capital shares redeemed 185,355
Advisory fees 78,846
Shareholder servicing fees 9,392
Accounting fees 6,151
Distribution fees 18,971
Transfer agency fees 15,352
Custodian fees 4,455
Other 131,000
--------------
Total Liabilities 850,857
--------------
Net Assets $ 94,778,736
==============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 158,449,758
Accumulated net investment loss (14,782)
Accumulated net realized loss from security transactions (84,219,091)
Net unrealized appreciation on investments and
foreign currency translation 20,562,851
--------------
Total $ 94,778,736
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<Page>
<Table>
Net Assets--Class A $ 656,014
Shares Outstanding--Class A 57,666
Net Asset Value, Redemption Price Per Share $ 11.38
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $ 12.07
Net Assets--Class B $ 1,821,058
Shares Outstanding--Class B 165,181
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 11.02
Net Assets--Class C $ 270,969
Shares Outstanding--Class C 25,066
Net Asset Value, Offering and Redemption Price (excluding applicable
contingent deferred sales charge) Per Share $ 10.81
Net Assets--Class F $ 70,565,735
Shares Outstanding--Class F 6,184,127
Net Asset Value, Offering and Redemption Price Per Share $ 11.41
Net Assets--Class R $ 21,403,811
Shares Outstanding--Class R 1,844,663
Net Asset Value, Offering and Redemption Price Per Share $ 11.60
Net Assets--Class T $ 61,149
Shares Outstanding--Class T 5,699
Net Asset Value, Redemption Price Per Share $ 10.73
Maximum offering price per share (net asset value plus sales charge of
4.50% of offering price) $ 11.24
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 1,280,071
Interest 29,612
Foreign taxes withheld (92,028)
--------------
Total Investment Income 1,217,655
--------------
EXPENSES:
Advisory fees--Note 2 814,540
Shareholder servicing fees--Note 2 118,185
Accounting fees--Note 2 62,611
Distribution fees--Note 2 169,431
Transfer agency fees--Note 2 113,426
Registration fees 66,862
Postage and mailing expenses 22,329
Custodian fees and expenses--Note 2 66,896
Printing expenses 54,962
Legal and audit fees 17,658
Directors' fees and expenses--Note 2 18,522
Other expenses 34,367
--------------
Total Expenses 1,559,789
Earnings Credits (1,074)
Waived Expenses (12,364)
Expense Offset to Broker Commissions (4,253)
--------------
Net Expenses 1,542,098
--------------
Net Investment Loss (324,443)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITY
TRANSACTIONS AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on :
Security transactions (67,528)
Foreign currency transactions 6,544
--------------
Net Realized Loss (60,984)
Net Change in Unrealized Appreciation/Depreciation of Investments
and Foreign Currency Translation 26,608,251
--------------
Net Realized and Unrealized Gain 26,547,267
--------------
Net Increase in Net Assets Resulting from Operations $ 26,222,824
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/03 12/31/02
-------------- --------------
OPERATIONS
Net Investment Loss $ (324,443) $ (493,713)
Net Realized Loss (60,984) (21,248,091)
Net Change in Unrealized Appreciation/Depreciation of
Investments and Foreign Currency Translation 26,608,251 (11,501,638)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 26,222,824 (33,243,442)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net Increase (Decrease)--Note 4
Class A (95,963) (185,979)
Class B (128,745) (3,433)
Class C (25,117) (61,045)
Class F (9,169,160) (14,839,943)
Class R 1,759,076 225,695
Class T (2,291) (19,951)
-------------- --------------
Net Decrease from Capital Share Transactions (7,662,200) (14,884,656)
-------------- --------------
Net Increase (Decrease) in Net Assets 18,560,624 (48,128,098)
NET ASSETS
Beginning of year $ 76,218,112 $ 124,346,210
-------------- --------------
End of year (including accumulated net investment
loss of $14,782 and $0, respectively) $ 94,778,736 $ 76,218,112
============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<Page>
FINANCIAL HIGHLIGHTS
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS A SHARES
Net Asset Value, beginning of year $ 8.32 $ 11.71 $ 15.78 $ 25.18
Income from investment operations:
Net investment loss (0.10) (0.15) (0.09) (0.09)
Net realized and unrealized gains
(losses) on securities 3.16 (3.24) (3.98) (5.44)
---------- ---------- ---------- ----------
Total from investment
operations 3.06 (3.39) (4.07) (5.53)
Less dividends and 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 year $ 11.38 $ 8.32 $ 11.71 $ 15.78
========== ========== ========== ==========
Total return* 36.78% (28.95%) (25.79%) (21.82%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 656 $ 543 $ 1,003 $ 800
Net expenses to average net assets#,+ 2.03% 2.06% 2.09% 1.41%
Gross expenses to average net assets#,+ 2.03% 2.06% 2.10% 1.43%
Net investment loss to average
net assets+ (0.55%) (0.77%) (0.96%) (0.35%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
# 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 year ended December 31,
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 (0.56%).
@ 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>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS B SHARES
Net Asset Value, beginning of year $ 8.12 $ 11.52 $ 15.57 $ 25.18
Income from investment operations:
Net investment loss (0.16) (0.14) (0.15) (0.11)
Net realized and unrealized gains
(losses) on securities 3.06 (3.26) (3.90) (5.63)
---------- ---------- ---------- ----------
Total from investment
operations 2.90 (3.40) (4.05) (5.74)
Less dividends and 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 year $ 11.02 $ 8.12 $ 11.52 $ 15.57
========== ========== ========== ==========
Total return* 35.71% (29.51%) (26.01%) (22.67%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 1,821 $ 1,459 $ 2,089 $ 2,329
Net expenses to average net assets#,+ 2.80% 2.70% 2.53% 2.21%
Gross expenses to average net assets#,+ 2.80% 2.71% 2.54% 2.25%
Net investment loss to average
net assets+ (1.30%) (1.41%) (1.43%) (1.40%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
# 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 year ended December 31,
2003. Had these fees not been waived, the net expense ratio would have been
2.82%. The gross expense ratio would have been 2.82%. The net investment loss
ratio would have been (1.32%).
@ 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS C SHARES
Net Asset Value, beginning of year $ 7.96 $ 11.34 $ 15.56 $ 25.18
Income from investment operations:
Net investment loss (0.20) (0.30) (0.30) (0.11)
Net realized and unrealized gains
(losses) on securities 3.05 (3.08) (3.92) (5.64)
---------- ---------- ---------- ----------
Total from investment
operations 2.85 (3.38) (4.22) (5.75)
Less dividends and 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 year $ 10.81 $ 7.96 $ 11.34 $ 15.56
========== ========== ========== ==========
Total return* 35.80% (29.81%) (27.12%) (22.70%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 271 $ 218 $ 380 $ 375
Net expenses to average net assets#,+ 2.82% 3.33% 4.17% 2.21%
Gross expenses to average net assets#,+ 2.82% 3.33% 4.18% 2.25%
Net investment loss to average
net assets,+ (1.34%) (2.05%) (3.07%) (1.31%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31, 2003 and 2002. Had these fees not
been waived or reimbursed, the net expense ratios would have been 2.84%
(2003) and 3.40% (2002). The gross expense ratios would have been 2.84%
(2003) and 3.40 (2002)%. The net investment loss ratios would have been
(1.36%) (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.
23
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
CLASS F SHARES
Net Asset Value, beginning of year $ 8.33 $ 11.72 $ 15.69 $ 25.17 $ 22.06
Income from investment operations:
Net investment loss (0.13) (0.13) (0.14) (0.16) (0.06)
Net realized and unrealized
gains (losses) on securities 3.21 (3.26) (3.83) (5.45) 10.11
---------- ---------- ---------- ---------- ----------
Total from investment
operations 3.08 (3.39) (3.97) (5.61) 10.05
Less dividends and distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized gains 0.00 0.00 0.00 (3.87) (6.94)
---------- ---------- ---------- ---------- ----------
Total distributions 0.00 0.00 0.00 (3.87) (6.94)
Net Asset Value, end of year $ 11.41 $ 8.33 $ 11.72 $ 15.69 $ 25.17
========== ========== ========== ========== ==========
Total return 36.97% (28.92%) (25.30%) (22.14%) 48.78%
Ratios/Supplemental Data
Net assets, end of year (000s) $ 70,566 $ 59,890 $ 101,592 $ 176,405 $ 284,839
Net expenses to average
net assets#,+ 1.97% 1.84% 1.60% 1.52% 1.53%
Gross expenses to average
net assets#,+ 1.97% 1.84% 1.61% 1.54% 1.55%
Net investment loss to average
net assets+ (0.47%) (0.55%) (0.50%) (0.67%) (0.27%)
Portfolio turnover rate@ 138% 211% 145% 210% 157%
</Table>
# 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 year ended December 31,
2003. Had these fees not been waived, the net expense ratio would have been
1.98%. The gross expense ratio would have been 1.98%. The net investment loss
ratio would have been (0.48%).
@ 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 year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS R SHARES
Net Asset Value, beginning of year $ 8.44 $ 11.81 $ 15.75 $ 25.18
Income from investment operations:
Net investment loss (0.00)+ (0.01) (0.02) (0.00)+
Net realized and unrealized gains
(losses) on securities 3.16 (3.36) (3.92) (5.56)
---------- ---------- ---------- ----------
Total from investment
operations 3.16 (3.37) (3.94) (5.56)
Less dividends and 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 year $ 11.60 $ 8.44 $ 11.81 $ 15.75
========== ========== ========== ==========
Total return 37.44% (28.54%) (25.02%) (21.94%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 21,404 $ 14,060 $ 19,193 $ 27,611
Net expenses to average net assets#,+ 1.51% 1.41% 1.24% 1.22%
Gross expenses to average net assets#,+ 1.51% 1.41% 1.25% 1.26%
Net investment loss to average
net assets+ (0.03%) (0.13%) (0.14%) (0.49%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
+ Net investment loss for the years ended December 31, 2003 and 2000 aggregated
less than $0.01 on a per share basis.
# 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 year ended December 31,
2003. Had these fees not been waived, the net expense ratio would have been
1.53%. The gross expense ratio would have been 1.53%. 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.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<Page>
Per Share Income and Capital Changes Selected data for each share of capital
stock outstanding throughout each year.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002 2001 2000
---------- ---------- ---------- ----------
CLASS T SHARES
Net Asset Value, beginning of year $ 7.89 $ 11.46 $ 15.65 $ 25.18
Income from investment operations:
Net investment loss (0.14) (0.59) (0.26) (0.06)
Net realized and unrealized gains
(losses) on securities 2.98 (2.98) (3.93) (5.60)
---------- ---------- ---------- ----------
Total from investment
operations 2.84 (3.57) (4.19) (5.66)
Less dividends and 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 year $ 10.73 $ 7.89 $ 11.46 $ 15.65
========== ========== ========== ==========
Total return* 35.99% (31.15%) (26.77%) (22.34%)
Ratios/Supplemental Data
Net assets, end of year (000s) $ 61 $ 47 $ 90 $ 48
Net expenses to average net assets#,+ 2.54% 4.60% 3.74% 1.72%
Gross expenses to average net assets#,+ 2.54% 4.60% 3.75% 1.76%
Net investment loss to average
net assets+ (1.05%) (2.88%) (2.72%) (0.76%)
Portfolio turnover rate@ 138% 211% 145% 210%
</Table>
* Sales charges are not reflected in the total return.
# 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 years ended December 31, 2003, 2002 and 2001. Had these fees
not been waived or reimbursed, the net expense ratios would have been 2.56%
(2003), 5.48% (2002), and 10.01% (2001). The gross expense ratios would have
been 2.56% (2003), 5.48% (2002), and 10.02% (2001). The net investment loss
ratios would have been (1.07%) (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.
26
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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.
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.
27
<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 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 December 31, 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 arises 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 distributions
28
<Page>
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) 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 an indirect 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
1.00% 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.
29
<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 ("Dreyfus", 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 December 31, 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 year ended December 31, 2003, Class F
shares were charged $71,824 and $40,250, respectively, pursuant to these
shareholder services agreements.
Dreyfus Transfer, Inc. ("DTI"), a wholly-owned subsidiary of Dreyfus, 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 year ended December 31, 2003, Class F shares paid DTI and ITC $28,643 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 $12.84, 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 year ended December
31, 2003 were as follows:
<Table>
<Caption>
TRANSFER
AGENCY FEES
---------------
Class A $ 1,888
Class B $ 5,202
Class C $ 806
Class R $ 6,868
Class T $ 293
</Table>
30
<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 or servicing 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 year ended December 31, 2003, Class F shares were charged $155,738 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 year ended December 31, 2003, were as follows:
<Table>
<Caption>
DISTRIBUTION SHAREHOLDER
FEES SERVICING FEES
------------ --------------
Class A N/A $ 1,461
Class B $ 11,711 $ 3,904
Class C $ 1,854 $ 618
Class T $ 128 $ 128
</Table>
During the year ended December 31, 2003, DSC retained $1,546 in sales
commissions from the sales of Class A shares. DSC also retained $5,371 and $19
of contingent deferred sales charges relating to redemptions of Class B and
Class C shares, respectively.
FUND ACCOUNTING AND ADMINISTRATIVE 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 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.
31
<Page>
<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., a wholly-owned subsidiary of Mellon
Financial Corporation, 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 year ended December 31, 2003, the
Fund's portion of the fee waiver was $12,364. 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.
OTHER--During the year ended December 31, 2003, Founders reimbursed the Fund
for a trading error, the amount of which was not material to the Fund.
32
<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. Permanent differences identified during the year ended December 31,
2003 have been reclassified among the components of net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
INVESTMENT INCOME GAINS AND LOSSES PAID-IN CAPITAL
----------------- -------------------------- ---------------
$ 309,661 $ 54,521 $ (364,182)
</Table>
The tax components of capital represent distribution requirements the Fund
must satisfy under the income tax regulations and losses or tax deductions the
Fund may be able to offset against income and capital gains realized in future
years. Accumulated capital losses and post-October 31 capital losses noted below
as of December 31, 2003, 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, 2011.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investment securities for federal income tax
purposes as of December 31, 2003 are noted below. The primary difference between
book and tax appreciation or depreciation is wash sale loss deferrals.
<Table>
Accumulated Capital Losses $ 83,274,416
Post-October Capital Loss Deferral $ 253,252
Post-October Currency Loss Deferral $ 628
Federal Tax Cost $ 75,155,831
Gross Tax Appreciation of Investments $ 20,451,558
Gross Tax Depreciation of Investments $ (586,846)
Net Tax Appreciation $ 19,864,712
</Table>
33
<Page>
4. CAPITAL 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>
YEAR YEAR
ENDED ENDED
12/31/03 12/31/02
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A
Sold 197,675 $ 1,902,667 431,081 $ 4,390,277
Redeemed (205,316) $ (1,998,630) (451,369) $ (4,576,256)
NET DECREASE (7,641) $ (95,963) (20,288) $ (185,979)
CLASS B
Sold 13,807 $ 133,035 40,977 $ 409,634
Redeemed (28,252) $ (261,780) (42,643) $ (413,067)
NET DECREASE (14,445) $ (128,745) (1,666) $ (3,433)
CLASS C
Sold 50,623 $ 402,228 12,934 $ 110,508
Redeemed (52,994) $ (427,345) (19,036) $ (171,553)
NET DECREASE (2,371) $ (25,117) (6,102) $ (61,045)
CLASS F
Sold 2,467,985 $ 22,841,668 4,440,187 $ 42,616,720
Redeemed (3,470,420) $ (32,010,828) (5,924,226) $ (57,456,663)
NET DECREASE (1,002,435) $ (9,169,160) (1,484,039) $ (14,839,943)
CLASS R
Sold 286,586 $ 2,765,461 427,695 $ 4,393,330
Redeemed (108,124) $ (1,006,385) (386,843) $ (4,167,635)
NET INCREASE 178,462 $ 1,759,076 40,852 $ 225,695
CLASS T
Sold 0 $ 0 142,397 $ 1,559,000
Redeemed (282) $ (2,291) (144,278) $ (1,578,951)
NET DECREASE (282) $ (2,291) (1,881) $ (19,951)
</Table>
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and U.S. government obligations) for the year ended December 31, 2003 were
$108,289,425 and $115,097,788, respectively.
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) $50 million,
34
<Page>
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 $50 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 December 31,
2003, the Fund did not have any borrowings under the LOC.
7. LEGAL MATTERS
PFEIFFER V. THE DREYFUS CORPORATION
On December 9, 2003, a purported shareholder in the Dreyfus Premier NexTech Fund
brought an action against Dreyfus seeking to recover allegedly improper and
excessive Rule 12b-1 and advisory fees charged to the Dreyfus Founders Funds
(other than Dreyfus Founders Money Market Fund) and two Dreyfus Premier Funds.
Plaintiff claims that the funds were closed to new investors but that Dreyfus
nonetheless improperly continued to charge Rule 12b-1 fees for marketing and
distribution services in violation of Section 36(b) of the Investment Company
Act of 1940 and in breach of its common law fiduciary duties. Plaintiff also
seeks to recover a portion of the investment advisory fees charged to the closed
funds while Dreyfus was "in breach of its fiduciary duties" and to enjoin
Dreyfus from collecting additional 12b-1 fees from those funds, as well as an
award of attorneys' fees and litigation expenses.
HAYS V. MELLON FINANCIAL CORP., ET AL.
On January 30, 2004, a purported shareholder in the Dreyfus Disciplined Stock
Fund filed a class action against Mellon Financial Corporation, Mellon Bank,
Dreyfus, Founders, and the directors of the Dreyfus Founders Funds and all or
substantially all of the Dreyfus Funds, on behalf of a purported class and
derivatively on behalf of said funds, alleging violations of Sections 34(b),
36(b), and 48(a) of the Investment Company Act of 1940, Section 215 of the
Investment Advisers Act of 1940, and common law claims. The action seeks to
recover allegedly improper and excessive Rule 12b-1 and advisory fees charged to
various funds for marketing and distribution services. More specifically, the
Plaintiff claims, among other things, that 12b-1 fees and directed brokerage
were improperly used to pay brokers to recommend Dreyfus and Dreyfus Founders
Funds over other funds, and that such payments were not disclosed to investors.
In addition, Plaintiff asserts that economies of scale and soft-dollar benefits
were not passed on to investors. Plaintiff further alleges that 12b-1 fees
charged to certain funds that were closed to new investors were also improper.
The complaint seeks compensatory and punitive damages, rescission of the
advisory contracts, an accounting and restitution of any unlawful fees, as well
as an award of attorneys' fees and litigation expenses.
These actions will be defended vigorously, and management of the Fund believes
they are without merit.
35
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Dreyfus Founders Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dreyfus Founders Worldwide Growth
Fund (one of the portfolios constituting Dreyfus Founders Funds, Inc., hereafter
referred to as the "Fund") at December 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2004
36
<Page>
YOUR BOARD REPRESENTATIVES
(UNAUDITED)
The Board of Directors of the Company oversees all 10 Dreyfus Founders Funds.
The business and affairs of the Company are managed under the direction of the
Board. The directors serving on the Board perform their responsibilities in the
manner which they reasonably believe to be in the best interests of the Funds
and their shareholders.
All of the directors, as listed below along with the year in which they joined
the Board in parentheses, are independent directors. They are not affiliated
with the Fund's adviser, its parent company, or its affiliates. The directors
have no official term of office and generally serve until they reach the
mandated retirement age of 75, resign, or are not re-elected. As you can see
from their backgrounds, the directors have broad experience as active or former
business and community leaders.
DIRECTORS
EUGENE H. VAUGHAN, CFA, 70. Board Chairman. Founding Chairman and, formerly
(1970 to 2000), President and CEO, Vaughan Nelson Investment Management, LP, an
investment counseling firm. Director, Encore Bank. Director, Greater Houston
Partnership, and Chairman, Center for Houston's Future, both of which are
non-profit organizations. Founding Chairman and former Governor, Association for
Investment Management and Research. Past Chairman and Trustee, Institute of
Chartered Financial Analysts. Past Chairman and Director, Financial Analysts
Federation. (1970)
ALAN S. DANSON, 64. Private investor. Formerly, President and Director, D.H.
Management, Inc., the general partner of a limited partnership with technology
company holdings (1996 to 2003). Formerly, Director and Senior Vice President,
OptiMark Technologies, Inc., a computerized securities trading service (1996 to
1999). Director, CaseShare Systems, LLP, a document management company.
Director, Gore Range Natural Science School and The Les Streeter Programs, Inc.,
both of which are non-profit organizations. (1991)
JOAN D. MANLEY, 71. Retired. Formerly, Ms. Manley served in several executive
capacities with Time Incorporated, most recently as Group Vice President,
Director and Chairman of Time-Life Books, Inc. and Book of the Month Club, Inc.
(1960 to 1984). Director, Sara Lee Corporation and Moore Wallace Corporation, a
printing company. (1998)
ROBERT P. MASTROVITA, 59. Private Investor. Chairman of a private charitable
foundation (1997 to present). Formerly, Chairman and Director, Hagler,
Mastrovita & Hewitt, Inc., a registered investment adviser (1982 to 1997).
Member, Boston Society of Security Analysts. Trustee, Partridge Academy. (1998)
37
<Page>
TRYGVE E. MYHREN, 67. President, Myhren Media, Inc., a firm that invests in and
advises media, telecommunications, Internet and software companies. Special
Limited Partner and member of Investment Committee, Meguntucook Funds, a venture
capital firm (1998 to Present). Formerly, President (1990 to 1996) and Director
(1992 to 2001) of the Providence Journal Company, a diversified media and
communications company. Formerly, Chairman and Chief Executive Officer of
American Television and Communications Corporation (now Time Warner cable) (1981
to 1988). Director, Advanced Marketing Services, Inc. Trustee and Chairman of
Finance Committee, the University of Denver. Trustee, U.S. Ski and Snowboard
Team Foundation and the Denver Art Museum. (1996)
GEORGE W. PHILLIPS, 65. Retired. Vice Chairman of the Board, Chairman of the
Finance Committee, and Chairman of the Investment Committee, Children's Medical
Center of Boston. Formerly, President and Chief Executive Officer of Warren
Bancorp, Inc. and Warren Five Cents Savings Bank (1992 to 1997). (1998)
JAY A. PRECOURT, 66. Chairman, CEO, and Director, Scissor Tail Energy, LLC (2000
to present). Managing General Partner, Precourt Interests, Ltd., an energy and
investments company (1995 to present). President, Skylark Enterprises, Inc., a
ranching and real estate business. Formerly, President, CEO, Vice Chairman and
Director, Tejas Energy, LLC and predecessor companies (1987 to 1999). Director,
Halliburton Company, an energy services company. Director, The Timken Company, a
manufacturing company. Director, Apache Corporation, an oil and gas company.
Chairman and Director, Hermes Consolidated, Inc., an energy transportation and
crude oil refining company. (1983)
38
<Page>
PRINCIPAL OFFICERS
RICHARD W. SABO, 46. President of the Funds since 2000 and Principal Executive
Officer of the Funds since 2002. Founders' President and Chief Executive
Officer, Member of Founders' Board of Managers and Director of Dreyfus (1998 to
present). Executive Vice President of DSC since 2003. Formerly, Senior Vice
President and Regional Director for Prudential Securities, Inc. (1991 to 1998).
DAVID L. RAY, 46. Vice President of the Funds since 2000, and from 1990 to 1998.
Founders' Senior Vice President-Administration and Treasurer. Vice President of
DSC since 2003. Employed by Founders and its predecessor company since 1990.
Formerly, Treasurer of the Funds (1990 to 1998).
KENNETH R. CHRISTOFFERSEN, 48. Secretary of the Funds since 2000, and from 1996
to 1998. Founders' Senior Vice President Legal, General Counsel and Secretary.
Assistant Secretary of DSC since 2003. Employed by Founders and its predecessor
company since 1996.
ROBERT T. KELLY, 34. Treasurer, Principal Financial Officer, and Principal
Accounting Officer of the Funds since 2003. Founders' Vice President of
Portfolio Accounting since 2000. Formerly, Assistant Treasurer of the Funds
(2000 to 2003), and Head of Equity Desk for ABN Amro Trust Company (Cayman)
Limited (1998 to 2000).
WILLIAM G. GERMENIS, 33. Anti-Money Laundering Compliance Officer for the Class
A, Class B, Class C, Class R, and Class T shares of the Funds since 2002 and for
the Class F shares of the Funds since 2003. Vice President of MBSC, LLC since
2002. Vice President and Anti-Money Laundering Compliance Officer of DSC and
Anti-Money Laundering Compliance Officer of investment companies managed by
Dreyfus. Employed by DSC since 1998.
The directors and officers may be contacted at Founders' address appearing on
the back cover, except for Mr. Germenis who can be contacted at 200 Park Avenue,
New York, New York 10166.
39
<Page>
For More Information
DREYFUS FOUNDERS
WORLDWIDE GROWTH FUND
200 Park Avenue
New York, NY 10166
MANAGER
Founders Asset Management LLC
210 University Boulevard, Suite 800
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)2004 Dreyfus Service Corporation 351AR1203
ITEM 2. CODE OF ETHICS
(a) As of the end of the period covered by this report, Dreyfus Founders
Funds, Inc. (the "Funds") has adopted a code of ethics that applies to
the Funds' principal executive officer, principal financial officer,
and principal accounting officer.
(c) During the period covered by this report, no amendments have been made
to a provision of the code of ethics that applies to the Funds'
principal executive officer, principal financial officer, or principal
accounting officer, and that relates to any element of the code of
ethics definition enumerated in paragraph (b) of Item 2 of Form N-CSR.
(d) During the period covered by this report, the Funds have not granted a
waiver, including an implicit waiver, from a provision of the code of
ethics to the Funds' principal executive officer, principal financial
officer, or principal accounting officer that relates to one or more
of the items set forth in paragraph (b) of Item 2 of Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
(a)(1) The board of directors of the Funds has determined that the Funds
have an audit committee financial expert serving on its audit
committee.
(a)(2) The name of the audit committee financial expert is George W.
Phillips. Mr. Phillips is an "independent" member of the audit
committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) AUDIT FEES - The aggregate audit fees billed to the Funds by their
principal accountant for the years ending December 31, 2003 and 2002 were
$168,200 and $152,000, respectively.
(b) AUDIT-RELATED FEES - The aggregate audit-related fees billed to the
Funds by their principal accountant for the years ending December 31, 2003
and 2002 were $9,000 and $9,000, respectively. These fees were for
agreed-upon procedures performed relating to trade allocation and certain
other procedures.
The aggregate audit-related services billed by the Funds' principal
accountant to the Funds' investment adviser, Founders Asset Management LLC
("Founders"), and any entity controlling, controlled by, or under common
control with Founders that provides ongoing services to the Funds for the
years ending December 31, 2003 and 2002 were $0 and $24,000, respectively.
These fees were for the review of transfer agency functions.
(c) TAX FEES - The aggregate tax fees billed to the Funds by their
principal accountant for the years ending December 31, 2003 and 2002 were
$63,800 and $47,000, respectively. These fees were for excise tax
calculations and related consultations, review of tax returns, and review
of qualified dividend income and related consultations.
The aggregate tax services billed by the Funds' principal accountant
to Founders and any entity controlling, controlled by, or under common
control with Founders that provides ongoing services to the Funds for the
years ending December 31, 2003 and 2002 were $0 and $0, respectively.
(d) ALL OTHER FEES - The aggregate other fees billed to the Funds by their
principal accountant for the years ending December 31, 2003 and 2002 were
$0 and $0, respectively.
The aggregate other services billed by the Funds' principal accountant
to Founders and any entity controlling, controlled by, or under common
control with Founders that provides ongoing services to the Funds for the
years ending December 31, 2003 and 2002 were $23,000 and $179,500,
respectively. These fees were for AIMR verification services and for
analysis of network vulnerability and penetration.
(e)(1) Approval is required of all audit and significant permitted
non-audit engagements of the Funds' principal accountant, prior to the
commencement of any such engagement, including pre-approval not only of
services provided directly to the Funds but also services provided to
Founders and any entity controlling, controlled by, or under common control
with Founders that provides ongoing services to the Funds where the nature
of the services provided has a direct relationship to the operations or
financial reporting of the Funds; pre-approval may be given up to one year
in advance of the audit or non-audit activity for which pre-approval is
sought.
In any instance in which it may become necessary or desirable for the
audit committee to grant immediate pre-approval of a non-audit service to
be provided either by the Funds' principal accountant or by another audit
firm, such pre-approval may be procured in writing from the chair of the
Funds' audit committee or, in the event of his or her unavailability, from
the chair of the Funds' board of directors. Any such pre-approval shall be
subject to consideration and review by the audit committee at its next
regularly scheduled quarterly meeting.
(e)(2) None of the services described in paragraphs (b) through (d) of this
Item were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) For the years ending December 31, 2003 and 2002, the aggregate
non-audit fees billed by the Funds' principal accountant to the Funds, and
to Founders and any entity controlling, controlled by, or under common
control with Founders that provides ongoing services to the Funds were
$95,800 and $259,500, respectively.
(h) Since the effective date of the requirements of paragraph (c)(7)(ii) of
Rule 2-01 of Regulation S-X, the audit committee has pre-approved all
non-audit services rendered to Founders and any entity controlling,
controlled by, or under common control with Founders that provides ongoing
services to the Funds.
ITEM 5. NOT APPLICABLE
ITEM 6. [RESERVED]
ITEM 7. NOT APPLICABLE
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES
(a) Based on an evaluation of the effectiveness of 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 the 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) Attached hereto as Exhibit EX-99.CODE ETH.
(a)(2) Attached hereto as Exhibit EX-99.CERT.
(b) Attached hereto as Exhibit EX-99.906 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: February 25, 2004
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
Date: February 25, 2004
By: /s/ Robert T. Kelly
--------------------------------------------
Robert T. Kelly, Principal Financial Officer
Date: February 25, 2004